x
|
Quarterly
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
¨
|
Transition
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
|
Indiana
|
35-1140070
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
150 N. Radnor Chester Road, Radnor,
Pennsylvania
|
19087
|
(Address
of principal executive offices)
|
(Zip
Code)
|
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Available-for-sale
securities, at fair value:
|
||||||||
Fixed
maturity (amortized cost: 2009 – $60,442; 2008 –
$54,381)
|
$ | 60,666 | $ | 48,141 | ||||
Equity
(cost: 2009 – $393; 2008 – $428)
|
283 | 254 | ||||||
Trading
securities
|
2,548 | 2,333 | ||||||
Mortgage
loans on real estate
|
7,277 | 7,715 | ||||||
Real
estate
|
154 | 125 | ||||||
Policy
loans
|
2,893 | 2,921 | ||||||
Derivative
investments
|
1,282 | 3,397 | ||||||
Other
investments
|
1,080 | 1,624 | ||||||
Total
investments
|
76,183 | 66,510 | ||||||
Cash
and invested cash
|
3,161 | 5,589 | ||||||
Deferred
acquisition costs and value of business acquired
|
9,182 | 11,402 | ||||||
Premiums
and fees receivable
|
323 | 449 | ||||||
Accrued
investment income
|
943 | 814 | ||||||
Reinsurance
recoverables
|
7,664 | 8,396 | ||||||
Reinsurance
related embedded derivatives
|
- | 31 | ||||||
Goodwill
|
3,096 | 3,696 | ||||||
Other
assets
|
10,827 | 10,594 | ||||||
Separate
account assets
|
70,111 | 55,655 | ||||||
Total
assets
|
$ | 181,490 | $ | 163,136 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Liabilities
|
||||||||
Future
contract benefits
|
$ | 15,970 | $ | 18,431 | ||||
Other
contract holder funds
|
63,956 | 60,570 | ||||||
Short-term
debt
|
400 | 815 | ||||||
Long-term
debt
|
4,789 | 4,731 | ||||||
Reinsurance
related embedded derivatives
|
39 | - | ||||||
Funds
withheld reinsurance liabilities
|
1,220 | 2,042 | ||||||
Deferred
gain on business sold through reinsurance
|
511 | 619 | ||||||
Payables
for collateral on investments
|
2,240 | 3,706 | ||||||
Other
liabilities
|
10,598 | 8,590 | ||||||
Separate
account liabilities
|
70,111 | 55,655 | ||||||
Total
liabilities
|
169,834 | 155,159 | ||||||
Contingencies
and Commitments (See Note 11)
|
||||||||
Stockholders'
Equity
|
||||||||
Series
A preferred stock – 10,000,000 shares authorized; 11,547 and 11,562
shares
|
||||||||
issued
and outstanding as of September 30, 2009, and December 31, 2008,
respectively
|
- | - | ||||||
Series
B preferred stock – 950,000 shares authorized and
outstanding
|
||||||||
as
of September 30, 2009
|
800 | - | ||||||
Common
stock – 800,000,000 shares authorized; 302,073,869 and 255,869,859
shares
|
||||||||
issued
and outstanding as of September 30, 2009, and December 31, 2008,
respectively
|
7,842 | 7,035 | ||||||
Retained
earnings
|
3,234 | 3,745 | ||||||
Accumulated
other comprehensive loss
|
(220 | ) | (2,803 | ) | ||||
Total
stockholders' equity
|
11,656 | 7,977 | ||||||
Total
liabilities and stockholders' equity
|
$ | 181,490 | $ | 163,136 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
||||||||||||||||
Insurance
premiums
|
$ | 491 | $ | 514 | $ | 1,541 | $ | 1,507 | ||||||||
Insurance
fees
|
766 | 754 | 2,158 | 2,314 | ||||||||||||
Net
investment income
|
1,071 | 1,068 | 3,055 | 3,170 | ||||||||||||
Realized
loss:
|
||||||||||||||||
Total
other-than-temporary impairment losses on securities
|
(148 | ) | (237 | ) | (578 | ) | (395 | ) | ||||||||
Portion
of loss recognized in other comprehensive income
|
68 | - | 259 | - | ||||||||||||
Net
other-than-temporary impairment losses on securities
|
||||||||||||||||
recognized
in earnings
|
(80 | ) | (237 | ) | (319 | ) | (395 | ) | ||||||||
Realized
gain (loss), excluding other-than-temporary
|
||||||||||||||||
impairment
losses on securities
|
(288 | ) | 30 | (684 | ) | 49 | ||||||||||
Total
realized loss
|
(368 | ) | (207 | ) | (1,003 | ) | (346 | ) | ||||||||
Amortization
of deferred gain on business sold through
|
||||||||||||||||
reinsurance
|
18 | 19 | 56 | 57 | ||||||||||||
Other
revenues and fees
|
103 | 122 | 293 | 369 | ||||||||||||
Total
revenues
|
2,081 | 2,270 | 6,100 | 7,071 | ||||||||||||
Benefits
and Expenses
|
||||||||||||||||
Interest
credited
|
623 | 625 | 1,848 | 1,849 | ||||||||||||
Benefits
|
569 | 813 | 2,072 | 2,118 | ||||||||||||
Underwriting,
acquisition, insurance and other expenses
|
760 | 642 | 2,103 | 2,065 | ||||||||||||
Interest
and debt expense
|
68 | 69 | 130 | 209 | ||||||||||||
Impairment
of intangibles
|
(1 | ) | - | 601 | 175 | |||||||||||
Total
benefits and expenses
|
2,019 | 2,149 | 6,754 | 6,416 | ||||||||||||
Income
(loss) from continuing operations before taxes
|
62 | 121 | (654 | ) | 655 | |||||||||||
Federal
income tax expense (benefit)
|
(19 | ) | (8 | ) | (141 | ) | 162 | |||||||||
Income
(loss) from continuing operations
|
81 | 129 | (513 | ) | 493 | |||||||||||
Income
(loss) from discontinued operations, net of federal
|
||||||||||||||||
income
taxes
|
72 | 19 | (74 | ) | 69 | |||||||||||
Net
income (loss)
|
153 | 148 | (587 | ) | 562 | |||||||||||
Preferred
stock dividends and accretion of discount
|
(16 | ) | - | (16 | ) | - | ||||||||||
Net
income (loss) available to common stockholders
|
$ | 137 | $ | 148 | $ | (603 | ) | $ | 562 | |||||||
Earnings
(Loss) Per Common Share – Basic
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.21 | $ | 0.51 | $ | (1.94 | ) | $ | 1.91 | |||||||
