x
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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¨
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Indiana
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35-1140070
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania
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19087
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Name of each exchange on which registered
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Common Stock
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New York
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$3.00 Cumulative Convertible Preferred Stock, Series A
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New York
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Warrants, each to purchase one share of common stock
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New York
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Item
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Page | |||
PART I
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||||
1.
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Business
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1 | ||
Overview
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1 | |||
Business Segments and Other Operations
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2 | |||
Annuities
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2 | |||
Retirement Plan Services
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5 | |||
Life Insurance
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6 | |||
Group Protection
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8 | |||
Other Operations
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10 | |||
Reinsurance
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10 | |||
Reserves
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10 | |||
Investments
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11 | |||
Financial Strength Ratings
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11 | |||
Regulatory
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12 | |||
Employees
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17 | |||
Available Information
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17 | |||
1A.
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Risk Factors
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17 | ||
1B.
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Unresolved Staff Comments
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32 | ||
2.
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Properties
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32 | ||
3.
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Legal Proceedings
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32 | ||
4.
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Mine Safety Disclosures
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32 | ||
Executive Officers of the Registrant
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33 | |||
PART II
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||||
5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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34 | ||
6.
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Selected Financial Data
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35 | ||
7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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36 | ||
Forward-Looking Statements – Cautionary Language
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36 | |||
Introduction
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37 | |||
Executive Summary
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37 | |||
Critical Accounting Policies and Estimates
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40 | |||
Acquisitions and Dispositions
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53 | |||
Results of Consolidated Operations
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54 | |||
Results of Annuities
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56 | |||
Results of Retirement Plan Services
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62 | |||
Results of Life Insurance
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67 | |||
Results of Group Protection
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73 | |||
Results of Other Operations
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77 | |||
Business Segments
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Annuities
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Retirement Plan Services
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Life Insurance
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Group Protection
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·
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A.M. Best – A++ to S
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·
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Fitch – AAA to C
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·
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Moody’s – Aaa to C
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·
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S&P – AAA to D
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A.M. Best
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Fitch
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|
Moody's
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S&P
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Insurer Financial Strength Ratings
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LNL
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A+
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A+
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A2
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AA-
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(2nd of 16)
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(5th of 19)
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(6th of 21)
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(4th of 22)
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Lincoln Life & Annuity Co. of New York ("LLANY")
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A+
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A+
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A2
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AA-
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(2nd of 16)
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(5th of 19)
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(6th of 21)
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(4th of 22)
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First Penn-Pacific Life Insurance Co. ("FPP")
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A
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A+
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A2
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A-
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(3rd of 16)
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(5th of 19)
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(6th of 21)
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(7th of 22)
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Category
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Name
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Description
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Asset risk - affiliates
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C-0
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Risk of assets' default for certain affiliated investments | |
Asset risk - others
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C-1
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Risk of assets' default of principal and interest or fluctuation in fair value | |
Insurance risk
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C-2
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Risk of underestimating liabilities from business already written or inadequately pricing business to be written in the future | |
Interest rate risk, health credit risk and market risk
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C-3
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Risk of losses due to changes in interest rate levels, risk that health benefits prepaid to providers become the obligation of the health insurer once again and risk of loss due | |
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|
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to changes in market levels associated with variable products with guarantees
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Business risk
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C-4
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Risk of general business |
·
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“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;
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·
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“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;
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·
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“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
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·
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“Mandatory control level” – If the RBC ratio is less than 35%, then the regulator must rehabilitate or liquidate the insurer.
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·
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Standards of minimum capital requirements and solvency, including RBC measurements;
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·
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Restrictions of certain transactions between our insurance subsidiaries and their affiliates;
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·
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Restrictions on the nature, quality and concentration of investments;
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·
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Restrictions on the types of terms and conditions that we can include in the insurance policies offered by our primary insurance operations;
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·
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Limitations on the amount of dividends that insurance subsidiaries can pay;
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·
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The licensing status of the company;
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·
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Certain required methods of accounting pursuant to statutory accounting principles (“SAP”);
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·
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Reserves for unearned premiums, losses and other purposes; and
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·
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Assignment of residual market business and potential assessments for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies.
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·
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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;
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·
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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;
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·
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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;
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·
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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;
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·
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Policy loans are carried at unpaid principal balances;
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·
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Real estate joint ventures and other limited partnership interests are carried using the equity method of accounting; and
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·
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Other invested assets consist principally of derivatives with positive fair values. Derivatives are carried at fair value with changes in fair value reflected in income from non-qualifying derivatives and derivatives in fair value hedging relationships. Derivatives in cash flow hedging relationships are reflected as a separate component of other comprehensive income or loss.
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Name
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Age
(1)
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Position with LNC and Business Experience During the Past Five Years
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||
Dennis R. Glass
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63
|
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).
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||
Lisa M. Buckingham
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47
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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).
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||
Adam G. Ciongoli
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44
|
Executive Vice President and General Counsel (since May 2012). General Counsel, Willis Group Holdings Plc, a global insurance broker (August 2007 - May 2012).
|
||
Ellen Cooper
|
48
|
Executive Vice President and Chief Investment Officer (since August 2012). Managing Director, Goldman Sachs Asset Management, an asset management firm (July 2008 - August 2012). Chief Risk Officer, Aegon USA, a provider of life insurance, pensions and asset management (May 2006 - June 2008). Principal, Ernst & Young LLP (May 2005 - April 2006). Senior Manager, Ernst & Young LLP (June 2000 - May 2005).
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||
Charles C. Cornelio
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53
|
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
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63
|
Vice Chairman, Lincoln Financial Network
(2)
(since October 2012). President, Lincoln Financial Network, and CEO, Lincoln Financial Advisors
(2)
(2002 – October 2012). Senior Vice President, Managed Asset Group, Merrill Lynch & Co., a diversified financial services company (2001 - 2002).
|
||
Randal J. Freitag
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50
|
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
|
42
|
President, Lincoln Financial Group Distribution
(2)
(since October 2012). 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
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53
|
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).
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(1)
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Age shown is based on the officer’s age as of February 19, 2013.
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(2)
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Denotes an affiliate of LNC.
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PART II
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|
1st Qtr
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2nd Qtr
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3rd Qtr
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4th Qtr
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||||||||
2012
|
|
|
|
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||||||||
High
|
$ | 27.54 | $ | 26.83 | $ | 26.10 | $ | 26.53 | ||||
Low
|
19.38 | 19.04 | 19.17 | 22.51 | ||||||||
Dividend declared
|
0.080 | 0.080 | 0.080 | 0.120 | ||||||||
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||||||||||||
2011
|
||||||||||||
High
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$ | 32.68 | $ | 32.39 | $ | 29.67 | $ | 21.88 | ||||
Low
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28.00 | 25.97 | 15.00 | 13.75 | ||||||||
Dividend declared
|
0.050 | 0.050 | 0.050 | 0.080 |
(1)
|
Of the total number of shares purchased, no shares were received in connection with the exercise of stock options and related taxes and 82,917 shares were withheld for taxes on the vesting of restricted stock. For the quarter ended December 31, 2012, there were 3,818,524 shares purchased as part of publicly announced plans or programs.
|
(2)
|
On August 8, 2012, our Board authorized an increase in our securities repurchase authorization, bringing the total aggregate repurchase authorization to $1.0 billion. As of December 31, 2012, our remaining security repurchase authorization was $808 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” are not part of our publicly announced repurchase program.
|
(3)
|
As of the last day of the applicable month.
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For the Years Ended December 31,
|
|||||||||||||||
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|||||||
Total revenues
|
$
|
11,532
|
|
$
|
10,641
|
|
$
|
10,415
|
|
$
|
8,473
|
|
$
|
9,251
|
|
Income (loss) from continuing operations
|
|
1,286
|
|
|
229
|
|
|
873
|
|
|
(532
|
)
|
|
(30
|
) |
Net income (loss)
|
|
1,313
|
|
|
221
|
|
|
902
|
|
|
(605
|
)
|
|
36
|
|
Per share data:
(1)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations - basic |
|
4.58
|
|
|
0.75
|
|
|
2.28
|
|
|
(2.02
|
)
|
|
(0.12
|
) |
Income (loss) from continuing operations - diluted |
|
4.47
|
|
|
0.72
|
|
|
2.21
|
|
|
(1.98
|
)
|
|
(0.12
|
) |
Net income (loss) - basic
|
|
4.68
|
|
|
0.72
|
|
|
2.37
|
|
|
(2.28
|
)
|
|
0.14
|
|
Net income (loss) - diluted
|
|
4.56
|
|
|
0.69
|
|
|
2.30
|
|
|
(2.24
|
)
|
|
0.14
|
|
Common stock dividends
|
|
0.360
|
|
|
0.230
|
|
|
0.080
|
|
|
0.040
|
|
|
1.455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
As of December 31,
|
|||||||||||||||
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|||||||
Assets
|
$
|
218,869
|
|
$
|
201,491
|
|
$
|
192,308
|
|
$
|
175,856
|
|
$
|
161,376
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
5,173
|
|
|
5,088
|
|
|
5,363
|
|
|
5,019
|
|
|
4,555
|
|
Unamortized premiums (discounts) and fair value hedge on interest rate swap agreements |
|
266
|
|
|
303
|
|
|
36
|
|
|
31
|
|
|
176
|
|
Stockholders' equity
|
|
14,973
|
|
|
13,101
|
|
|
11,687
|
|
|
10,555
|
|
|
6,760
|
|
Per common share data:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity, including
accumulated other comprehensive
income (loss)
(3)
|
|
55.14
|
|
|
44.94
|
|
|
37.00
|
|
|
34.90
|
|
|
26.40
|
|
Stockholders' equity, excluding
accumulated other comprehensive
income (loss)
(3)
|
|
41.11
|
|
|
35.75
|
|
|
34.30
|
|
|
33.10
|
|
|
38.08
|
|
Market value of common stock
|
|
25.90
|
|
|
19.42
|
|
|
27.81
|
|
|
24.88
|
|
|
18.84
|
(1)
|
Per share amounts were affected by the retirement of 20.5 million, 24.7 million, 1.1 million, less than 1 million and 9.3 million shares of common stock during the years ended December 31, 2012, 2011, 2010, 2009 and 2008, respectively.
|
(2)
|
To arrive at the income used in the calculation of our basic and diluted earnings per share, we deduct preferred stock dividends and accretion of discount, which amounted to $167 million and $35 million for the years ending December 31, 2010 and 2009, respectively. In addition, to arrive at diluted earnings per share, if the effect of equity classification would result in a more dilutive earnings per share, we adjust the numerator used in the calculation of our diluted earnings per share to remove the mark-to-market adjustment for deferred units of LNC stock in our deferred compensation plans, which amounted to $5 million and $2 million for the years ending December 31, 2011 and 2010, respectively.
|
(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 the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;
|
·
|
Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations;
|
·
|
Legislative, regulatory or tax changes, both domestic and foreign, that affect the cost of, or demand for, our subsidiaries’ products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserve requirements related to secondary guarantee universal life and annuities; regulations regarding captive reinsurance arrangements; restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. federal tax reform;
|
·
|
Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products;
|
·
|
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
|
·
|
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 convergence with International Financial Reporting Standards (“IFRS”), 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;
|
·
|
Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
|
·
|
Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems;
|
·
|
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.
|
·
|
Weak global growth;
|
·
|
Unconventional accommodative monetary policy;
|
·
|
Continued weak European growth;
|
·
|
Continued slow growth in the U.S. economy:
|
§
|
“Fiscal cliff” resolution still elevates uncertainty;
|
§
|
Impact of competitive foreign currency devaluation;
|
§
|
Elevated unemployment and jobless claims; and
|
§
|
Continued slow thawing of the U.S. housing market.
|
·
|
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; 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.
|
·
|
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 our focus toward life insurance products, such as VUL, indexed UL and term insurance, that are not primarily focused on secondary guarantees; and
|
·
|
Managing our expenses aggressively through process improvement initiatives combined with continued financial discipline and execution excellence throughout our operations.
|
·
|
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.
|
|
|
Retirement
|
|
|
|
||||||||||
|
|
Plan
|
Life
|
Group
|
|
||||||||||
|
Annuities
|
Services
|
Insurance
|
Protection
|
Total
|
||||||||||
DAC and VOBA
|
|
|
|
|
|
||||||||||
Gross
|
$ | 2,730 | $ | 275 | $ | 6,136 | $ | 192 | $ | 9,333 | |||||
Unrealized (gain) loss
|
(638 | ) | (173 | ) | (1,855 | ) | - | (2,666 | ) | ||||||
Carrying value
|
$ | 2,092 | $ | 102 | $ | 4,281 | $ | 192 | $ | 6,667 | |||||
|
|||||||||||||||
DSI
|
|||||||||||||||
Gross
|
$ | 320 | $ | 5 | $ | - | $ | - | $ | 325 | |||||
Unrealized (gain) loss
|
(71 | ) | (1 | ) | - | - | (72 | ) | |||||||
Carrying value
|
$ | 249 | $ | 4 | $ | - | $ | - | $ | 253 | |||||
|
|||||||||||||||
DFEL
|
|||||||||||||||
Gross
|
$ | 261 | $ | - | $ | 1,863 | $ | - | $ | 2,124 | |||||
Unrealized (gain) loss
|
(3 | ) | - | (748 | ) | - | (751 | ) | |||||||
Carrying value
|
$ | 258 | $ | - | $ | 1,115 | $ | - | $ | 1,373 |
|
|
|
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.
|
|
|||||||||
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Income (loss) from operations:
|
|
|
|
||||||
Annuities
|
$ | (5 | ) | $ | (18 | ) | $ | 17 | |
Retirement Plan Services
|
(3 | ) | (2 | ) | 3 | ||||
Life Insurance
|
47 | 70 | (91 | ) | |||||
Excluded realized gain (loss)
(1)
|
76 | (78 | ) | 22 | |||||
Income (loss) from continuing operations
|
$ | 115 | $ | (28 | ) | $ | (49 | ) |
(1)
|
Excludes unlocking related to the NPR component of our GLB embedded derivative reserves (see “Realized Gain (Loss) and Benefit Ratio Unlocking – Variable Annuity Net Derivative Results” below for more information).
|
·
|
For Annuities and Retirement Plan Services, we modified our policyholder behavior assumptions and lowered our new money investment yield assumption as discussed above;
|
·
|
For Life Insurance, we modified our life mortality assumption, partially offset by lowering our new money investment yield assumption as discussed above; and
|
·
|
For excluded realized gain (loss), we modified our policyholder behavior assumptions for GLB riders.
|
·
|
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 lowered our assumptions for long-term volatility, partially offset by lowering our lapse assumptions.
|
·
|
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 changing assumptions, methods of calculations and processes due to the conversion of our actuarial valuation systems to a uniform platform for certain blocks of business;
|
·
|
For Retirement Plan Services, we changed assumptions, methods of calculations and processes due to the conversion of our actuarial valuation systems to a uniform platform for certain blocks of business;
|
·
|
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.
|
·
|
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% to 11% for our Life Insurance and our Group Protection reporting units 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.
|
Quoted Prices in
|
|
|
|
|
|
|
||||||
Active Markets for
|
Significant
|
Significant
|
|
|
||||||||
Identical Assets
|
Observable Inputs
|
Unobservable Inputs
|
Total
|
|||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Fair Value
|
|||||||||
Priced by third party pricing services
|
$
|
662
|
$
|
71,941
|
$
|
-
|
$
|
72,603
|
||||
Priced by independent broker quotations |
|
-
|
|
-
|
|
3,041
|
|
3,041
|
||||
Priced by matrices
|
|
-
|
|
11,448
|
|
-
|
|
11,448
|
||||
Priced by other methods
(1)
|
|
-
|
|
-
|
|
1,015
|
|
1,015
|
||||
Total
|
$
|
662
|
$
|
83,389
|
$
|
4,056
|
$
|
88,107
|
||||
|
|
|
|
|
|
|
|
|||||
Percent of total
|
|
1
|
% |
|
94
|
% |
|
5
|
% |
|
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 NPR 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
|
$
|
(59
|
)
|
$
|
(15
|
)
|
$
|
(3
|
)
|
$
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rates
|
-50 bps
|
|
-25 bps
|
|
+25 bps
|
|
+50 bps
|
|
||||
Hypothetical effect to net income
|
$
|
(12
|
)
|
$
|
(4
|
)
|
$
|
(1
|
)
|
$
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implied Volatilities
|
-4%
|
|
-2%
|
|
2%
|
|
4%
|
|
||||
Hypothetical effect to net income
|
$
|
(11
|
)
|
$
|
(5
|
)
|
$
|
5
|
|
$
|
9
|
|
|
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
|
%
|
$
|
6
|
|
Scenario 2
|
|
-10
|
%
|
|
-25.0 bps
|
|
|
+2
|
%
|
|
(6
|
)
|
Scenario 3
|
|
-20
|
%
|
|
-50.0 bps
|
|
|
+4
|
%
|
|
(73
|
)
|
·
|
The analysis is only valid as of January 8, 2013, 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Net Income (Loss)
|
|
|
|
|
|
||||||||||
Income (loss) from operations:
|
|
|
|
|
|
||||||||||
Annuities
|
$ | 595 | $ | 573 | $ | 471 | 4 | % | 22 | % | |||||
Retirement Plan Services
|
130 | 163 | 151 | -20 | % | 8 | % | ||||||||
Life Insurance
|
574 | 559 | 453 | 3 | % | 23 | % | ||||||||
Group Protection
|
72 | 97 | 68 | -26 | % | 43 | % | ||||||||
Other Operations
|
(87 | ) | (146 | ) | (188 | ) | 40 | % | 22 | % | |||||
Excluded realized gain (loss), after-tax
|
(25 | ) | (252 | ) | (93 | ) | 90 | % |
NM
|
||||||
Gain (loss) on early extinguishment of debt, after-tax | (3 | ) | (5 | ) | (3 | ) | 40 | % | -67 | % | |||||
Income (expense) from reserve changes
(net of related amortization) on business
sold through reinsurance, after-tax
|
3 | 2 | 3 | 50 | % | -33 | % | ||||||||
Impairment of intangibles, after-tax
|
2 | (747 | ) | - | 100 | % |
NM
|
||||||||
Benefit ratio unlocking, after-tax
|
25 | (15 | ) | 11 | 267 | % |
NM
|
||||||||
Income (loss) from continuing operations, after-tax | 1,286 | 229 | 873 |
NM
|
-74 | % | |||||||||
Income (loss) from discontinued operations, after-tax | 27 | (8 | ) | 29 |
NM
|
NM
|
|||||||||
Net income (loss) | $ | 1,313 | $ | 221 | $ | 902 |
NM
|
-75 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Deposits
|
|
|
|
|
|
||||||||||
Annuities
|
$ | 11,564 | $ | 10,650 | $ | 10,667 | 9 | % | 0 | % | |||||
Retirement Plan Services
|
6,381 | 5,566 | 5,301 | 15 | % | 5 | % | ||||||||
Life Insurance
|
4,949 | 5,393 | 4,934 | -8 | % | 9 | % | ||||||||
Total deposits
|
$ | 22,894 | $ | 21,609 | $ | 20,902 | 6 | % | 3 | % | |||||
|
|||||||||||||||
Net Flows
|
|||||||||||||||
Annuities
|
$ | 2,451 | $ | 2,191 | $ | 3,555 | 12 | % | -38 | % | |||||
Retirement Plan Services
|
987 | 504 | (291 | ) | 96 | % | 273 | % | |||||||
Life Insurance
|
3,289 | 3,662 | 3,057 | -10 | % | 20 | % | ||||||||
Total net flows
|
$ | 6,727 | $ | 6,357 | $ | 6,321 | 6 | % | 1 | % |
|
As of December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Account Values
|
|
|
|
|
|
||||||||||
Annuities
|
$ | 96,514 | $ | 85,534 | $ | 84,848 | 13 | % | 1 | % | |||||
Retirement Plan Services
|
43,931 | 39,133 | 38,824 | 12 | % | 1 | % | ||||||||
Life Insurance
|
37,325 | 35,278 | 33,585 | 6 | % | 5 | % | ||||||||
Total account values
|
$ | 177,770 | $ | 159,945 | $ | 157,257 | 11 | % | 2 | % |
·
|
Goodwill impairment in our Life Insurance segment and media business during 2011 (see “Critical Accounting Policies and Estimates – Goodwill and Other Intangible Assets” for more information);
|
·
|
The effect of favorable unlocking;
|
·
|
Realized gains on the mark-to-market on certain instruments during 2012 as compared to realized losses during 2011 attributable to spreads narrowing on corporate credit default swaps;
|
·
|
Favorable tax adjustments during 2012 due primarily to the release of reserves associated with prior tax years that were closed in the third quarter; and
|
·
|
Growth in account values, insurance in force and group earned premiums.
|
·
|
Higher gross realized gains during 2011 originating from asset sales to reposition the investment portfolio;
|
·
|
Spread compression due to new money rates averaging below our current portfolio yields, partially offset by actions implemented to reduce interest crediting rates; and
|
·
|
Strategic investments in technology platforms and distribution expansion efforts, partially offset by aggressively managing expenses.
|
·
|
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.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||
Insurance premiums
(1)
|
$ | 98 | $ | 74 | $ | 53 | 32 | % | 40 | % | |||||
Insurance fees
|
1,331 | 1,247 | 1,098 | 7 | % | 14 | % | ||||||||
Net investment income
|
1,082 | 1,106 | 1,119 | -2 | % | -1 | % | ||||||||
Operating realized gain (loss)
|
113 | 94 | 74 | 20 | % | 27 | % | ||||||||
Other revenues and fees
(2)
|
351 | 350 | 315 | 0 | % | 11 | % | ||||||||
Total operating revenues
|
2,975 | 2,871 | 2,659 | 4 | % | 8 | % | ||||||||
Operating Expenses
|
|||||||||||||||
Interest credited
|
633 | 698 | 726 | -9 | % | -4 | % | ||||||||
Benefits
|
281 | 212 | 174 | 33 | % | 22 | % | ||||||||
Commissions and other expenses
|
1,345 | 1,284 | 1,191 | 5 | % | 8 | % | ||||||||
Total operating expenses
|
2,259 | 2,194 | 2,091 | 3 | % | 5 | % | ||||||||
Income (loss) from operations before taxes
|
716 | 677 | 568 | 6 | % | 19 | % | ||||||||
Federal income tax expense (benefit)
|
121 | 104 | 97 | 16 | % | 7 | % | ||||||||
Income (loss) from operations
|
$ | 595 | $ | 573 | $ | 471 | 4 | % | 22 | % |
(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 driven by higher average daily variable account values (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our account values); and
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
The effect of unlocking;
|
§
|
Higher average fixed account values (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information);
|
§
|
Spread compression due to new money rates averaging below our current portfolio yields, and lower prepayment and bond make-whole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for more information).
|
·
|
Higher commissions and other expenses due to:
|
§
|
Higher account values driving higher trail commissions and strategic investments in technology platforms and distribution expansion efforts;
|
§
|
The effect of unlocking; and
|
·
|
Higher benefits attributable to the following:
|
§
|
The effect of unlocking; and
|
§
|
An increase in the growth in benefit reserves from higher than expected GLB payments.
|
·
|
Higher insurance fees driven by higher average daily variable account values (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our 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;
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
Higher average fixed account values (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
An increase in surplus investments;
|
§
|
New money rates averaging below our portfolio yields; and
|
·
|
Higher insurance premiums due to growth in our SPIA business.
|
·
|
Higher commissions and other expenses due to:
|
§
|
Higher account values driving higher trail commissions;
|
§
|
Strategic investments in technology platforms and distribution expansion efforts; and
|
§
|
The effect of unlocking;
|
§
|
Higher EGPs on rider fees related to our products with living benefit guarantees resulting in a lower amortization rate; and
|
·
|
Higher benefits attributable to:
|
§
|
The effect of unlocking; and
|
§
|
Growth in our SPIA business;
|
§
|
More favorable average equity markets that reduced our expected GDB benefit payments; and
|
§
|
Favorable mortality experience on SPIA.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Insurance Fees
|
|
|
|
|
|
||||||||||
Mortality, expense and other assessments
|
$ | 1,329 | $ | 1,258 | $ | 1,113 | 6 | % | 13 | % | |||||
Surrender charges
|
15 | 34 | 37 | -56 | % | -8 | % | ||||||||
DFEL:
|
|||||||||||||||
Deferrals
|
(24 | ) | (61 | ) | (75 | ) | 61 | % | 19 | % | |||||
Amortization, net of interest:
|
|||||||||||||||
Unlocking
|
(6 | ) | 6 | 1 |
NM
|
NM
|
|||||||||
Amortization, net of interest, excluding unlocking
|
17 | 10 | 22 | 70 | % | -55 | % | ||||||||
Total insurance fees
|
$ | 1,331 | $ | 1,247 | $ | 1,098 | 7 | % | 14 | % |
As of or For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Account Value Information
|
|
|
|
|
|
||||||||||
Variable annuity deposits
(1)
|
$ | 6,787 | $ | 5,871 | $ | 5,099 | 16 | % | 15 | % | |||||
Increases (decreases) in variable annuity account values:
|
|||||||||||||||
Net flows
(1)
|
90 | (396 | ) | 7 | 123 | % |
NM
|
||||||||
Change in market value
(1)
|
7,648 | (2,296 | ) | 6,087 |
NM
|
NM
|
|||||||||
Transfers to the variable portion of variable annuity
products from the fixed portion of variable annuity
products
|
2,752 | 2,844 | 3,396 | -3 | % | -16 | % | ||||||||
Variable annuity account values
(1)
|
75,501 | 65,010 | 64,858 | 16 | % | 0 | % | ||||||||
Average daily variable annuity account values
(1)
|
70,901 | 66,007 | 58,188 | 7 | % | 13 | % | ||||||||
Average daily S&P 500
|
1,378.90 | 1,268.03 | 1,138.78 | 9 | % | 11 | % |
(1)
|
Excludes the fixed portion of variable.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Net Investment Income
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 940 | $ | 975 | $ | 1,002 | -4 | % | -3 | % | |||||
Commercial mortgage loan prepayment and bond make-whole premiums (1) | 12 | 27 | 23 | -56 | % | 17 | % | ||||||||
Alternative investments
(2)
|
- | 1 | 1 | -100 | % | 0 | % | ||||||||
Surplus investments
(3)
|
130 | 103 | 93 | 26 | % | 11 | % | ||||||||
Total net investment income
|
$ | 1,082 | $ | 1,106 | $ | 1,119 | -2 | % | -1 | % | |||||
Interest Credited
|
|||||||||||||||
Amount provided to contract holders
|
$ | 640 | $ | 697 | $ | 738 | -8 | % | -6 | % | |||||
DSI deferrals
|
(37 | ) | (39 | ) | (65 | ) | 5 | % | 40 | % | |||||
Interest credited before DSI amortization
|
603 | 658 | 673 | -8 | % | - 2 | % | ||||||||
DSI amortization:
|
|||||||||||||||
Unlocking
|
(14 | ) | 2 | 3 |
NM
|
-33 | % | ||||||||
Amortization, excluding unlocking
|
44 | 38 | 50 | 16 | % | -24 | % | ||||||||
Total interest credited
|
$ | 633 | $ | 698 | $ | 726 | -9 | % | -4 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Interest Rate Spread
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 4.83 | % | 5.13 | % | 5.50 | % | (30 | ) | (37 | ) | |||||
Commercial mortgage loan prepayment and bond make-whole premiums | 0.06 | % | 0.14 | % | 0.13 | % | (8 | ) | 1 | ||||||
Alternative investments
|
0.00 | % | 0.00 | % | 0.01 | % | - | (1 | ) | ||||||
Net investment income yield on reserves
|
4.89 | % | 5.27 | % | 5.64 | % | (38 | ) | (37 | ) | |||||
Interest rate credited to contract holders
|
2.98 | % | 3.33 | % | 3.52 | % | (35 | ) | (19 | ) | |||||
Interest rate spread
|
1.91 | % | 1.94 | % | 2.12 | % | (3 | ) | (18 | ) |
As of or For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Other Information
|
|
|
|
|
|
||||||||||
Fixed annuity deposits
(1)
|
$ | 4,777 | $ | 4,779 | $ | 5,568 | 0 | % | -14 | % | |||||
Increases (decreases) in fixed annuity account values:
|
|||||||||||||||
Net flows
(1)
|
2,361 | 2,587 | 3,548 | -9 | % | -27 | % | ||||||||
Transfers from the fixed portion of variable annuity
products to the variable portion of variable annuity
products
|
(2,752 | ) | (2,844 | ) | (3,396 | ) | 3 | % | 16 | % | |||||
Reinvested interest credited
(1)
|
770 | 691 | 798 | 11 | % | -13 | % | ||||||||
Fixed annuity account values
(1)
|
21,013 | 20,524 | 19,990 | 2 | % | 3 | % | ||||||||
Average fixed account values
(1)
|
20,737 | 20,235 | 19,508 | 2 | % | 4 | % | ||||||||
Average invested assets on reserves
|
19,520 | 19,071 | 18,248 | 2 | % | 5 | % |
(1)
|
Includes the fixed portion of variable.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Benefits
|
|
|
|
|
|
||||||||||
Unlocking
|
$ | 73 | $ | 43 | $ | (3 | ) | 70 | % |
NM
|
|||||
Net death and other benefits, excluding unlocking
|
208 | 169 | 177 | 23 | % | -5 | % | ||||||||
Total benefits
|
$ | 281 | $ | 212 | $ | 174 | 33 | % | 22 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
|
|
|
|
|
|||||||||||
Commissions and Other Expenses
|
|
|
|
|
|
||||||||||
Commissions:
|
|
|
|
|
|
||||||||||
Deferrable
|
$ | 528 | $ | 462 | $ | 472 | 14 | % | -2 | % | |||||
Non-deferrable
|
305 | 263 | 225 | 16 | % | 17 | % | ||||||||
General and administrative expenses
|
407 | 362 | 337 | 12 | % | 7 | % | ||||||||
Inter-segment reimbursement associated with reserve financing and LOC expenses (1) | - | (1 | ) | (1 | ) | 100 | % | 0 | % | ||||||
Taxes, licenses and fees
|
29 | 21 | 20 | 38 | % | 5 | % | ||||||||
Total expenses incurred, excluding broker-dealer
|
1,269 | 1,107 | 1,053 | 15 | % | 5 | % | ||||||||
DAC deferrals
|
(593 | ) | (527 | ) | (542 | ) | -13 | % | 3 | % | |||||
Total pre-broker-dealer expenses incurred, excluding amortization, net of interest | 676 | 580 | 511 | 17 | % | 14 | % | ||||||||
DAC and VOBA amortization, net of interest:
|
|||||||||||||||
Unlocking
|
(57 | ) | (11 | ) | (26 | ) |
NM
|
58 | % | ||||||
Amortization, net of interest, excluding unlocking
|
378 | 362 | 386 | 4 | % | -6 | % | ||||||||
Broker-dealer expenses incurred
|
348 | 353 | 320 | -1 | % | 10 | % | ||||||||
Total commissions and other expenses
|
$ | 1,345 | $ | 1,284 | $ | 1,191 | 5 | % | 8 | % | |||||
DAC Deferrals
|
|||||||||||||||
As a percentage of sales/deposits
|
5.1 | % | 4.9 | % | 5.1 | % |
(1)
|
Represents reimbursements to Annuities from the Life Insurance segment for reserve financing, net of expenses incurred by Annuities for its use of letters of credit (“LOCs”). The inter-segment amounts are not reported on our Consolidated Statements of Comprehensive Income (Loss).