Income
(loss) from discontinued operations
|
0.24 | 0.07 | (0.27 | ) | 0.27 | |||||||||||
Net
income (loss)
|
$ | 0.45 | $ | 0.58 | $ | (2.21 | ) | $ | 2.18 | |||||||
Earnings
(Loss) Per Common Share – Diluted
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | 0.21 | $ | 0.51 | $ | (1.94 | ) | $ | 1.90 | |||||||
Income
(loss) from discontinued operations
|
0.23 | 0.07 | (0.27 | ) | 0.26 | |||||||||||
Net
income (loss)
|
$ | 0.44 | $ | 0.58 | $ | (2.21 | ) | $ | 2.16 |
For
the Nine
|
||||||||
Months
Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Preferred
Stock
|
||||||||
Balance
as of beginning-of-year
|
$ | - | $ | - | ||||
Issuance
of Series B preferred stock
|
794 | - | ||||||
Accretion
of discount on Series B preferred stock
|
6 | - | ||||||
Balance
as of end-of-period
|
800 | - | ||||||
Common
Stock
|
||||||||
Balance
as of beginning-of-year
|
7,035 | 7,200 | ||||||
Issuance
of common stock
|
652 | - | ||||||
Issuance
of common stock warrant
|
156 | - | ||||||
Stock
compensation/issued for benefit plans
|
(6 | ) | 51 | |||||
Deferred
compensation payable in stock
|
5 | 4 | ||||||
Retirement
of common stock/cancellation of shares
|
- | (249 | ) | |||||
Balance
as of end-of-period
|
7,842 | 7,006 | ||||||
Retained
Earnings
|
||||||||
Balance
as of beginning-of-year
|
3,745 | 4,293 | ||||||
Cumulative
effect from adoption of new accounting standards
|
102 | (4 | ) | |||||
Comprehensive
income (loss)
|
2,098 | (1,473 | ) | |||||
Other
comprehensive income (loss), net of tax
|
(2,685 | ) | 2,035 | |||||
Net
income (loss)
|
(587 | ) | 562 | |||||
Retirement
of common stock
|
- | (227 | ) | |||||
Dividends
declared: Common (2009 - $0.03; 2008 - $1.245)
|
(10 | ) | (320 | ) | ||||
Dividends
on preferred stock
|
(10 | ) | - | |||||
Accretion
of discount on Series B preferred stock
|
(6 | ) | - | |||||
Balance
as of end-of-period
|
3,234 | 4,304 | ||||||
Accumulated
Other Comprehensive Income (Loss)
|
||||||||
Balance
as of beginning-of-year
|
(2,803 | ) | 225 | |||||
Cumulative
effect from adoption of new accounting standards
|
(102 | ) | - | |||||
Other
comprehensive income (loss), net of tax
|
2,685 | (2,035 | ) | |||||
Balance
as of end-of-period
|
(220 | ) | (1,810 | ) | ||||
Total
stockholders' equity as of end-of-period
|
$ | 11,656 | $ | 9,500 |
For
the Nine
|
||||||||
Months
Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Cash
Flows from Operating Activities
|
||||||||
Net
income (loss)
|
$ | (587 | ) | $ | 562 | |||
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
|
(217 | ) | (492 | ) | ||||
Trading
securities purchases, sales and maturities, net
|
(36 | ) | 141 | |||||
Change
in premiums and fees receivable
|
244 | 47 | ||||||
Change
in accrued investment income
|
(129 | ) | (78 | ) | ||||
Change
in future contract benefits
|
(694 | ) | 159 | |||||
Change
in other contract holder funds
|
205 | 202 | ||||||
Change
in funds withheld reinsurance liabilities and reinsurance
recoverables
|
167 | (57 | ) | |||||
Change
in federal income tax accruals
|
(27 | ) | (228 | ) | ||||
Realized
loss
|
1,003 | 346 | ||||||
Loss
on disposal of discontinued operations
|
220 | 13 | ||||||
Gain
on early extinguishment of debt
|
(64 | ) | - | |||||
Impairment
of intangibles
|
601 | 175 | ||||||
Amortization
of deferred gain on business sold through reinsurance
|
(56 | ) | (57 | ) | ||||
Other
|
(78 | ) | 78 | |||||
Net
cash provided by operating activities
|
552 | 811 | ||||||
Cash
Flows from Investing Activities
|
||||||||
Purchases
of available-for-sale securities
|
(11,468 | ) | (5,578 | ) | ||||
Sales
of available-for-sale securities
|
2,850 | 1,803 | ||||||
Maturities
of available-for-sale securities
|
2,533 | 2,978 | ||||||
Purchases
of other investments
|
(3,232 | ) | (1,848 | ) | ||||
Sales
or maturities of other investments
|
3,521 | 1,383 | ||||||
Increase
(decrease) in payables for collateral on investments
|
(1,466 | ) | 533 | |||||
Proceeds
from sale of subsidiaries/businesses and from disposal of discontinued
operations
|
13 | 645 | ||||||
Other
|
(51 | ) | (90 | ) | ||||
Net
cash used in investing activities
|
(7,300 | ) | (174 | ) | ||||
Cash
Flows from Financing Activities
|
||||||||
Payment
of long-term debt, including current maturities
|
(522 | ) | (285 | ) | ||||
Issuance
of long-term debt, net of issuance costs
|
491 | 450 | ||||||
Decrease
in commercial paper, net
|
(166 | ) | (145 | ) | ||||
Deposits
of fixed account values, including the fixed portion of
variable
|
8,805 | 7,366 | ||||||
Withdrawals
of fixed account values, including the fixed portion of
variable
|
(4,282 | ) | (4,373 | ) | ||||
Transfers
to and from separate accounts, net
|
(1,566 | ) | (1,838 | ) | ||||
Payment
of funding agreements
|
- | (550 | ) | |||||
Common
stock issued for benefit plans and excess tax benefits
|
- | 32 | ||||||
Issuance
of Series B preferred stock and associated common stock
warrant
|
950 | - | ||||||
Issuance
of common stock
|
652 | - | ||||||
Repurchase
of common stock
|
- | (476 | ) | |||||
Dividends
paid to common and preferred stockholders
|
(64 | ) | (323 | ) | ||||
Net
cash provided by (used in) financing activities
|
4,298 | (142 | ) | |||||
Net
increase (decrease) in cash and invested cash, including discontinued
operations
|
(2,450 | ) | 495 | |||||
Cash
and invested cash, including discontinued operations, as of
beginning-of-year
|
5,926 | 1,665 | ||||||
Cash
and invested cash, including discontinued operations, as of
end-of-period
|
$ | 3,476 | $ | 2,160 |
Unrealized
|
Net
|
|||||||||||
OTTI
|
Unrealized
|
|||||||||||
on
|
Loss
|
|||||||||||
AFS
|
on
AFS
|
|||||||||||
Securities
|
Securities
|
Total
|
||||||||||
Increase
in amortized cost of fixed maturity available-for-sale ("AFS")
securities
|
$ | 34 | $ | 165 | $ | 199 | ||||||
Change
in DAC, VOBA, DSI and DFEL
|
(7 | ) | (35 | ) | (42 | ) | ||||||
Income
tax
|
(9 | ) | (46 | ) | (55 | ) | ||||||
Net
cumulative effect adjustment
|
$ | 18 | $ | 84 | $ | 102 |
Corporate
bonds
|
$ | 131 | ||
Residential
collateralized mortgage obligations ("CMOs")
|
65 | |||
Collateralized
debt obligations ("CDOs")
|
3 | |||
Total
fixed maturity AFS securities
|
$ | 199 |
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Cash
and invested cash
|
$ | 152 | $ | 165 | ||||
Premiums
and fees receivable
|
34 | 32 | ||||||
Goodwill
|
248 | 248 | ||||||
Other
assets
|
84 | 77 | ||||||
Total
assets held-for-sale
|
$ | 518 | $ | 522 | ||||
Liabilities
|
||||||||
Other
liabilities
|
$ | 162 | $ | 166 | ||||
Total
liabilities held-for-sale
|
$ | 162 | $ | 166 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Discontinued
Operations Before Disposal
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Investment
advisory fees – external
|
$ | 55 | $ | 67 | $ | 146 | $ | 220 | ||||||||
Investment
advisory fees – internal
|
22 | 21 | 62 | 61 | ||||||||||||
Other
revenues and fees
|
23 | 22 | 66 | 75 | ||||||||||||
Gain
on sale of business
|
2 | 2 | 6 | 6 | ||||||||||||
Total
revenues
|
$ | 102 | $ | 112 | $ | 280 | $ | 362 | ||||||||
Income
from discontinued operations before disposal,
|
||||||||||||||||
before
federal income tax expense
|
$ | 12 | $ | 10 | $ | 29 | $ | 57 | ||||||||
Federal
income tax expense
|
5 | 3 | 13 | 21 | ||||||||||||
Income
from discontinued operations before disposal
|
$ | 7 | $ | 7 | $ | 16 | $ | 36 |
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Investments
|
$ | 998 | $ | 831 | ||||
Cash
and invested cash
|
163 | 172 | ||||||
DAC
and VOBA
|
562 | 534 | ||||||
Accrued
investment income
|
21 | 18 | ||||||
Reinsurance
recoverables
|
60 | 54 | ||||||
Other
assets
|
45 | 44 | ||||||
Separate
account assets
|
6,193 | 4,978 | ||||||
Total
assets held-for-sale
|
$ | 8,042 | $ | 6,631 | ||||
Liabilities
|
||||||||
Future
contract benefits
|
$ | 896 | $ | 829 | ||||
Other
contract holder funds
|
287 | 277 | ||||||
Other
liabilities
|
159 | 129 | ||||||
Separate
account liabilities
|
6,193 | 4,978 | ||||||
Total
liabilities held-for-sale
|
$ | 7,535 | $ | 6,213 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Discontinued
Operations Before Disposal
|
||||||||||||||||
Revenues:
|
||||||||||||||||
Insurance
premiums
|
$ | 17 | $ | 19 | $ | 41 | $ | 64 | ||||||||
Insurance
fees
|
42 | 40 | 99 | 138 | ||||||||||||
Net
investment income
|
15 | 21 | 43 | 61 | ||||||||||||
Realized
gain (loss)
|
- | 1 | (1 | ) | (7 | ) | ||||||||||
Total
revenues
|
$ | 74 | $ | 81 | $ | 182 | $ | 256 | ||||||||
Income
from discontinued operations before disposal,
|
||||||||||||||||
before
federal income tax expense
|
$ | 16 | $ | 20 | $ | 38 | $ | 58 | ||||||||
Federal
income tax expense
|
6 | 7 | 13 | 20 | ||||||||||||
Income
from discontinued operations before disposal
|
10 | 13 | 25 | 38 | ||||||||||||
Disposal
|
||||||||||||||||
Gain
(loss) on disposal, before federal income tax benefit
|
17 | - | (220 | ) | - | |||||||||||
Federal
income tax benefit
|
38 | - | 105 | - | ||||||||||||
Gain
(loss) on disposal
|
55 | - | (115 | ) | - | |||||||||||
Income
(loss) from discontinued operations
|
$ | 65 | $ | 13 | $ | (90 | ) | $ | 38 |
For
the
|
For
the
|
|||||||
Three
|
Nine
|
|||||||
Months
|
Months
|
|||||||
Ended
|
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2008
|
2008
|
|||||||
Discontinued
Operations Before Disposal
|
||||||||
Media
revenues, net of agency commissions
|
$ | - | $ | 22 | ||||
Income
from discontinued operations before disposal, before federal income
expense
|
$ | - | $ | 8 | ||||
Federal
income tax expense
|
- | 3 | ||||||
Income
from discontinued operations before disposal
|
- | 5 | ||||||
Disposal
|
||||||||
Loss
on disposal, before federal income tax expense (benefit)
|
- | (13 | ) | |||||
Federal
income tax expense (benefit)
|
1 | (3 | ) | |||||
Loss
on disposal
|
(1 | ) | (10 | ) | ||||
Loss
from discontinued operations
|
$ | (1 | ) | $ | (5 | ) |
As
of September 30, 2009
|
As
of December 31, 2008
|
|||||||||||||||||||||||
Maximum
|
Maximum
|
|||||||||||||||||||||||
Total
|
Total
|
Loss
|
Total
|
Total
|
Loss
|
|||||||||||||||||||
Assets
|
Liabilities
|
Exposure
|
Assets
|
Liabilities
|
Exposure
|
|||||||||||||||||||
Affiliated
trust
|
$ | 5 | $ | - | $ | - | $ | 5 | $ | - | $ | - | ||||||||||||
Credit-linked
notes
|
318 | - | 600 | 50 | - | 600 |
As
of September 30, 2009
|
||||||||||||||||||||
Amortized
|
Gross
Unrealized
|
Fair
|
||||||||||||||||||
Cost
|
Gains
|
Losses
|
OTTI
(1)
|
Value
|
||||||||||||||||
Fixed
Maturity Securities
|
||||||||||||||||||||
Corporate
bonds
|
$ | 44,579 | $ | 2,612 | $ | 1,265 | $ | 78 | $ | 45,848 | ||||||||||
U.S.