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||
Insurance fees
|
$ | 212 | $ | 210 | $ | 201 | 1 | % | 4 | % | |||||
Net investment income
|
799 | 792 | 769 | 1 | % | 3 | % | ||||||||
Other revenues and fees
(1)
|
13 | 15 | 18 | -13 | % | -17 | % | ||||||||
Total operating revenues
|
1,024 | 1,017 | 988 | 1 | % | 3 | % | ||||||||
Operating Expenses
|
|||||||||||||||
Interest credited
|
451 | 437 | 440 | 3 | % | -1 | % | ||||||||
Benefits
|
- | 2 | 2 | -100 | % | 0 | % | ||||||||
Commissions and other expenses
|
405 | 352 | 337 | 15 | % | 4 | % | ||||||||
Total operating expenses
|
856 | 791 | 779 | 8 | % | 2 | % | ||||||||
Income (loss) from operations before taxes
|
168 | 226 | 209 | -26 | % | 8 | % | ||||||||
Federal income tax expense (benefit)
|
38 | 63 | 58 | -40 | % | 9 | % | ||||||||
Income (loss) from operations
|
$ | 130 | $ | 163 | $ | 151 | -20 | % | 8 | % |
(1)
|
Consists primarily of mutual fund account program fees for mid to large employers.
|
·
|
Higher commissions and other expenses driven by strategic investments in technology platforms and distribution expansion efforts; and
|
·
|
Lower net investment income, net of interest credited, driven by:
|
§
|
Lower prepayment and bond make-whole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for more information); and
|
§
|
Spread compression due to new money rates averaging below our current portfolio yields, partially offset by actions implemented to reduce interest crediting rates;
|
§
|
Higher average fixed account values (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information).
|
·
|
Higher net investment income and relatively flat interest credited driven by:
|
§
|
Higher average fixed account values (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values);
|
§
|
Higher prepayment and bond make-whole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for more information); and
|
§
|
Actions implemented to reduce interest crediting rates;
|
§
|
New money rates averaging below our portfolio yields; and
|
·
|
Higher insurance fees driven by higher average daily variable account values (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our account values), partially offset by an overall shift in business mix toward products with lower expense assessment rates.
|
·
|
Strategic investments in technology platforms and distribution expansion efforts; 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 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information).
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Insurance Fees
|
|
|
|
|
|
||||||||||
Annuity expense assessments
|
$ | 177 | $ | 178 | $ | 172 | -1 | % | 3 | % | |||||
Mutual fund fees
|
33 | 30 | 26 | 10 | % | 15 | % | ||||||||
Total expense assessments
|
210 | 208 | 198 | 1 | % | 5 | % | ||||||||
Surrender charges
|
2 | 2 | 3 | 0 | % | -33 | % | ||||||||
Total insurance fees
|
$ | 212 | $ | 210 | $ | 201 | 1 | % | 4 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Account Value Roll Forward – By Product
|
|
|
|
|
|
||||||||||
Total Micro – Small Segment:
|
|
|
|
|
|
||||||||||
Balance as of beginning-of-year
|
$ | 6,167 | $ | 6,396 | $ | 5,863 | -4 | % | 9 | % | |||||
Gross deposits
|
1,729 | 1,307 | 1,242 | 32 | % | 5 | % | ||||||||
Withdrawals and deaths
|
(1,515 | ) | (1,402 | ) | (1,377 | ) | -8 | % | -2 | % | |||||
Net flows
|
214 | (95 | ) | (135 | ) |
NM
|
30 | % | |||||||
Transfers between fixed and variable accounts
|
(38 | ) | 5 | 4 |
NM
|
25 | % | ||||||||
Investment increase and change in market value
|
658 | (139 | ) | 664 |
NM
|
NM
|
|||||||||
Balance as of end-of-year
|
$ | 7,001 | $ | 6,167 | $ | 6,396 | 14 | % | -4 | % | |||||
Total Mid – Large Segment:
|
|||||||||||||||
Balance as of beginning-of-year
|
$ | 17,435 | $ | 16,207 | $ | 13,653 | 8 | % | 19 | % | |||||
Gross deposits
|
3,974 | 3,557 | 3,308 | 12 | % | 8 | % | ||||||||
Withdrawals and deaths
|
(2,331 | ) | (2,095 | ) | (2,558 | ) | -11 | % | 18 | % | |||||
Net flows
|
1,643 | 1,462 | 750 | 12 | % | 95 | % | ||||||||
Transfers between fixed and variable accounts
|
(37 | ) | (68 | ) | 16 | 46 | % |
NM
|
|||||||
Other
(1)
|
- | - | 186 |
NM
|
-100 | % | |||||||||
Investment increase and change in market value
|
2,009 | (166 | ) | 1,602 |
NM
|
NM
|
|||||||||
Balance as of end-of-year
|
$ | 21,050 | $ | 17,435 | $ | 16,207 | 21 | % | 8 | % | |||||
Total
Multi-Fund
® and Other Variable Annuities:
|
|||||||||||||||
Balance as of beginning-of-year
|
$ | 15,531 | $ | 16,221 | $ | 15,786 | -4 | % | 3 | % | |||||
Gross deposits
|
678 | 702 | 751 | -3 | % | -7 | % | ||||||||
Withdrawals and deaths
|
(1,548 | ) | (1,565 | ) | (1,657 | ) | 1 | % | 6 | % | |||||
Net flows
|
(870 | ) | (863 | ) | (906 | ) | -1 | % | 5 | % | |||||
Investment increase and change in market value
|
1,219 | 173 | 1,341 |
NM
|
-87 | % | |||||||||
Balance as of end-of-year
|
$ | 15,880 | $ | 15,531 | $ | 16,221 | 2 | % | -4 | % | |||||
Total Annuities and Mutual Funds:
|
|||||||||||||||
Balance as of beginning-of-year
|
$ | 39,133 | $ | 38,824 | $ | 35,302 | 1 | % | 10 | % | |||||
Gross deposits
|
6,381 | 5,566 | 5,301 | 15 | % | 5 | % | ||||||||
Withdrawals and deaths
|
(5,394 | ) | (5,062 | ) | (5,592 | ) | -7 | % | 9 | % | |||||
Net flows
|
987 | 504 | (291 | ) | 96 | % | 273 | % | |||||||
Transfers between fixed and variable accounts
|
(75 | ) | (63 | ) | 20 | -19 | % |
NM
|
|||||||
Other
(1)
|
- | - | 186 |
NM
|
-100 | % | |||||||||
Investment increase and change in market value
|
3,886 | (132 | ) | 3,607 |
NM
|
NM
|
|||||||||
Balance as of end-of-year
(2)
|
$ | 43,931 | $ | 39,133 | $ | 38,824 | 12 | % | 1 | % |
(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
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Account Value Information
|
|
|
|
|
|
||||||||||
Variable annuity deposits
(1)
|
$ | 1,565 | $ | 1,615 | $ | 1,614 | -3 | % | 0 | % | |||||
Increases (decreases) in variable annuity account values:
|
|||||||||||||||
Net flows
(1)
|
(475 | ) | (497 | ) | (544 | ) | 4 | % | 9 | % | |||||
Change in market value
(1)
|
1,556 | (280 | ) | 1,687 |
NM
|
NM
|
|||||||||
Transfers from the variable portion of variable annuity
products to the fixed portion of variable annuity
products
|
(483 | ) | (283 | ) | (169 | ) | -71 | % | -67 | % | |||||
Variable annuity account values
(1)
|
13,466 | 12,867 | 13,927 | 5 | % | -8 | % | ||||||||
Average daily variable annuity account values
(1)
|
13,514 | 13,611 | 12,930 | -1 | % | 5 | % | ||||||||
Average daily S&P 500
|
1,378.90 | 1,268.03 | 1,138.78 | 9 | % | 11 | % |
(1)
|
Excludes the fixed portion of variable.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Net Investment Income
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 731 | $ | 718 | $ | 705 | 2 | % | 2 | % | |||||
Commercial mortgage loan prepayment and bond make-whole premiums (1) | 5 | 21 | 9 | -76 | % | 133 | % | ||||||||
Alternative investments
(2)
|
1 | 1 | 3 | 0 | % | -67 | % | ||||||||
Surplus investments
(3)
|
62 | 52 | 52 | 19 | % | 0 | % | ||||||||
Total net investment income
|
$ | 799 | $ | 792 | $ | 769 | 1 | % | 3 | % | |||||
Interest Credited
|
$ | 451 | $ | 437 | $ | 440 | 3 | % | -1 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Interest Rate Spread
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.21 | % | 5.53 | % | 5.70 | % | (32 | ) | (17 | ) | |||||
Commercial mortgage loan prepayment and bond make-whole premiums | 0.04 | % | 0.16 | % | 0.08 | % | (12 | ) | 8 | ||||||
Alternative investments
|
0.01 | % | 0.01 | % | 0.02 | % | - | (1 | ) | ||||||
Net investment income yield on reserves
|
5.26 | % | 5.70 | % | 5.80 | % | (44 | ) | (10 | ) | |||||
Interest rate credited to contract holders
|
3.20 | % | 3.32 | % | 3.49 | % | (12 | ) | (17 | ) | |||||
Interest rate spread
|
2.06 | % | 2.38 | % | 2.31 | % | (32 | ) | 7 |
As of or For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Other Information
|
|
|
|
|
|
||||||||||
Fixed annuity deposits
(1)
|
$ | 1,768 | $ | 1,436 | $ | 1,332 | 23 | % | 8 | % | |||||
Increases (decreases) in fixed annuity account values:
|
|||||||||||||||
Net flows
(1)
|
(24 | ) | (106 | ) | (347 | ) | 77 | % | 69 | % | |||||
Transfers to the fixed portion of variable annuity
products from the variable portion of variable annuity
products
|
483 | 283 | 169 | 71 | % | 67 | % | ||||||||
Reinvested interest credited
(1)
|
453 | 438 | 440 | 3 | % | 0 | % | ||||||||
Fixed annuity account values
(1)
|
14,718 | 13,630 | 12,779 | 8 | % | 7 | % | ||||||||
Average fixed account values
(1)
|
14,055 | 13,168 | 12,580 | 7 | % | 5 | % | ||||||||
Average invested assets on reserves
|
14,003 | 12,988 | 12,360 | 8 | % | 5 | % |
(1)
|
Includes the fixed portion of variable.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Commissions and Other Expenses
|
|
|
|
|
|
||||||||||
Commissions:
|
|
|
|
|
|
||||||||||
Deferrable
|
$ | 19 | $ | 19 | $ | 24 | 0 | % | -21 | % | |||||
Non-deferrable
|
52 | 48 | 41 | 8 | % | 17 | % | ||||||||
General and administrative expenses
|
314 | 274 | 242 | 15 | % | 13 | % | ||||||||
Taxes, licenses and fees
|
16 | 13 | 13 | 23 | % | 0 | % | ||||||||
Total expenses incurred
|
401 | 354 | 320 | 13 | % | 11 | % | ||||||||
DAC deferrals
|
(38 | ) | (35 | ) | (37 | ) | -9 | % | 5 | % | |||||
Total expenses recognized before amortization
|
363 | 319 | 283 | 14 | % | 13 | % | ||||||||
DAC and VOBA amortization, net of interest:
|
|||||||||||||||
Unlocking
|
4 | 2 | (5 | ) | |||||||||||
Amortization, net of interest, excluding unlocking
|
38 | 31 | 59 | 23 | % | -47 | % | ||||||||
Total commissions and other expenses
|
$ | 405 | $ | 352 | $ | 337 | 15 | % | 4 | % | |||||
|
|||||||||||||||
DAC Deferrals
|
|||||||||||||||
As a percentage of annuity sales/deposits
|
1.1 | % | 1.1 | % | 1.3 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||
Insurance premiums
|
$ | 441 | $ | 441 | $ | 439 | 0 | % | 0 | % | |||||
Insurance fees
|
2,188 | 1,979 | 1,934 | 11 | % | 2 | % | ||||||||
Net investment income
|
2,396 | 2,294 | 2,186 | 4 | % | 5 | % | ||||||||
Other revenues and fees
|
28 | 26 | 31 | 8 | % | -16 | % | ||||||||
Total operating revenues
|
5,053 | 4,740 | 4,590 | 7 | % | 3 | % | ||||||||
Operating Expenses
|
|||||||||||||||
Interest credited
|
1,261 | 1,235 | 1,199 | 2 | % | 3 | % | ||||||||
Benefits
|
1,721 | 1,669 | 1,734 | 3 | % | -4 | % | ||||||||
Commissions and other expenses
|
1,233 | 1,001 | 982 | 23 | % | 2 | % | ||||||||
Total operating expenses
|
4,215 | 3,905 | 3,915 | 8 | % | 0 | % | ||||||||
Income (loss) from operations before taxes
|
838 | 835 | 675 | 0 | % | 24 | % | ||||||||
Federal income tax expense (benefit)
|
264 | 276 | 222 | -4 | % | 24 | % | ||||||||
Income (loss) from operations
|
$ | 574 | $ | 559 | $ | 453 | 3 | % | 23 | % |
·
|
Higher insurance fees due to the effect of unlocking and growth in business in force; and
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
Growth in business in force; and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information);
|
§
|
Spread compression due to new money rates averaging below our current portfolio yields, partially offset by lower interest crediting rates.
|
·
|
Higher commissions and other expenses attributable to the effect of unlocking and other reserve changes; and
|
·
|
Higher benefits due to higher death claims, partially offset by the effect of unlocking.
|
·
|
Higher net investment income, net of interest credited, attributable to growth in business in force and actions implemented to reduce interest crediting rates, partially offset by new money rates averaging below our portfolio yields;
|
·
|
Lower benefits due to the effect of unlocking, partially offset by higher death claims, 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.
|
·
|
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;
|
·
|
The effect of unlocking.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Insurance Fees
|
|
|
|
|
|
||||||||||
Mortality assessments
|
$ | 1,321 | $ | 1,312 | $ | 1,287 | 1 | % | 2 | % | |||||
Expense assessments
|
834 | 935 | 844 | -11 | % | 11 | % | ||||||||
Surrender charges
|
86 | 96 | 100 | -10 | % | -4 | % | ||||||||
DFEL:
|
|||||||||||||||
Deferrals
|
(325 | ) | (483 | ) | (472 | ) | 33 | % | -2 | % | |||||
Amortization, net of interest:
|
|||||||||||||||
Unlocking
|
75 | (37 | ) | - |
NM
|
NM
|
|||||||||
Amortization, net of interest, excluding unlocking
|
197 | 156 | 175 | 26 | % | -11 | % | ||||||||
Total insurance fees
|
$ | 2,188 | $ | 1,979 | $ | 1,934 | 11 | % | 2 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Sales by Product
|
|
|
|
|
|
||||||||||
UL:
|
|
|
|
|
|
||||||||||
Excluding
MoneyGuard
®
|
$ | 188 | $ | 317 | $ | 353 | -41 | % | -10 | % | |||||
MoneyGuard®
|
169 | 186 | 108 | -9 | % | 72 | % | ||||||||
Total UL
|
357 | 503 | 461 | -29 | % | 9 | % | ||||||||
VUL
|
61 | 50 | 43 | 22 | % | 16 | % | ||||||||
COLI and BOLI
|
109 | 92 | 63 | 18 | % | 46 | % | ||||||||
Term
|
61 | 55 | 70 | 11 | % | -21 | % | ||||||||
Total sales
|
$ | 588 | $ | 700 | $ | 637 | -16 | % | 10 | % | |||||
|
|||||||||||||||
Net Flows
|
|||||||||||||||
Deposits
|
$ | 4,949 | $ | 5,393 | $ | 4,934 | -8 | % | 9 | % | |||||
Withdrawals and deaths
|
(1,660 | ) | (1,731 | ) | (1,877 | ) | 4 | % | 8 | % | |||||
Net flows
|
$ | 3,289 | $ | 3,662 | $ | 3,057 | -10 | % | 20 | % | |||||
|
|||||||||||||||
Contract holder assessments
|
$ | 3,284 | $ | 3,285 | $ | 3,119 | 0 | % | 5 | % |
As of December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Account Values
|
|
|
|
|
|
||||||||||
UL
|
$ | 29,329 | $ | 28,052 | $ | 26,199 | 5 | % | 7 | % | |||||
VUL
|
5,731 | 4,929 | 5,108 | 16 | % | -4 | % | ||||||||
Interest-sensitive whole life
|
2,265 | 2,297 | 2,278 | -1 | % | 1 | % | ||||||||
Total account values
|
$ | 37,325 | $ | 35,278 | $ | 33,585 | 6 | % | 5 | % | |||||
In-Force Face Amount
|
|||||||||||||||
UL and other
|
$ | 311,235 | $ | 307,900 | $ | 297,837 | 1 | % | 3 | % | |||||
Term insurance
|
279,322 | 271,931 | 265,154 | 3 | % | 3 | % | ||||||||
Total in-force face amount
|
$ | 590,557 | $ | 579,831 | $ | 562,991 | 2 | % | 3 | % |
·
|
MoneyGuard
® (our linked-benefit product) – 15% of single premium deposits;
|
·
|
MoneyGuard
® (flexible premium option), UL (excluding linked-benefit products) and VUL (including corporate-owned UL and VUL (“COLI”) and bank-owned UL and VUL (“BOLI”)) – first year commissionable premiums plus 5% of excess premiums received, including an adjustment for internal replacements of approximately 50% of commissionable premiums; and
|
·
|
Term – 100% of annualized first year premiums.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Net Investment Income
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 2,178 | $ | 2,092 | $ | 2,000 | 4 | % | 5 | % | |||||
Commercial mortgage loan prepayment and bond make-whole premiums (1) | 27 | 23 | 30 | 17 | % | -23 | % | ||||||||
Alternative investments
(2)
|
55 | 62 | 49 | -11 | % | 27 | % | ||||||||
Surplus investments
(3)
|
136 | 117 | 107 | 16 | % | 9 | % | ||||||||
Total net investment income
|
$ | 2,396 | $ | 2,294 | $ | 2,186 | 4 | % | 5 | % | |||||
Interest Credited
|
$ | 1,261 | $ | 1,235 | $ | 1,199 | 2 | % | 3 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Interest Rate Yields and Spread
|
|
|
|
|
|
||||||||||
Attributable to interest-sensitive products:
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.68 | % | 5.79 | % | 5.87 | % | (11 | ) | (8 | ) | |||||
Commercial mortgage loan prepayment and bond make-whole premiums | 0.06 | % | 0.07 | % | 0.09 | % | (1 | ) | (2 | ) | |||||
Alternative investments
|
0.16 | % | 0.19 | % | 0.17 | % | (3 | ) | 2 | ||||||
Net investment income yield on reserves
|
5.90 | % | 6.05 | % | 6.13 | % | (15 | ) | (8 | ) | |||||
Interest rate credited to contract holders
|
3.96 | % | 4.08 | % | 4.16 | % | (12 | ) | (8 | ) | |||||
Interest rate spread
|
1.94 | % | 1.97 | % | 1.97 | % | (3 | ) | - | ||||||
|
|||||||||||||||
Attributable to traditional products:
|
|||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.68 | % | 5.90 | % | 6.12 | % | (22 | ) | (22 | ) | |||||
Commercial mortgage loan prepayment and bond make-whole premiums | 0.13 | % | 0.03 | % | 0.07 | % | 10 | (4 | ) | ||||||
Alternative investments
|
0.01 | % | 0.01 | % | 0.02 | % | - | (1 | ) | ||||||
Net investment income yield on reserves
|
5.82 | % | 5.94 | % | 6.21 | % | (12 | ) | (27 | ) |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Averages
|
|
|
|
|
|
||||||||||
Attributable to interest-sensitive products:
|
|
|
|
|
|
||||||||||
Invested assets on reserves
|
$ | 34,050 | $ | 31,752 | $ | 29,391 | 7 | % | 8 | % | |||||
Account values - universal and whole life
|
31,578 | 30,066 | 28,465 | 5 | % | 6 | % | ||||||||
Attributable to traditional products:
|
|||||||||||||||
Invested assets on reserves
|
4,344 | 4,297 | 4,465 | 1 | % | -4 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Benefits
|
|
|
|
|
|
||||||||||
Death claims direct and assumed
|
$ | 2,976 | $ | 2,847 | $ | 2,538 | 5 | % | 12 | % | |||||
Death claims ceded
|
(1,415 | ) | (1,368 | ) | (1,154 | ) | -3 | % | -19 | % | |||||
Reserves released on death
|
(490 | ) | (452 | ) | (433 | ) | -8 | % | -4 | % | |||||
Net death benefits
|
1,071 | 1,027 | 951 | 4 | % | 8 | % | ||||||||
Change in secondary guarantee life insurance product reserves: | |||||||||||||||
Unlocking | (145 | ) | (142 | ) | 155 | -2 | % |
NM
|
|||||||
Change in reserves, excluding unlocking | 464 | 467 | 306 | -1 | % | 53 | % | ||||||||
Other benefits:
|
|||||||||||||||
Unlocking
|
- | 33 | - | -100 | % |
NM
|
|||||||||
Other benefits, excluding unlocking
(1)
|
331 | 284 | 322 | 17 | % | -12 | % | ||||||||
Total benefits
|
$ | 1,721 | $ | 1,669 | $ | 1,734 | 3 | % | -4 | % | |||||
Death claims per $1,000 of in-force
|
1.84 | 1.80 | 1.72 | 2 | % | 5 | % |
(1)
|
Includes primarily traditional product changes in reserves and dividends.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Commissions and Other Expenses
|
|
|
|
|
|
||||||||||
Commissions
|
$ | 532 | $ | 678 | $ | 664 | -22 | % | 2 | % | |||||
General and administrative expenses
|
483 | 474 | 451 | 2 | % | 5 | % | ||||||||
Expenses associated with reserve financing
|
67 | 57 | 37 | 18 | % | 54 | % | ||||||||
Taxes, licenses and fees
|
133 | 145 | 129 | -8 | % | 12 | % | ||||||||
Total expenses incurred
|
1,215 | 1,354 | 1,281 | -10 | % | 6 | % | ||||||||
DAC and VOBA deferrals
|
(600 | ) | (780 | ) | (754 | ) | 23 | % | -3 | % | |||||
Total expenses recognized before amortization
|
615 | 574 | 527 | 7 | % | 9 | % | ||||||||
DAC and VOBA amortization, net of interest:
|
|||||||||||||||
Unlocking
|
147 | (34 | ) | (14 | ) | ||||||||||
Amortization, net of interest, excluding unlocking
|
467 | 457 | 465 | 2 | % | -2 | % | ||||||||
Other intangible amortization
|
4 | 4 | 4 | 0 | % | 0 | % | ||||||||
Total commissions and other expenses
|
$ | 1,233 | $ | 1,001 | $ | 982 | 23 | % | 2 | % | |||||
|
|||||||||||||||
DAC and VOBA Deferrals
|
|||||||||||||||
As a percentage of sales
|
102.0 | % | 111.4 | % | 118.4 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||
Insurance premiums
|
$ | 1,919 | $ | 1,778 | $ | 1,682 | 8 | % | 6 | % | |||||
Net investment income
|
162 | 152 | 141 | 7 | % | 8 | % | ||||||||
Other revenues and fees
|
10 | 8 | 8 | 25 | % | 0 | % | ||||||||
Total operating revenues
|
2,091 | 1,938 | 1,831 | 8 | % | 6 | % | ||||||||
Operating Expenses
|
|||||||||||||||
Interest credited
|
3 | 3 | 3 | 0 | % | 0 | % | ||||||||
Benefits
|
1,444 | 1,314 | 1,296 | 10 | % | 1 | % | ||||||||
Commissions and other expenses
|
533 | 472 | 428 | 13 | % | 10 | % | ||||||||
Total operating expenses
|
1,980 | 1,789 | 1,727 | 11 | % | 4 | % | ||||||||
Income (loss) from operations before taxes | 111 | 149 | 104 | -26 | % | 43 | % | ||||||||
Federal income tax expense (benefit)
|
39 | 52 | 36 | -25 | % | 44 | % | ||||||||
Income (loss) from operations
|
$ | 72 | $ | 97 | $ | 68 | -26 | % | 43 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Income (Loss) from Operations by Product Line |
|
|
|
|
|
||||||||||
Life
|
$ | 29 | $ | 32 | $ | 35 | -9 | % | -9 | % | |||||
Disability
|
37 | 62 | 32 | -40 | % | 94 | % | ||||||||
Dental
|
1 | (2 | ) | (4 | ) | 150 | % | 50 | % | ||||||
Total non-medical
|
67 | 92 | 63 | -27 | % | 46 | % | ||||||||
Medical
|
5 | 5 | 5 | 0 | % | 0 | % | ||||||||
Income (loss) from operations
|
$ | 72 | $ | 97 | $ | 68 | -26 | % | 43 | % |
·
|
Unfavorable total non-medical loss ratio experience; and
|
·
|
Higher commissions and other expenses attributable to strategic investments in sales and distribution processes and technology platforms as well as an increase in business.
|
·
|
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.
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Insurance Premiums by Product Line
|
|
|
|
|
|
||||||||||
Life
|
$ | 770 | $ | 693 | $ | 639 | 11 | % | 8 | % | |||||
Disability
|
821 | 757 | 727 | 8 | % | 4 | % | ||||||||
Dental
|
193 | 183 | 167 | 5 | % | 10 | % | ||||||||
Total non-medical
|
1,784 | 1,633 | 1,533 | 9 | % | 7 | % | ||||||||
Medical
|
135 | 145 | 149 | -7 | % | -3 | % | ||||||||
Total insurance premiums
|
$ | 1,919 | $ | 1,778 | $ | 1,682 | 8 | % | 6 | % | |||||
|
|||||||||||||||
Sales
|
$ | 458 | $ | 395 | $ | 353 | 16 | % | 12 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Benefits and Interest Credited by Product Line |
|
|
|
|
|
||||||||||
Life
|
$ | 582 | $ | 518 | $ | 484 | 12 | % | 7 | % | |||||
Disability
|
604 | 529 | 548 | 14 | % | -3 | % | ||||||||
Dental
|
143 | 143 | 136 | 0 | % | 5 | % | ||||||||
Total non-medical
|
1,329 | 1,190 | 1,168 | 12 | % | 2 | % | ||||||||
Medical
|
118 | 127 | 131 | -7 | % | -3 | % | ||||||||
Total benefits and interest credited
|
$ | 1,447 | $ | 1,317 | $ | 1,299 | 10 | % | 1 | % | |||||
|
|||||||||||||||
Loss Ratios by Product Line
|
|||||||||||||||
Life
|
75.5 | % | 74.8 | % | 75.8 | % | |||||||||
Disability
|
73.6 | % | 69.9 | % | 75.4 | % | |||||||||
Dental
|
74.5 | % | 77.9 | % | 81.5 | % | |||||||||
Total non-medical
|
74.5 | % | 72.9 | % | 76.2 | % | |||||||||
Medical
|
87.8 | % | 87.9 | % | 87.6 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Commissions and Other Expenses
|
|
|
|
|
|
||||||||||
Commissions
|
$ | 223 | $ | 201 | $ | 190 | 11 | % | 6 | % | |||||
General and administrative expenses
|
288 | 244 | 209 | 18 | % | 17 | % | ||||||||
Taxes, licenses and fees
|
49 | 41 | 39 | 20 | % | 5 | % | ||||||||
Total expenses incurred
|
560 | 486 | 438 | 15 | % | 11 | % | ||||||||
DAC deferrals
|
(75 | ) | (53 | ) | (50 | ) | -42 | % | -6 | % | |||||
Total expenses recognized before amortization | 485 | 433 | 388 | 12 | % | 12 | % | ||||||||
DAC and VOBA amortization, net of interest | 48 | 39 | 40 | 23 | % | -3 | % | ||||||||
Total commissions and other expenses | $ | 533 | $ | 472 | $ | 428 | 13 | % | 10 | % | |||||
|
|||||||||||||||
DAC Deferrals
|
|||||||||||||||
As a percentage of insurance premiums
|
3.9 | % | 3.0 | % | 3.0 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Operating Revenues
|
|
|
|
|
|
||||||||||
Insurance premiums
|
$ | 4 | $ | 1 | $ | 2 | 300 | % | -50 | % | |||||
Net investment income
|
259 | 308 | 326 | -16 | % | -6 | % | ||||||||
Amortization of deferred gain on business sold through reinsurance | 72 | 72 | 72 | 0 | % | 0 | % | ||||||||
Media revenues (net)
|
81 | 77 | 75 | 5 | % | 3 | % | ||||||||
Other revenues and fees
|
7 | 3 | 12 | 133 | % | -75 | % | ||||||||
Total operating revenues
|
423 | 461 | 487 | -8 | % | -5 | % | ||||||||
Operating Expenses
|
|||||||||||||||
Interest credited
|
122 | 114 | 120 | 7 | % | -5 | % | ||||||||
Benefits
|
138 | 126 | 139 | 10 | % | -9 | % | ||||||||
Media expenses
|
66 | 69 | 59 | -4 | % | 17 | % | ||||||||
Other expenses
|
93 | 90 | 176 | 3 | % | -49 | % | ||||||||
Interest and debt expense
|
268 | 285 | 286 | -6 | % | 0 | % | ||||||||
Total operating expenses
|
687 | 684 | 780 | 0 | % | -12 | % | ||||||||
Income (loss) from operations before taxes | (264 | ) | (223 | ) | (293 | ) | -18 | % | 24 | % | |||||
Federal income tax expense (benefit)
|
(177 | ) | (77 | ) | (105 | ) |
NM
|
27 | % | ||||||
Income (loss) from operations
|
$ | (87 | ) | $ | (146 | ) | $ | (188 | ) | 40 | % | 22 | % |
·
|
New money rates averaging below our current portfolio yields; and
|
·
|
Repurchases of common stock, net cash used in operating activities due to interest payments and invested asset transfers to other segments for other-than-temporary impairment (“OTTI”) resulting in lower average invested assets.
|
·
|
Repurchases of common stock, net cash used in operating activities due 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.