Government bonds
|
203 | 20 | 2 | - | 221 | |||||||||||||||
Foreign
government bonds
|
473 | 31 | 11 | - | 493 | |||||||||||||||
Mortgage-backed
securities ("MBS"):
|
||||||||||||||||||||
CMOs
|
6,237 | 306 | 342 | 172 | 6,029 | |||||||||||||||
Residential
mortgage pass-through
|
||||||||||||||||||||
securities
("MPTS")
|
2,594 | 85 | 14 | - | 2,665 | |||||||||||||||
Commercial
MBS ("CMBS")
|
2,592 | 52 | 391 | - | 2,253 | |||||||||||||||
Asset-backed
securities ("ABS"):
|
||||||||||||||||||||
CDOs
|
191 | 5 | 47 | 9 | 140 | |||||||||||||||
CLNs
|
600 | - | 282 | - | 318 | |||||||||||||||
State
and municipal bonds
|
1,425 | 54 | 15 | - | 1,464 | |||||||||||||||
Hybrid
and redeemable preferred securities
|
1,548 | 21 | 334 | - | 1,235 | |||||||||||||||
Total
fixed maturity securities
|
60,442 | 3,186 | 2,703 | 259 | 60,666 | |||||||||||||||
Equity
Securities
|
||||||||||||||||||||
Banking
securities
|
274 | - | 118 | - | 156 | |||||||||||||||
Insurance
securities
|
43 | 1 | - | - | 44 | |||||||||||||||
Other
financial services securities
|
23 | 11 | 7 | - | 27 | |||||||||||||||
Other
securities
|
53 | 4 | 1 | - | 56 | |||||||||||||||
Total
equity securities
|
393 | 16 | 126 | - | 283 | |||||||||||||||
Total
AFS securities
|
$ | 60,835 | $ | 3,202 | $ | 2,829 | $ | 259 | $ | 60,949 |
(1)
|
This
amount is comprised of the gross unrealized OTTI cumulative effect
adjustment as discussed in Note 2 and the amount reflected on our
Consolidated Statements of Income (Loss) during the first nine months of
2009 adjusted for other changes, including but not limited to, sales of
fixed maturity AFS securities.
|
As
of December 31, 2008
|
||||||||||||||||||||
Amortized
|
Gross
Unrealized
|
Fair
|
||||||||||||||||||
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
||||||||||||||||
Fixed
Maturity Securities
|
||||||||||||||||||||
Corporate
bonds
|
$ | 39,773 | $ | 638 | $ | 4,463 | $ | - | $ | 35,948 | ||||||||||
U.S.
Government bonds
|
204 | 42 | - | - | 246 | |||||||||||||||
Foreign
government bonds
|
532 | 37 | 49 | - | 520 | |||||||||||||||
MBS:
|
||||||||||||||||||||
CMOs
|
6,918 | 174 | 780 | - | 6,312 | |||||||||||||||
MPTS
|
1,875 | 62 | 38 | - | 1,899 | |||||||||||||||
CMBS
|
2,535 | 9 | 625 | - | 1,919 | |||||||||||||||
ABS:
|
||||||||||||||||||||
CDOs
|
256 | 7 | 103 | - | 160 | |||||||||||||||
CLNs
|
600 | - | 550 | - | 50 | |||||||||||||||
State
and municipal bonds
|
125 | 2 | 2 | - | 125 | |||||||||||||||
Hybrid
and redeemable preferred securities
|
1,563 | 6 | 607 | - | 962 | |||||||||||||||
Total
fixed maturity securities
|
54,381 | 977 | 7,217 | - | 48,141 | |||||||||||||||
Equity
Securities
|
||||||||||||||||||||
Banking
securities
|
274 | - | 146 | - | 128 | |||||||||||||||
Insurance
securities
|
71 | 1 | 19 | - | 53 | |||||||||||||||
Other
financial services securities
|
29 | 4 | 8 | - | 25 | |||||||||||||||
Other
securities
|
54 | 4 | 10 | - | 48 | |||||||||||||||
Total
equity securities
|
428 | 9 | 183 | - | 254 | |||||||||||||||
Total
AFS securities
|
$ | 54,809 | $ | 986 | $ | 7,400 | $ | - | $ | 48,395 |
As
of September 30, 2009
|
||||||||
Amortized
|
Fair
|
|||||||
Cost
|
Value
|
|||||||
Due
in one year or less
|
$ | 1,717 | $ | 1,734 | ||||
Due
after one year through five years
|
13,444 | 13,930 | ||||||
Due
after five years through ten years
|
16,609 | 17,327 | ||||||
Due
after ten years
|
16,458 | 16,270 | ||||||
Subtotal
|
48,228 | 49,261 | ||||||
MBS
|
11,423 | 10,947 | ||||||
CDOs
|
191 | 140 | ||||||
CLNs
|
600 | 318 | ||||||
Total
fixed maturity AFS securities
|
$ | 60,442 | $ | 60,666 |
As
of September 30, 2009
|
||||||||||||||||||||||||
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
|
$ | 1,905 | $ | 190 | $ | 7,399 | $ | 1,153 | $ | 9,304 | $ | 1,343 | ||||||||||||
U.S.
Government bonds
|
41 | 2 | - | - | 41 | 2 | ||||||||||||||||||
Foreign
government bonds
|
24 | - | 50 | 11 | 74 | 11 | ||||||||||||||||||
MBS:
|
||||||||||||||||||||||||
CMOs
|
261 | 172 | 1,018 | 342 | 1,279 | 514 | ||||||||||||||||||
MPTS
|
223 | 2 | 103 | 12 | 326 | 14 | ||||||||||||||||||
CMBS
|
103 | 17 | 782 | 374 | 885 | 391 | ||||||||||||||||||
ABS:
|
||||||||||||||||||||||||
CDOs
|
9 | 7 | 117 | 49 | 126 | 56 | ||||||||||||||||||
CLNs
|
- | - | 318 | 282 | 318 | 282 | ||||||||||||||||||
State
and municipal bonds
|
285 | 7 | 60 | 8 | 345 | 15 | ||||||||||||||||||
Hybrid
and redeemable
|
||||||||||||||||||||||||
preferred
securities
|
128 | 45 | 912 | 289 | 1,040 | 334 | ||||||||||||||||||
Total
fixed maturity securities
|
2,979 | 442 | 10,759 | 2,520 | 13,738 | 2,962 | ||||||||||||||||||
Equity
Securities
|
||||||||||||||||||||||||
Banking
securities
|
138 | 103 | 18 | 15 | 156 | 118 | ||||||||||||||||||
Insurance
securities
|
6 | - | - | - | 6 | - | ||||||||||||||||||
Other
financial services securities
|
8 | 7 | - | - | 8 | 7 | ||||||||||||||||||
Other
securities
|
2 | 1 | - | - | 2 | 1 | ||||||||||||||||||
Total
equity securities
|
154 | 111 | 18 | 15 | 172 | 126 | ||||||||||||||||||
Total
AFS securities
|
$ | 3,133 | $ | 553 | $ | 10,777 | $ | 2,535 | $ | 13,910 | $ | 3,088 | ||||||||||||
Total
number of securities in an unrealized loss position
|
1,680 |
As
of December 31, 2008
|
||||||||||||||||||||||||
Less
Than or Equal
|
Greater
Than
|
|||||||||||||||||||||||
to
Twelve Months
|
Twelve
Months
|
Total
|
||||||||||||||||||||||
Gross
|
Gross
|
Gross
|
||||||||||||||||||||||
Fair
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
Unrealized
|
|||||||||||||||||||
Value
|
Losses
|
Value
|
Losses
|
Value
|
Losses
|
|||||||||||||||||||
Fixed
Maturity Securities
|
||||||||||||||||||||||||
Corporate
bonds
|
$ | 18,864 | $ | 2,341 | $ | 5,893 | $ | 2,122 | $ | 24,757 | $ | 4,463 | ||||||||||||
U.S.
Government bonds
|
3 | - | - | - | 3 | - | ||||||||||||||||||
Foreign
government bonds
|
147 | 17 | 50 | 32 | 197 | 49 | ||||||||||||||||||
MBS:
|
||||||||||||||||||||||||
CMOs
|
853 | 299 | 720 | 481 | 1,573 | 780 | ||||||||||||||||||
MPTS
|
96 | 26 | 52 | 12 | 148 | 38 | ||||||||||||||||||
CMBS
|
1,133 | 175 | 498 | 450 | 1,631 | 625 | ||||||||||||||||||
ABS:
|
||||||||||||||||||||||||
CDOs
|
76 | 20 | 68 | 83 | 144 | 103 | ||||||||||||||||||
CLNs
|
- | - | 50 | 550 | 50 | 550 | ||||||||||||||||||
State
and municipal bonds
|
29 | 2 | 2 | - | 31 | 2 | ||||||||||||||||||
Hybrid
and redeemable
|
||||||||||||||||||||||||
preferred
securities
|
461 | 267 | 418 | 340 | 879 | 607 | ||||||||||||||||||
Total
fixed maturity securities
|
21,662 | 3,147 | 7,751 | 4,070 | 29,413 | 7,217 | ||||||||||||||||||
Equity
Securities
|
||||||||||||||||||||||||
Banking
securities
|
128 | 146 | - | - | 128 | 146 | ||||||||||||||||||
Insurance
securities
|
30 | 19 | - | - | 30 | 19 | ||||||||||||||||||
Other
financial services securities
|
16 | 8 | - | - | 16 | 8 | ||||||||||||||||||
Other
securities
|
23 | 9 | 2 | 1 | 25 | 10 | ||||||||||||||||||
Total
equity securities
|
197 | 182 | 2 | 1 | 199 | 183 | ||||||||||||||||||
Total
AFS securities
|
$ | 21,859 | $ | 3,329 | $ | 7,753 | $ | 4,071 | $ | 29,612 | $ | 7,400 | ||||||||||||
Total
number of securities in an unrealized loss position
|
3,563 |
As
of September 30, 2009
|
||||||||||||
Amortized
|
Unrealized
|
|||||||||||
Cost
|
Fair
Value
|
Loss
|
||||||||||
Total
|
||||||||||||
AFS
securities backed by pools of residential mortgages
|
$ | 3,285 | $ | 2,267 | $ | 1,018 | ||||||
AFS
securities backed by pools of commercial mortgages
|
1,347 | 930 | 417 | |||||||||
Total
|
$ | 4,632 | $ | 3,197 | $ | 1,435 | ||||||
Subject
to Detailed Analysis
|
||||||||||||
AFS
securities backed by pools of residential mortgages
|
$ | 2,985 | $ | 1,971 | $ | 1,014 | ||||||
AFS
securities backed by pools of commercial mortgages
|
363 | 204 | 159 | |||||||||
Total
|
$ | 3,348 | $ | 2,175 | $ | 1,173 |
As
of September 30, 2009
|
||||||||||||||||
Number
|
||||||||||||||||
Fair
|
Gross
Unrealized
|
of
|
||||||||||||||
Value
|
Losses
|
OTTI
|
Securities
(1)
|
|||||||||||||
Less
than six months
|
$ | 277 | $ | 120 | $ | - | 71 | |||||||||
Six
months or greater, but less than nine months
|
301 | 114 | 89 | 69 | ||||||||||||
Nine
months or greater, but less than twelve months
|
989 | 509 | 14 | 169 | ||||||||||||
Twelve
months or greater
|
1,668 | 1,376 | 137 | 277 | ||||||||||||
Total
AFS securities
|
$ | 3,235 | $ | 2,119 | $ | 240 | 586 |
As
of December 31, 2008
|
||||||||||||||||
Number
|
||||||||||||||||
Fair
|
Gross
Unrealized
|
of
|
||||||||||||||
Value
|
Losses
|
OTTI
|
Securities
(1)
|
|||||||||||||
Less
than six months
|
$ | 6,711 | $ | 3,497 | $ | - | 982 | |||||||||
Six
months or greater, but less than nine months
|
496 | 505 | - | 102 | ||||||||||||
Nine
months or greater, but less than twelve months
|
485 | 646 | - | 147 | ||||||||||||
Twelve
months or greater
|
173 | 869 | - | 90 | ||||||||||||
Total
AFS securities
|
$ | 7,865 | $ | 5,517 | $ | - | 1,321 |
(1)
|
We
may reflect a security in more than one aging category based on various
purchase dates.
|
For
the
|
For
the
|
|||||||
Three
|
Nine
|
|||||||
Months
|
Months
|
|||||||
Ended
|
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
Balance
as of beginning-of-period
|
$ | 132 | $ | 31 | ||||
Increases
attributable to:
|
||||||||
Credit
losses on securities for which an OTTI was not previously
recognized
|
32 | 127 | ||||||
Credit
losses on securities for which an OTTI was previously
recognized
|
64 | 100 | ||||||
Decreases
attributable to:
|
||||||||
Securities
sold
|
(6 | ) | (6 | ) | ||||
Amounts
recognized in net income (loss)
|
- | (30 | ) | |||||
Balance
as of end-of-period
|
$ | 222 | $ | 222 |
·
|
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.