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Other Expenses
|
|
|
|
|
|
||||||||||
General and administrative expenses:
|
|
|
|
|
|
||||||||||
Legal
|
$ | - | $ | 1 | $ | 77 | -100 | % | -99 | % | |||||
Branding
|
28 | 29 | 27 | -3 | % | 7 | % | ||||||||
Non-brand marketing
|
- | 4 | 11 | -100 | % | -64 | % | ||||||||
Other
(1)
|
46 | 38 | 59 | 21 | % | -36 | % | ||||||||
Total general and administrative expenses | 74 | 72 | 174 | 3 | % | -59 | % | ||||||||
Merger-related expenses
(2)
|
- | - | 9 |
NM
|
-100 | % | |||||||||
Restructuring charges
|
20 | - | (1 | ) |
NM
|
100 | % | ||||||||
Taxes, licenses and fees
|
10 | 27 | (4 | ) | -63 | % |
NM
|
||||||||
Inter-segment reimbursement associated with reserve financing and LOC expenses (3) | (11 | ) | (9 | ) | (2 | ) | -22 | % |
NM
|
||||||
Total other expenses
|
$ | 93 | $ | 90 | $ | 176 | 3 | % | -49 | % |
(1)
|
Includes expenses that are corporate in nature including charitable contributions, amortization of media intangible assets with a definite life and other expenses not allocated to our business segments.
|
(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)
|
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
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Components of Realized Gain (Loss), Pre-Tax
|
|
|
|
|
|
||||||||||
Total operating realized gain (loss)
|
$ | 113 | $ | 94 | $ | 74 | 20 | % | 27 | % | |||||
Total excluded realized gain (loss)
|
(39 | ) | (388 | ) | (143 | ) | 90 | % |
NM
|
||||||
Total realized gain (loss), pre-tax
|
$ | 74 | $ | (294 | ) | $ | (69 | ) | 125 | % |
NM
|
||||
Reconciliation of Excluded Realized Gain (Loss) Net of Benefit Ratio Unlocking, After-Tax | |||||||||||||||
Total excluded realized gain (loss)
|
$ | (25 | ) | $ | (252 | ) | $ | (93 | ) | 90 | % |
NM
|
|||
Benefit ratio unlocking
|
25 | (15 | ) | 11 | 267 | % |
NM
|
||||||||
Excluded realized gain (loss) net of benefit ratio unlocking, after-tax | $ | - | $ | (267 | ) | $ | (82 | ) | 100 | % |
NM
|
||||
Components of Excluded Realized Gain (Loss) Net of Benefit Ratio Unlocking, After-Tax | |||||||||||||||
Realized gain (loss) related to certain investments
|
$ | (124 | ) | $ | (97 | ) | $ | (117 | ) | -28 | % | 17 | % | ||
Gain (loss) on the mark-to-market on certain instruments
|
87 | (54 | ) | 49 | 261 | % |
NM
|
||||||||
Variable annuity net derivatives results:
|
|||||||||||||||
Hedge program performance
|
13 | (116 | ) | (31 | ) | 111 | % |
NM
|
|||||||
Unlocking for GLB reserves hedged
|
84 | (78 | ) | 21 | 208 | % |
NM
|
||||||||
GLB NPR component
|
(64 | ) | 78 | (16 | ) |
NM
|
NM
|
||||||||
Total variable annuity net derivatives results
|
33 | (116 | ) | (26 | ) | 128 | % |
NM
|
|||||||
Indexed annuity forward-starting option
(2)
|
4 | - | 12 |
NM
|
-100 | % | |||||||||
Excluded realized gain (loss) net of benefit ratio unlocking, after-tax | $ | - | $ | (267 | ) | $ | (82 | ) | 100 | % |
NM
|
(1)
|
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance assets and liabilities.
|
(2)
|
Includes favorable (unfavorable) unlocking of ($8) million, $0 million and $1 million, after-tax, for 2012, 2011 and 2010, respectively.
|
·
|
Gains on variable annuity net derivatives results during 2012 as compared to losses during 2011 attributable to:
|
§
|
The effect of unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
§
|
Less volatile capital markets during 2012 resulting in more favorable hedge program performance;
|
§
|
Narrowing of our credit spreads during 2012 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
|
·
|
Realized gains on the mark-to-market on certain instruments during 2012 as compared to realized losses during 2011 attributable to spreads narrowing on corporate credit default swaps.
|
·
|
Realized losses on the mark-to-market on certain instruments during 2011 as compared to realized gains during 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:
|
§
|
More volatile capital markets during 2011 resulting in less favorable hedge program performance; and
|
§
|
The effect of unlocking (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).
|
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
|||||||||
|
December 31, | September 30, | June 30, | March 31, | December 31, |
|
|||||||||||||
|
2012
|
|
2012
|
|
2012
|
|
2012
|
|
2011
|
|
|||||||||
10-year CDS spread
|
|
2.34
|
%
|
|
2.40
|
%
|
|
3.48
|
%
|
|
2.40
|
%
|
|
3.65
|
%
|
||||
NPR factor related to 10-year CDS spread
|
|
0.26
|
%
|
|
0.29
|
%
|
|
0.45
|
%
|
|
0.25
|
%
|
|
0.43
|
%
|
||||
Unadjusted embedded derivative liability
|
$
|
975
|
|
$
|
1,432
|
|
$
|
2,126
|
|
$
|
1,093
|
|
$
|
2,418
|
|
|
|
|
|
|
|
Percentage of |
|
|||||
|
|
|
|
|
|
Total Investments |
|
|||||
|
As of December 31,
|
As of December 31, |
|
|||||||||
|
2012
|
|
2011
|
2012 |
|
2011 |
|
|||||
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity
|
$
|
82,036
|
|
$
|
75,433
|
|
82.8
|
%
|
|
81.0
|
%
|
|
VIEs' fixed maturity
|
|
708
|
|
|
700
|
|
0.7
|
%
|
|
0.8
|
%
|
|
Total fixed maturity
|
|
82,744
|
|
|
76,133
|
|
83.5
|
%
|
|
81.8
|
%
|
|
Equity
|
|
157
|
|
|
139
|
|
0.1
|
%
|
|
0.1
|
%
|
|
Trading securities
|
|
2,554
|
|
|
2,675
|
|
2.6
|
%
|
|
2.9
|
%
|
|
Mortgage loans on real estate
|
|
7,029
|
|
|
6,942
|
|
7.1
|
%
|
|
7.4
|
%
|
|
Real estate
|
|
65
|
|
|
137
|
|
0.1
|
%
|
|
0.1
|
%
|
|
Policy loans
|
|
2,766
|
|
|
2,884
|
|
2.8
|
%
|
|
3.1
|
%
|
|
Derivative investments
|
|
2,652
|
|
|
3,151
|
|
2.7
|
%
|
|
3.4
|
%
|
|
Alternative investments
|
|
869
|
|
|
807
|
|
0.9
|
%
|
|
0.9
|
%
|
|
Other investments
|
|
229
|
|
|
262
|
|
0.2
|
%
|
|
0.3
|
%
|
|
Total investments
|
$
|
99,065
|
|
$
|
93,130
|
|
100.0
|
%
|
|
100.0
|
%
|
As of December 31, 2012
|
|||||||||||||||
|
Gross Unrealized
|
|
%
|
||||||||||||
Amortized
|
|
Losses
|
Fair
|
Fair
|
|||||||||||
Cost
|
Gains
|
and OTTI
|
Value
|
Value
|
|||||||||||
Fixed Maturity AFS Securities
|
|
|
|
|
|
||||||||||
Industry corporate bonds:
|
|
|
|
|
|
||||||||||
Financial services
|
$ | 9,216 | $ | 1,102 | $ | 77 | $ | 10,241 | 12.3 | % | |||||
Basic industry
|
3,910 | 459 | 14 | 4,355 | 5.3 | % | |||||||||
Capital goods
|
4,650 | 573 | 19 | 5,204 | 6.3 | % | |||||||||
Communications
|
3,695 | 550 | 12 | 4,233 | 5.1 | % | |||||||||
Consumer cyclical
|
3,817 | 481 | 30 | 4,268 | 5.2 | % | |||||||||
Consumer non-cyclical
|
9,250 | 1,474 | 3 | 10,721 | 13.0 | % | |||||||||
Energy
|
5,726 | 884 | 4 | 6,606 | 8.0 | % | |||||||||
Technology
|
2,172 | 227 | 7 | 2,392 | 2.9 | % | |||||||||
Transportation
|
1,540 | 194 | 1 | 1,733 | 2.1 | % | |||||||||
Industrial other
|
1,000 | 98 | 1 | 1,097 | 1.3 | % | |||||||||
Utilities
|
11,874 | 1,762 | 19 | 13,617 | 16.4 | % | |||||||||
Collateralized mortgage and other obligations ("CMOs"):
|
|||||||||||||||
Agency backed
|
2,427 | 274 | - | 2,701 | 3.3 | % | |||||||||
Non-agency backed
|
1,199 | 42 | 63 | 1,178 | 1.4 | % | |||||||||
Mortgage pass through securities ("MPTS"):
|
|||||||||||||||
Agency backed
|
2,136 | 155 | - | 2,291 | 2.8 | % | |||||||||
Non-agency backed
|
1 | - | - | 1 | 0.0 | % | |||||||||
Commercial mortgage-backed securities ("CMBS"):
|
|||||||||||||||
Non-agency backed
|
970 | 68 | 35 | 1,003 | 1.2 | % | |||||||||
Asset-backed securities ("ABS"):
|
|||||||||||||||
CDOs
|
161 | 2 | 2 | 161 | 0.2 | % | |||||||||
Commercial real estate ("CRE") CDOs
|
28 | - | 9 | 19 | 0.0 | % | |||||||||
Credit card
|
668 | 45 | - | 713 | 0.9 | % | |||||||||
Home equity
|
775 | 8 | 138 | 645 | 0.8 | % | |||||||||
Manufactured housing
|
70 | 6 | - | 76 | 0.1 | % | |||||||||
Auto loan
|
4 | - | - | 4 | 0.0 | % | |||||||||
Other
|
322 | 30 | - | 352 | 0.4 | % | |||||||||
Municipals:
|
|||||||||||||||
Taxable
|
3,510 | 810 | 7 | 4,313 | 5.2 | % | |||||||||
Tax-exempt
|
36 | 4 | - | 40 | 0.0 | % | |||||||||
Government and government agencies:
|
|||||||||||||||
United States
|
1,408 | 238 | - | 1,646 | 2.0 | % | |||||||||
Foreign
|
1,649 | 270 | 2 | 1,917 | 2.3 | % | |||||||||
Hybrid and redeemable preferred securities
|
1,181 | 106 | 70 | 1,217 | 1.5 | % | |||||||||
Total fixed maturity AFS securities
|
73,395 | 9,862 | 513 | 82,744 | 100.0 | % | |||||||||
Equity AFS Securities
|
137 | 22 | 2 | 157 | |||||||||||
Total AFS securities
|
73,532 | 9,884 | 515 | 82,901 | |||||||||||
Trading Securities
(1)
|
2,127 | 439 | 12 | 2,554 | |||||||||||
Total AFS and trading securities
|
$ | 75,659 | $ | 10,323 | $ | 527 | $ | 85,455 |
As of December 31, 2011
|
|||||||||||||||
|
Gross Unrealized
|
|
%
|
||||||||||||
Amortized
|
|
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 | % | |||||||||
CMOs:
|
|||||||||||||||
Agency backed
|
3,226 | 357 | - | 3,583 | 4.7 | % | |||||||||
Non-agency backed
|
1,481 | 12 | 199 | 1,294 | 1.7 | % | |||||||||
MPTS:
|
|||||||||||||||
Agency backed
|
2,982 | 179 | - | 3,161 | 4.2 | % | |||||||||
Non-agency backed
|
1 | - | - | 1 | 0.0 | % | |||||||||
CMBS:
|
|||||||||||||||
Non-agency backed
|
1,642 | 73 | 115 | 1,600 | 2.1 | % | |||||||||
ABS:
|
|||||||||||||||
CDOs
|
88 | - | 6 | 82 | 0.1 | % | |||||||||
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 |
(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 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
|
$ | 341 | $ | 372 | ||
Ireland
|
211 | 209 | ||||
Italy
|
139 | 156 | ||||
Portugal
|
40 | 40 | ||||
Total
|
$ | 731 | $ | 777 |
|
|
Gross
|
Estimated
|
Estimated
|
|
|
||||||||||
|
|
Unrealized
|
Years
|
Average
|
|
|
||||||||||
|
|
Losses
|
Until Call
|
Years
|
|
|
||||||||||
|
Fair
|
and
|
or
|
Until
|
Subordination Level
|
|||||||||||
|
Value
|
OTTI
|
Maturity
|
Recovery
|
Current
|
Origination
|
||||||||||
CMBS
|
$ | 179 | $ | 35 |
1 to 40
|
27 | 30.6 | % | 14.1 | % | ||||||
Hybrid and redeemable
preferred securities
|
364 | 70 |
1 to 54
|
28 | 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.
|
·
|
Historical 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.
|
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
|
$ | 4,991 | $ | 4,562 | $ | 756 | $ | 743 | $ | 424 | $ | 458 | $ | - | $ | - | $ | 6,171 | $ | 5,763 | ||||||||||
ABS home equity
|
4 | 4 | - | - | 217 | 242 | 424 | 529 | 645 | 775 | ||||||||||||||||||||
Total by type
(1)(2)
|
$ | 4,995 | $ | 4,566 | $ | 756 | $ | 743 | $ | 641 | $ | 700 | $ | 424 | $ | 529 | $ | 6,816 | $ | 6,538 | ||||||||||
Rating
|
||||||||||||||||||||||||||||||
AAA
|
$ | 4,948 | $ | 4,524 | $ | 1 | $ | 1 | $ | 4 | $ | 4 | $ | 24 | $ | 24 | $ | 4,977 | $ | 4,553 | ||||||||||
AA
|
32 | 29 | 18 | 18 | 9 | 10 | 32 | 33 | 91 | 90 | ||||||||||||||||||||
A | 15 | 13 | 47 | 44 | 29 | 28 | 72 | 74 | 163 | 159 | ||||||||||||||||||||
BBB
|
- | - | 65 | 63 | 45 | 46 | 37 | 38 | 147 | 147 | ||||||||||||||||||||
BB and below
|
- | - | 625 | 617 | 554 | 612 | 259 | 360 | 1,438 | 1,589 | ||||||||||||||||||||
Total by rating
(1)(2)(3)
|
$ | 4,995 | $ | 4,566 | $ | 756 | $ | 743 | $ | 641 | $ | 700 | $ | 424 | $ | 529 | $ | 6,816 | $ | 6,538 | ||||||||||
Origination Year
|
||||||||||||||||||||||||||||||
2004 and prior
|
$ | 941 | $ | 853 | $ | 155 | $ | 151 | $ | 207 | $ | 222 | $ | 189 | $ | 223 | $ | 1,492 | $ | 1,449 | ||||||||||
2005 | 668 | 595 | 130 | 139 | 220 | 231 | 169 | 213 | 1,187 | 1,178 | ||||||||||||||||||||
2006 | 188 | 170 | 147 | 139 | 171 | 200 | 65 | 91 | 571 | 600 | ||||||||||||||||||||
2007 | 948 | 854 | 324 | 314 | 43 | 47 | - | - | 1,315 | 1,215 | ||||||||||||||||||||
2008 | 161 | 147 | - | - | - | - | - | - | 161 | 147 | ||||||||||||||||||||
2009 | 826 | 764 | - | - | - | - | 1 | 2 | 827 | 766 | ||||||||||||||||||||
2010 | 770 | 716 | - | - | - | - | - | - | 770 | 716 | ||||||||||||||||||||
2011 | 373 | 350 | - | - | - | - | - | - | 373 | 350 | ||||||||||||||||||||
2012 | 120 | 117 | - | - | - | - | - | - | 120 | 117 | ||||||||||||||||||||
Total by origination year (1)(2) | $ | 4,995 | $ | 4,566 | $ | 756 | $ | 743 | $ | 641 | $ | 700 | $ | 424 | $ | 529 | $ | 6,816 | $ | 6,538 | ||||||||||
Total AFS RMBS as a
percentage of total
AFS securities
|
8.2 | % | 8.9 | % | ||||||||||||||||||||||||||
Total prime/non-agency,
Alt-A and subprime
as a percentage of
total AFS securities
|
2.2 | % | 2.7 | % |
(1)
|
Does not include the fair value of trading securities totaling $214 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $214 million in trading securities consisted of $190 million prime, $10 million Alt-A and $14 million subprime.
|
(2)
|
Does not include the amortized cost of trading securities totaling $200 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $200 million in trading securities consisted of $174 million prime, $11 million Alt-A and $15 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.
|
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
|
$ | 958 | $ | 906 | $ | 45 | $ | 64 | $ | - | $ | - | $ | 1,003 | $ | 970 | ||||||||
CRE CDOs
|
- | - | - | - | 19 | 28 | 19 | 28 | ||||||||||||||||
Total by type
(1)(2)
|
$ | 958 | $ | 906 | $ | 45 | $ | 64 | $ | 19 | $ | 28 | $ | 1,022 | $ | 998 | ||||||||
Rating
|
||||||||||||||||||||||||
AAA
|
$ | 578 | $ | 529 | $ | 14 | $ | 12 | $ | - | $ | - | $ | 592 | $ | 541 | ||||||||
AA
|
81 | 78 | 10 | 10 | - | - | 91 | 88 | ||||||||||||||||
A | 121 | 112 | 6 | 6 | - | - | 127 | 118 | ||||||||||||||||
BBB
|
93 | 92 | 6 | 6 | 6 | 7 | 105 | 105 | ||||||||||||||||
BB and below
|
85 | 95 | 9 | 30 | 13 | 21 | 107 | 146 | ||||||||||||||||
Total by rating
(1)(2)(3)
|
$ | 958 | $ | 906 | $ | 45 | $ | 64 | $ | 19 | $ | 28 | $ | 1,022 | $ | 998 | ||||||||
Origination Year
|
||||||||||||||||||||||||
2004 and prior
|
$ | 335 | $ | 328 | $ | 23 | $ | 22 | $ | 4 | $ | 3 | $ | 362 | $ | 353 | ||||||||
2005 | 295 | 271 | 21 | 41 | 6 | 7 | 322 | 319 | ||||||||||||||||
2006 | 138 | 131 | 1 | 1 | 9 | 18 | 148 | 150 | ||||||||||||||||
2007 | 130 | 122 | - | - | - | - | 130 | 122 | ||||||||||||||||
2010 | 60 | 54 | - | - | - | - | 60 | 54 | ||||||||||||||||
Total by origination year
(1)(2)
|
$ | 958 | $ | 906 | $ | 45 | $ | 64 | $ | 19 | $ | 28 | $ | 1,022 | $ | 998 | ||||||||
Total AFS securities backed
by pools of commercial
mortgages as a percentage
of total AFS securities
|
1.2 | % | 1.4 | % |
(1)
|
Does not include the fair value of trading securities totaling $20 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $20 million in trading securities consisted of $17 million CMBS and $3 million CRE CDOs.
|
(2)
|
Does not include the amortized cost of trading securities totaling $21 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $21 million in trading securities consisted of $18 million CMBS and $3 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|||
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
||||
|
|
|
|
%
|
|
|
|
|
%
|
|
Unrealized
|
|
Unrealized
|
||||
|
Fair
|
|
Fair
|
|
Amortized
|
|
Amortized
|
|
Losses
|
|
Losses
|
||||||
|
Value
|
|
Value
|
|
Cost
|
|
Cost
|
|
and OTTI
|
|
and OTTI
|
||||||
ABS
|
$
|
610
|
|
12.3
|
%
|
$
|
759
|
|
13.9
|
%
|
$
|
149
|
|
28.9
|
% | ||
Banking
|
|
497
|
|
10.0
|
%
|
|
622
|
|
11.3
|
%
|
|
125
|
|
24.3
|
% | ||
CMOs
|
|
452
|
|
9.1
|
%
|
|
515
|
|
9.4
|
%
|
|
63
|
|
12.2
|
% | ||
CMBS
|
|
179
|
|
3.6
|
%
|
|
214
|
|
3.9
|
%
|
|
35
|
|
6.8
|
% | ||
Retailers
|
|
170
|
|
3.4
|
%
|
|
190
|
|
3.5
|
%
|
|
20
|
|
3.9
|
% | ||
Diversified Manufacturing
|
|
176
|
|
3.6
|
%
|
|
191
|
|
3.5
|
%
|
|
15
|
|
2.9
|
% | ||
Property and casualty insurers
|
|
50
|
|
1.0
|
%
|
|
64
|
|
1.2
|
%
|
|
14
|
|
2.7
|
% | ||
Media - non-cable
|
|
143
|
|
2.9
|
%
|
|
154
|
|
2.8
|
%
|
|
11
|
|
2.1
|
% | ||
Electric
|
|
443
|
|
8.9
|
%
|
|
453
|
|
8.3
|
%
|
|
10
|
|
1.9
|
% | ||
Industries with unrealized losses less than $10 million |
|
2,240
|
|
45.2
|
%
|
|
2,313
|
|
42.2
|
%
|
|
73
|
|
14.3
|
% | ||
Total by industry
|
$
|
4,960
|
|
100.0
|
%
|
$
|
5,475
|
|
100.0
|
%
|
$
|
515
|
|
100.0
|
% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total by industry as a percentage of total AFS securities |
|
6.0
|
%
|
|
|
|
7.4
|
%
|
|
|
|
100.0
|
%
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||
Carrying
|
|
Carrying
|
|
||||||||||
Value
|
%
|
Value
|
%
|
||||||||||
Credit Quality Indicator
|
|
|
|
|
|||||||||
Current
|
$ | 7,009 | 99.7 | % | $ | 6,854 | 98.7 | % | |||||
Delinquent and in foreclosure
(1)
|
20 | 0.3 | % | 88 | 1.3 | % | |||||||
Total mortgage loans on real estate
|
$ | 7,029 | 100.0 | % | $ | 6,942 | 100.0 | % |
(1)
|
As of December 31, 2012 and 2011, there were 6 and 16 mortgage loans on real estate that were delinquent and in foreclosure, respectively.
|
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
By Segment
|
|
|
||||
Annuities
|
$ | 1,390 | $ | 1,341 | ||
Retirement Plan Services
|
1,243 | 1,080 | ||||
Life Insurance
|
3,737 | 3,731 | ||||
Group Protection
|
275 | 278 | ||||
Other Operations
|
384 | 512 | ||||
Total mortgage loans on real estate
|
$ | 7,029 | $ | 6,942 |
|
As of
|
||||
|
December 31, | ||||
|
2012
|
||||
Allowance for Losses
|
|
||||
Balance as of beginning-of-year
|
$ | 31 | |||
Additions
|
14 | ||||
Charge-offs, net of recoveries
|
(24 | ) | |||
Balance as of end-of-year
|
$ | 21 |
|
As of December 31, 2012
|
|
|
As of December 31, 2012
|
|||||||
|
Carrying
|
|
|
|
|
Carrying
|
|
|
|||
|
Value
|
|
%
|
|
|
Value
|
|
%
|
|||
Property Type
|
|
|
|
|
|
State Exposure
|
|
|
|
|
|
Office building
|
$
|
2,049
|
|
29.1
|
%
|
CA
|
$
|
1,608
|
|
22.8
|
% |
Industrial
|
|
1,708
|
|
24.3
|
%
|
TX
|
|
633
|
|
9.0
|
% |
Retail
|
|
1,622
|
|
23.1
|
%
|
MD
|
|
493
|
|
7.0
|
% |
Apartment
|
|
1,256
|
|
17.9
|
%
|
VA
|
|
335
|
|
4.8
|
% |
Mixed use
|
|
201
|
|
2.9
|
%
|
NC
|
|
310
|
|
4.4
|
% |
Other commercial
|
|
99
|
|
1.4
|
%
|
NY
|
|
279
|
|
4.0
|
% |
Hotel/Motel
|
|
94
|
|
1.3
|
%
|
TN
|
|
244
|
|
3.5
|
% |
Total
|
$
|
7,029
|
|
100.0
|
%
|
FL
|
|
238
|
|
3.4
|
% |
|
|
|
|
|
|
WA
|
|
225
|
|
3.2
|
% |
Geographic Region
|
|
|
|
|
|
AZ
|
|
216
|
|
3.1
|
% |
Pacific
|
$
|
1,996
|
|
28.4
|
%
|
GA
|
|
207
|
|
2.9
|
% |
South Atlantic
|
|
1,715
|
|
24.4
|
%
|
IN
|
|
195
|
|
2.8
|
% |
East North Central
|
|
723
|
|
10.3
|
%
|
IL
|
|
194
|
|
2.8
|
% |
West South Central
|
|
652
|
|
9.3
|
%
|
OH
|
|
190
|
|
2.7
|
% |
Middle Atlantic
|
|
543
|
|
7.7
|
%
|
PA
|
|
172
|
|
2.4
|
% |
Mountain
|
|
537
|
|
7.6
|
%
|
NV
|
|
171
|
|
2.4
|
% |
East South Central
|
|
405
|
|
5.8
|
%
|
OR
|
|
162
|
|
2.3
|
% |
West North Central
|
|
338
|
|
4.8
|
%
|
MN
|
|
152
|
|
2.2
|
% |
New England
|
|
120
|
|
1.7
|
%
|
Other states under 2%
|
|
1,005
|
|
14.3
|
% |
Total
|
$
|
7,029
|
|
100.0
|
%
|
Total
|
$
|
7,029
|
|
100.0
|
% |
|
As of December 31, 2012
|
|
|
As of December 31, 2012
|
|||||||
|
Principal
|
|
|
|
|
Principal
|
|
|
|||
|
Amount
|
|
%
|
|
|
Amount
|
|
%
|
|||
Origination Year
|
|
|
|
|
|
Future Principal Payments
|
|
|
|
|
|
2004 and prior
|
$
|
1,919
|
|
27.2
|
%
|
2013
|
$
|
281
|
|
4.0
|
% |
2005
|
|
685
|
|
9.7
|
%
|
2014
|
|
349
|
|
5.0
|
% |
2006
|
|
616
|
|
8.7
|
%
|
2015
|
|
534
|
|
7.6
|
% |
2007
|
|
812
|
|
11.5
|
%
|
2016
|
|
493
|
|
7.0
|
% |
2008
|
|
775
|
|
11.0
|
%
|
2017
|
|
729
|
|
10.3
|
% |
2009
|
|
145
|
|
2.1
|
%
|
2018 and thereafter
|
|
4,657
|
|
66.1
|
% |
2010
|
|
272
|
|
3.9
|
%
|
Total
|
$
|
7,043
|
|
100.0
|
% |
2011
|
|
891
|
|
12.7
|
%
|
|
|
|
|
|
|
2012
|
|
928
|
|
13.2
|
%
|
|
|
|
|
|
|
Total
|
$
|
7,043
|
|
100.0
|
%
|
|
|
|
|
|
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Annuities
|
$ | 25 | $ | 10 | $ | 14 | 150 | % | -29 | % | |||||
Retirement Plan Services
|
13 | 6 | 10 | 117 | % | -40 | % | ||||||||
Life Insurance
|
78 | 71 | 63 | 10 | % | 13 | % | ||||||||
Group Protection
|
7 | 3 | 5 | 133 | % | -40 | % | ||||||||
Other Operations
|
2 | - | 1 |
NM
|
-100 | % | |||||||||
Total
(1)
|
$ | 125 | $ | 90 | $ | 93 | 39 | % | -3 | % |
(1)
|
Includes 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Annuities
|
$ | 5 | $ | 4 | $ | 2 | 25 | % | 100 | % | |||||
Retirement Plan Services
|
2 | 2 | 1 | 0 | % | 100 | % | ||||||||
Life Insurance
|
23 | 30 | 14 | -23 | % | 114 | % | ||||||||
Group Protection
|
2 | 2 | 1 | 0 | % | 100 | % | ||||||||
Total
|
$ | 32 | $ | 38 | $ | 18 | -16 | % | 111 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Net Investment Income
|
|
|
|
|
|
||||||||||
Fixed maturity AFS securities
|
$ | 3,910 | $ | 3,842 | $ | 3,694 | 2 | % | 4 | % | |||||
Equity AFS securities
|
6 | 5 | 6 | 20 | % | -17 | % | ||||||||
Trading securities
|
147 | 154 | 157 | -5 | % | -2 | % | ||||||||
Mortgage loans on real estate
|
397 | 408 | 424 | -3 | % | -4 | % | ||||||||
Real estate
|
16 | 22 | 24 | -27 | % | -8 | % | ||||||||
Standby real estate equity commitments
|
- | 1 | 1 | -100 | % | 0 | % | ||||||||
Policy loans
|
163 | 165 | 169 | -1 | % | -2 | % | ||||||||
Invested cash
|
4 | 4 | 7 | 0 | % | -43 | % | ||||||||
Commercial mortgage loan prepayment and bond make-whole premiums (1) | 48 | 82 | 67 | -41 | % | 22 | % | ||||||||
Alternative investments
(2)
|
125 | 90 | 93 | 39 | % | -3 | % | ||||||||
Consent fees
|
4 | 3 | 8 | 33 | % | -63 | % | ||||||||
Other investments
|
(19 | ) | (13 | ) | 11 | -46 | % |
NM
|
|||||||
Investment income
|
4,801 | 4,763 | 4,661 | 1 | % | 2 | % | ||||||||
Investment expense
|
(103 | ) | (111 | ) | (120 | ) | 7 | % | 8 | % | |||||
Net investment income
|
$ | 4,698 | $ | 4,652 | $ | 4,541 | 1 | % | 2 | % |
(1)
|
See “Commercial Mortgage Loan Prepayment and Bond Make-Whole 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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Interest Rate Yield
|
|
|
|
|
|
||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.30 | % | 5.49 | % | 5.63 | % | (19 | ) | (14 | ) | |||||
Commercial mortgage loan make-whole premiums | 0.06 | % | 0.10 | % | 0.09 | % | (4 | ) | 1 | ||||||
Alternative investments
|
0.15 | % | 0.11 | % | 0.12 | % | 4 | (1 | ) | ||||||
Consent fees
|
0.00 | % | 0.00 | % | 0.01 | % | - | (1 | ) | ||||||
Net investment income yield on invested assets
|
5.51 | % | 5.70 | % | 5.85 | % | (19 | ) | (15 | ) |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Average invested assets at amortized cost
|
$ | 85,285 | $ | 81,641 | $ | 77,558 | 4 | % | 5 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|
||||||||||
Gross gains
|
$ | 16 | $ | 86 | $ | 107 | -81 | % | -20 | % | |||||
Gross losses
|
(202 | ) | (227 | ) | (248 | ) | 11 | % | 8 | % | |||||
Equity AFS securities:
|
|||||||||||||||
Gross gains
|
1 | 12 | 9 | -92 | % | 33 | % | ||||||||
Gross losses
|
(9 | ) | - | (3 | ) |
NM
|
100 | % | |||||||
Gain (loss) on other investments
|
2 | (9 | ) | (53 | ) | 122 | % | 83 | % | ||||||
Associated amortization of DAC, VOBA, DSI, and DFEL and changes in other contract holder funds | 2 | (10 | ) | 8 | 120 | % |
NM
|
||||||||
Total realized gain (loss) related to certain investments, pre-tax | $ | (190 | ) | $ | (148 | ) | $ | (180 | ) | -28 | % | 18 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
OTTI Recognized in Net Income (Loss)
|
|
|
|
|
|
||||||||||
Fixed maturity securities:
|
|
|
|
|
|
||||||||||
Corporate bonds
|
$ | (65 | ) | $ | (14 | ) | $ | (90 | ) |
NM
|
84 | % | |||
RMBS
|
(53 | ) | (79 | ) | (65 | ) | 33 | % | -22 | % | |||||
CMBS
|
(55 | ) | (57 | ) | (41 | ) | 4 | % | -39 | % | |||||
CDOs
|
(2 | ) | (1 | ) | (1 | ) | -100 | % | 0 | % | |||||
Hybrid and redeemable preferred securities
|
- | (2 | ) | (5 | ) | 100 | % | 60 | % | ||||||
Total fixed maturity securities
|
(175 | ) | (153 | ) | (202 | ) | -14 | % | 24 | % | |||||
Equity securities
|
(8 | ) | - | (3 | ) |
NM
|
100 | % | |||||||
Gross OTTI recognized in net income (loss)
|
(183 | ) | (153 | ) | (205 | ) | |||||||||
Associated amortization of DAC, VOBA, DSI and DFEL | 30 | 29 | 45 | 3 | % | -36 | % | ||||||||
Net OTTI recognized in net income (loss), pre-tax | $ | (153 | ) | $ | (124 | ) | $ | (160 | ) | -23 | % | 23 | % | ||
|
|||||||||||||||
Portion of OTTI Recognized in OCI
|
|||||||||||||||
Gross OTTI recognized in OCI
|
$ | 121 | $ | 58 | $ | 97 | 109 | % | -40 | % | |||||
Change in DAC, VOBA, DSI and DFEL
|
(15 | ) | (13 | ) | (10 | ) | -15 | % | -30 | % | |||||
Net portion of OTTI recognized in OCI, pre-tax
|
$ | 106 | $ | 45 | $ | 87 | 136 | % | -48 | % |
For the Years Ended December 31,
|
Change Over Prior Year
|
||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
|||||||||||
Dividends from Subsidiaries
|
|
|
|
|
|
||||||||||
The Lincoln National Life Insurance Company ("LNL")
|
$ | 605 | $ | 836 | $ | 712 | -28 | % | 17 | % | |||||
First Penn-Pacific
|
30 | 18 | - | 67 | % |
NM
|
|||||||||
Delaware Investments
(1)
|
- | - | 390 |
NM
|
-100 | % | |||||||||
Newton County Loan and Savings, FSB
|
- | 21 | - | -100 | % |
NM
|
|||||||||
Loan Repayments and Interest from Subsidiaries | |||||||||||||||
Interest on inter-company notes
|
147 | 105 | 93 | 40 | % | 13 | % | ||||||||
$ | 782 | $ | 980 | $ | 1,195 | -20 | % | -18 | % | ||||||
Other Cash Flow and Liquidity Items
|
|||||||||||||||
Net proceeds on common stock issuance
|
$ | - | $ | - | $ | 368 |
NM
|
-100 | % | ||||||
Lincoln UK sale proceeds
|
- | - | 18 |
NM
|
-100 | % | |||||||||
Increase (decrease) in commercial paper, net | - | (100 | ) | 1 | 100 | % |
NM
|
||||||||
Net capital received from (paid for taxes on) stock option exercises and restricted stock | (5 | ) | (1 | ) | - |
NM
|
NM
|
||||||||
$ | (5 | ) | $ | (101 | ) | $ | 387 | 95 | % |
NM
|
(1)
|
For 2010, amount includes proceeds on the sale of Delaware. For more information, see Note 3.