|
Gross
|
OTTI
in
|
|||||||||||||||
Amortized
|
Unrealized
|
Fair
|
Credit
|
|||||||||||||
Cost
|
OTTI
|
Value
|
Losses
|
|||||||||||||
Corporate
bonds
|
$ | 160 | $ | 72 | $ | 88 | $ | 58 | ||||||||
MBS
CMOs
|
383 | 172 | 211 | 164 | ||||||||||||
$ | 543 | $ | 244 | $ | 299 | $ | 222 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||
Gross
gains
|
$ | 23 | $ | 19 | $ | 110 | $ | 44 | ||||||||
Gross
losses
|
(166 | ) | (372 | ) | (579 | ) | (592 | ) | ||||||||
Equity
AFS securities:
|
||||||||||||||||
Gross
gains
|
- | 1 | 4 | 1 | ||||||||||||
Gross
losses
|
(8 | ) | (25 | ) | (16 | ) | (32 | ) | ||||||||
Gain
(loss) on other investments
|
2 | 1 | (58 | ) | 29 | |||||||||||
Associated
amortization expense of DAC, VOBA, DSI
|
||||||||||||||||
and
DFEL and changes in other contract holder funds
|
||||||||||||||||
and
funds withheld reinsurance liabilities
|
25 | 91 | 128 | 139 | ||||||||||||
Total
realized loss on investments, excluding trading securities
|
(124 | ) | (285 | ) | (411 | ) | (411 | ) | ||||||||
Loss
on certain derivative instruments
|
(12 | ) | (30 | ) | (33 | ) | (62 | ) | ||||||||
Total
realized loss on investments and certain
|
||||||||||||||||
derivative
instruments, excluding trading securities
|
$ | (136 | ) | $ | (315 | ) | $ | (444 | ) | $ | (473 | ) |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
OTTI
Recognized in Net Income (Loss)
|
||||||||||||||||
Fixed
maturity securities:
|
||||||||||||||||
Corporate
bonds
|
$ | 29 | $ | 205 | $ | 187 | $ | 331 | ||||||||
MBS:
|
||||||||||||||||
CMOs
|
70 | 76 | 213 | 153 | ||||||||||||
ABS:
|
||||||||||||||||
CDOs
|
10 | - | 39 | 1 | ||||||||||||
Hybrid
and redeemable preferred securities
|
17 | 1 | 18 | 1 | ||||||||||||
Total
fixed maturity securities
|
126 | 282 | 457 | 486 | ||||||||||||
Equity
securities:
|
||||||||||||||||
Insurance
securities
|
- | 1 | - | 1 | ||||||||||||
Other
financial services securities
|
8 | 24 | 10 | 24 | ||||||||||||
Other
securities
|
- | - | 6 | 7 | ||||||||||||
Total
equity securities
|
8 | 25 | 16 | 32 | ||||||||||||
Gross
OTTI recognized in net income (loss)
|
134 | 307 | 473 | 518 | ||||||||||||
Associated
amortization expense of DAC, VOBA,
|
||||||||||||||||
DSI
and DFEL
|
(54 | ) | (70 | ) | (154 | ) | (123 | ) | ||||||||
Net
OTTI recognized in net income (loss), pre-tax
|
$ | 80 | $ | 237 | $ | 319 | $ | 395 | ||||||||
Portion
of OTTI Recognized in OCI
|
||||||||||||||||
Gross
OTTI recognized in OCI
|
$ | 97 | $ | - | $ | 338 | $ | - | ||||||||
Associated
amortization expense of DAC, VOBA, DSI
|
||||||||||||||||
and
DFEL
|
(29 | ) | - | (79 | ) | - | ||||||||||
Net
portion of OTTI recognized in OCI, pre-tax
|
$ | 68 | $ | - | $ | 259 | $ | - |
·
|
Historic
and implied volatility of the
security;
|
·
|
Length
of time and extent to which the fair value has been less than amortized
cost;
|
·
|
Adverse
conditions specifically related to the security or to specific conditions
in an industry or geographic area;
|
·
|
Failure,
if any, of the issuer of the security to make scheduled payments;
and
|
·
|
Recoveries
or additional declines in fair value subsequent to the balance sheet
date.
|
·
|
Fundamentals
of the issuer to determine what we would recover if they were to file
bankruptcy versus the price at which the market is
trading;
|
·
|
Fundamentals
of the industry in which the issuer
operates;
|
·
|
Earnings
multiples for the given industry or sector of an industry that the
underlying issuer operates within, divided by the outstanding debt to
determine an expected recovery value of the security in the case of a
liquidation;
|
·
|
Expected
cash flows of the issuer (e.g., whether the issuer has cash flows in
excess of what is required to fund its
operations);
|
·
|
Expectations
regarding defaults and recovery
rates;
|
·
|
Changes
to the rating of the security by a rating agency;
and
|
·
|
Additional
market information (e.g., if there has been a replacement of the corporate
debt security).
|
·
|
Discounted
cash flow analysis based on the current cash flows and future cash flows
we expect to recover;
|
·
|
Level
of creditworthiness of the home equity loans that back a CMO, residential
mortgages that back a MPTS 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 and our expectations of sale of such a
security; and
|
·
|
Susceptibility
to variability of prepayments.
|
As
of September 30, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Value
|
Value
|
Value
|
Value
|
|||||||||||||
Collateral
payable held for derivative investments (1)
|
$ | 714 | $ | 714 | $ | 2,809 | $ | 2,809 | ||||||||
Securities
pledged under securities lending agreements (2)
|
694 | 668 | 427 | 410 | ||||||||||||
Securities
pledged under reverse repurchase agreements (3)
|
344 | 364 | 470 | 496 | ||||||||||||
Securities
pledged for Treasury Asset-Backed Securities
|
||||||||||||||||
Loan
Facility ("TALF") (4)
|
388 | 441 | - | - | ||||||||||||
Securities
pledged for Federal Home Loan Bank of
|
||||||||||||||||
Indianapolis
Securities ("FHLBI") (5)
|
100 | 113 | - | - | ||||||||||||
Total
payables for collateral on investments
|
$ | 2,240 | $ | 2,300 | $ | 3,706 | $ | 3,715 |
(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 once 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 parities
contain contractual provisions to allow for additional collateral to be
obtained when necessary. The cash received in our reverse
repurchase program is typically invested in fixed maturity AFS
securities.
|
(4)
|
Our
pledged securities for TALF are included in fixed maturity AFS securities
on our Consolidated Balance Sheets. We obtain collateral in an
amount that has typically averaged 90% of the fair value of the TALF
securities. The cash received in these transactions is invested
in fixed maturity AFS securities.
|
(5)
|
Our
pledged securities for FHLBI are included in fixed maturity AFS securities
on our Consolidated Balance Sheets. We generally obtain
collateral in an amount equal to 85% to 95% of the fair value of the FHLBI
securities. The cash received in these transactions is
typically invested in cash and invested cash or fixed maturity AFS
securities.