|
|
||||||||||||||||||
For the Year Ended December 31, 2012
|
||||||||||||||||||
|
|
|
Change
|
|
|
|||||||||||||
|
|
Maturities
|
in Fair
|
|
|
|||||||||||||
Beginning
|
|
and
|
Value
|
Other
|
Ending
|
|||||||||||||
Balance
|
Issuance
|
Repayments |
Hedges
|
Changes (1) |
Balance
|
|||||||||||||
Short-Term Debt
|
|
|
|
|
|
|
||||||||||||
Current maturities of long-term debt
(2)
|
$ | 300 | $ | - | $ | (300 | ) | $ | - | $ | 200 | $ | 200 | |||||
Total short-term debt
|
$ | 300 | $ | - | $ | (300 | ) | $ | - | $ | 200 | $ | 200 | |||||
Long-Term Debt
|
||||||||||||||||||
Senior notes
|
$ | 3,730 | $ | 300 | $ | (15 | ) | $ | (33 | ) | $ | (4 | ) | $ | 3,978 | |||
Bank borrowing
|
200 | - | - | - | (200 | ) | - | |||||||||||
Federal Home Loan Bank of Indianapolis ("FHLBI") advance | 250 | - | - | - | - | 250 | ||||||||||||
Capital securities
|
1,211 | - | - | - | - | 1,211 | ||||||||||||
Total long-term debt
|
$ | 5,391 | $ | 300 | $ | (15 | ) | $ | (33 | ) | $ | (204 | ) | $ | 5,439 |
(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)
|
As of December 31, 2012, consisted of a $200 million floating rate loan maturing on July 18, 2013.
|
·
|
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
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Common dividends to stockholders
|
$ | 90 | $ | 62 | $ | 12 | 45 | % |
NM
|
||||||
Repurchase and cancellation of common stock warrants
|
- | - | 48 |
NM
|
-100 | % | |||||||||
Repurchase of common stock
|
492 | 575 | 25 | -14 | % |
NM
|
|||||||||
Total cash returned to stockholders
|
$ | 582 | $ | 637 | $ | 85 | -9 | % |
NM
|
||||||
|
|||||||||||||||
Number of shares issued
|
- | - | 14.138 |
NM
|
-100 | % | |||||||||
Average price per share
|
$ | - | $ | - | $ | 26.09 |
NM
|
-100 | % | ||||||
|
|||||||||||||||
Number of shares repurchased
|
20.467 | 24.661 | 1.048 | -20 | % |
NM
|
|||||||||
Average price per share
|
$ | 24.07 | $ | 23.33 | $ | 23.87 | 4 | % | -4 | % |
|
For the Years Ended December 31,
|
Change Over Prior Year
|
|||||||||||||
|
2012
|
2011
|
2010
|
2012
|
2011
|
||||||||||
Debt service (interest paid)
|
$ | 287 | $ | 303 | $ | 280 | -5 | % | 8 | % | |||||
Capital contribution to subsidiaries
|
- | 17 | 125 | -100 | % | -86 | % | ||||||||
Total
|
$ | 287 | $ | 320 | $ | 405 | -10 | % | -21 | % |
Less
|
|
|
More
|
|
|||||||||||
Than
|
1 - 3 | 3 - 5 |
Than
|
|
|||||||||||
1 Year
|
Years
|
Years
|
5 Years
|
Total
|
|||||||||||
Future contract benefits and other contract holder obligations (1) | $ | 15,808 | $ | 28,513 | $ | 24,157 | $ | 78,907 | $ | 147,385 | |||||
Short-term debt
(2)
|
200 | - | - | - | 200 | ||||||||||
Long-term debt
(2)
|
- | 750 | 250 | 4,173 | 5,173 | ||||||||||
Payables for collateral on investments
(3)
|
1,380 | 37 | 250 | - | 1,667 | ||||||||||
Operating leases
|
41 | 78 | 59 | 47 | 225 | ||||||||||
Football stadium naming rights
(4)
|
7 | 14 | 15 | 39 | 75 | ||||||||||
Retirement and other plans
(5)
|
98 | 192 | 193 | 479 | 962 | ||||||||||
Totals
|
$ | 17,534 | $ | 29,584 | $ | 24,924 | $ | 83,645 | $ | 155,687 |
(1)
|
Estimates are based on financial projections of over 40 years. New business issued, changes to or variance from actuarial assumptions and economic conditions will cause these amounts to change over time, possibly materially. 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 anticipated funding for benefit payments for our retirement and postretirement plans through 2022 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
|
|
$
|
2,552
|
|
$
|
4,552
|
|
Investment commitments
|
|
422
|
|
|
51
|
|
|
63
|
|
|
-
|
|
|
536
|
|
Media commitments
(1)
|
|
17
|
|
|
22
|
|
|
1
|
|
|
-
|
|
|
40
|
|
Total
|
$
|
439
|
|
$
|
73
|
|
$
|
2,064
|
|
$
|
2,552
|
|
$
|
5,128
|
(1)
|
Consists primarily of employment contracts, sports rights fees and rating service contracts.
|
|
Estimated
|
|||||||||||||||||||||||
2013
|
2014
|
2015
|
2016
|
2017
|
Thereafter
|
Total
|
Fair Value
|
|||||||||||||||||
Rate Sensitive Assets
|
|
|
|
|
|
|
|
|
||||||||||||||||
Fixed interest rate securities
|
$ | 2,944 | $ | 3,178 | $ | 2,725 | $ | 3,237 | $ | 3,658 | $ | 55,699 | $ | 71,441 | $ | 81,348 | ||||||||
Average interest rate
|
5.8 | % | 6.2 | % | 5.4 | % | 5.4 | % | 5.2 | % | 5.3 | % | 5.4 | % | ||||||||||
Variable interest rate securities
|
$ | 21 | $ | 122 | $ | 83 | $ | 232 | $ | 257 | $ | 3,847 | $ | 4,562 | $ | 3,948 | ||||||||
Average interest rate
|
5.9 | % | 3.2 | % | 7.0 | % | 10.4 | % | 6.3 | % | 4.4 | % | 4.8 | % | ||||||||||
Mortgage loans on real estate
|
$ | 280 | $ | 349 | $ | 534 | $ | 493 | $ | 729 | $ | 4,657 | $ | 7,042 | $ | 7,704 | ||||||||
Average interest rate
|
5.9 | % | 6.0 | % | 6.0 | % | 6.1 | % | 6.3 | % | 5.5 | % | 5.7 | % | ||||||||||
Rate Sensitive Liabilities
|
||||||||||||||||||||||||
Investment type insurance contracts (1) | $ | 1,604 | $ | 2,103 | $ | 1,766 | $ | 2,051 | $ | 2,483 | $ | 21,887 | $ | 31,894 | $ | 35,196 | ||||||||
Average interest rate
(1)
|
5.8 | % | 6.0 | % | 5.4 | % | 5.0 | % | 5.0 | % | 5.1 | % | 5.2 | % | ||||||||||
Debt
|
$ | 200 | $ | 500 | $ | 250 | $ | - | $ | 250 | $ | 4,173 | $ | 5,373 | $ | 5,590 | ||||||||
Average interest rate
|
2.0 | % | 4.8 | % | 4.3 | % | 0.0 | % | 0.5 | % | 6.5 | % | 5.8 | % | ||||||||||
Rate Sensitive Derivative Financial Instruments | ||||||||||||||||||||||||
Interest rate and foreign currency swaps: | ||||||||||||||||||||||||
Pay variable/receive fixed
|
$ | 20 | $ | 500 | $ | 85 | $ | - | $ | 254 | $ | 10,268 | $ | 11,127 | $ | 1,309 | ||||||||
Average pay rate
|
0.6 | % | 2.6 | % | 1.1 | % | 0.0 | % | 0.5 | % | 0.5 | % | 0.6 | % | ||||||||||
Average receive rate
|
4.3 | % | 4.8 | % | 2.9 | % | 0.0 | % | 3.7 | % | 3.4 | % | 3.4 | % | ||||||||||
Pay fixed/receive variable
|
$ | 473 | $ | 1,003 | $ | 214 | $ | 418 | $ | 689 | $ | 3,448 | $ | 6,245 | $ | (570 | ) | |||||||
Average pay rate
|
2.8 | % | 4.1 | % | 4.4 | % | 2.9 | % | 5.2 | % | 4.3 | % | 4.2 | % | ||||||||||
Average receive rate
|
0.3 | % | 2.4 | % | 0.3 | % | 0.4 | % | 0.4 | % | 1.3 | % | 1.2 | % | ||||||||||
Interest rate cap agreements:
|
||||||||||||||||||||||||
Contractual notional
|
$ | - | $ | - | $ | - | $ | 8,050 | $ | 8,625 | $ | 3,250 | $ | 19,925 | $ | 14 | ||||||||
Average strike rate
(2)
|
0.0 | % | 0.0 | % | 0.0 | % | 7.8 | % | 7.0 | % | 6.8 | % | 7.3 | % | ||||||||||
Forward CMT curve
(3)
|
0.0 | % | 0.0 | % | 0.0 | % | 2.8 | % | 3.3 | % | 3.4 | % | 3.1 | % | ||||||||||
Interest rate futures:
|
||||||||||||||||||||||||
2-year treasury notes
contractual notional
|
$ | 66 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 66 | $ | - | ||||||||
5-year treasury notes
contractual notional
|
973 | - | - | - | - | - | 973 | - | ||||||||||||||||
10-year treasury notes
contractual notional
|
949 | - | - | - | - | - | 949 | - | ||||||||||||||||
Treasury bonds
contractual notional
|
293 | - | - | - | - | - | 293 | - |
(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
|
$ | 68,045 | $ | 75,027 | ||
Variable interest rate securities
|
4,659 | 3,778 | ||||
Mortgage loans on real estate
|
6,960 | 7,608 | ||||
Investment type insurance contracts
(1)
|
32,177 | 34,542 | ||||
Debt
|
5,388 | 5,334 | ||||
Interest rate and foreign currency swaps
|
15,173 | 649 | ||||
Interest rate cap agreements
|
16,675 | 31 | ||||
Interest rate futures
|
971 | - |
(1)
|
The information shown is for our fixed maturity securities and mortgage loans on real estate that support these insurance contracts.
|
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
|
$ | 8,372 | $ | 9,910 | $ | 29,868 | $ | 48,150 | 71.7 | % | |||||
Up to 0.10%
|
75 | 2 | - | 77 | 0.1 | % | |||||||||
0.11% to 0.20%
|
52 | - | - | 52 | 0.1 | % | |||||||||
0.21% to 0.30%
|
86 | - | 257 | 343 | 0.5 | % | |||||||||
0.31% to 0.40%
|
115 | 12 | - | 127 | 0.2 | % | |||||||||
0.41% to 0.50%
|
85 | 395 | - | 480 | 0.7 | % | |||||||||
0.51% to 0.60%
|
54 | - | 128 | 182 | 0.3 | % | |||||||||
0.61% to 0.70%
|
51 | - | 128 | 179 | 0.3 | % | |||||||||
0.71% to 0.80%
|
42 | - | - | 42 | 0. 1 | % | |||||||||
0.81% to 0.90%
|
51 | - | - | 51 | 0.1 | % | |||||||||
0.91% to 1.00%
|
20 | 138 | - | 158 | 0.2 | % | |||||||||
1.01% to 1.50%
|
106 | 15 | - | 121 | 0.2 | % | |||||||||
1.51% to 2.00%
|
14 | - | 211 | 225 | 0.3 | % | |||||||||
2.01% to 2.50%
|
3 | - | - | 3 | 0.0 | % | |||||||||
2.51% to 3.00%
|
5 | - | - | 5 | 0.0 | % | |||||||||
Multi-year guarantee and indexed annuity products
(4)
|
10,488 | - | - | 10,488 | 15.6 | % | |||||||||
Total discretionary rate setting products
|
19,619 | 10,472 | 30,592 | 60,683 | 90.4 | % | |||||||||
Other contracts
(5)
|
2,224 | 4,246 | - | 6,470 | 9.6 | % | |||||||||
Total account values
|
$ | 21,843 | $ | 14,718 | $ | 30,592 | $ | 67,153 | 100.0 | % | |||||
Percentage of discretionary rate setting product account
values at minimum guaranteed rates
|
42.7 | % | 94.6 | % | 97.6 | % | 79.3 | % |
(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, excluding multi-year guarantee and indexed annuity products, were 5 basis points, 3 basis points and 2 basis points in excess of average minimum guaranteed rates for our Annuities, Retirement Plan Services and Life Insurance segments, respectively.
|
(4)
|
The average crediting rates were 163 basis points in excess of average minimum guaranteed rates for multi-year guarantee products, which comprised of $6.6 billion of account value; 20%, 17% and 63% of our total multi-year guarantee account values are scheduled to reset in 2013, 2014 and 2015 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.
|
(5)
|
For Annuities, this amount relates primarily to immediate annuity and short-term dollar cost averaging business. For Retirement Plan Services, this amount relates to indexed-based rate setting products in which the average crediting rates were 2 basis points in excess of average minimum guaranteed rates and 92% of account values were already at their minimum guaranteed rates.
|
|
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||||||
|
|
|
10% Fair
|
10% Fair
|
|
|
||||||||||||
|
Carrying
|
Estimated
|
Value
|
Value
|
Carrying
|
Estimated
|
||||||||||||
|
Value
|
Fair Value
|
Increase
|
Decrease
|
Value
|
Fair Value
|
||||||||||||
Equity Assets
|
|
|
|
|
|
|
||||||||||||
Domestic equities
|
$ | 107 | $ | 107 | $ | 11 | $ | (11 | ) | $ | 94 | $ | 94 | |||||
Foreign equities
|
53 | 53 | 5 | (5 | ) | 47 | 47 | |||||||||||
Subtotal
|
160 | 160 | 16 | (16 | ) | 141 | 141 | |||||||||||
Real estate
|
65 | 81 | 8 | (8 | ) | 137 | 155 | |||||||||||
Other equity interests
|
966 | 966 | 97 | (97 | ) | 913 | 923 | |||||||||||
Total
|
$ | 1,191 | $ | 1,207 | $ | 121 | $ | (121 | ) | $ | 1,191 | $ | 1,219 |
As of December 31, 2012
|
As of December 31, 2011
|
|||||||||||||||||
|
|
10% Fair
|
10% Fair
|
|
|
|||||||||||||
Notional
|
Estimated
|
Value
|
Value
|
Notional
|
Estimated
|
|||||||||||||
Value
|
Fair Value
|
Increase
|
Decrease
|
Value
|
Fair Value
|
|||||||||||||
Equity Derivatives
(1)
|
|
|
|
|
|
|
||||||||||||
Equity futures
|
$ | 1,790 | $ | - | $ | (177 | ) | $ | 177 | $ | 1,713 | $ | - | |||||
Total return swaps
|
113 | - | 12 | (12 | ) | 100 | - | |||||||||||
Put options
|
7,918 | 1,497 | 1,278 | 1,766 | 6,502 | 1,770 | ||||||||||||
Call options (based on S&P 500)
|
5,749 | 227 | 292 | 157 | 4,881 | 183 | ||||||||||||
Total
|
$ | 15,570 | $ | 1,724 | $ | 1,405 | $ | 2,088 | $ | 13,196 | $ | 1,953 |
(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 1141
(1)
|
at 1711
(1)
|
||||
Segment
|
||||||
Annuities
|
$ | (89 | ) | $ | 48 | |
Retirement Plan Services
|
(9 | ) | 8 |
(1)
|
The baseline for these effects assumes a 4% annual equity market growth rate, depending on the block of business, beginning on January 1, 2013. The baseline is then compared to scenarios of the S&P 500 at the 1141 and 1711 levels, and the difference is presented in the table.
|
|
|
|
||||
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Rating
|
|
|
||||
AA
|
$ | 1 | $ | 23 | ||
A | 14 | 56 | ||||
BBB
|
- | 2 | ||||
Total
|
$ | 15 | $ | 81 |
|
|
Estimated
|
||||||||||||||||||||||
|
2013
|
2014
|
2015
|
2016
|
2017
|
Thereafter
|
Total
|
Fair Value
|
||||||||||||||||
Currencies
|
|
|
|
|
|
|
|
|
||||||||||||||||
British pound
|
$ | - | $ | - | $ | - | $ | - | $ | 20 | $ | 101 | $ | 121 | $ | 136 | ||||||||
Interest rate
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 6.8 | % | 3.6 | % | 4.2 | % | ||||||||||
Canadian dollar
|
$ | - | $ | 33 | $ | - | $ | 10 | $ | - | $ | - | $ | 43 | $ | 43 | ||||||||
Interest rate
|
0.0 | % | 6.1 | % | 0.0 | % | 5.6 | % | 0.0 | % | 0.0 | % | 6.0 | % | ||||||||||
New Zealand dollar
|
$ | - | $ | - | $ | 35 | $ | - | $ | - | $ | - | $ | 35 | $ | 34 | ||||||||
Interest rate
|
0.0 | % | 0.0 | % | 3.3 | % | 0.0 | % | 0.0 | % | 0.0 | % | 3.3 | % | ||||||||||
Euro
|
$ | - | $ | 68 | $ | - | $ | 22 | $ | 25 | $ | 75 | $ | 190 | $ | 203 | ||||||||
Interest rate
|
0.0 | % | 4.8 | % | 0.0 | % | 4.8 | % | 4.7 | % | 5.4 | % | 5.0 | % | ||||||||||
Australian dollar
|
$ | - | $ | - | $ | - | $ | - | $ | - | $ | 39 | $ | 39 | $ | 35 | ||||||||
Interest rate
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 7.4 | % | 7.4 | % | ||||||||||
Derivatives
|
||||||||||||||||||||||||
Foreign currency swaps
|
$ | - | $ | 94 | $ | 30 | $ | 30 | $ | 51 | $ | 215 | $ | 420 | $ | 13 |
|
Principal/
|
|
||||
|
Notional
|
Estimated
|
||||
|
Amount
|
Fair Value
|
||||
Currencies
|
|
|
||||
British pound
|
$ | 66 | $ | 81 | ||
Canadian dollar
|
42 | 43 | ||||
New Zealand dollar
|
34 | 37 | ||||
Euro
|
156 | 162 | ||||
Australian dollar
|
38 | 36 | ||||
Total currencies
|
$ | 336 | $ | 359 | ||
Derivatives
|
||||||
Foreign currency swaps
|
$ | 340 | $ | 38 |
|
MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
ASSETS
|
|
|
||||
Investments:
|
|
|
||||
Available-for-sale securities, at fair value:
|
|
|
||||
Fixed maturity securities (amortized cost: 2012 - $72,718; 2011 - $68,988)
|
$ | 82,036 | $ | 75,433 | ||
Variable interest entities' fixed maturity securities (amortized cost: 2012 - $677; 2011 - $673)
|
708 | 700 | ||||
Equity securities (cost: 2012 - $137; 2011 - $135)
|
157 | 139 | ||||
Trading securities
|
2,554 | 2,675 | ||||
Mortgage loans on real estate
|
7,029 | 6,942 | ||||
Real estate
|
65 | 137 | ||||
Policy loans
|
2,766 | 2,884 | ||||
Derivative investments
|
2,652 | 3,151 | ||||
Other investments
|
1,098 | 1,069 | ||||
Total investments
|
99,065 | 93,130 | ||||
Cash and invested cash
|
4,230 | 4,510 | ||||
Deferred acquisition costs and value of business acquired
|
6,667 | 6,776 | ||||
Premiums and fees receivable
|
380 | 408 | ||||
Accrued investment income
|
1,015 | 981 | ||||
Reinsurance recoverables
|
6,449 | 6,526 | ||||
Funds withheld reinsurance assets
|
837 | 874 | ||||
Goodwill
|
2,273 | 2,273 | ||||
Other assets
|
2,580 | 2,536 | ||||
Separate account assets
|
95,373 | 83,477 | ||||
Total assets | $ | 218,869 | $ | 201,491 | ||
|
||||||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Liabilities
|
||||||
Future contract benefits
|
$ | 19,780 | $ | 19,813 | ||
Other contract holder funds
|
72,218 | 69,466 | ||||
Short-term debt
|
200 | 300 | ||||
Long-term debt
|
5,439 | 5,391 | ||||
Reinsurance related embedded derivatives
|
215 | 168 | ||||
Funds withheld reinsurance liabilities
|
940 | 1,045 | ||||
Deferred gain on business sold through reinsurance
|
319 | 394 | ||||
Payables for collateral on investments
|
4,181 | 3,733 | ||||
Variable interest entities' liabilities
|
92 | 193 | ||||
Other liabilities
|
5,139 | 4,410 | ||||
Separate account liabilities
|
95,373 | 83,477 | ||||
Total liabilities
|
203,896 | 188,390 | ||||
|
||||||
Contingencies and Commitments (See Note 13)
|
||||||
|
||||||
Stockholders' Equity
|
||||||
Preferred stock - 10,000,000 shares authorized; Series A - 9,532 and 10,072 shares issued and outstanding as of December 31, 2012, and December 31, 2011, respectively | - | - | ||||
Common stock - 800,000,000 shares authorized; 271,402,586 and 291,319,222 shares issued and outstanding as of December 31, 2012, and December 31, 2011, respectively | 7,121 | 7,590 | ||||
Retained earnings
|
4,044 | 2,831 | ||||
Accumulated other comprehensive income (loss)
|
3,808 | 2,680 | ||||
Total stockholders' equity
|
14,973 | 13,101 | ||||
Total liabilities and stockholders' equity
|
$ | 218,869 | $ | 201,491 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Revenues
|
|
|
|
||||||
Insurance premiums
|
$ | 2,462 | $ | 2,294 | $ | 2,176 | |||
Insurance fees
|
3,733 | 3,437 | 3,234 | ||||||
Net investment income
|
4,698 | 4,652 | 4,541 | ||||||
Realized gain (loss):
|
|||||||||
Total other-than-temporary impairment losses on securities
|
(259 | ) | (169 | ) | (247 | ) | |||
Portion of loss recognized in other comprehensive income
|
106 | 45 | 87 | ||||||
Net other-than-temporary impairment losses on securities recognized in earnings
|
(153 | ) | (124 | ) | (160 | ) | |||
Realized gain (loss), excluding other-than-temporary impairment losses on securities
|
227 | (170 | ) | 91 | |||||
Total realized gain (loss)
|
74 | (294 | ) | (69 | ) | ||||
Amortization of deferred gain on business sold through reinsurance
|
74 | 75 | 75 | ||||||
Other revenues and fees
|
491 | 477 | 458 | ||||||
Total revenues
|
11,532 | 10,641 | 10,415 | ||||||
Expenses
|
|||||||||
Interest credited
|
2,470 | 2,488 | 2,488 | ||||||
Benefits
|
3,538 | 3,345 | 3,327 | ||||||
Commissions and other expenses
|
3,683 | 3,264 | 3,174 | ||||||
Interest and debt expense
|
273 | 294 | 291 | ||||||
Impairment of intangibles
|
- | 747 | - | ||||||
Total expenses
|
9,964 | 10,138 | 9,280 | ||||||
Income (loss) from continuing operations before taxes
|
1,568 | 503 | 1,135 | ||||||
Federal income tax expense (benefit)
|
282 | 274 | 262 | ||||||
Income (loss) from continuing operations
|
1,286 | 229 | 873 | ||||||
Income (loss) from discontinued operations, net of federal income taxes
|
27 | (8 | ) | 29 | |||||
Net income (loss)
|
1,313 | 221 | 902 | ||||||
Other comprehensive income (loss), net of tax:
|
|||||||||
Unrealized gain (loss) on available-for-sale securities
|
1,119 | 1,771 | 1,127 | ||||||
Unrealized other-than-temporary impairment on available-for-sale securities
|
2 | 25 | (19 | ) | |||||
Unrealized gain (loss) on derivative instruments
|
44 | 130 | (22 | ) | |||||
Foreign currency translation adjustment
|
(5 | ) | - | (2 | ) | ||||
Funded status of employee benefit plans
|
(32 | ) | (97 | ) | 29 | ||||
Total other comprehensive income (loss), net of tax
|
1,128 | 1,829 | 1,113 | ||||||
Comprehensive income (loss)
|
$ | 2,441 | $ | 2,050 | $ | 2,015 | |||
Net Income (Loss) Available to Common Stockholders
|
|||||||||
Net income (loss)
|
$ | 1,313 | $ | 221 | $ | 902 | |||
Preferred stock dividends and accretion of discount
|
- | - | (167 | ) | |||||
Net income (loss) available to common stockholders
|
$ | 1,313 | $ | 221 | $ | 735 | |||
|
|||||||||
Earnings (Loss) Per Common Share - Basic
|
|||||||||
Income (loss) from continuing operations
|
$ | 4.58 | $ | 0.75 | $ | 2.28 | |||
Income (loss) from discontinued operations
|
0.10 | (0.03 | ) | 0.09 | |||||
Net income (loss)
|
$ | 4.68 | $ | 0.72 | $ | 2.37 | |||
|
|||||||||
Earnings (Loss) Per Common Share - Diluted
|
|||||||||
Income (loss) from continuing operations
|
$ | 4.47 | $ | 0.72 | $ | 2.21 | |||
Income (loss) from discontinued operations
|
0.09 | (0.03 | ) | 0.09 | |||||
Net income (loss)
|
$ | 4.56 | $ | 0.69 | $ | 2.30 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Preferred Stock
|
|
|
|
||||||
Balance as of beginning-of-year
|
$ | - | $ | - | $ | 806 | |||
Issuance (redemption) of Series B preferred stock
|
- | - | (950 | ) | |||||
Accretion of discount on Series B preferred stock
|
- | - | 144 | ||||||
Balance as of end-of-year
|
- | - | - | ||||||
|
|||||||||
Common Stock
|
|||||||||
Balance as of beginning-of-year
|
7,590 | 8,124 | 7,840 | ||||||
Issuance of common stock
|
- | - | 368 | ||||||
Issuance (repurchase and cancellation) of common stock warrants
|
- | - | (48 | ) | |||||
Stock compensation/issued for benefit plans
|
23 | 17 | 18 | ||||||
Effect of amendment to deferred compensation plans
|
- | (6 | ) | (29 | ) | ||||
Retirement of common stock/cancellation of shares
|
(492 | ) | (545 | ) | (25 | ) | |||
Balance as of end-of-year
|
7,121 | 7,590 | 8,124 | ||||||
|
|||||||||
Retained Earnings
|
|||||||||
Balance as of beginning-of-year
|
2,831 | 2,711 | 3,316 | ||||||
Cumulative effect from restatement
|
- | - | (113 | ) | |||||
Cumulative effect from adoption of new accounting standards
|
- | - | (1,201 | ) | |||||
Net income (loss)
|
1,313 | 221 | 902 | ||||||
Retirement of common stock
|
- | (30 | ) | - | |||||
Dividends declared: Common (2012 - $0.360; 2011 - $0.230; 2010 - $0.080)
|
(100 | ) | (71 | ) | (26 | ) | |||
Dividends on preferred stock
|
- | - | (23 | ) | |||||
Accretion of discount on Series B preferred stock
|
- | - | (144 | ) | |||||
Balance as of end-of-year
|
4,044 | 2,831 | 2,711 | ||||||
|
|||||||||
Accumulated Other Comprehensive Income (Loss)
|
|||||||||
Balance as of beginning-of-year
|
2,680 | 851 | (262 | ) | |||||
Cumulative effect from adoption of new accounting standards
|
- | - | 181 | ||||||
Other comprehensive income (loss), net of tax
|
1,128 | 1,829 | 932 | ||||||
Balance as of end-of-year
|
3,808 | 2,680 | 851 | ||||||
Total stockholders' equity as of end-of-year
|
$ | 14,973 | $ | 13,101 | $ | 11,686 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Cash Flows from Operating Activities
|
|
|
|
||||||
Net income (loss)
|
$ | 1,313 | $ | 221 | $ | 902 | |||
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 | (219 | ) | (152 | ) | (140 | ) | |||
Trading securities purchases, sales and maturities, net
|
222 | 88 | 47 | ||||||
Change in premiums and fees receivable
|
28 | (73 | ) | (14 | ) | ||||
Change in accrued investment income
|
(34 | ) | (48 | ) | (44 | ) | |||
Change in future contract benefits and other contract holder funds
|
(131 | ) | 125 | 643 | |||||
Change in reinsurance related assets and liabilities
|
9 | (66 | ) | 22 | |||||
Change in federal income tax accruals
|
192 | 318 | 394 | ||||||
Realized (gain) loss
|
(74 | ) | 294 | 69 | |||||
(Gain) loss on early extinguishment of debt
|
5 | 8 | 5 | ||||||
Amortization of deferred gain on business sold through reinsurance
|
(74 | ) | (75 | ) | (75 | ) | |||
Impairment of intangibles
|
- | 747 | - | ||||||
(Gain) loss on disposal of discontinued operations
|
1 | 3 | (66 | ) | |||||
Other
|
31 | (114 | ) | (23 | ) | ||||
Net cash provided by (used in) operating activities
|
1,269 | 1,276 | 1,720 | ||||||
|
|||||||||
Cash Flows from Investing Activities
|
|||||||||
Purchases of available-for-sale securities
|
(11,161 | ) | (10,702 | ) | (13,057 | ) | |||
Sales of available-for-sale securities
|
1,134 | 1,497 | 3,118 | ||||||
Maturities of available-for-sale securities
|
5,974 | 5,324 | 4,652 | ||||||
Purchases of other investments
|
(2,345 | ) | (3,282 | ) | (3,581 | ) | |||
Sales or maturities of other investments
|
2,276 | 3,094 | 3,239 | ||||||
Increase (decrease) in payables for collateral on investments
|
448 | 2,074 | (248 | ) | |||||
Proceeds from sale of subsidiaries/businesses, net of cash disposed
|
- | - | 321 | ||||||
Other
|
(183 | ) | (130 | ) | (74 | ) | |||
Net cash provided by (used in) investing activities
|
(3,857 | ) | (2,125 | ) | (5,630 | ) | |||
|
|||||||||
Cash Flows from Financing Activities
|
|||||||||
Payment of long-term debt, including current maturities
|
(320 | ) | (525 | ) | (405 | ) | |||
Issuance of long-term debt, net of issuance costs
|
300 | 298 | 749 | ||||||
Increase (decrease) in commercial paper, net
|
- | (100 | ) | 1 | |||||
Deposits of fixed account values, including the fixed portion of variable
|
10,694 | 10,953 | 11,080 | ||||||
Withdrawals of fixed account values, including the fixed portion of variable
|
(5,691 | ) | (5,050 | ) | (5,305 | ) | |||
Transfers to and from separate accounts, net
|
(2,091 | ) | (2,325 | ) | (2,957 | ) | |||
Common stock issued for benefit plans and excess tax benefits
|
(1 | ) | 3 | 1 | |||||
Issuance (redemption) of Series B preferred stock and issuance (repurchase and cancellation) of associated common stock warrants | - | - | (998 | ) | |||||
Issuance of common stock
|
- | - | 368 | ||||||
Repurchase of common stock
|
(492 | ) | (575 | ) | (25 | ) | |||
Dividends paid to common and preferred stockholders
|
(91 | ) | (61 | ) | (42 | ) | |||
Net cash provided by (used in) financing activities
|
2,308 | 2,618 | 2,467 | ||||||
|
|||||||||
Net increase (decrease) in cash and invested cash, including discontinued operations
|
(280 | ) | 1,769 | (1,443 | ) | ||||
Cash and invested cash, including discontinued operations, as of beginning-of-year
|
4,510 | 2,741 | 4,184 | ||||||
Cash and invested cash, including discontinued operations, as of end-of-year
|
$ | 4,230 | $ | 4,510 | $ | 2,741 |
|
As of December 31, 2011
|
|||||||||||
|
|
Adoption
|
|
|
||||||||
|
As
|
of New
|
|
|
||||||||
|
Previously
|
Accounting
|
Tax
|
As
|
||||||||
|
Reported
|
Guidance
|
Restatement
|
Restated
|
||||||||
Deferred acquisition costs and value of business acquired
|
$ | 8,191 | $ | (1,415 | ) | $ | - | $ | 6,776 | |||
Total assets
|
202,906 | (1,415 | ) | - | 201,491 | |||||||
Other liabilities
|
4,762 | (490 | ) | 138 | 4,410 | |||||||
Total liabilities
|
188,742 | (490 | ) | 138 | 188,390 | |||||||
Retained earnings
|
4,126 | (1,157 | ) | (138 | ) | 2,831 | ||||||
Accumulated other comprehensive income (loss)
|
2,448 | 232 | - | 2,680 | ||||||||
Total stockholders' equity
|
14,164 | (925 | ) | (138 | ) | 13,101 |
|
For the Year Ended December 31, 2011
|
For the Year Ended December 31, 2010
|
|||||||||||||||||||||||
|
|
Adoption
|
|
|
|
Adoption
|
|
|
|||||||||||||||||
|
As
|
of New
|
|
|
As
|
of New
|
|
|
|||||||||||||||||
|
Previously
|
Accounting
|
Tax
|
As
|
Previously
|
Accounting
|
Tax
|
As
|
|||||||||||||||||
|
Reported
|
Guidance
|
Restatement
|
Restated
|
Reported
|
Guidance
|
Restatement
|
Restated
|
|||||||||||||||||
Realized gain (loss)
|
$ | (299 | ) | $ | 5 | $ | - | $ | (294 | ) | $ | (77 | ) | $ | 8 | $ | - | $ | (69 | ) | |||||
Total revenues
|
10,636 | 5 | - | 10,641 | 10,407 | 8 | - | 10,415 | |||||||||||||||||
Commissions and other expenses | 3,163 | 101 | - | 3,264 | 3,067 | 107 | - | 3,174 | |||||||||||||||||
Total expenses
|
10,037 | 101 | - | 10,138 | 9,173 | 107 | - | 9,280 | |||||||||||||||||
Income (loss) from
continuing operations
before taxes
|
599 | (96 | ) | - | 503 | 1,234 | (99 | ) | - | 1,135 | |||||||||||||||
Federal income tax expense (benefit) | 297 | (34 | ) | 11 | 274 | 283 | (35 | ) | 14 | 262 | |||||||||||||||
Income (loss) from continuing operations | 302 | (62 | ) | (11 | ) | 229 | 951 | (64 | ) | (14 | ) | 873 | |||||||||||||
Net income (loss)
|
294 | (62 | ) | (11 | ) | 221 | 980 | (64 | ) | (14 | ) | 902 | |||||||||||||
Income (loss) from continuing operations per common share: | |||||||||||||||||||||||||
Basic
|
$ | 0.99 | $ | (0.21 | ) | $ | (0.03 | ) | $ | 0.75 | $ | 2.53 | $ | (0.20 | ) | $ | (0.05 | ) | $ | 2.28 | |||||
Diluted
|
0.95 | (0.20 | ) | (0.03 | ) | 0.72 | 2.45 | (0.19 | ) | (0.05 | ) | 2.21 | |||||||||||||
Net income (loss) per common share: | |||||||||||||||||||||||||
Basic
|
0.96 | (0.21 | ) | (0.03 | ) | 0.72 | 2.62 | (0.20 | ) | (0.05 | ) | 2.37 | |||||||||||||
Diluted
|
0.92 | (0.20 | ) | (0.03 | ) | 0.69 | 2.54 | (0.19 | ) | (0.05 | ) | 2.30 |
Summary of Significant Accounting Policies
|
Principles of Consolidation
|
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, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and
|
·
|
Level 3 – inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and we make estimates and assumptions related to the pricing of the 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.
|
·
|
Historical 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.
|
Goodwill
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Revenues
|
|
|
|
||||||
Gain (loss) on sale of business
|
$ | - | $ | - | $ | 4 | |||
Total revenues
|
$ | - | $ | - | $ | 4 | |||
|
|||||||||
Discontinued Operations Before Disposal
|
|||||||||
Income (loss) from discontinued operations before disposal, before federal income taxes | $ | - | $ | - | $ | (13 | ) | ||
Federal income tax expense (benefit)
|
- | - | (2 | ) | |||||
Income (loss) from discontinued operations before disposal
|
- | - | (11 | ) | |||||
|
|||||||||
Disposal
|
|||||||||
Gain (loss) on disposal, before federal income taxes
|
$ | (1 | ) | $ | (3 | ) | $ | 37 | |
Federal income tax expense (benefit)
|
(28 | ) | 5 | 13 | |||||
Gain (loss) on disposal
|
27 | (8 | ) | 24 | |||||
Income (loss) from discontinued operations
|
$ | 27 | $ | (8 | ) | $ | 13 |
Disposal
|
|
||
Gain (loss) on disposal, before federal income taxes
|
$ | 29 | |
Federal income tax expense (benefit)
|
13 | ||
Gain (loss) on disposal
|
16 | ||
Income (loss) from discontinued operations
|
$ | 16 |
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
|
BB-
|
|
Ba2
|
|
||
Current rating of underlying collateral pool
|
Aa1-B3
|
|
Aaa-Caa2
|
|
||
Number of defaults in underlying collateral pool
|
2
|
|
2
|
|
||
Number of entities
|
123
|
|
99
|
|
||
Number of countries
|
20
|
|
21
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
|
AAA
|
AA
|
A |
BBB
|
BB
|
B |
CCC
|
Total
|
||||||||||||||||
Industry
|
|
|
|
|
|
|
||||||||||||||||||
Financial intermediaries
|
- | % | 2.1 | % | 7.0 | % | 1.4 | % | - | % | - | % | - | % | 10.5 | % | ||||||||
Telecommunications
|
- | % | - | % | 5.5 | % | 4.5 | % | - | % | 0.5 | % | - | % | 10.5 | % | ||||||||
Oil and gas
|
0.3 | % | 2.1 | % | 1.0 | % | 4.6 | % | - | % | - | % | - | % | 8.0 | % | ||||||||
Utilities
|
- | % | - | % | 2.6 | % | 2.0 | % | - | % | - | % | - | % | 4.6 | % | ||||||||
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 | % | 1.2 | % | 1.3 | % | - | % | - | % | - | % | 3.2 | % | ||||||||
Conglomerates
|
- | % | 2.3 | % | 0.9 | % | - | % | - | % | - | % | - | % | 3.2 | % | ||||||||
Forest products
|
- | % | - | % | - | % | 1.6 | % | 1.4 | % | - | % | - | % | 3.0 | % | ||||||||
Other
|
- | % | 4.5 | % | 15.4 | % | 17.4 | % | 4.1 | % | 0.9 | % | 0.3 | % | 42.6 | % | ||||||||
Total
|
0.6 | % | 13.9 | % | 42.2 | % | 35.2 | % | 6.4 | % | 1.4 | % | 0.3 | % | 100.0 | % |
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||||||||
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 | $ | - | $ | 598 | N/A | $ | - | $ | 592 | |||||||||
U.S. government bonds
|
N/A | - | 110 | N/A | - | 108 | |||||||||||||
Excess mortality swap
|
1 | 100 | - | 1 | 100 | - | |||||||||||||
Total assets
(1)
|
1 | $ | 100 | $ | 708 | 1 | $ | 100 | $ | 700 | |||||||||
Liabilities
|
|||||||||||||||||||
Non-qualifying hedges:
|
|||||||||||||||||||
Credit default swaps
|
2 | $ | 600 | $ | 129 | 2 | $ | 600 | $ | 295 | |||||||||
Contingent forwards
|
2 | - | (1 | ) | 2 | - | (4 | ) | |||||||||||
Total non-qualifying hedges
|
4 | 600 | 128 | 4 | 600 | 291 | |||||||||||||
Federal income tax
|
N/A | - | (36 | ) | N/A | - | (98 | ) | |||||||||||
Total liabilities
(2)
|
4 | $ | 600 | $ | 92 | 4 | $ | 600 | $ | 193 |
(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,
|
||||||
2012
|
2011
|
|||||
Non-Qualifying Hedges
|
|
|
||||
Credit default swaps
|
$ | 166 | $ | (80 | ) | |
Contingent forwards
|
(3 | ) | (2 | ) | ||
Total non-qualifying hedges
(1)
|
$ | 163 | $ | (82 | ) |
(1)
|
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
Unconsolidated VIEs
|
|
As of December 31, 2012
|
||||||||||||||
|
Amortized
|
Gross Unrealized
|
Fair
|
||||||||||||
|
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
||||||||||
Fixed maturity securities:
|
|
|
|
|
|
||||||||||
Corporate bonds
|
$ | 60,124 | $ | 8,219 | $ | 219 | $ | 108 | $ | 68,016 | |||||
U.S. government bonds
|
383 | 59 | - | - | 442 | ||||||||||
Foreign government bonds
|
562 | 92 | - | - | 654 | ||||||||||
RMBS
|
5,763 | 471 | 3 | 60 | 6,171 | ||||||||||
CMBS
|
970 | 68 | 16 | 19 | 1,003 | ||||||||||
CDOs
|
189 | 2 | 3 | 8 | 180 | ||||||||||
State and municipal bonds
|
3,546 | 814 | 7 | - | 4,353 | ||||||||||
Hybrid and redeemable preferred securities
|
1,181 | 106 | 70 | - | 1,217 | ||||||||||
VIEs' fixed maturity securities
|
677 | 31 | - | - | 708 | ||||||||||
Total fixed maturity securities
|
73,395 | 9,862 | 318 | 195 | 82,744 | ||||||||||
Equity securities
|
137 | 22 | 2 | - | 157 | ||||||||||
Total AFS securities
|
$ | 73,532 | $ | 9,884 | $ | 320 | $ | 195 | $ | 82,901 |
|
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 |
|
Amortized
|
Fair
|
||||
|
Cost
|
Value
|
||||
Due in one year or less
|
$ | 2,858 | $ | 2,910 | ||
Due after one year through five years
|
12,676 | 13,845 | ||||
Due after five years through ten years
|
24,171 | 27,098 | ||||
Due after ten years
|
26,768 | 31,537 | ||||
Subtotal
|
66,473 | 75,390 | ||||
MBS
|
6,733 | 7,174 | ||||
CDOs
|
189 | 180 | ||||
Total fixed maturity AFS securities
|
$ | 73,395 | $ | 82,744 |
|
As of December 31, 2011
|
|||||||||||||||||
|
Less Than or Equal
|
Greater Than
|
|
|||||||||||||||
|
to Twelve Months
|
Twelve Months
|
Total
|
|||||||||||||||
|
|
Gross
|
|
Gross
|
|
Gross
|
||||||||||||
|
|
Unrealized
|
|
Unrealized
|
|
Unrealized
|
||||||||||||
|
Fair
|
Losses and
|
Fair
|
Losses and
|
Fair
|
Losses and
|
||||||||||||
|
Value
|
OTTI
|
Value
|
OTTI
|
Value
|
OTTI
|
||||||||||||
Fixed maturity securities:
|
|
|
|
|
|
|
||||||||||||
Corporate bonds
|
$ | 2,848 | $ | 162 | $ | 1,452 | $ | 423 | $ | 4,300 | $ | 585 | ||||||
RMBS
|
565 | 125 | 429 | 74 | 994 | 199 | ||||||||||||
CMBS
|
178 | 15 | 146 | 100 | 324 | 115 | ||||||||||||
CDOs
|
9 | 1 | 80 | 18 | 89 | 19 | ||||||||||||
State and municipal bonds
|
31 | - | 30 | 9 | 61 | 9 | ||||||||||||
Hybrid and redeemable preferred securities | 324 | 23 | 353 | 147 | 677 | 170 | ||||||||||||
Total fixed maturity securities
|
3,955 | 326 | 2,490 | 771 | 6,445 | 1,097 | ||||||||||||
Equity securities
|
38 | 12 | - | - | 38 | 12 | ||||||||||||
Total AFS securities
|
$ | 3,993 | $ | 338 | $ | 2,490 | $ | 771 | $ | 6,483 | $ | 1,109 | ||||||
|
||||||||||||||||||
Total number of AFS securities in an unrealized loss position
|
897 |
|
As of December 31, 2012
|
||||||||
|
Amortized
|
Fair
|
Unrealized
|
||||||
|
Cost
|
Value
|
Loss
|
||||||
Total
|
|
|
|
||||||
AFS securities backed by pools of residential mortgages
|
$ | 1,181 | $ | 980 | $ | 201 | |||
AFS securities backed by pools of commercial mortgages
|
236 | 192 | 44 | ||||||
Total
|
$ | 1,417 | $ | 1,172 | $ | 245 | |||
|
|||||||||
Subject to Detailed Analysis
|
|||||||||
AFS securities backed by pools of residential mortgages
|
$ | 1,173 | $ | 972 | $ | 201 | |||
AFS securities backed by pools of commercial mortgages
|
56 | 40 | 16 | ||||||
Total
|
$ | 1,229 | $ | 1,012 | $ | 217 |
|
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, 2012
|
||||||||||||
|
|
|
|
Number
|
|||||||||
|
Fair
|
Gross Unrealized
|
of
|
||||||||||
|
Value
|
Losses
|
OTTI
|
Securities
|
(1) | ||||||||
Less than six months
|
$ | 34 | $ | 9 | $ | 1 | 14 | ||||||
Nine months or greater, but less than twelve months
|
15 | 10 | - | 3 | |||||||||
Twelve months or greater
|
395 | 179 | 128 | 131 | |||||||||
Total
|
$ | 444 | $ | 198 | $ | 129 | 148 |
|
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 |
(1)
|
We may reflect a security in more than one aging category based on various purchase dates.
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Balance as of beginning-of-year
|
$ | 390 | $ | 319 | $ | 268 | |||
Increases attributable to:
|
|||||||||
Credit losses on securities for which an OTTI was not previously recognized | 108 | 55 | 14 | ||||||
Credit losses on securities for which an OTTI was previously recognized | 62 | 71 | 65 | ||||||
Decreases attributable to:
|
|||||||||
Securities sold
|
(136 | ) | (55 | ) | (28 | ) | |||
Balance as of end-of-year
|
$ | 424 | $ | 390 | $ | 319 |
·
|
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, 2012
|
||||||||||||||
|
|
Gross Unrealized
|
|
OTTI in
|
|||||||||||
|
Amortized
|
|
Losses and
|
Fair
|
Credit
|
||||||||||
|
Cost
|
Gains
|
OTTI
|
Value
|
Losses
|
||||||||||
Corporate bonds
|
$ | 299 | $ | 4 | $ | 98 | $ | 205 | $ | 104 | |||||
RMBS
|
636 | 22 | 40 | 618 | 227 | ||||||||||
CMBS
|
41 | 1 | 16 | 26 | 93 | ||||||||||
Total
|
$ | 976 | $ | 27 | $ | 154 | $ | 849 | $ | 424 |
|
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,
|
|||||
|
2012
|
2011
|
||||
Fixed maturity securities:
|
|
|
||||
Corporate bonds
|
$ | 1,929 | $ | 1,908 | ||
U.S. government bonds
|
310 | 376 | ||||
Foreign government bonds
|
31 | 39 | ||||
RMBS
|
192 | 244 | ||||
CMBS
|
17 | 31 | ||||
CDOs
|
4 | 4 | ||||
State and municipal bonds
|
27 | 26 | ||||
Hybrid and redeemable preferred securities
|
42 | 45 | ||||
Total fixed maturity securities
|
2,552 | 2,673 | ||||
Equity securities
|
2 | 2 | ||||
Total trading securities
|
$ | 2,554 | $ | 2,675 |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Current
|
$ | 7,011 | $ | 6,858 | ||
60 to 90 days past due
|
8 | 26 | ||||
Greater than 90 days past due
|
24 | 76 | ||||
Valuation allowance associated with impaired mortgage loans on real estate
|
(21 | ) | (31 | ) | ||
Unamortized premium (discount)
|
7 | 13 | ||||
Total carrying value
|
$ | 7,029 | $ | 6,942 |
|
As of December 31,
|
|||||
|
2012
|
|
2011
|
|||
Number of impaired mortgage loans on real estate
|
10
|
|
12
|
|||
|
|
|
|
|
|
|
Principal balance of impaired mortgage loans on real estate
|
$
|
75
|
|
$
|
100
|
|
Valuation allowance associated with impaired mortgage loans on real estate
|
|
(21
|
)
|
|
(31
|
) |
Carrying value of impaired mortgage loans on real estate
|
$
|
54
|
|
$
|
69
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Average carrying value for impaired mortgage loans on real estate
|
$ | 51 | $ | 57 | $ | 54 | |||
Interest income recognized on impaired mortgage loans on real estate
|
1 | 2 | 3 | ||||||
Interest income collected on impaired mortgage loans on real estate
|
1 | 2 | 3 |
|
As of December 31, 2012
|
As of December 31, 2011
|
|||||||||||||||||
|
|
|
Debt-
|
|
|
Debt-
|
|||||||||||||
|
|
|
Service
|
|
|
Service
|
|||||||||||||
|
Principal
|
% of
|
Coverage
|
Principal
|
% of
|
Coverage
|
|||||||||||||
Loan-to-Value
|
Amount
|
Total
|
Ratio
|
Amount
|
Total
|
Ratio
|
|||||||||||||
Less than 65%
|
$ | 5,677 | 80.6 | % | 1.68 | $ | 5,338 | 76.7 | % | 1.61 | |||||||||
65% to 74%
|
897 | 12.7 | % | 1.39 | 1,198 | 17.2 | % | 1.37 | |||||||||||
75% to 100%
|
386 | 5.5 | % | 0.84 | 308 | 4.4 | % | 0.92 | |||||||||||
Greater than 100%
|
83 | 1.2 | % | 0.66 | 116 | 1.7 | % | 0.36 | |||||||||||
Total mortgage loans on real estate
|
$ | 7,043 | 100.0 | % | $ | 6,960 | 100.0 | % |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Fixed maturity AFS securities
|
$ | 3,910 | $ | 3,842 | $ | 3,694 | |||
Equity AFS securities
|
6 | 5 | 6 | ||||||
Trading securities
|
147 | 154 | 157 | ||||||
Mortgage loans on real estate
|
397 | 408 | 424 | ||||||
Real estate
|
16 | 22 | 24 | ||||||
Standby real estate equity commitments
|
- | 1 | 1 | ||||||
Policy loans
|
163 | 165 | 169 | ||||||
Invested cash
|
4 | 4 | 7 | ||||||
Commercial mortgage loan prepayment and bond make-whole premiums | 48 | 82 | 67 | ||||||
Alternative investments
|
125 | 90 | 93 | ||||||
Consent fees
|
4 | 3 | 8 | ||||||
Other investments
|
(19 | ) | (13 | ) | 11 | ||||
Investment income
|
4,801 | 4,763 | 4,661 | ||||||
Investment expense
|
(103 | ) | (111 | ) | (120 | ) | |||
Net investment income
|
$ | 4,698 | $ | 4,652 | $ | 4,541 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Fixed maturity AFS securities:
|
|
|
|
||||||
Gross gains
|
$ | 16 | $ | 86 | $ | 107 | |||
Gross losses
|
(202 | ) | (227 | ) | (248 | ) | |||
Equity AFS securities:
|
|||||||||
Gross gains
|
1 | 12 | 9 | ||||||
Gross losses
|
(9 | ) | - | (3 | ) | ||||
Gain (loss) on other investments
|
2 | (9 | ) | (53 | ) | ||||
Associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds | 2 | (10 | ) | 8 | |||||
Total realized gain (loss) related to certain investments
|
$ | (190 | ) | $ | (148 | ) | $ | (180 | ) |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
OTTI Recognized in Net Income (Loss)
|
|
|
|
||||||
Fixed maturity securities:
|
|
|
|
||||||
Corporate bonds
|
$ | (65 | ) | $ | (14 | ) | $ | (90 | ) |
RMBS
|
(53 | ) | (79 | ) | (65 | ) | |||
CMBS
|
(55 | ) | (57 | ) | (41 | ) | |||
CDOs
|
(2 | ) | (1 | ) | (1 | ) | |||
Hybrid and redeemable preferred securities
|
- | (2 | ) | (5 | ) | ||||
Total fixed maturity securities
|
(175 | ) | (153 | ) | (202 | ) | |||
Equity securities
|
(8 | ) | - | (3 | ) | ||||
Gross OTTI recognized in net income (loss)
|
(183 | ) | (153 | ) | (205 | ) | |||
Associated amortization of DAC, VOBA, DSI and DFEL
|
30 | 29 | 45 | ||||||
Net OTTI recognized in net income (loss), pre-tax
|
$ | (153 | ) | $ | (124 | ) | $ | (160 | ) |
|
|||||||||
Portion of OTTI Recognized in OCI
|
|||||||||
Gross OTTI recognized in OCI
|
$ | 121 | $ | 58 | $ | 97 | |||
Change in DAC, VOBA, DSI and DFEL
|
(15 | ) | (13 | ) | (10 | ) | |||
Net portion of OTTI recognized in OCI, pre-tax
|
$ | 106 | $ | 45 | $ | 87 |
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
Value
|
Value
|
Value
|
Value
|
||||||||||
Collateral payable held for derivative investments
(1)
|
$ | 2,567 | $ | 2,567 | $ | 2,980 | $ | 2,980 | |||||
Securities pledged under securities lending agreements
(2)
|
197 | 189 | 200 | 193 | |||||||||
Securities pledged under reverse repurchase agreements
(3)
|
280 | 294 | 280 | 294 | |||||||||
Securities pledged for Term Asset-Backed Securities
Loan Facility ("TALF")
(4)
|
37 | 52 | 173 | 199 | |||||||||
Investments pledged for Federal Home Loan Bank of
Indianapolis ("FHLBI")
(5)
|
1,100 | 1,936 | 100 | 142 | |||||||||
Total payables for collateral on investments
|
$ | 4,181 | $ | 5,038 | $ | 3,733 | $ | 3,808 |
(1)
|
We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. See Note 6 for details about maximum collateral potentially required to post on our credit default swaps.
|
(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 investments for FHLBI are included in fixed maturity AFS securities and mortgage loans on real estate on our Consolidated Balance Sheets. The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate. The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities.
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Collateral payable held for derivative investments
|
$ | (413 | ) | $ | 2,180 | $ | 183 | ||
Securities pledged under securities lending agreements
|
(3 | ) | 1 | (302 | ) | ||||
Securities pledged under reverse repurchase agreements
|
- | - | (64 | ) | |||||
Securities pledged for TALF
|
(136 | ) | (107 | ) | (65 | ) | |||
Investments pledged for FHLBI
|
1,000 | - | - | ||||||
Total increase (decrease) in payables for collateral on investments
|
$ | 448 | $ | 2,074 | $ | (248 | ) |
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||||||||
Notional
|
Fair Value
|
Notional
|
Fair Value
|
||||||||||||||||
Amounts
|
Asset
|
Liability
|
Amounts
|
Asset
|
Liability
|
||||||||||||||
Qualifying Hedges
|
|
|
|
|
|
|
|||||||||||||
Cash flow hedges:
|
|
|
|
|
|
|
|||||||||||||
Interest rate contracts
(1)
|
$ | 3,214 | $ | 462 | $ | 224 | $ | 2,512 | $ | 385 | $ | 255 | |||||||
Foreign currency contracts
(1)
|
420 | 39 | 26 | 340 | 52 | 14 | |||||||||||||
Total cash flow hedges
|
3,634 | 501 | 250 | 2,852 | 437 | 269 | |||||||||||||
Fair value hedges:
|
|||||||||||||||||||
Interest rate contracts
(1)
|
875 | 269 | - | 1,675 | 319 | - | |||||||||||||
Non-Qualifying Hedges
|
|||||||||||||||||||
Interest rate contracts
(1)
|
36,539 | 1,042 | 475 | 30,232 | 1,041 | 473 | |||||||||||||
Foreign currency contracts
(1)
|
48 | - | - | 4 | - | - | |||||||||||||
Equity market contracts
(1)
|
19,857 | 1,734 | 170 | 16,401 | 2,153 | 57 | |||||||||||||
Equity collar
(1)
|
9 | 1 | - | - | - | - | |||||||||||||
Credit contracts
(1)
|
- | - | 48 | - | - | ||||||||||||||
Credit contracts
(2)
|
148 | - | 11 | 148 | - | 16 | |||||||||||||
Embedded derivatives:
|
|||||||||||||||||||
Indexed annuity contracts
(3)
|
- | - | 732 | - | - | 399 | |||||||||||||
GLB reserves
(3)
|
- | - | 909 | - | - | 2,217 | |||||||||||||
Reinsurance related
(4)
|
- | - | 215 | - | - | 168 | |||||||||||||
Total derivative instruments
|
$ | 61,110 | $ | 3,547 | $ | 2,762 | $ | 51,360 | $ | 3,950 | $ | 3,599 |
(1)
|
Reported in derivative investments on our Consolidated Balance Sheets.
|
(2)
|
Reported in other liabilities on our Consolidated Balance Sheets.
|
(3)
|
Reported in future contract benefits on our Consolidated Balance Sheets.
|
(4)
|
Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.
|
Remaining Life as of December 31, 2012
|
||||||||||||||||||
Less Than
|
|
1 – 5
|
|
6 – 10
|
|
11 – 30
|
|
Over 30
|
|
|
||||||||
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
||||||||
Interest rate contracts
(1)
|
$
|
2,834
|
|
$
|
20,828
|
|
$
|
5,901
|
|
$
|
9,852
|
|
$
|
1,213
|
|
$
|
40,628
|
|
Foreign currency contracts
(2)
|
|
48
|
|
|
205
|
|
|
200
|
|
|
15
|
|
|
-
|
|
|
468
|
|
Equity market contracts
|
|
10,668
|
|
|
4,007
|
|
|
5,165
|
|
|
23
|
|
|
3
|
|
|
19,866
|
|
Credit contracts
|
|
-
|
|
|
148
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
148
|
|
Total derivative instruments with notional amounts |
$
|
13,550
|
|
$
|
25,188
|
|
$
|
11,266
|
|
$
|
9,890
|
|
$
|
1,216
|
|
$
|
61,110
|
(1)
|
As of December 31, 2012, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 2042.
|
(2)
|
As of December 31, 2012, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was April 2028.
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Unrealized Gain (Loss) on Derivative Instruments
|
|
|
|
||||||
Balance as of beginning-of-year
|
$ | 119 | $ | (11 | ) | $ | 11 | ||
Cumulative effect from adoption of new accounting standards
|
- | - | 3 | ||||||
Other comprehensive income (loss):
|
|||||||||
Unrealized holding gains (losses) arising during the year:
|
|||||||||
Cash flow hedges:
|
|||||||||
Interest rate contracts
|
73 | 177 | (47 | ) | |||||
Foreign currency contracts
|
(22 | ) | 3 | 14 | |||||
Fair value hedges:
|
|||||||||
Interest rate contracts
|
4 | 4 | 4 | ||||||
AFS securities embedded derivatives
|
- | - | 2 | ||||||
Change in foreign currency exchange rate adjustment
|
(12 | ) | 7 | 4 | |||||
Change in DAC, VOBA, DSI and DFEL
|
15 | - | - | ||||||
Income tax benefit (expense)
|
(21 | ) | (67 | ) | 7 | ||||
Less:
|
|||||||||
Reclassification adjustment for gains (losses) included in net income (loss):
|
|||||||||
Cash flow hedges:
|
|||||||||
Interest rate contracts
(1)
|
(21 | ) | (15 | ) | 4 | ||||
Interest rate contracts
(2)
|
(1 | ) | (1 | ) | 4 | ||||
Foreign currency contracts
(1)
|
3 | 2 | 2 | ||||||
Fair value hedges:
|
|||||||||
Interest rate contracts
(2)
|
4 | 4 | 4 | ||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
4 | 1 | - | ||||||
Income tax benefit (expense)
|
4 | 3 | (5 | ) | |||||
Balance as of end-of-year
|
$ | 163 | $ | 119 | $ | (11 | ) |
(1)
|
The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
The OCI offset is reported within interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Qualifying Hedges
|
|
|
|
||||||
Cash flow hedges:
|
|
|
|
||||||
Interest rate contracts
(1)
|
$ | (22 | ) | $ | (15 | ) | $ | 3 | |
Foreign currency contracts
(1)
|
3 | 2 | 2 | ||||||
Total cash flow hedges
|
(18 | ) | (13 | ) | 5 | ||||
Fair value hedges:
|
|||||||||
Interest rate contracts
(2)
|
36 | 50 | 42 | ||||||
Equity market contracts
(3)
|
- | - | 15 | ||||||
Total fair value hedges
|
36 | 50 | 57 | ||||||
Non-Qualifying Hedges
|
|||||||||
Interest rate contracts
(1)
|
(26 | ) | (44 | ) | 5 | ||||
Interest rate contracts
(3)
|
61 | 1,144 | 175 | ||||||
Foreign currency contracts
(1)
|
- | - | 43 | ||||||
Foreign currency contracts
(3)
|
(8 | ) | (12 | ) | (13 | ) | |||
Equity market contracts
(3)
|
(1,014 | ) | 316 | (386 | ) | ||||
Equity market contracts
(4)
|
(345 | ) | 21 | (118 | ) | ||||
Credit contracts
(1)
|
- | - | 1 | ||||||
Credit contracts
(3)
|
2 | (7 | ) | 7 | |||||
Embedded derivatives:
|
|||||||||
Indexed annuity contracts
(3)
|
(136 | ) | 5 | (81 | ) | ||||
GLB reserves
(3)
|
1,308 | (1,809 | ) | 268 | |||||
Reinsurance related
(3)
|
(47 | ) | (66 | ) | (71 | ) | |||
AFS securities
(1)
|
- | - | 2 | ||||||
Total derivative instruments
|
$ | (187 | ) | $ | (415 | ) | $ | (106 | ) |
(1)
|
Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
Reported in interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
|
(3)
|
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(4)
|
Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Gain (loss) recognized as a component of OCI with the offset to net investment income | $ | (19 | ) | $ | (13 | ) | $ | 6 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Gain (loss) recognized as a component of OCI with the offset to interest expense | $ | 4 | $ | 4 | $ | 4 |
As of December 31, 2012
|
||||||||||||||||
|
|
|
Credit
|
|
|
|
|
|
|
|
||||||
|
Reason
|
|
Nature
|
|
Rating of
|
|
Number
|
|
|
|
Maximum
|
|||||
|
for
|
|
of
|
|
Underlying
|
|
of
|
|
Fair
|
|
Potential
|
|||||
Maturity
|
|
Entering
|
|
Recourse
|
|
Obligation
(1)
|
|
Instruments
|
|
Value
(2)
|
|
Payout
|
||||
12/20/2016
(3)
|
|
(4)
|
|
(5)
|
|
BBB-
|
|
3
|
|
$
|
(4
|
)
|
$
|
68
|
||
03/20/2017
(3)
|
|
(4)
|
|
(5)
|
|
BBB-
|
|
4
|
|
|
(7
|
)
|
|
81
|
||
|
|
|
|
|
7
|
|
$
|
(11
|
)
|
$
|
149
|
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
(6)
|
|
(4)
|
|
(5)
|
|
BBB+
|
|
4
|
|
$
|
-
|
|
$
|
40
|
||
12/20/2016
(3)
|
|
(4)
|
|
(5)
|
|
BBB+
|
|
3
|
|
|
(12
|
)
|
|
68
|
||
03/20/2017
(3)
|
|
(4)
|
|
(5)
|
|
BBB
|
|
2
|
|
|
(4
|
)
|
|
40
|
||
|
|
|
|
|
9
|
|
$
|
(16
|
)
|
$
|
148
|
(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 a counter-party of the consolidated VIEs discussed in Note 4.
|
(4)
|
Credit default swaps were entered into in order to generate income by providing default protection in return for a quarterly payment.
|
(5)
|
Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.
|
(6)
|
These credit default swaps were sold to our contract holders, prior to 2007, where we determined there was a spread versus premium mismatch.