|
For
the Nine Months
|
||||||||
Ended
September 30,
|
||||||||
2009
|
2008
|
|||||||
Collateral
payable held for derivative investments
|
$ | (2,095 | ) | $ | 797 | |||
Securities
pledged under securities lending agreements
|
267 | (192 | ) | |||||
Securities
pledged under reverse repurchase agreements
|
(126 | ) | (200 | ) | ||||
Securities
pledged for TALF
|
388 | - | ||||||
Securities
pledged for FHLBI
|
100 | 128 | ||||||
Total
increase (decrease) in payables for collateral on
investments
|
$ | (1,466 | ) | $ | 533 |
As
of
|
As
of
|
As
of
|
|||
October
31,
|
September
30,
|
December
31,
|
|||
2009
|
2009
|
2008
|
|||
Fair
value to amortized cost ratio
|
50%
|
53%
|
8%
|
Amount
and Date of Issuance
|
||||||||
$400 | $200 | |||||||
December
2006
|
April
2007
|
|||||||
Amortized
cost
|
$ | 400 | $ | 200 | ||||
Fair
value
|
205 | 113 | ||||||
Original
attachment point (subordination)
|
5.50 | % | 2.05 | % | ||||
Current
attachment point (subordination)
|
4.79 | % | 1.48 | % | ||||
Maturity
|
12/20/2016
|
3/20/2017
|
||||||
Current
rating of tranche
|
BBB-
|
Ba3
(1)
|
||||||
Current
rating of underlying collateral pool
|
Aa1-Caa2
|
Aaa-B3
|
||||||
Number
of entities
|
124 | 98 | ||||||
Number
of countries
|
19 | 23 |
(1)
|
As
of October 31, 2009, the current rating of this tranche was
B2.
|
Industry
|
AAA
|
AA
|
A
|
BBB
|
BB
|
B
|
CC
|
Total
|
||||||||
Financial
intermediaries
|
0.4%
|
3.5%
|
7.1%
|
0.5%
|
0.0%
|
0.0%
|
0.0%
|
11.5%
|
||||||||
Telecommunications
|
0.0%
|
0.0%
|
5.5%
|
4.5%
|
1.1%
|
0.0%
|
0.0%
|
11.1%
|
||||||||
Oil
and gas
|
0.0%
|
1.4%
|
1.7%
|
4.4%
|
0.0%
|
0.0%
|
0.0%
|
7.5%
|
||||||||
Utilities
|
0.0%
|
0.0%
|
2.4%
|
1.8%
|
0.0%
|
0.0%
|
0.0%
|
4.2%
|
||||||||
Chemicals
and plastics
|
0.0%
|
0.0%
|
2.3%
|
1.6%
|
0.0%
|
0.0%
|
0.0%
|
3.9%
|
||||||||
Property
and casualty insurance
|
0.0%
|
0.0%
|
2.2%
|
1.1%
|
0.0%
|
0.0%
|
0.5%
|
3.8%
|
||||||||
Drugs
|
0.3%
|
2.5%
|
0.9%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
3.7%
|
||||||||
Retailers
(except food and drug)
|
0.0%
|
0.0%
|
0.6%
|
1.8%
|
1.1%
|
0.0%
|
0.0%
|
3.5%
|
||||||||
Industrial
equipment
|
0.0%
|
0.0%
|
3.0%
|
0.3%
|
0.0%
|
0.0%
|
0.0%
|
3.3%
|
||||||||
Sovereign
|
0.0%
|
0.3%
|
1.6%
|
1.4%
|
0.0%
|
0.0%
|
0.0%
|
3.3%
|
||||||||
Forest
products
|
0.0%
|
0.0%
|
0.0%
|
1.6%
|
1.4%
|
0.0%
|
0.0%
|
3.0%
|
||||||||
Other
industry < 3% (28 industries)
|
0.9%
|
2.8%
|
15.2%
|
16.6%
|
3.9%
|
1.8%
|
0.0%
|
41.2%
|
||||||||
Total
by industry
|
1.6%
|
10.5%
|
42.5%
|
35.6%
|
7.5%
|
1.8%
|
0.5%
|
100.0%
|
As
of September 30, 2009
|
||||||||||||||||||||||||
Number
|
Asset
Carrying
|
(Liability)
Carrying
|
||||||||||||||||||||||
of
|
Notional
|
or
Fair Value
|
or
Fair Value
|
|||||||||||||||||||||
Instruments
|
Amounts
|
Gain
|
Loss
|
Gain
|
Loss
|
|||||||||||||||||||
Derivative
Instruments
|
||||||||||||||||||||||||
Designated
and Qualifying
|
||||||||||||||||||||||||
as
Hedging Instruments
|
||||||||||||||||||||||||
Cash
flow hedges:
|
||||||||||||||||||||||||
Interest
rate swap agreements (1)
|
92 | $ | 649 | $ | 37 | $ | (68 | ) | $ | - | $ | - | ||||||||||||
Foreign
currency swaps (1)
|
13 | 340 | 37 | (19 | ) | - | - | |||||||||||||||||
Forward-starting
interest rate swaps (1)
|
1 | 75 | - | - | - | - | ||||||||||||||||||
Total
cash flow hedges
|
106 | 1,064 | 74 | (87 | ) | - | - | |||||||||||||||||
Fair
value hedges:
|
||||||||||||||||||||||||
Interest
rate swap agreements (1)
|
1 | 375 | 92 | - | - | - | ||||||||||||||||||
Equity
collars (1)
|
1 | 49 | 128 | - | - | - | ||||||||||||||||||
Total
fair value hedges
|
2 | 424 | 220 | - | - | - | ||||||||||||||||||
Net
investment in foreign subsidiary:
|
||||||||||||||||||||||||
Foreign
currency forwards (1)
|
2 | 324 | 12 | - | - | - | ||||||||||||||||||
Embedded
derivatives:
|
||||||||||||||||||||||||
Deferred
compensation plans (2)
|
7 | - | - | - | - | (418 | ) | |||||||||||||||||
Indexed
annuity contracts
(3)
|
104,642 | - | - | - | - | (391 | ) | |||||||||||||||||
GLB
embedded derivative reserves
(3)
|
248,669 | - | - | - | 281 | (1,382 | ) | |||||||||||||||||
Reinsurance
related embedded
|
||||||||||||||||||||||||
derivatives
(4)
|
- | - | - | - | - | (39 | ) | |||||||||||||||||
Total
embedded derivatives
|
353,318 | - | - | - | 281 | (2,230 | ) | |||||||||||||||||
Total
derivative instruments
|
||||||||||||||||||||||||
designated
and qualifying as
|
||||||||||||||||||||||||
hedging
instruments
|
353,428 | 1,812 | 306 | (87 | ) | 281 | (2,230 | ) | ||||||||||||||||
Derivative
Instruments Not
|
||||||||||||||||||||||||
Designated
and Not Qualifying
|
||||||||||||||||||||||||
as
Hedging Instruments
|
||||||||||||||||||||||||
Interest
rate cap agreements (1)
|
34 | 1,700 | - | - | - | - | ||||||||||||||||||
Interest
rate futures (1)
|
31,555 | 4,163 | - | - | - | - | ||||||||||||||||||
Equity
futures (1)
|
24,073 | 1,299 | - | - | - | - | ||||||||||||||||||
Interest