|
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Maximum potential payout
|
$ | 149 | $ | 148 | ||
Less:
|
||||||
Counterparty thresholds
|
- | - | ||||
Maximum collateral potentially required to post
|
$ | 149 | $ | 148 |
|
|
As of December 31, 2012
|
|
As of December 31, 2011
|
|||||||||||
|
|
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)
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
AA
|
|
$
|
41
|
|
$
|
-
|
|
$
|
35
|
|
$
|
-
|
|||
AA-
|
|
|
58
|
|
|
-
|
|
|
219
|
|
|
-
|
|||
A+
|
|
|
605
|
|
|
-
|
|
|
848
|
|
|
-
|
|||
A
|
|
|
770
|
|
|
(68
|
)
|
|
1,681
|
|
|
(120
|
) | ||
A-
|
|
|
1,214
|
|
|
-
|
|
|
387
|
|
|
-
|
|||
BBB
|
|
|
4
|
|
|
-
|
|
|
-
|
|
|
-
|
|||
|
|
$
|
2,692
|
|
$
|
(68
|
)
|
$
|
3,170
|
|
$
|
(120
|
) |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Current
|
$ | 23 | $ | 13 | $ | (138 | ) | ||
Deferred
|
259 | 261 | 400 | ||||||
Federal income tax expense (benefit)
|
$ | 282 | $ | 274 | $ | 262 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Tax rate times pre-tax income
|
$ | 549 | $ | 176 | $ | 398 | |||
Effect of:
|
|||||||||
Tax-preferred investment income
|
(141 | ) | (144 | ) | (120 | ) | |||
Tax credits
|
(34 | ) | (34 | ) | (28 | ) | |||
Goodwill
|
(2 | ) | 260 | - | |||||
Change in uncertain tax positions
|
(94 | ) | 8 | 2 | |||||
Other items
|
4 | 8 | 10 | ||||||
Federal income tax expense (benefit)
|
$ | 282 | $ | 274 | $ | 262 | |||
Effective tax rate
|
18 | % | 55 | % | 23 | % |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Current
|
$ | (27 | ) | $ | (159 | ) |
Deferred
|
(2,982 | ) | (2,153 | ) | ||
Total federal income tax asset (liability)
|
$ | (3,009 | ) | $ | (2,312 | ) |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Deferred Tax Assets
|
|
|
||||
Future contract benefits and other contract holder funds
|
$ | 1,189 | $ | 837 | ||
Deferred gain on business sold through reinsurance
|
96 | 125 | ||||
Reinsurance related embedded derivative asset
|
75 | 59 | ||||
Investments
|
311 | 396 | ||||
Compensation and benefit plans
|
293 | 306 | ||||
Net operating loss
|
26 | 23 | ||||
Net capital loss
|
32 | 59 | ||||
Tax credits
|
222 | 208 | ||||
VIE
|
35 | 97 | ||||
Other
|
41 | 144 | ||||
Total deferred tax assets
|
2,320 | 2,254 | ||||
Deferred Tax Liabilities
|
||||||
DAC
|
1,332 | 1,322 | ||||
VOBA
|
246 | 370 | ||||
Net unrealized gain on AFS securities
|
3,283 | 2,259 | ||||
Net unrealized gain on trading securities
|
150 | 131 | ||||
Intangibles
|
157 | 160 | ||||
Other
|
134 | 165 | ||||
Total deferred tax liabilities
|
5,302 | 4,407 | ||||
Net deferred tax asset (liability)
|
$ | (2,982 | ) | $ | (2,153 | ) |
|
For the
|
|||||
|
Years Ended
|
|||||
|
December 31,
|
|||||
|
2012
|
2011
|
||||
Balance as of beginning-of-year
|
$ | 211 | $ | 218 | ||
Increases for prior year tax positions
|
- | 1 | ||||
Decreases for prior year tax positions
|
(49 | ) | (10 | ) | ||
Increases for current year tax positions
|
5 | 8 | ||||
Decreases for current year tax positions
|
- | (6 | ) | |||
Decreases for settlements with taxing authorities
|
(2 | ) | - | |||
Decreases for lapse of statute of limitations
|
(88 | ) | - | |||
Balance as of end-of-year
|
$ | 77 | $ | 211 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Balance as of beginning-of-year
|
$ | 5,721 | $ | 6,036 | $ | 7,424 | |||
Cumulative effect from adoption of new accounting standards
|
- | - | (1,578 | ) | |||||
Deferrals
|
1,294 | 1,375 | 1,357 | ||||||
Amortization, net of interest:
|
|||||||||
Unlocking
|
(71 | ) | (130 | ) | 92 | ||||
Amortization, excluding unlocking, net of interest
|
(785 | ) | (687 | ) | (690 | ) | |||
Adjustment related to realized (gains) losses
|
(70 | ) | (18 | ) | (42 | ) | |||
Adjustment related to unrealized (gains) losses
|
(146 | ) | (855 | ) | (527 | ) | |||
Balance as of end-of-year
|
$ | 5,943 | $ | 5,721 | $ | 6,036 |
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Balance as of beginning-of-year
|
$ | 1,055 | $ | 1,378 | $ | 2,086 | |||
Business acquired (sold) through reinsurance
|
2 | 12 | - | ||||||
Deferrals
|
12 | 20 | 26 | ||||||
Amortization:
|
|||||||||
Unlocking
|
(23 | ) | 174 | (47 | ) | ||||
Amortization, excluding unlocking
|
(225 | ) | (279 | ) | (351 | ) | |||
Accretion of interest
(1)
|
73 | 78 | 89 | ||||||
Adjustment related to realized (gains) losses
|
9 | (6 | ) | (8 | ) | ||||
Adjustment related to unrealized (gains) losses
|
(179 | ) | (322 | ) | (417 | ) | |||
Balance as of end-of-year
|
$ | 724 | $ | 1,055 | $ | 1,378 |
(1)
|
The interest accrual rates utilized to calculate the accretion of interest ranged from 3.30% to 7.05%.
|
|
|
|
|
2013
|
$
|
94
|
|
2014
|
|
72
|
|
2015
|
|
64
|
|
2016
|
|
57
|
|
2017
|
|
52
|
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Balance as of beginning-of-year
|
$ | 271 | $ | 286 | $ | 323 | |||
Deferrals
|
39 | 39 | 66 | ||||||
Amortization, net of interest:
|
|||||||||
Unlocking
|
14 | (2 | ) | (3 | ) | ||||
Amortization, excluding unlocking, net of interest
|
(46 | ) | (38 | ) | (51 | ) | |||
Adjustment related to realized (gains) losses
|
(8 | ) | (1 | ) | (8 | ) | |||
Adjustment related to unrealized (gains) losses
|
(17 | ) | (13 | ) | (41 | ) | |||
Balance as of end-of-year
|
$ | 253 | $ | 271 | $ | 286 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Balance as of beginning-of-year
|
$ | 1,369 | $ | 1,502 | $ | 1,338 | |||
Deferrals
|
349 | 544 | 546 | ||||||
Amortization, net of interest:
|
|||||||||
Unlocking
|
(69 | ) | 31 | (1 | ) | ||||
Amortization, excluding unlocking, net of interest
|
(216 | ) | (166 | ) | (196 | ) | |||
Adjustment related to realized (gains) losses
|
(18 | ) | (9 | ) | (8 | ) | |||
Adjustment related to unrealized (gains) losses
|
(42 | ) | (533 | ) | (177 | ) | |||
Balance as of end-of-year
|
$ | 1,373 | $ | 1,369 | $ | 1,502 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Direct insurance premiums and fees
|
$ | 7,376 | $ | 6,997 | $ | 6,599 | |||
Reinsurance assumed
|
9 | 10 | 13 | ||||||
Reinsurance ceded
|
(1,190 | ) | (1,276 | ) | (1,202 | ) | |||
Total insurance premiums and fees
|
$ | 6,195 | $ | 5,731 | $ | 5,410 | |||
|
|||||||||
Direct insurance benefits
|
$ | 5,092 | $ | 4,897 | $ | 4,547 | |||
Reinsurance recoveries netted against benefits
|
(1,554 | ) | (1,552 | ) | (1,220 | ) | |||
Total benefits
|
$ | 3,538 | $ | 3,345 | $ | 3,327 |
|
For the Year Ended December 31, 2012
|
||||||||||||||
|
Acquisition
|
Cumulative
|
|
|
|
||||||||||
|
Balance
|
Impairment
|
|
|
|
||||||||||
|
as of
|
as of
|
|
|
Balance
|
||||||||||
|
Beginning-
|
Beginning-
|
|
|
as of End-
|
||||||||||
|
of-Year
|
of-Year
|
Impairment
|
Other
|
of-Year
|
||||||||||
Annuities
|
$ | 1,040 | $ | (600 | ) | $ | - | $ | - | $ | 440 | ||||
Retirement Plan Services
|
20 | - | - | - | 20 | ||||||||||
Life Insurance
|
2,188 | (649 | ) | - | - | 1,539 | |||||||||
Group Protection
|
274 | - | - | - | 274 | ||||||||||
Other Operations - Media
|
341 | (341 | ) | - | - | - | |||||||||
Total goodwill
|
$ | 3,863 | $ | (1,590 | ) | $ | - | $ | - | $ | 2,273 |
|
For the Year Ended December 31, 2011
|
||||||||||||||
|
Acquisition
|
Cumulative
|
|
|
|
||||||||||
|
Balance
|
Impairment
|
|
|
|
||||||||||
|
as of
|
as of
|
|
|
Balance
|
||||||||||
|
Beginning-
|
Beginning-
|
|
|
as of End-
|
||||||||||
|
of-Year
|
of-Year
|
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 |
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||
Gross
|
|
Gross
|
|
||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||
Amount
|
Amortization
|
Amount
|
Amortization
|
||||||||||
Life Insurance:
|
|
|
|
|
|||||||||
Sales force
|
$ | 100 | $ | 27 | $ | 100 | $ | 23 | |||||
Retirement Plan Services:
|
|||||||||||||
Mutual fund contract rights
(1)
|
5 | - | 2 | - | |||||||||
Other Operations:
|
|||||||||||||
FCC licenses
(1)
|
129 | - | 118 | - | |||||||||
Other
|
4 | 3 | 4 | 3 | |||||||||
Total
|
$ | 238 | $ | 30 | $ | 224 | $ | 26 |
(1)
|
No amortization recorded as the intangible asset has indefinite life.
|
|
|
|
|
2013
|
$
|
4
|
|
2014
|
|
4
|
|
2015
|
|
4
|
|
2016
|
|
4
|
|
2017
|
|
4
|
|
As of December 31,
|
|
|
|||||
2012
|
|
2011
|
|
|
|||
Return of Net Deposits
|
|
|
|
|
|
|
|
Total account value
|
$
|
63,478
|
|
$
|
54,004
|
|
|
Net amount at risk
(1)
|
|
392
|
|
|
1,379
|
|
|
Average attained age of contract holders
|
|
60 years
|
|
|
59 years
|
|
|
Minimum Return
|
|
|
|
|
|
|
|
Total account value
|
$
|
149
|
|
$
|
155
|
|
|
Net amount at risk
(1)
|
|
37
|
|
|
48
|
|
|
Average attained age of contract holders
|
|
73 years
|
|
|
72 years
|
|
|
Guaranteed minimum return
|
|
5
|
%
|
|
5 |
%
|
|
Anniversary Contract Value
|
|
|
|
|
|
|
|
Total account value
|
$
|
23,019
|
|
$
|
21,648
|
|
|
Net amount at risk
(1)
|
|
1,133
|
|
|
2,939
|
|
|
Average attained age of contract holders
|
|
67 years
|
|
|
67 years
|
|
|
(1)
|
Represents the amount of death benefit in excess of the account balance. The decrease in net amount at risk when comparing December 31, 2012, to December 31, 2011, was attributable primarily to the increase in equity markets during 2012.
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Balance as of beginning-of-year
|
$ | 84 | $ | 44 | $ | 71 | |||
Changes in reserves
|
64 | 93 | 57 | ||||||
Benefits paid
|
(44 | ) | (53 | ) | (84 | ) | |||
Balance as of end-of-year
|
$ | 104 | $ | 84 | $ | 44 |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Asset Type
|
|
|
||||
Domestic equity
|
$ | 37,899 | $ | 34,286 | ||
International equity
|
14,850 | 13,095 | ||||
Bonds
|
21,174 | 17,735 | ||||
Money market
|
7,747 | 5,892 | ||||
Total
|
$ | 81,670 | $ | 71,008 | ||
|
||||||
Percent of total variable annuity separate account values
|
98 | % | 98 | % |
As of December 31,
|
||||||
2012
|
2011
|
|||||
Short-Term Debt
|
|
|
||||
Current maturities of long-term debt
|
$ | 200 | $ | 300 | ||
Total short-term debt
|
$ | 200 | $ | 300 | ||
Long-Term Debt, Excluding Current Portion
|
||||||
Senior notes:
|
||||||
LIBOR + 175 bps loan, due 2013
|
$ | - | $ | 200 | ||
4.75% notes, due 2014
|
300 | 300 | ||||
4.75% notes, due 2014
|
200 | 200 | ||||
4.30% notes, due 2015
(1)
|
250 | 250 | ||||
LIBOR + 3 bps notes, due 2017
|
250 | 250 | ||||
7.00% notes, due 2018
|
200 | 200 | ||||
8.75% notes, due 2019
(1)
|
487 | 500 | ||||
6.25% notes, due 2020
(1)
|
300 | 300 | ||||
4.85% notes, due 2021
(1)
|
300 | 300 | ||||
4.20% notes, due 2022
(1)
|
300 | - | ||||
6.15% notes, due 2036
|
498 | 500 | ||||
6.30% notes, due 2037
|
375 | 375 | ||||
7.00% notes, due 2040
(1)
|
500 | 500 | ||||
Total senior notes
|
3,960 | 3,875 | ||||
Capital securities:
|
||||||
7.00%, due 2066
|
722 | 722 | ||||
6.05%, due 2067
|
491 | 491 | ||||
Total capital securities
|
1,213 | 1,213 | ||||
Unamortized premiums (discounts)
|
(3 | ) | (16 | ) | ||
Fair value hedge – interest rate swap agreements
|
269 | 319 | ||||
Total unamortized premiums (discounts) and fair value hedge – interest rate swap agreements | 266 | 303 | ||||
Total long-term debt
|
$ | 5,439 | $ | 5,391 |
(1)
|
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.
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Principal balance outstanding prior to payoff
(1)
|
$ | 15 | $ | 275 | $ | 155 | |||
Unamortized debt issuance costs and discounts prior to payoff
|
- | (8 | ) | (5 | ) | ||||
Amount paid to retire
|
(20 | ) | (275 | ) | (155 | ) | |||
Gain (loss) on extinguishment of debt, pre-tax
|
$ | (5 | ) | $ | (8 | ) | $ | (5 | ) |
(1)
|
During the fourth quarter of 2012, we repurchased $13 million of our 8.75% senior notes due 2019 and $2 million of our 6.15% senior notes due 2036. During the third quarter of 2011, we repurchased all of our 6.75% capital securities due 2066. During the fourth quarter of 2010, we repurchased all of our 6.75% junior subordinated debentures due 2052.
|
|
|
||
2013
|
$ | 200 | |
2014
|
500 | ||
2015
|
250 | ||
2016
|
- | ||
2017
|
250 | ||
Thereafter
|
4,173 | ||
Total
|
$ | 5,373 | |
|
|
As of December 31, 2012
|
|||||||
Expiration
|
Maximum
|
LOCs
|
||||||
Date
|
Available
|
Issued
|
||||||
Credit Facilities
|
|
|
|
|||||
Four-year revolving credit facility
|
Jun-2015
|
$ | 2,000 | $ | 123 | |||
LOC facility
|
Mar-2023
|
857 | 857 | |||||
LOC facility
|
Aug-2031
|
781 | 759 | |||||
LOC facility
|
Oct-2031
|
967 | 937 | |||||
Total
|
|
$ | 4,605 | $ | 2,676 | |||
|
·
|
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.”
|
|
|
||
2013
|
$ | 41 | |
2014
|
41 | ||
2015
|
36 | ||
2016
|
32 | ||
2017
|
27 |
|
For the Years Ended December 31,
|
|||||||||
|
2012
|
2011
|
2010
|
|||||||
Series A Preferred Stock
|
|
|
|
|||||||
Balance as of beginning-of-year
|
10,072 | 10,914 | 11,497 | |||||||
Conversion of convertible preferred stock
(1)
|
(540 | ) | (842 | ) | (583 | ) | ||||
Balance as of end-of-year
|
9,532 | 10,072 | 10,914 | |||||||
|
||||||||||
Series B Preferred Stock
|
||||||||||
Balance as of beginning-of-year
|
- | - | 950,000 | |||||||
Issuance (redemption) of Series B preferred stock
|
- | - | (950,000 | ) | ||||||
Balance as of end-of-year
|
- | - | - | |||||||
|
||||||||||
Common Stock
|
||||||||||
Balance as of beginning-of-year
|
291,319,222 | 315,718,554 | 302,223,281 | |||||||
Stock issued
|
- | - | 14,137,615 | |||||||
Conversion of convertible preferred stock
(1)
|
8,640 | 13,472 | 9,328 | |||||||
Stock compensation/issued for benefit plans
|
542,125 | 248,553 | 414,712 | |||||||
Retirement/cancellation of shares
|
(20,467,401 | ) | (24,661,357 | ) | (1,066,382 | ) | ||||
Balance as of end-of-year
|
271,402,586 | 291,319,222 | 315,718,554 | |||||||
|
||||||||||
Common Stock as of End-of-Year
|
||||||||||
Assuming conversion of preferred stock
|
271,555,098 | 291,480,374 | 315,893,178 | |||||||
Diluted basis
|
279,087,588 | 298,225,244 | 324,043,137 |
(1)
|
Represents the conversion of Series A preferred stock into common stock.
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Weighted-average shares, as used in basic calculation
|
280,648,391 | 307,216,181 | 310,005,264 | ||||||
Shares to cover exercise of outstanding warrants
|
10,150,212 | 10,150,292 | 12,260,236 | ||||||
Shares to cover conversion of preferred stock
|
153,749 | 173,289 | 178,720 | ||||||
Shares to cover non-vested stock
|
1,153,178 | 813,905 | 616,314 | ||||||
Average stock options outstanding during the year
|
570,180 | 636,989 | 707,704 | ||||||
Assumed acquisition of shares with assumed
proceeds from exercising outstanding warrants
|
(4,685,901 | ) | (4,658,020 | ) | (5,148,473 | ) | |||
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the year)
|
(394,241 | ) | (427,425 | ) | (464,813 | ) | |||
Shares repurchaseable from measured but
unrecognized stock option expense
|
(4,723 | ) | (65,882 | ) | (139,673 | ) | |||
Average deferred compensation shares
|
- | 1,110,722 | 1,198,468 | ||||||
Weighted-average shares, as used in diluted calculation
|
287,590,845 | 314,950,051 | 319,213,747 |
|
For the Years Ended December 31,
|
|||||||||
|
2012
|
2011
|
2010
|
|||||||
Unrealized Gain (Loss) on AFS Securities
|
|
|
|
|||||||
Balance as of beginning-of-year
|
$ | 2,947 | $ | 1,176 | $ | 49 | ||||
Cumulative effect from adoption of new accounting standards
|
- | - | 183 | |||||||
Unrealized holding gains (losses) arising during the year
|
2,691 | 3,414 | 2,528 | |||||||
Change in foreign currency exchange rate adjustment
|
14 | (5 | ) | (6 | ) | |||||
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds
|
(1,233 | ) | (797 | ) | (1,038 | ) | ||||
Income tax benefit (expense)
|
(480 | ) | (932 | ) | (535 | ) | ||||
Less:
|
||||||||||
Reclassification adjustment for gains (losses) included in net income (loss)
|
(194 | ) | (129 | ) | (135 | ) | ||||
Reclassification adjustment for gains (losses) on derivatives included in net income (loss)
|
- | - | 135 | |||||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
(2 | ) | (11 | ) | 8 | |||||
Income tax benefit (expense)
|
69 | 49 | (3 | ) | ||||||
Balance as of end-of-year
|
$ | 4,066 | $ | 2,947 | $ | 1,176 | ||||
Unrealized OTTI on AFS Securities
|
||||||||||
Balance as of beginning-of-year
|
$ | (109 | ) | $ | (134 | ) | $ | (115 | ) | |
(Increases) attributable to:
|
||||||||||
Cumulative effect from adoption of new accounting standards
|
- | - | (5 | ) | ||||||
Gross OTTI recognized in OCI during the year
|
(121 | ) | (58 | ) | (97 | ) | ||||
Change in DAC, VOBA, DSI and DFEL
|
15 | 13 | 10 | |||||||
Income tax benefit (expense)
|
36 | 16 | 30 | |||||||
Decreases attributable to:
|
||||||||||
Sales, maturities or other settlements of AFS securities
|
129 | 103 | 87 | |||||||
Change in DAC, VOBA, DSI and DFEL
|
(18 | ) | (20 | ) | (20 | ) | ||||
Income tax benefit (expense)
|
(39 | ) | (29 | ) | (24 | ) | ||||
Balance as of end-of-year
|
$ | (107 | ) | $ | (109 | ) | $ | (134 | ) | |
Unrealized Gain (Loss) on Derivative Instruments
|
||||||||||
Balance as of beginning-of-year
|
$ | 119 | $ | (11 | ) | $ | 11 | |||
Cumulative effect from adoption of new accounting standards
|
- | - | 3 | |||||||
Unrealized holding gains (losses) arising during the year
|
55 | 184 | (27 | ) | ||||||
Change in foreign currency exchange rate adjustment
|
(12 | ) | 7 | 4 | ||||||
Change in DAC, VOBA, DSI and DFEL
|
15 | - | - | |||||||
Income tax benefit (expense)
|
(21 | ) | (67 | ) | 7 | |||||
Less:
|
||||||||||
Reclassification adjustment for gains (losses) included in net income (loss)
|
(15 | ) | (10 | ) | 14 | |||||
Associated amortization of DAC, VOBA, DSI and DFEL
|
4 | 1 | - | |||||||
Income tax benefit (expense)
|
4 | 3 | (5 | ) | ||||||
Balance as of end-of-year
|
$ | 163 | $ | 119 | $ | (11 | ) | |||
Foreign Currency Translation Adjustment
|
||||||||||
Balance as of beginning-of-year
|
$ | 1 | $ | 1 | $ | 3 | ||||
Foreign currency translation adjustment arising during the year
|
(5 | ) | - | (3 | ) | |||||
Income tax benefit (expense)
|
- | - | 1 | |||||||
Balance as of end-of-year
|
$ | (4 | ) | $ | 1 | $ | 1 | |||
Funded Status of Employee Benefit Plans
|
||||||||||
Balance as of beginning-of-year
|
$ | (278 | ) | $ | (181 | ) | $ | (210 | ) | |
Adjustment arising during the year
|
2 | (149 | ) | 45 | ||||||
Income tax benefit (expense)
|
(34 | ) | 52 | (16 | ) | |||||
Balance as of end-of-year
|
$ | (310 | ) | $ | (278 | ) | $ | (181 | ) |
(1)
|
See “Realized Gain (Loss) Related to Certain Investments” section in Note 5.
|
(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,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Commissions
|
$ | 1,660 | $ | 1,672 | $ | 1,616 | |||
General and administrative expenses
|
1,564 | 1,423 | 1,412 | ||||||
Expenses associated with reserve financing and unrelated LOCs
|
56 | 47 | 34 | ||||||
DAC and VOBA deferrals and interest, net of amortization
|
(275 | ) | (551 | ) | (476 | ) | |||
Broker-dealer expenses
|
348 | 353 | 320 | ||||||
Specifically identifiable intangible asset amortization
|
4 | 4 | 4 | ||||||
Media expenses
|
67 | 69 | 59 | ||||||
Taxes, licenses and fees
|
239 | 247 | 197 | ||||||
Merger-related expenses
|
- | - | 9 | ||||||
Restructuring charges (recoveries)
|
20 | - | (1 | ) | |||||
Total
|
$ | 3,683 | $ | 3,264 | $ | 3,174 |
As of or for the Years Ended December 31, |
|
|||||||||||||||||||
2012 |
2011
|
2012 | 2011 | 2012 | 2011 | |||||||||||||||
U.S. | Non-U.S. | Other |
|
|||||||||||||||||
Pension Benefits | Pension Benefits | Postretirement Benefits |
|
|||||||||||||||||
Change in Plan Assets
|
|
|
|
|
|
|
||||||||||||||
Fair value as of beginning-of-year
|
$ | 956 | $ | 918 | $ | 350 | $ | 314 | $ | 39 | $ | 37 | ||||||||
Actual return on plan assets
|
123 | 72 | 28 | 49 | 3 | 3 | ||||||||||||||
Company and participant contributions
|
32 | 36 | 7 | 1 | 15 | 15 | ||||||||||||||
Benefits paid
|
(68 | ) | (70 | ) | (14 | ) | (12 | ) | (17 | ) | (17 | ) | ||||||||
Medicare Part D subsidy
|
- | - | - | - | 2 | 1 | ||||||||||||||
Foreign exchange translation
|
- | - | - | (2 | ) | - | - | |||||||||||||
Fair value as of end-of-year
|
1,043 | 956 | 371 | 350 | 42 | 39 | ||||||||||||||
Change in Benefit Obligation
|
||||||||||||||||||||
Balance as of beginning-of-year
|
1,238 | 1,093 | 311 | 271 | 161 | 155 | ||||||||||||||
Service cost
(1)
|
5 | 3 | - | - | 4 | 4 | ||||||||||||||
Interest cost
|
53 | 58 | 15 | 15 | 7 | 7 | ||||||||||||||
Company and participant contributions
|
- | - | - | - | 6 | 6 | ||||||||||||||
Curtailments
|
- | - | - | - | - | - | ||||||||||||||
Actuarial (gains) losses
|
56 | 154 | 52 | 38 | (24 | ) | 5 | |||||||||||||
Benefits paid
|
(68 | ) | (70 | ) | (14 | ) | (12 | ) | (17 | ) | (17 | ) | ||||||||
Medicare Part D subsidy
|
- | - | - | - | 2 | 1 | ||||||||||||||
Foreign exchange translation
|
- | - | - | (1 | ) | - | - | |||||||||||||
Balance as of end-of-year
|
1,284 | 1,238 | 364 | 311 | 139 | 161 | ||||||||||||||
Funded status of the plans
|
$ | (241 | ) | $ | (282 | ) | $ | 7 | $ | 39 | $ | (97 | ) | $ | (122 | ) | ||||
Amounts Recognized on the
Consolidated Balance Sheets
|
||||||||||||||||||||
Other assets
|
$ | 21 | $ | 18 | $ | 7 | $ | 39 | $ | - | $ | - | ||||||||
Other liabilities
|
(262 | ) | (300 | ) | - | - | (97 | ) | (122 | ) | ||||||||||
Net amount recognized
|
$ | (241 | ) | $ | (282 | ) | $ | 7 | $ | 39 | $ | (97 | ) | $ | (122 | ) | ||||
Amounts Recognized in Accumulated OCI, Net of Tax
|
||||||||||||||||||||
Net (gain) loss
|
$ | 229 | $ | 243 | $ | 60 | $ | 33 | $ | (11 | ) | $ | 5 | |||||||
Prior service credit
|
- | - | - | - | (3 | ) | (3 | ) | ||||||||||||
Net amount recognized
|
$ | 229 | $ | 243 | $ | 60 | $ | 33 | $ | (14 | ) | $ | 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
|
4.16
|
%
|
|
4.45
|
%
|
|
4.40
|
%
|
|
5.00
|
%
|
|
4.03
|
%
|
|
4.25
|
%
|
|
Expected return on plan assets
|
7.79
|
%
|
|
7.78
|
%
|
|
5.30
|
%
|
|
5.40
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average discount rate
|
4.45
|
%
|
|
5.45
|
%
|
|
5.00
|
%
|
|
5.70
|
%
|
|
4.25
|
%
|
|
5.00
|
%
|
|
Expected return on plan assets
|
7.79
|
%
|
|
7.78
|
%
|
|
5.30
|
%
|
|
5.40
|
%
|
|
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, |
|
|||||||
|
2012 | 2011 | 2010 |
|
|||||
Pre-65 health care cost trend rate
|
|
8.00
|
%
|
|
8.50
|
%
|
|
9.50
|
%
|
Post-65 health care cost trend rate
|
|
8.00
|
%
|
|
8.50
|
%
|
|
9.50
|
%
|
Ultimate trend rate
|
|
4.50
|
%
|
|
4.50
|
%
|
|
5.00
|
%
|
Year that the rate reaches the ultimate trend rate
|
|
2020
|
|
2021
|
|
2020
|
|
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
U.S. Plan
|
|
|
||||
Accumulated benefit obligation
|
$ | 1,160 | $ | 1,118 | ||
Projected benefit obligation
|
1,160 | 1,118 | ||||
Fair value of plan assets
|
898 | 818 |
For the Years Ended December 31,
|
||||||||||||||||||
2012
|
2011
|
2010
|
2012
|
2011
|
2010
|
|||||||||||||
Pension Benefits
|
Other Postretirement Benefits
|
|||||||||||||||||
U.S. Plans
|
|
|
|
|
|
|
||||||||||||
Service cost
(1)
|
$ | 5 | $ | 3 | $ | 3 | $ | 4 | $ | 4 | $ | 3 | ||||||
Interest cost
|
53 | 58 | 61 | 7 | 7 | 9 | ||||||||||||
Expected return on plan assets
|
(72 | ) | (71 | ) | (65 | ) | (3 | ) | (2 | ) | (2 | ) | ||||||
Amortization of prior service cost
|
- | - | - | (1 | ) | (1 | ) | (1 | ) | |||||||||
Recognized net actuarial loss (gain)
|
26 | 13 | 15 | 1 | 1 | 1 | ||||||||||||
Net periodic benefit expense (recovery)
|
$ | 12 | $ | 3 | $ | 14 | $ | 8 | $ | 9 | $ | 10 | ||||||
Non-U.S. Plans
|
||||||||||||||||||
Interest cost
|
$ | 15 | $ | 15 | $ | 16 | ||||||||||||
Expected return on plan assets
|
(17 | ) | (16 | ) | (16 | ) | ||||||||||||
Recognized net actuarial loss (gain)
|
1 | - | 1 | |||||||||||||||
Net periodic benefit expense (recovery)
|
$ | (1 | ) | $ | (1 | ) | $ | 1 |
(1)
|
Amounts for our pension plans represent general and administrative expenses.
|
|
For the Years Ended December 31,
|
|||||||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
||||||||||||||
|
U.S. Plan - Employees
|
U.S. Plan - Agents
|
Non-U.S. Plan
|
|||||||||||||||||
Asset Class
|
|
|
|
|
|
|
||||||||||||||
Fixed maturity securities
|
50 | % | 50 | % | 80 | % | 80 | % | 39 | % | 56 | % | ||||||||
Common stock:
|
||||||||||||||||||||
Domestic equity
|
35 | % | 35 | % | 14 | % | 14 | % | - | % | - | % | ||||||||
International equity
|
15 | % | 15 | % | 6 | % | 6 | % | - | % | - | % | ||||||||
Equity securities
|
- | % | - | % | - | % | - | % | 59 | % | 43 | % | ||||||||
Cash and invested cash
|
- | % | - | % | - | % | - | % | 2 | % | 1 | % |
·
|
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,
|
|||||||||||||||||
|
2012
|
2011
|
2012
|
2011
|
2012
|
2011
|
||||||||||||
|
U.S.
|
Non-U.S.
|
Other
|
|||||||||||||||
|
Pension Plans
|
Pension Plans
|
Postretirement Benefits
|
|||||||||||||||
Fixed maturity securities:
|
|
|
|
|
|
|
||||||||||||
Corporate bonds
|
$ | 343 | $ | 370 | $ | 35 | $ | 34 | $ | - | $ | - | ||||||
U.S. government bonds
|
186 | 114 | 4 | 13 | - | - | ||||||||||||
Foreign government bonds
|
16 | 24 | 179 | 206 | - | - | ||||||||||||
RMBS
|
1 | 1 | - | - | - | - | ||||||||||||
CMBS
|
3 | 4 | - | - | - | - | ||||||||||||
CDOs
|
1 | 1 | 4 | 1 | - | - | ||||||||||||
Common stock
|
475 | 418 | 96 | 57 | - | - | ||||||||||||
Cash and invested cash
|
18 | 24 | 53 | 39 | 42 | 39 | ||||||||||||
Total
|
$ | 1,043 | $ | 956 | $ | 371 | $ | 350 | $ | 42 | $ | 39 |
Valuation Methodologies and Associated Inputs for Pension Plans’ Assets
|
Pension Plans
|
|
|||||||||||
|
Qualified
|
Nonqualified
|
Qualified
|
|
||||||||
|
U.S.
|
U.S.
|
Non-U.S.
|
U.S.
|
||||||||
|
Defined
|
Defined
|
Defined
|
Other
|
||||||||
|
Benefit
|
Benefit
|
Benefit
|
Post-
|
||||||||
|
Pension
|
Pension
|
Pension
|
retirement
|
||||||||
|
Plans
|
Plans
|
Plans
|
Plans
|
||||||||
2013
|
$ | 74 | $ | 10 | $ | 14 | $ | 9 | ||||
2014
|
71 | 10 | 14 | 9 | ||||||||
2015
|
70 | 12 | 15 | 9 | ||||||||
2016
|
71 | 10 | 16 | 10 | ||||||||
2017
|
70 | 9 | 17 | 10 | ||||||||
Following five years thereafter
|
340 | 45 | 94 | 49 |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Total liabilities
(1)
|
$ | 386 | $ | 354 | ||
Investments held to fund liabilities
(2)
|
146 | 133 |
(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,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Employer matching contributions
|
$ | 7 | $ | 6 | $ | 6 | |||
Increase (decrease) in measurement of liabilities, net of total return swap
|
7 | 1 | 1 | ||||||
Total plan expenses (income)
|
$ | 14 | $ | 7 | $ | 7 |
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Employer matching contributions
|
$ | 1 | $ | 1 | $ | 3 | |||
Increase (decrease) in measurement of liabilities, net of total return swap
|
2 | - | 3 | ||||||
Total plan expenses (income)
|
$ | 3 | $ | 1 | $ | 6 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Stock options
|
$ | 8 | $ | 8 | $ | 5 | |||
Performance shares
|
5 | 2 | (1 | ) | |||||
SARs
|
1 | - | - | ||||||
RSUs and nonvested stock
|
17 | 12 | 12 | ||||||
Total
|
$ | 31 | $ | 22 | $ | 16 | |||
|
|||||||||
Recognized tax benefit
|
$ | 11 | $ | 8 | $ | 6 |
|
For the Years Ended December 31,
|
||||||||||||||
|
2012
|
|
2011
|
|
2010
|
||||||||||
|
|
|
Weighted-
|
|
|
|
Weighted-
|
|
|
|
Weighted-
|
||||
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
||||
|
Expense
|
|
Period
|
|
Expense
|
|
Period
|
|
Expense
|
|
Period
|
||||
Stock options
|
$
|
6
|
|
1.8
|
|
$
|
6
|
|
1.7
|
|
$
|
4
|
|
1.8
|
|
Performance shares
|
|
9
|
|
1.6
|
|
|
4
|
|
2.0
|
|
|
-
|
|
-
|
|
SARs
|
|
1
|
|
3.3
|
|
|
1
|
|
3.4
|
|
|
1
|
|
3.7
|
|
RSUs and nonvested stock
|
|
20
|
|
1.3
|
|
|
17
|
|
1.7
|
|
|
19
|
|
1.9
|
|
Total unrecognized stock-based i ncentive compensation expense |
$
|
36
|
|
|
|
$
|
28
|
|
|
|
$
|
24
|
|
|
For the Years Ended December 31,
|
|
||||||||
2012
|
|
2011
|
|
2010
|
|
||||
Weighted-average fair value per option granted
|
$
|
8.35
|
|
$
|
13.88
|
|
$
|
16.91
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
1.9
|
%
|
|
1.2
|
%
|
|
1.3
|
%
|
Expected volatility
|
|
42.0
|
%
|
|
48.5
|
%
|
|
72.5
|
%
|
Risk-free interest rate
|
|
0.9-1.2
|
%
|
|
1.4-2.9
|
%
|
|
2.7-3.3
|
%
|
Expected life (in years)
|
|
5.8
|
|
|
6.7
|
|
|
6.3
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|||
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|||
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|||
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|||
Outstanding as of December 31, 2011
|
1,849,448
|
|
$
|
48.19
|
|
|
|
|
|
|
Granted - original
|
99,113
|
|
|
27.26
|
|
|
|
|
|
|
Exercised (includes shares tendered)
|
(1,298
|
)
|
|
16.24
|
|
|
|
|
|
|
Forfeited or expired
|
(679,668
|
)
|
|
51.16
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
1,267,595
|
|
$
|
45.29
|
|
4.15
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of December 31, 2012
(1)
|
1,245,410
|
|
$
|
45.60
|
|
4.16
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
1,156,671
|
|
$
|
46.93
|
|
4.19
|
|
$
|
1
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Weighted-
|
|
Average
|
|
|
|||
|
|
|
Average
|
|
Remaining
|
|
Aggregate
|
|||
|
|
|
Exercise
|
|
Contractual
|
|
Intrinsic
|
|||
|
Shares
|
|
Price
|
|
Term
|
|
Value
|
|||
Outstanding as of December 31, 2011
|
6,650,558
|
|
$
|
46.73
|
|
|
|
|
|
|
Granted - original
|
954,642
|
|
|
24.75
|
|
|
|
|
|
|
Exercised (includes shares tendered)
|
(22,798
|
)
|
|
16.01
|
|
|
|
|
|
|
Forfeited or expired
|
(2,066,641
|
)
|
|
51.69
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
5,515,761
|
|
$
|
41.20
|
|
4.07
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of December 31, 2012
(1)
|
5,273,417
|
|
$
|
41.89
|
|
3.85
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
4,304,041
|
|
$
|
45.46
|
|
2.72
|
|
$
|
4
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
Fair Value
|
|
|
Nonvested as of December 31, 2011
|
197,449
|
|
$
|
31.02
|
|
Granted
|
306,456
|
|
|
30.07
|
|
Forfeited
|
(24,407
|
)
|
|
33.29
|
|
Nonvested as of December 31, 2012
|
479,498
|
|
$
|
32.48
|
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
|
2011
|
|
2010
|
||||
Weighted-average fair value per SAR granted
|
$
|
8.91
|
|
$
|
9.41
|
|
$
|
7.81
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
1.4
|
%
|
|
1.9
|
%
|
|
2.4
|
% |
Expected volatility
|
|
40.7
|
%
|
|
39.1
|
%
|
|
38.2
|
% |
Risk-free interest rate
|
|
1.3
|
%
|
|
2.2
|
%
|
|
1.8
|
% |
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, 2011
|
671,325
|
|
$
|
43.26
|
|
|
|
|
|
|
Granted - original
|
80,225
|
|
|
27.29
|
|
|
|
|
|
|
Exercised (includes shares tendered)
|
(11,875
|
)
|
|
16.24
|
|
|
|
|
|
|
Forfeited or expired
|
(169,994
|
)
|
|
64.98
|
|
|
|
|
|
|
Outstanding as of December 31, 2012
|
569,681
|
|
$
|
35.01
|
|
1.79
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest as of December 31, 2012
(1)
|
549,971
|
|
$
|
35.32
|
|
1.74
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2012
|
405,876
|
|
$
|
38.01
|
|
1.19
|
|
$
|
1
|
(1)
|
Includes estimated forfeitures.
|
|
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
|
|
|
|
Grant-Date
|
|
|
|
Shares
|
|
Fair Value
|
|
|
Outstanding as of December 31, 2011
|
1,779,353
|
|
$
|
23.94
|
|
Granted
|
766,217
|
|
|
25.08
|
|
Vested
|
(653,848
|
)
|
|
18.29
|
|
Forfeited
|
(175,315
|
)
|
|
26.20
|
|
Outstanding as of December 31, 2012
|
1,716,407
|
|
$
|
26.49
|
|
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
U.S. capital and surplus
|
$ | 6,715 | $ | 7,264 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
U.S. net gain (loss) from operations, after-tax
|
$ | 736 | $ | 323 | $ | 557 | |||
U.S. net income (loss)
|
681 | 135 | 432 | ||||||
U.S. dividends to LNC holding company
|
635 | 818 | 684 |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Calculation of reserves using the Indiana universal life method
|
$ | 249 | $ | 270 | ||
Calculation of reserves using continuous CARVM
|
(2 | ) | (2 | ) | ||
Conservative valuation rate on certain annuities
|
(26 | ) | (20 | ) | ||
Lesser of LOC and XXX additional reserve as surplus
|
2,483 | 1,731 |
As of December 31, 2012
|
As of December 31, 2011
|
||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
Value
|
Value
|
Value
|
Value
|
||||||||||
Assets
|
|
|
|
|
|||||||||
AFS securities:
|
|
|
|
|
|||||||||
Fixed maturity securities
|
$ | 82,036 | $ | 82,036 | $ | 75,433 | $ | 75,433 | |||||
VIEs' fixed maturity securities
|
708 | 708 | 700 | 700 | |||||||||
Equity securities
|
157 | 157 | 139 | 139 | |||||||||
Trading securities
|
2,554 | 2,554 | 2,675 | 2,675 | |||||||||
Mortgage loans on real estate
|
7,029 | 7,704 | 6,942 | 7,608 | |||||||||
Derivative investments
|
2,652 | 2,652 | 3,151 | 3,151 | |||||||||
Other investments
|
1,098 | 1,098 | 1,069 | 1,069 | |||||||||
Cash and invested cash
|
4,230 | 4,230 | 4,510 | 4,510 | |||||||||
Separate account assets
|
95,373 | 95,373 | 83,477 | 83,477 | |||||||||
Liabilities
|
|||||||||||||
Future contract benefits:
|
|||||||||||||
Indexed annuity contracts embedded derivatives
|
(732 | ) | (732 | ) | (399 | ) | (399 | ) | |||||
GLB reserves embedded derivatives
|
(909 | ) | (909 | ) | (2,217 | ) | (2,217 | ) | |||||
Other contract holder funds:
|
|||||||||||||
Remaining guaranteed interest and similar contracts
|
(867 | ) | (867 | ) | (1,114 | ) | (1,114 | ) | |||||
Account values of certain investment contracts
|
(28,540 | ) | (32,688 | ) | (27,468 | ) | (30,812 | ) | |||||
Short-term debt
(1)
|
(200 | ) | (204 | ) | (300 | ) | (309 | ) | |||||
Long-term debt
|
(5,439 | ) | (5,824 | ) | (5,391 | ) | (5,345 | ) | |||||
Reinsurance related embedded derivatives
|
(215 | ) | (215 | ) | (168 | ) | (168 | ) | |||||
VIEs' liabilities - derivative instruments
|
(128 | ) | (128 | ) | (291 | ) | (291 | ) | |||||
Other liabilities:
|
|||||||||||||
Credit default swaps
|
(11 | ) | (11 | ) | (16 | ) | (16 | ) | |||||
Benefit Plans' Assets
(2)
|
1,456 | 1,456 | 1,345 | 1,345 |
(1)
|
The difference between the carrying value and fair value of short-term debt as of December 31, 2012 and 2011, 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, 2012
|
||||||||||||
|
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
|
$ | 65 | $ | 66,446 | $ | 1,505 | $ | 68,016 | |||||
U.S. government bonds
|
411 | 30 | 1 | 442 | |||||||||
Foreign government bonds
|
- | 608 | 46 | 654 | |||||||||
RMBS
|
- | 6,168 | 3 | 6,171 | |||||||||
CMBS
|
- | 976 | 27 | 1,003 | |||||||||
CDOs
|
- | 26 | 154 | 180 | |||||||||
State and municipal bonds
|
- | 4,321 | 32 | 4,353 | |||||||||
Hybrid and redeemable preferred securities
|
30 | 1,069 | 118 | 1,217 | |||||||||
VIEs' fixed maturity securities
|
110 | 598 | - | 708 | |||||||||
Equity AFS securities
|
44 | 26 | 87 | 157 | |||||||||
Trading securities
|
2 | 2,496 | 56 | 2,554 | |||||||||
Derivative investments
|
- | 626 | 2,026 | 2,652 | |||||||||
Cash and invested cash
|
- | 4,230 | - | 4,230 | |||||||||
Separate account assets
|
1,519 | 93,854 | - | 95,373 | |||||||||
Total assets
|
$ | 2,181 | $ | 181,474 | $ | 4,055 | $ | 187,710 | |||||
|
|||||||||||||
Liabilities
|
|||||||||||||
Future contract benefits:
|
|||||||||||||
Indexed annuity contracts embedded derivatives
|
$ | - | $ | - | $ | (732 | ) | $ | (732 | ) | |||
GLB reserves embedded derivatives
|
- | - | (909 | ) | (909 | ) | |||||||
Long-term debt
|
- | (1,203 | ) | - | (1,203 | ) | |||||||
Reinsurance related embedded derivatives
|
- | (215 | ) | - | (215 | ) | |||||||
VIEs' liabilities - derivative instruments
|
- | - | (128 | ) | (128 | ) | |||||||
Other liabilities:
|
|||||||||||||
Credit default swaps
|
- | - | (11 | ) | (11 | ) | |||||||
Total liabilities
|
$ | - | $ | (1,418 | ) | $ | (1,780 | ) | $ | (3,198 | ) | ||
|
|||||||||||||
Benefit Plans' Assets
|
$ | 116 | $ | 1,340 | $ | - | $ | 1,456 |
|
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
|
1,582 | 81,895 | - | 83,477 | ||||||||
Total assets
|
$ | 2,282 | $ | 162,829 | $ | 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
|
- | (1,688 | ) | - | (1,688 | ) | ||||||
Reinsurance related embedded derivatives
|
- | (168 | ) | - | (168 | ) | ||||||
VIEs' liabilities - derivative instruments
|
- | - | (291 | ) | (291 | ) | ||||||
Other liabilities:
|
||||||||||||
Credit default swaps
|
- | - | (16 | ) | (16 | ) | ||||||
Total liabilities
|
$ | - | $ | (1,856 | ) | $ | (2,923 | ) | $ | (4,779 | ) | |
|
||||||||||||
Benefit Plans' Assets
|
$ | 99 | $ | 1,246 | $ | - | $ | 1,345 |
For the Year Ended December 31, 2012
|
||||||||||||||||||
|
|
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
|
$ | 1,888 | $ | (27 | ) | $ | 34 | $ | 266 | $ | (656 | ) | $ | 1,505 | ||||
U.S. government bonds
|
1 | - | - | - | - | 1 | ||||||||||||
Foreign government bonds
|
97 | - | - | (5 | ) | (46 | ) | 46 | ||||||||||
RMBS
|
158 | (3 | ) | 3 | (8 | ) | (147 | ) | 3 | |||||||||
CMBS
|
34 | (11 | ) | 18 | (12 | ) | (2 | ) | 27 | |||||||||
CDOs
|
102 | (2 | ) | 8 | 61 | (15 | ) | 154 | ||||||||||
State and municipal bonds
|
- | - | - | 32 | - | 32 | ||||||||||||
Hybrid and redeemable preferred securities
|
100 | (1 | ) | 24 | - | (5 | ) | 118 | ||||||||||
Equity AFS securities
|
56 | (8 | ) | 13 | 26 | - | 87 | |||||||||||
Trading securities
|
68 | 3 | 4 | (2 | ) | (17 | ) | 56 | ||||||||||
Derivative investments
|
2,470 | (790 | ) | 158 | 188 | - | 2,026 | |||||||||||
Future contract benefits:
(4)
|
||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(399 | ) | (136 | ) | - | (197 | ) | - | (732 | ) | ||||||||
GLB reserves embedded derivatives
|
(2,217 | ) | 1,308 | - | - | - | (909 | ) | ||||||||||
VIEs' liabilities - derivative
instruments
(5)
|
(291 | ) | 163 | - | - | - | (128 | ) | ||||||||||
Other liabilities:
|
||||||||||||||||||
Credit default swaps
(6)
|
(16 | ) | 5 | - | - | - | (11 | ) | ||||||||||
Total, net
|
$ | 2,051 | $ | 501 | $ | 262 | $ | 349 | $ | (888 | ) | $ | 2,275 |
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:
|
||||||||||||||||||
Credit default swaps
(6)
|
(16 | ) | (7 | ) | - | 7 | - | (16 | ) | |||||||||
Total, net
|
$ | 2,983 | $ | (1,434 | ) | $ | 446 | $ | (56 | ) | $ | 112 | $ | 2,051 | ||||
Benefit plans' assets
(7)
|
$ | 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 - derivative
instruments
(5)
|
- | 16 | - | - | (225 | ) | (209 | ) | ||||||||||
Other liabilities:
|
||||||||||||||||||
Credit default swaps
(6)
|
(65 | ) | 7 | - | 42 | - | (16 | ) | ||||||||||
Total, net
|
$ | 3,578 | $ | (28 | ) | $ | 447 | $ | (36 | ) | $ | (978 | ) | $ | 2,983 | |||
Benefit plans' assets
(7)
|
$ | 3 | $ | - | $ | 3 | $ | 34 | $ | - | $ | 40 |
(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 Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(4)
|
Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive 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 Comprehensive Income (Loss).
|
(6)
|
Gains (losses) from sales, maturities, settlements and calls are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
(7)
|
The expected return on plan assets is reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Year Ended December 31, 2012
|
|||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
||||||||||||
Investments:
|
|
|
|
|
|
|
||||||||||||
Fixed maturity AFS securities:
|
|
|
|
|
|
|
||||||||||||
Corporate bonds
|
$ | 364 | $ | (30 | ) | $ | (6 | ) | $ | (55 | ) | $ | (7 | ) | $ | 266 | ||
Foreign government bonds
|
- | - | (5 | ) | - | - | (5 | ) | ||||||||||
RMBS
|
- | - | (7 | ) | (1 | ) | - | (8 | ) | |||||||||
CMBS
|
- | - | - | (12 | ) | - | (12 | ) | ||||||||||
CDOs
|
72 | - | - | (11 | ) | - | 61 | |||||||||||
State and municipal bonds
|
32 | - | - | - | - | 32 | ||||||||||||
Equity AFS securities
|
26 | - | - | - | - | 26 | ||||||||||||
Trading securities
|
- | - | - | (2 | ) | - | (2 | ) | ||||||||||
Derivative investments
|
454 | (28 | ) | (238 | ) | - | - | 188 | ||||||||||
Future contract benefits:
|
||||||||||||||||||
Indexed annuity contracts embedded
derivatives
|
(99 | ) | - | - | (98 | ) | - | (197 | ) | |||||||||
Total, net
|
$ | 849 | $ | (58 | ) | $ | (256 | ) | $ | (179 | ) | $ | (7 | ) | $ | 349 |
|
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:
|
||||||||||||||||||
Credit default swaps
|
- | 7 | - | - | - | 7 | ||||||||||||
Total, net
|
$ | 653 | $ | (339 | ) | $ | (293 | ) | $ | 14 | $ | (91 | ) | $ | (56 | ) | ||
|
||||||||||||||||||
Benefit plans' assets
|
$ | - | $ | (22 | ) | $ | (17 | ) | $ | - | $ | - | $ | (39 | ) |
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Investments:
(1)
|
|
|
|
||||||
Derivative investments
|
$ | 823 | $ | 472 | $ | (162 | ) | ||
Future contract benefits:
(1)
|
|||||||||
Indexed annuity contracts embedded derivatives
|
(10 | ) | (1 | ) | 44 | ||||
GLB reserves embedded derivatives
|
1,472 | (1,615 | ) | 419 | |||||
VIEs' liabilities - derivative instruments
(1)
|
163 | (82 | ) | 16 | |||||
Other liabilities:
|
|||||||||
Credit default swaps
(2)
|
6 | (8 | ) | (12 | ) | ||||
Total, net
|
$ | 2,454 | $ | (1,234 | ) | $ | 305 |
(1)
|
Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
Included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Year Ended December 31, 2012
|
||||||||
|
Transfers
|
Transfers
|
|
||||||
|
In to
|
Out of
|
|
||||||
|
Level 3
|
Level 3
|
Total
|
||||||
Investments:
|
|
|
|
||||||
Fixed maturity AFS securities:
|
|
|
|
||||||
Corporate bonds
|
$ | 35 | $ | (691 | ) | $ | (656 | ) | |
Foreign government bonds
|
- | (46 | ) | (46 | ) | ||||
RMBS
|
- | (147 | ) | (147 | ) | ||||
CMBS
|
5 | (7 | ) | (2 | ) | ||||
CDOs
|
6 | (21 | ) | (15 | ) | ||||
Hybrid and redeemable preferred securities
|
35 | (40 | ) | (5 | ) | ||||
Trading securities
|
2 | (19 | ) | (17 | ) | ||||
Total, net
|
$ | 83 | $ | (971 | ) | $ | (888 | ) |
|
For the Year Ended December 31, 2011
|
||||||||
|
Transfers
|
Transfers
|
|
||||||
|
In to
|
Out of
|
|
||||||
|
Level 3
|
Level 3
|
Total
|
||||||
Investments:
|
|
|
|
||||||
Fixed maturity AFS securities:
|
|
|
|
||||||
Corporate bonds
|
$ | 249 | $ | (83 | ) | $ | 166 | ||
Foreign government bonds
|
- | (17 | ) | (17 | ) | ||||
CMBS
|
4 | (1 | ) | 3 | |||||
Hybrid and redeemable preferred securities
|
18 | (21 | ) | (3 | ) | ||||
Equity AFS securities
|
2 | (35 | ) | (33 | ) | ||||
Trading securities
|
1 | (5 | ) | (4 | ) | ||||
Total, net
|
$ | 274 | $ | (162 | ) | $ | 112 |
|
For the Year Ended December 31, 2010
|
||||||||
|
Transfers
|
Transfers
|
|
||||||
|
In to
|
Out of
|
|
||||||
|
Level 3
|
Level 3
|
Total
|
||||||
Investments:
|
|
|
|
||||||
Fixed maturity AFS securities:
|
|
|
|
||||||
Corporate bonds
|
$ | 147 | $ | (197 | ) | $ | (50 | ) | |
U.S. government bonds
|
3 | - | 3 | ||||||
Foreign government bonds
|
17 | - | 17 | ||||||
RMBS
|
- | (4 | ) | (4 | ) | ||||
CMBS
|
3 | (121 | ) | (118 | ) | ||||
CLNs
|
- | (600 | ) | (600 | ) | ||||
Trading securities
|
- | (1 | ) | (1 | ) | ||||
VIEs' liabilities - derivative instruments
|
(225 | ) | - | (225 | ) | ||||
Total, net
|
$ | (55 | ) | $ | (923 | ) | $ | (978 | ) |
|
|
|
|
|
|
|
|||
|
Fair
|
|
Valuation
|
|
Significant
|
|
|||
|
Value
|
|
Technique
|
|
Unobservable Inputs
|
|
Input Ranges
|
||
Assets
|
|
|
|
|
|
|
|||
Investments:
|
|
|
|
|
|
|
|||
Fixed maturity AFS and trading
securities
|
|
|
|
|
|
|
|||
Corporate bonds
|
$
|
922
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment
(1)
|
|
1.7% - 13.5%
|
|
Foreign government bonds
|
|
46
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment
(1)
|
|
2.3% - 5.3%
|
|
Hybrid and redeemable
preferred stock
|
|
21
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment
(1)
|
|
2.7% - 2.9%
|
|
|
|
|
|
|
|
||||
Equity AFS and trading
securities
|
|
25
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment
(1)
|
|
4.3% - 4.5%
|
|
|
|
|
|
|
|
|
|||
Liabilities
|
|
|
|
|
|
|
|||
Future contract benefits:
|
|
|
|
|
|
|
|||
Indexed annuity contracts
embedded derivatives
|
|
(732
|
)
|
Discounted cash flow
|
|
Lapse rate
(2)
|
|
1.0% - 15.0%
|
|
|
|
|
|
|
|
Mortality rate
(5)
|
|
(7)
|
|
|
|
|
|
|
|
||||
GLB reserves embedded d
erivatives
|
|
909
|
|
Monte Carlo simulation
|
|
Long-term lapse rate
(2)
|
|
1.0% - 27.0%
|
|
|
|
|
|
|
|
Utilization of guaranteed
withdrawal
(3)
|
|
90.0% - 100.0%
|
|
|
|
|
|
|
|
NPR
(4)
|
|
0.03% - 0.54%
|
|
|
|
|
|
|
|
Mortality rate
(5)
|
|
(7)
|
|
|
|
|
|
|
|
Volatility
(6)
|
|
1.0% - 35.0%
|
(1)
|
The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.
|
(2)
|
The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity contracts represents the lapse rates during the surrender charge period.
|
(3)
|
The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.
|
(4)
|
The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.
|
(5)
|
The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die.
|
(6)
|
The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation.
|
(7)
|
Based on the “Annuity 2000 Mortality Table” developed by the Society of Actuaries Committee on Life Insurance Research that was adopted by the National Association of Insurance Commissioners in 1996 for our mortality input.
|
·
|
Investments
– An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement.
|
·
|
Indexed annuity contracts embedded derivatives
– An increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement.
|
·
|
GLB reserves embedded derivatives
– An increase in our lapse rate, wait period, NPR or mortality rate inputs would result in a decrease in the fair value measurement. An increase in the percent of maximum withdrawal amount input would result in an increase in the fair value measurement.
|
·
|
Realized gains and losses associated with the following (“excluded realized gain (loss)”):
|
§
|
Sales or disposals of securities;
|
§
|
Impairments of securities;
|
§
|
Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and our trading securities;
|
§
|
Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities;
|
§
|
Changes in the fair value of the embedded derivatives of our GLB riders accounted for at fair value, net of the change in the fair value of the derivatives we own to hedge them; 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 at fair value.
|
·
|
Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders;
|
·
|
Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;
|
·
|
Gains (losses) on early extinguishment of debt;
|
·
|
Losses from the impairment of intangible assets;
|
·
|
Income (loss) from discontinued operations; and
|
·
|
Income (loss) from the initial adoption of new accounting standards.
|
·
|
Excluded realized gain (loss);
|
·
|
Revenue adjustments from the initial adoption of new accounting standards;
|
·
|
Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and
|
·
|
Amortization of deferred gains arising from the reserve changes on business sold through reinsurance.
|
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Revenues
|
|
|
|
||||||
Operating revenues:
|
|
|
|
||||||
Annuities
|
$ | 2,975 | $ | 2,871 | $ | 2,659 | |||
Retirement Plan Services
|
1,024 | 1,017 | 988 | ||||||
Life Insurance
|
5,053 | 4,740 | 4,590 | ||||||
Group Protection
|
2,091 | 1,938 | 1,831 | ||||||
Other Operations
|
423 | 461 | 487 | ||||||
Excluded realized gain (loss), pre-tax
|
(39 | ) | (388 | ) | (143 | ) | |||
Amortization of deferred gain arising from reserve changes on business
sold through reinsurance, pre-tax
|
4 | 2 | 3 | ||||||
Amortization of DFEL associated with benefit ratio unlocking, pre-tax
|
1 | - | - | ||||||
Total revenues
|
$ | 11,532 | $ | 10,641 | $ | 10,415 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Net Income (Loss)
|
|
|
|
||||||
Income (loss) from operations:
|
|
|
|
||||||
Annuities
|
$ | 595 | $ | 573 | $ | 471 | |||
Retirement Plan Services
|
130 | 163 | 151 | ||||||
Life Insurance
|
574 | 559 | 453 | ||||||
Group Protection
|
72 | 97 | 68 | ||||||
Other Operations
|
(87 | ) | (146 | ) | (188 | ) | |||
Excluded realized gain (loss), after-tax
|
(25 | ) | (252 | ) | (93 | ) | |||
Gain (loss) on early extinguishment of debt, after-tax
|
(3 | ) | (5 | ) | (3 | ) | |||
Income (expense) from reserve changes (net of related
amortization) on business sold through reinsurance, after-tax
|
3 | 2 | 3 | ||||||
Impairment of intangibles, after-tax
|
2 | (747 | ) | - | |||||
Benefit ratio unlocking, after-tax
|
25 | (15 | ) | 11 | |||||
Income (loss) from continuing operations, after-tax
|
1,286 | 229 | 873 | ||||||
Income (loss) from discontinued operations, after-tax
|
27 | (8 | ) | 29 | |||||
Net income (loss)
|
$ | 1,313 | $ | 221 | $ | 902 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Net Investment Income
|
|
|
|
||||||
Annuities
|
$ | 1,082 | $ | 1,106 | $ | 1,119 | |||
Retirement Plan Services
|
799 | 792 | 769 | ||||||
Life Insurance
|
2,396 | 2,294 | 2,186 | ||||||
Group Protection
|
162 | 152 | 141 | ||||||
Other Operations
|
259 | 308 | 326 | ||||||
Total net investment income
|
$ | 4,698 | $ | 4,652 | $ | 4,541 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Amortization of DAC and VOBA, Net of Interest
|
|
|
|
||||||
Annuities
|
$ | 321 | $ | 351 | $ | 360 | |||
Retirement Plan Services
|
42 | 33 | 54 | ||||||
Life Insurance
|
614 | 423 | 451 | ||||||
Group Protection
|
49 | 39 | 40 | ||||||
Total amortization of DAC and VOBA, net of interest
|
$ | 1,026 | $ | 846 | $ | 905 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Federal Income Tax Expense (Benefit)
|
|
|
|
||||||
Annuities
|
$ | 121 | $ | 104 | $ | 97 | |||
Retirement Plan Services
|
38 | 63 | 58 | ||||||
Life Insurance
|
264 | 276 | 222 | ||||||
Group Protection
|
39 | 52 | 36 | ||||||
Other Operations
|
(177 | ) | (77 | ) | (105 | ) | |||
Excluded realized gain (loss)
|
(14 | ) | (136 | ) | (50 | ) | |||
Gain (loss) on early extinguishment of debt
|
(2 | ) | (3 | ) | (2 | ) | |||
Reserve changes (net of related amortization)
on business sold through reinsurance
|
1 | 1 | 1 | ||||||
Impairment of intangibles
|
(2 | ) | - | - | |||||
Benefit ratio unlocking
|
14 | (6 | ) | 5 | |||||
Total federal income tax expense (benefit)
|
$ | 282 | $ | 274 | $ | 262 |
|
As of December 31,
|
|||||
|
2012
|
2011
|
||||
Assets
|
|
|
||||
Annuities
|
$ | 106,906 | $ | 96,866 | ||
Retirement Plan Services
|
30,651 | 28,626 | ||||
Life Insurance
|
64,115 | 59,711 | ||||
Group Protection
|
3,733 | 3,429 | ||||
Other Operations
|
13,464 | 12,859 | ||||
Total assets
|
$ | 218,869 | $ | 201,491 |
|
For the Years Ended December 31,
|
||||||||
|
2012
|
2011
|
2010
|
||||||
Interest paid
|
$ | 270 | $ | 287 | $ | 282 | |||
Income taxes paid (received)
|
124 | (36 | ) | (107 | ) | ||||
Significant non-cash investing and financing transactions:
|
|||||||||
Business dispositions:
|
|||||||||
Assets disposed (includes cash and invested cash)
|
$ | - | $ | - | $ | (509 | ) | ||
Liabilities disposed
|
- | (3 | ) | 116 | |||||
Cash received (paid)
|
(1 | ) | - | 459 | |||||
Gain (loss) on dispositions
|
$ | (1 | ) | $ | (3 | ) | $ | 66 | |
Sale of subsidiaries/businesses:
|
|||||||||
Proceeds from sale of subsidiaries/businesses
|
$ | - | $ | - | $ | 4 | |||
Gain (loss) on sale of subsidiaries/businesses
|
$ | - | $ | - | $ | 4 |
|
For the Three Months Ended
|
|||||||||||
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
||||||||
2012
|
|
|
|
|
||||||||
Total revenues
|
$ | 2,715 | $ | 2,899 | $ | 2,954 | $ | 2,964 | ||||
Total expenses
|
2,407 | 2,457 | 2,536 | 2,564 | ||||||||
Income (loss) from continuing operations
|
244 | 322 | 400 | 320 | ||||||||
Income (loss) from discontinued operations,
net of federal income taxes
|
(1 | ) | - | 28 | - | |||||||
Net income (loss)
|
243 | 322 | 428 | 320 | ||||||||
Earnings (loss) per common share - basic:
|
||||||||||||
Income (loss) from continuing operations
|
0.84 | 1.14 | 1.44 | 1.17 | ||||||||
Income (loss) from discontinued operations
|
- | - | 0.10 | - | ||||||||
Net income (loss)
|
0.84 | 1.14 | 1.54 | 1.17 | ||||||||
Earnings (loss) per common share - diluted:
|
||||||||||||
Income (loss) from continuing operations
|
0.82 | 1.09 | 1.41 | 1.14 | ||||||||
Income (loss) from discontinued operations
|
- | - | 0.10 | - | ||||||||
Net income (loss)
|
0.82 | 1.09 | 1.51 | 1.14 | ||||||||
|
||||||||||||
2011
|
||||||||||||
Total revenues
|
$ | 2,718 | $ | 2,807 | $ | 2,547 | $ | 2,569 | ||||
Total expenses
|
2,288 | 2,399 | 2,393 | 3,058 | ||||||||
Income (loss) from continuing operations
|
311 | 301 | 158 | (541 | ) | |||||||
Income (loss) from discontinued operations,
net of federal income taxes
|
- | - | (8 | ) | - | |||||||
Net income (loss)
|
311 | 301 | 150 | (541 | ) | |||||||
Earnings (loss) per common share - basic:
|
||||||||||||
Income (loss) from continuing operations
|
0.99 | 0.97 | 0.52 | (1.82 | ) | |||||||
Income (loss) from discontinued operations
|
- | - | (0.03 | ) | - | |||||||
Net income (loss)
|
0.99 | 0.97 | 0.49 | (1.82 | ) | |||||||
Earnings (loss) per common share - diluted:
|
||||||||||||
Income (loss) from continuing operations
|
0.96 | 0.94 | 0.49 | (1.82 | ) | |||||||
Income (loss) from discontinued operations
|
- | - | (0.03 | ) | - | |||||||
Net income (loss)
|
0.96 | 0.94 | 0.46 | (1.82 | ) |
(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
|
7,695,268
|
(1)(2)
|
$
|
37.68
|
|
11,079,641
|
(3)
|
Equity compensation plans not approved by shareholders
|
-
|
|
-
|
|
-
|
||
Total
|
7,695,268
|
$
|
37.68
|
|
11,079,641
|
(1)
|
This amount excludes outstanding stock options assumed in connection with our acquisition of Jefferson-Pilot Corporation (“JP”) as follows:
|
·
|
2,812,458 shares to be issued upon exercise of outstanding options as of December 31, 2012, under the JP Long-Term Stock Incentive Plan with a weighted-average exercise price of $47.58; and
|
·
|
140,804 shares to be issued upon exercise of outstanding options as of December 31, 2012, under the JP Non-Employee Directors Stock Option Plan with a weighted-average exercise price of $46.08.
|
(2)
|
This amount includes the following:
|
·
|
Outstanding options of 2,562,499;
|
·
|
Outstanding long-term incentive awards of 2,226,591, of which 1,267,595 represent options with performance conditions and 958,996 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, 2012. 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, 2012. 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 1,716,407; and
|
·
|
Outstanding deferred stock units of 1,189,771, 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, 2012.
|
(3)
|
Includes up to 10,695,189 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: March 1, 2013
|
By:
|
/s/ Randal J. Freitag
|
Randal J. Freitag
Executive Vice President and Chief Financial Officer
|
Signature
|
Title
|
/s/ Dennis R. Glass
|
President, Chief Executive Officer and Director
|
Dennis R. Glass | (Principal Executive Officer) |
/s/ Randal J. Freitag
|
Executive Vice President and Chief Financial Officer
|
Randal J. Freitag | (Principal Financial Officer) |
/s/ Douglas N. Miller
|
Senior Vice President and Chief Accounting Officer
|
Douglas N. Miller | (Principal Accounting Officer) |
/s/ William J. Avery
|
Director
|
William J. Avery | |
/s/ William H. Cunningham
|
Director
|
William H. Cunningham | |
/s/ George W. Henderson, III
|
Director
|
George W. Henderson, III | |
/s/ Eric G. Johnson
|
Director
|
Eric G. Johnson | |
/s/ Gary C. Kelly
|
Director
|
Gary C. Kelly | |
/s/ M. Leanne Lachman
|
Director
|
M. Leanne Lachman | |
/s/ Michael F. Mee
|
Director
|
Michael F. Mee | |
/s/ William Porter Payne
|
Director
|
William Porter Payne | |
/s/ Patrick S. Pittard
|
Director
|
Patrick S. Pittard | |
/s/ Isaiah Tidwell
|
Director
|
Isaiah Tidwell |
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, 2012
|
||||||||||
Fair
|
Carrying
|
|||||||||
Type of Investment
|
Cost
|
Value
|
Value
|
|||||||
Available-For-Sale Fixed Maturity Securities
(1)
|
|
|
|
|||||||
Bonds:
|
|
|
|
|||||||
U.S. government and government agencies and authorities
|
$ | 383 | $ | 442 | $ | 442 | ||||
States, municipalities and political subdivisions
|
3,546 | 4,353 | 4,353 | |||||||
Mortgage-backed securities
|
6,733 | 7,174 | 7,174 | |||||||
Foreign governments
|
562 | 654 | 654 | |||||||
Public utilities
|
11,874 | 13,616 | 13,616 | |||||||
All other corporate bonds
|
48,439 | 54,580 | 54,580 | |||||||
Hybrid and redeemable preferred securities
|
1,181 | 1,217 | 1,217 | |||||||
Variable interest entities
|
677 | 708 | 708 | |||||||
Total available-for-sale fixed maturity securities
|
73,395 | 82,744 | 82,744 | |||||||
Available-For-Sale Equity Securities
(1)
|
||||||||||
Common stocks:
|
||||||||||
Banks, trusts and insurance companies
|
86 | 91 | 91 | |||||||
Industrial, miscellaneous and all other
|
16 | 15 | 15 | |||||||
Nonredeemable preferred securities
|
35 | 51 | 51 | |||||||
Total available-for-sale equity securities
|
137 | 157 | 157 | |||||||
Trading securities
|
2,127 | 2,554 | 2,554 | |||||||
Mortgage loans on real estate
|
7,029 | 7,704 | 7,029 | |||||||
Real estate
|
65 | N/A | 65 | |||||||
Policy loans
|
2,766 | N/A | 2,766 | |||||||
Derivative instruments
|
2,006 | 2,652 | 2,652 | |||||||
Other investments
|
1,098 | 1,098 | 1,098 | |||||||
Total investments
|
$ | 88,623 | $ | 99,065 |
(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,
|
||||||
2012
|
2011
|
|||||
|
|
|||||
ASSETS
|
|
|
||||
Investments in subsidiaries
(1)
|
$ | 17,557 | $ | 15,758 | ||
Derivative investments
|
389 | 305 | ||||
Other investments
|
30 | 29 | ||||
Cash and invested cash
|
844 | 622 | ||||
Loans and accrued interest to subsidiaries
(1)
|
2,585 | 2,605 | ||||
Other assets
|
27 | 289 | ||||
Total assets
|
$ | 21,432 | $ | 19,608 | ||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||
Liabilities
|
||||||
Common and preferred dividends payable
|
$ | 33 | $ | 23 | ||
Short-term debt
|
300 | 300 | ||||
Long-term debt
|
5,589 | 5,641 | ||||
Loans from subsidiaries
(1)
|
55 | 58 | ||||
Payables for collateral on investments
|
59 | (14 | ) | |||
Other liabilities
|
423 | 499 | ||||
Total liabilities
|
6,459 | 6,507 | ||||
Contingencies and Commitments
|
||||||
Stockholders' Equity
|
||||||
Preferred stock - 10,000,000 shares authorized; Series A
|
- | - | ||||
Common stock - 800,000,000 shares authorized
|
7,121 | 7,590 | ||||
Retained earnings
|
4,044 | 2,831 | ||||
Accumulated other comprehensive income (loss)
|
3,808 | 2,680 | ||||
Total stockholders' equity
|
14,973 | 13,101 | ||||
Total liabilities and stockholders' equity
|
$ | 21,432 | $ | 19,608 |
(1)
|
Eliminated in consolidation.
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Revenues
|
|
|
|
||||||
Dividends from subsidiaries
(1)
|
$ | 635 | $ | 875 | $ | 712 | |||
Interest from subsidiaries
(1)
|
128 | 125 | 99 | ||||||
Net investment income
|
1 | 2 | - | ||||||
Realized gain (loss)
|
(6 | ) | (3 | ) | (4 | ) | |||
Other revenue and fees
|
25 | 25 | 25 | ||||||
Total revenues
|
783 | 1,024 | 832 | ||||||
Expenses
|
|||||||||
Operating and administrative
|
10 | 27 | 119 | ||||||
Interest - subsidiaries
(1)
|
5 | 5 | 6 | ||||||
Interest - other
|
291 | 310 | 290 | ||||||
Total expenses
|
306 | 342 | 415 | ||||||
Income (loss) before federal income taxes, equity in income (loss) of
subsidiaries, less dividends
|
477 | 682 | 417 | ||||||
Federal income tax expense (benefit)
|
(85 | ) | (68 | ) | (106 | ) | |||
Income (loss) before equity in income (loss) of subsidiaries, less dividends
|
562 | 750 | 523 | ||||||
Equity in income (loss) of subsidiaries, less dividends
|
751 | (529 | ) | 379 | |||||
Net income (loss)
|
1,313 | 221 | 902 | ||||||
Other comprehensive income (loss), net of tax:
|
|||||||||
Unrealized gain (loss) on available-for-sale securities
|
1,119 | 1,771 | 1,127 | ||||||
Unrealized other-than-temporary impairment on available-for-sale securities
|
2 | 25 | (19 | ) | |||||
Unrealized gain (loss) on derivatives instruments
|
44 | 130 | (22 | ) | |||||
Foreign currency translation adjustment
|
(5 | ) | - | (2 | ) | ||||
Funded status of employee benefit plans
|
(32 | ) | (97 | ) | 29 | ||||
Total other comprehensive income (loss), net of tax
|
1,128 | 1,829 | 1,113 | ||||||
Comprehensive income (loss)
|
$ | 2,441 | $ | 2,050 | $ | 2,015 |
(1)
|
Eliminated in consolidation.
|
For the Years Ended December 31,
|
|||||||||
2012
|
2011
|
2010
|
|||||||
Cash Flows from Operating Activities
|
|
|
|
||||||
Net income (loss)
|
$ | 1,313 | $ | 221 | $ | 902 | |||
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
|
|||||||||
Equity in (income) loss of subsidiaries greater than distributions
(1)
|
(751 | ) | 529 | (379 | ) | ||||
Realized (gain) loss
|
6 | 3 | 4 | ||||||
Change in legal accruals
|
- | (70 | ) | 70 | |||||
Change in federal income tax accruals
|
170 | 32 | (190 | ) | |||||
(Gain) loss on early extinguishment of debt
|
5 | 8 | 5 | ||||||
Other
|
(13 | ) | (21 | ) | (22 | ) | |||
Net cash provided by (used in) operating activities
|
730 | 702 | 390 | ||||||
Cash Flows from Investing Activities
|
|||||||||
Sales or maturities of investments
|
- | 105 | - | ||||||
Capital contribution to subsidiaries
(1)
|
- | (17 | ) | (125 | ) | ||||
Proceeds from sale of subsidiaries/businesses, net of cash disposed
|
- | - | 459 | ||||||
Increase (decrease) in payables for collateral on investments
|
73 | - | - | ||||||
Net cash provided by (used in) investing activities
|
73 | 88 | 334 | ||||||
Cash Flows from Financing Activities
|
|||||||||
Payment of long-term debt, including current maturities
|
(320 | ) | (525 | ) | (405 | ) | |||
Issuance of long-term debt, net of issuance costs
|
300 | 300 | 749 | ||||||
Increase (decrease) in commercial paper, net
|
- | (100 | ) | 1 | |||||
Increase (decrease) in loans from subsidiaries, net
(1)
|
(3 | ) | 58 | (97 | ) | ||||
Increase (decrease) in loans to subsidiaries, net
(1)
|
20 | 154 | (683 | ) | |||||
Common stock issued for benefit plans and excess tax benefits
|
5 | 1 | - | ||||||
Issuance (redemption) of Series B preferred stock and issuance (repurchase and cancellation) of associated common stock warrants
|
- | - | (998 | ) | |||||
Issuance of common stock
|
- | - | 368 | ||||||
Repurchase of common stock
|
(493 | ) | (576 | ) | (25 | ) | |||
Dividends paid to common and preferred stockholders
|
(90 | ) | (62 | ) | (42 | ) | |||
Net cash provided by (used in) financing activities
|
(581 | ) | (750 | ) | (1,132 | ) | |||
Net increase (decrease) in cash and invested cash
|
222 | 40 | (408 | ) | |||||
Cash and invested cash as of beginning-of-year
|
622 | 582 | 990 | ||||||
Cash and invested cash as of end-of-year
|
$ | 844 | $ | 622 | $ | 582 |
(1)
|
Eliminated in consolidation.
|
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, 2012 | |||||||||||||||
Annuities
|
$ | 2,092 | $ | 2,339 | $ | - | $ | 21,108 | $ | 98 | ||||||
Retirement Plan Services
|
102 | 3 | - | 14,712 | - | |||||||||||
Life Insurance
|
4,281 | 9,177 | - | 35,365 | 441 | |||||||||||
Group Protection
|
192 | 1,882 | - | 223 | 1,919 | |||||||||||
Other Operations
|
- | 6,379 | - | 810 | 4 | |||||||||||
Total
|
$ | 6,667 | $ | 19,780 | $ | - | $ | 72,218 | $ | 2,462 | ||||||
|
||||||||||||||||
|
As of or For the Year Ended December 31, 2011
|
|||||||||||||||
Annuities
|
$ | 1,912 | $ | 3,642 | $ | - | $ | 20,701 | $ | 74 | ||||||
Retirement Plan Services
|
183 | 7 | - | 13,624 | - | |||||||||||
Life Insurance
|
4,516 | 7,984 | - | 34,066 | 441 | |||||||||||
Group Protection
|
165 | 1,742 | - | 236 | 1,778 | |||||||||||
Other Operations
|
- | 6,438 | - | 839 | 1 | |||||||||||
Total
|
$ | 6,776 | $ | 19,813 | $ | - | $ | 69,466 | $ | 2,294 | ||||||
|
||||||||||||||||
|
As of or For the Year Ended December 31, 2010
|
|||||||||||||||
Annuities
|
$ | 1,882 | $ | 1,707 | $ | - | $ | 20,135 | $ | 53 | ||||||
Retirement Plan Services
|
195 | 2 | - | 12,773 | - | |||||||||||
Life Insurance
|
5,186 | 7,606 | - | 32,396 | 439 | |||||||||||
Group Protection
|
151 | 1,620 | - | 256 | 1,682 | |||||||||||
Other Operations
|
- | 6,592 | - | 847 | 2 | |||||||||||
Total
|
$ | 7,414 | $ | 17,527 | $ | - | $ | 66,407 | $ | 2,176 |
(1)
|
Unearned premiums are included in Column E, other contract holder funds.
|
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, 2012
|
|||||||||||||||
Annuities
|
$ | 1,082 | $ | 868 | $ | 325 | $ | 1,018 | $ | - | ||||||
Retirement Plan Services
|
799 | 451 | 42 | 363 | - | |||||||||||
Life Insurance
|
2,396 | 2,982 | 614 | 619 | - | |||||||||||
Group Protection
|
162 | 1,447 | 48 | 485 | - | |||||||||||
Other Operations
|
259 | 260 | - | 432 | - | |||||||||||
Total
|
$ | 4,698 | $ | 6,008 | $ | 1,029 | $ | 2,917 | $ | - | ||||||
|
||||||||||||||||
|
As of or For the Year Ended December 31, 2011
|
|||||||||||||||
Annuities
|
$ | 1,106 | $ | 933 | $ | 351 | $ | 933 | $ | - | ||||||
Retirement Plan Services
|
792 | 439 | 33 | 319 | - | |||||||||||
Life Insurance
|
2,294 | 2,904 | 423 | 578 | - | |||||||||||
Group Protection
|
152 | 1,317 | 39 | 433 | - | |||||||||||
Other Operations
|
308 | 240 | - | 453 | - | |||||||||||
Total
|
$ | 4,652 | $ | 5,833 | $ | 846 | $ | 2,716 | $ | - | ||||||
|
||||||||||||||||
|
As of or For the Year Ended December 31, 2010
|
|||||||||||||||
Annuities
|
$ | 1,119 | $ | 884 | $ | 360 | $ | 828 | $ | - | ||||||
Retirement Plan Services
|
769 | 440 | 54 | 283 | - | |||||||||||
Life Insurance
|
2,186 | 2,933 | 451 | 531 | - | |||||||||||
Group Protection
|
141 | 1,299 | 40 | 388 | - | |||||||||||
Other Operations
|
326 | 259 | - | 526 | - | |||||||||||
Total
|
$ | 4,541 | $ | 5,815 | $ | 905 | $ | 2,556 | $ | - |
(2)
|
Excludes impairment of intangibles of $747 million for the year ended December 31, 2011. 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, 2012 | |||||||||||||||||
Individual life insurance in force
(1)
|
$ | 897,500 | $ | 323,300 | $ | 2,000 | $ | 576,200 | 0.3 | % | |||||||
Premiums:
|
|||||||||||||||||
Life insurance and annuities
(2)
|
6,110 | 1,165 | 9 | 4,954 | 0.2 | % | |||||||||||
Accident and health insurance
|
1,267 | 26 | - | 1,241 | - | % | |||||||||||
Total premiums
|
$ | 7,377 | $ | 1,191 | $ | 9 | $ | 6,195 | |||||||||
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 |
(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, 2012
|
|||||||||||||||
Deducted from asset accounts:
|
|
|
|
|
|
|||||||||||
Reserve for mortgage loans on real estate
|
$ | 31 | $ | 14 | $ | - | $ | (24 | ) | $ | 21 | |||||
|
||||||||||||||||
|
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 |
(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.***
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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.***
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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4.12
|
Third Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.8 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
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4.13
|
Fourth Supplemental Indenture, dated as of January 27, 2004, to Indenture dated as of November 21, 1995, is incorporated by reference to Exhibit 4.9 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended June 30, 2006.
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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.
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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.
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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.
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4.17
|
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.
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|
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4.18
|
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.
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4.19
|
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.
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4.20
|
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.
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4.21
|
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.
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4.22
|
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.
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4.23
|
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.
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4.24
|
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.
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|
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4.25
|
Form of 6.25% Senior Notes due 2020 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, 2009.
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4.26
|
Form of 4.30% Senior Notes due 2015 incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on June 18, 2010.
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4.27
|
Form of 7.00% Senior Notes due 2040 incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on June 18, 2010.
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|
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4.28
|
Form of 4.85% Senior Notes due 2021 incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on June 24, 2011.
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|
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4.29
|
Form of 4.20% Senior Notes due 2022 incorporated by reference to Exhibit 4.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on March 29, 2012.
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4.30
|
First Supplemental Indenture, dated as of April 3, 2006, among Lincoln JP Holdings, L.P. and JPMorgan Chase Bank, N.A., as trustee, to the Indenture, dated as of January 15, 1997, among Jefferson-Pilot and JPMorgan Chase Bank, N.A., as trustee, is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on April 3, 2006.
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|
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10.1
|
LNC 2009 Amended and Restated Incentive Compensation Plan (as amended and restated on May 14, 2009) is incorporated by reference to Exhibit 4 to LNC’s Proxy Statement (File No. 1-6028) filed with the SEC on April 9, 2009.*
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|
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10.2
|
Form of Restricted Stock Unit Award Agreement under the LNC Amended and Restated Incentive Compensation Plan, adopted February 7, 2008 is incorporated by reference to Exhibit 10.6 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.*
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|
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10.3
|
Form of Restricted Stock Award Agreement is incorporated by reference to Exhibit 10.7 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended March 31, 2008.*
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10.4
|
Form of Restricted Stock Unit Award Agreement under the LNC Amended and Restated Incentive Compensation Plan, adopted May 2008, is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 6, 2008.*
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|
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10.5
|
Form of Restricted Stock Unit Award Agreement under the LNC 2009 Amended and Restated Incentive Compensation Plan, adopted November 2009, is incorporated by reference to Exhibit 99.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on November 6, 2009.*
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|
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10.6
|
LNC Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 5 to LNC’s Proxy Statement (File No. 1-6028) filed with the SEC on April 4, 2007.*
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10.7
|
Non-Qualified Stock Option Agreement for the LNC Stock Option Plan for Non-Employee Directors is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on May 10, 2007.*
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|
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10.8
|
2011 Non-Employee Director Fees (unchanged for 2012) is incorporated by reference to Exhibit 10.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2010.*
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|
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10.9
|
2013 Non-Employee Director Fees (revised to reflect increase in deferred stock units) is filed herewith.*
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|
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10.10
|
Amended and Restated LNC Supplemental Retirement Plan is incorporated by reference to Exhibit 10.10 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2007.*
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|
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10.12
|
The Severance Plan for Officers of LNC is filed herewith.*
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|
|
10.13
|
Amendment No. 1 to The Severance Plan for Officers of LNC is filed herewith.*
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|
|
10.14
|
Amendment No. 2 to The Severance Plan for Officers of LNC is filed herewith.*
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|
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10.15
|
Amendment No. 3 to The Severance Plan for Officers of LNC is incorporated by reference to Exhibit 10.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2012.*
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|
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10.16
|
Amendment No. 4 to The Severance Plan for Officers of LNC is incorporated by reference to Exhibit 10.1 to LNC’s Form 10-Q (File No. 1-6028) for the quarter ended September 30, 2012.*
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|
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10.17
|
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.*
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|
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10.18
|
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.*
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10.19
|
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.*
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|
|
10.20
|
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.*
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|
|
10.21
|
Non-Qualified Stock Option Agreement (For Non-Employee Directors) under the LNC 1993 Stock Plan for Non-Employee Directors is incorporated by reference to Exhibit 10(z) to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2004.*
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|
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10.22
|
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.*
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|
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10.23
|
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.*
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|
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10.24
|
Amendment No. 1 to the LNC Executives’ Severance Benefit Plan (effective November 9, 2011) is incorporated by reference to Exhibit 10.22 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2011.*
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|
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10.25
|
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.*
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|
|
10.26
|
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.*
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|
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10.27
|
Phased Retirement Agreement, dated as of October 26, 2012, between Robert W. Dineen and LNC is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on November 1, 2012..*
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|
|
10.28
|
Consulting Agreement between, dated as of October 26, 2012, between Robert W. Dineen and LNC is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on November 1, 2012.*
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|
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10.29
|
Agreement, Waiver and General Release, dated as of October 26, 2012, between Robert W. Dineen and LNC is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on November 1, 2012.*
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|
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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.*
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|
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10.32
|
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.*
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|
|
10.33
|
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.*
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|
|
10.34
|
Form of Restricted Stock Unit Award Agreement is filed herewith.*
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|
|
10.35
|
Form of Non-Qualified Stock Option Award Agreement is filed herewith.*
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|
|
10.36
|
Form of 2012-2014 Performance Cycle Agreement under the LNC 2009 Amended and Restated Incentive Compensation Plan is filed herewith.*
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|
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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.*
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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.*
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|
|
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.*
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|
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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.*
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|
|
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.*
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|
|
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.*
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|
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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.*
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|
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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.
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|
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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.
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|
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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.
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|
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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.
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|
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10.48
|
Credit Agreement, dated as of June 10, 2011, 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.
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|
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10.49
|
Indemnity Reinsurance Agreement, dated as of January 1, 1998, between Connecticut General Life Insurance Company and Lincoln Life & Annuity Company of New York is incorporated by reference to Exhibit 10.67 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2008.***
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|
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10.50
|
Coinsurance Agreement, dated as of October 1, 1998, AETNA Life Insurance and Annuity Company and Lincoln Life & Annuity Company of New York is incorporated by reference to Exhibit 10.68 to LNC’s Form 10-K (File No. 1-6028) for the year ended December 31, 2008.***
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|
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10.51
|
Investment Advisory Agreement, dated as of January 4, 2010, between The Lincoln National Life Insurance Company and Delaware Investment Advisers is incorporated by reference to Exhibit 10.58 to LNC’s for 10-K (File No. 1-6028) for the year ended December 31, 2009.
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|
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10.52
|
Investment Advisory Agreement, dated as of January 4, 2010, between Lincoln Life & Annuity Company of New York and Delaware Investment Advisers is incorporated by reference to Exhibit 10.59 to LNC’s for 10-K (File No. 1-6028) for the year ended December 31, 2009.
|
Retainer Fee:
|
|
$232,000/per year
Cash: $86,000
Stock Options: $43,000
Deferred Stock Units*: $103,000
|
Non-Executive Chairman of the Board Fee:
|
|
$200,000/per year in Deferred Stock Units
|
Committee Chair Fee for Compensation, CGC and Finance Committees:
|
|
$10,000/per year
|
Audit Committee Chair Fee:
|
|
$20,000/per year
|
Audit Committee Member Retainer Fee:
|
|
$5,000/per year
|
Lead Director Retainer Fee:
|
|
$25,000/per year
|
*
|
Deferred Stock Units are “phantom” units of LNC Common Stock that are credited under the LNC Directors’ Deferred Compensation Plan.
|
(a) The Officer must otherwise be eligible for benefits under the ERISA Severance Plan; | |
(b) The Officer must remain actively at work and satisfactorily perform his or her job duties until the last day that the Officer’s services are required by the Corporation; and | |
(c) The Officer must sign (and not revoke) an Agreement, Waiver and General Release (or similar release document) satisfactory to the Corporation (“Agreement”) that becomes effective, which shall include provisions calling for forfeiture and/or clawback of all but three (3) weeks of Severance Pay and/or Severance Stipend benefits payable or paid under this Plan in the event the Officer engages in competition with, or solicits or attempts to solicit employees or customers of, the Corporation, reveals confidential information belonging to the Corporation, fails to report such competitive activity, solicitation, or breach of confidentiality, or otherwise violates the terms of the Agreement. |
Officer Title | Severance Period | ||
Officers below CLG | - | 26 weeks | |
CLG | - | 39 weeks | |
SMC | - | 52 weeks |
Officers below CLG | - | $5,200 | (= 26 weeks x $200) | |
CLG | - | $7,800 | (= 39 weeks x $200) | |
SMC | - | $10,400 | (= 52 weeks x $200) |
1. | Re vising the first paragraph of the Purpose and Interpretation with the addition of the following sentence to be inserted at the end that paragraph: |
“The Plan is intended to be a top-hat plan that covers a select group of management and highly compensation employees.” |
2. | Revising subparagraph (c) of Article II to read as follows |
* | * | * | * | |||
“(c) The Officer must sign (and not revoke) an Agreement, Waiver and General Release (or similar release document) satisfactory to the Corporation (“Agreement”) that shall release the Corporation, its affiliates, subsidiaries, shareholders, directors, officers, employees, and agents and that becomes effective, which shall include provisions calling for forfeiture and/or claw back of all but three (3) weeks of benefits payable or paid under this Plan in the event the Officer engages in competition with, or solicits or attempts to solicit employees or customers of, the Corporation, reveals confidential information belonging to the Corporation, fails to report such competitive activity, solicitation, or breach of confidentiality, or otherwise violates the terms of the Agreement.” | ||||||
* | * | * | * |
3. | Effective July 12, 2012 through December 28, 2012, the Plan is hereby amended with the addition of new Article IV-A set forth below. After December 28, 2012, Article IV-A shall no longer be in effect and shall be deleted from the Plan. |
4. | Effective July 12, 2012 through December 28, 2012, the second paragraph of Article VI is hereby amended as set forth below. After December 28, 2012, the second paragraph of Article VI as in effect immediately prior to July 12, 2012 shall resume effect. |
* | * | * | * | |||
“Severance Stipend . The Severance Stipend associated with an Officer’s Initial Severance Period (as defined in Article IV-A) shall be paid in a cash lump sum. Any Severance Stipend payable during the additional Severance Period described in Article IV-A shall paid bi-weekly.” | ||||||
* | * | * | * |
5. | In all other respects, said Plan shall remain in full force and effect. |
(a)
|
100%
vested as of the date of Grantee’s death; or
|
(b)
|
100%
vested as of the date on which Grantee is certified as disabled and becomes eligible for long-term disability (“LTD”) benefits under any LTD program sponsored by LNC; or
|
(c)
|
Pro-rata
as of the date Grantee Retires (as defined in Paragraph 8 below); except that if a Grantee Retires at age 62 or older, the Option Shares shall be
100%
vested as of that date; or
|
|
(d)
|
Pro-rata
as of the date of Grantee’s involuntary termination of employment with LNC and all subsidiaries, other than for Cause (as defined in Paragraph 8 below), including as a result of the sale or disposition of the business that includes Grantee’s employment and that does not constitute a Change of Control as described in Subparagraph 2(e) below; provided, however, that Grantee executes an Agreement, Waiver and General Release (“AW&GR”), in form and substance satisfactory to LNC, in connection with such termination of employment (other than a termination due to the sale or disposition of the business that includes Grantee’s employment), in which case the Option Shares shall vest on the later of the date of such involuntary termination of employment and the date such AW&GR shall have become effective; or
|
(e)
|
100%
as of the date of Grantee’s involuntary termination of employment with LNC and all subsidiaries, other than for Cause, within two years after a Change of Control, as defined by Section 2(e) of the Plan pursuant to the definition in effect on the day immediately preceding such Change of Control.
|
(a)
|
the tenth anniversary of the Date of Grant; or
|
(b)
|
the first anniversary of the date of Grantee’s termination of employment with LNC and all subsidiaries on account of death or Total Disability; or
|
(c)
|
the fifth anniversary of Grantee’s Retirement; or
|
(d)
|
the date three months after Grantee’s involuntary termination of employment with LNC and all subsidiaries (other than a termination on account of Cause), including the sale or disposition of the business that includes Grantee’s employer; or
|
(e)
|
the date that Grantee’s employment with LNC and all subsidiaries terminates for any reason other than those described in (b), (c), or (d) of this paragraph.
|
7.
|
Cancellation of Options/Rescission of Options and/or Related Exercise
|
For the Years Ended December 31,
|
||||||||||||||||
2012
|
2011
|
2010
|
2009
|
2008
|
||||||||||||
Income (loss) from continuing operations before taxes
|
$ | 1,568 | $ | 503 | $ | 1,135 | $ | (673 | ) | $ | (168 | ) | ||||
Sub-total of fixed charges
|
282 | 308 | 307 | 292 | 303 | |||||||||||
Sub-total of adjusted income (loss)
|
1,850 | 811 | 1,442 | (381 | ) | 135 | ||||||||||
Interest on annuities and financial products
|
2,478 | 2,488 | 2,499 | 2,513 | 2,538 | |||||||||||
Adjusted income (loss) base
|
$ | 4,328 | $ | 3,299 | $ | 3,941 | $ | 2,132 | $ | 2,673 | ||||||
Fixed Charges
|
||||||||||||||||
Interest and debt expense
(1)
|
$ | 268 | $ | 286 | $ | 286 | $ | 261 | $ | 281 | ||||||
Interest expense related to uncertain tax positions
|
1 | 9 | 7 | 13 | 2 | |||||||||||
Portion of rent expense representing interest
|
13 | 13 | 14 | 18 | 20 | |||||||||||
Sub-total of fixed charges excluding interest on annuities and financial products | 282 | 308 | 307 | 292 | 303 | |||||||||||
Interest on annuities and financial products
|
2,478 | 2,488 | 2,499 | 2,513 | 2,538 | |||||||||||
Total fixed charges
|
$ | 2,760 | $ | 2,796 | $ | 2,806 | $ | 2,805 | $ | 2,841 | ||||||
Ratio of sub-total of adjusted income (loss) to sub-total of fixed charges excluding interest on annuities and financial products (2) | 6.56 | 2.63 | 4.70 |
NM
|
NM
|
|||||||||||
Ratio of adjusted income (loss) base to total fixed charges (2) | 1.57 | 1.18 | 1.40 |
NM
|
NM
|
(1)
|
Interest and debt expense excludes a $5 million loss, $8 million loss, $5 million loss and $64 million gain related to the early retirement of debt in 2012, 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 $673 million and $168 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
|
%
|
|||||
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 Reinsurance Company of South Carolina |
South Carolina
|
100
|
%
|
|||||||
Lincoln Reinsurance Company of Vermont II |
Vermont
|
100
|
%
|
|||||||
Lincoln Reinsurance Company of Vermont III |
Vermont
|
100
|
%
|
|||||||
Lincoln Reinsurance Company of Vermont IV |
Vermont
|
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, 333-159314 and 333-181052 pertaining to the Jefferson-Pilot Corporation Long Term Stock Incentive Plan,
|
c.
|
Nos.
333-131943 pertaining to the Lincoln National Life Insurance Company Agents’ Savings and Profit Sharing Plan, 333-163672
and 333-185105 pertaining to the LNL Agents’ 401(k) Plan,
|
d.
|
Nos. 333-142871 pertaining to the Lincoln National Corporation Amended and Restated Incentive Compensation Plan and 333-159290 and 333-181049 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.
|
Nos.
333-126020 pertaining to the Lincoln National Corporation Employees’ Savings and Profit Sharing Plan and 333-161989 pertaining to the LNC Employees’ 401(k) 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
|
March 1, 2013
|
|
Exhibit 31.1
|
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
|
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 32.1
|
|
Exhibit 32.2
|