rate swap agreements (1)
|
109 | 6,611 | 283 | (399 | ) | - | - | |||||||||||||||||
Foreign
currency forwards (1)
|
17 | 1,016 | 12 | (130 | ) | - | - | |||||||||||||||||
Credit
default swaps (2)
|
15 | 249 | - | - | - | (78 | ) | |||||||||||||||||
Total
return swaps (1)
|
2 | 142 | - | - | - | - | ||||||||||||||||||
Put
options (1)
|
120 | 4,259 | 1,022 | - | - | - | ||||||||||||||||||
Call
options (based on LNC stock) (1)
|
1 | 9 | - | - | - | - | ||||||||||||||||||
Call
options (based on S&P 500) (1)
|
557 | 3,342 | 174 | - | - | - | ||||||||||||||||||
Variance
swaps (1)
|
36 | 26 | 101 | (18 | ) | - | - | |||||||||||||||||
Currency
futures (1)
|
3,432 | 487 | - | - | - | - | ||||||||||||||||||
AFS
securities embedded derivatives (1)
|
2 | - | 18 | - | - | - | ||||||||||||||||||
Total
derivative instruments not
|
||||||||||||||||||||||||
designated
and not qualifying as
|
||||||||||||||||||||||||
hedging
instruments
|
59,953 | 23,303 | 1,610 | (547 | ) | - | (78 | ) | ||||||||||||||||
Total
derivative instruments
|
413,381 | $ | 25,115 | $ | 1,916 | $ | (634 | ) | $ | 281 | $ | (2,308 | ) |
(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 September 30, 2009
|
||||||||||||||||||||
Less
Than
|
1 – 5 | 5 – 10 | 10 – 30 | |||||||||||||||||
1
Year
|
Years
|
Years
|
Years
|
Total
|
||||||||||||||||
Derivative
Instruments Designated and
|
||||||||||||||||||||
Qualifying
as Hedging Instruments
|
||||||||||||||||||||
Cash
flow hedges:
|
||||||||||||||||||||
Interest
rate swap agreements
|
$ | 53 | $ | 90 | $ | 240 | $ | 266 | $ | 649 | ||||||||||
Foreign
currency swaps
|
- | 68 | 191 | 81 | 340 | |||||||||||||||
Forward-starting
interest rate swaps
|
- | - | 75 | - | 75 | |||||||||||||||
Total
cash flow hedges
|
53 | 158 | 506 | 347 | 1,064 | |||||||||||||||
Fair
value hedges:
|
||||||||||||||||||||
Interest
rate swap agreements
|
- | - | - | 375 | 375 | |||||||||||||||
Equity collars
|
49 | - | - | - | 49 | |||||||||||||||
Total
fair value hedges
|
49 | - | - | 375 | 424 | |||||||||||||||
Net
investment in foreign subsidiary:
|
||||||||||||||||||||
Foreign
currency forwards
|
324 | - | - | - | 324 | |||||||||||||||
Total
derivative instruments designated
|
||||||||||||||||||||
and
qualifying as hedging instruments
|
426 | 158 | 506 | 722 | 1,812 | |||||||||||||||
Derivative
Instruments Not Designated and
|
||||||||||||||||||||
Not
Qualifying as Hedging Instruments
|
||||||||||||||||||||
Interest
rate cap agreements
|
1,550 | 150 | - | - | 1,700 | |||||||||||||||
Interest
rate futures
|
4,163 | - | - | - | 4,163 | |||||||||||||||
Equity
futures
|
1,299 | - | - | - | 1,299 | |||||||||||||||
Interest
rate swap agreements
|
477 | 1,635 | 1,494 | 3,005 | 6,611 | |||||||||||||||
Foreign
currency forwards
|
1,016 | - | - | - | 1,016 | |||||||||||||||
Credit
default swaps
|
20 | 40 | 189 | - | 249 | |||||||||||||||
Total
return swaps
|
142 | - | - | - | 142 | |||||||||||||||
Put
options
|
134 | 1,200 | 2,750 | 175 | 4,259 | |||||||||||||||
Call
options (based on LNC stock)
|
9 | - | - | - | 9 | |||||||||||||||
Call
options (based on S&P 500)
|
2,534 | 808 | - | - | 3,342 | |||||||||||||||
Variance
swaps
|
- | 3 | 23 | - | 26 | |||||||||||||||
Currency
futures
|
487 | - | - | - | 487 | |||||||||||||||
Total
derivative instruments not designated
|
||||||||||||||||||||
and
not qualifying as hedging instruments
|
11,831 | 3,836 | 4,456 | 3,180 | 23,303 | |||||||||||||||
Total
derivative instruments
|
||||||||||||||||||||
with
notional amounts
|
$ | 12,257 | $ | 3,994 | $ | 4,962 | $ | 3,902 | $ | 25,115 |
For
the
|
||||
Nine
|
||||
Months
|
||||
Ended
|
||||
September
30,
|
||||
2009
|
||||
Unrealized
Gain on Derivative Instruments
|
||||
Balance
as of beginning-of-year
|
$ | 127 | ||
Other
comprehensive income (loss):
|
||||
Unrealized
holding losses arising during the period:
|
||||
Cash
flow hedges:
|
||||
Interest
rate swap agreements
|
23 | |||
Foreign
currency swaps
|
(49 | ) | ||
Fair
value hedges:
|
||||
Interest
rate swap agreements
|
3 | |||
Equity
collars
|
(28 | ) | ||
Net
investment in foreign subsidiary
|
(61 | ) | ||
Change
in DAC, VOBA, DSI and other contract holder funds
|
16 | |||
Income
tax benefit
|
(16 | ) | ||
Less:
|
||||
Reclassification
adjustment for gains included in net income:
|
||||
Cash
flow hedges:
|
||||
Interest
rate swap agreements (1)
|
2 | |||
Foreign
currency swaps (1)
|
1 | |||
Fair
value hedges:
|
||||
Interest
rate swap agreements (2)
|
3 | |||
Income
tax expense
|
(2 | ) | ||
Balance
as of end-of-period
|
$ | 11 |
(1)
|
The
OCI offset is reported within net investment income on our Consolidated
Statements of Income (Loss).
|
(2)
|
The
OCI offset is reported within interest and debt expense on our
Consolidated Statements of Income
(Loss).
|
For
the
|
For
the
|
|||||||
Three
|
Nine
|
|||||||
Months
|
Months
|
|||||||
Ended
|
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
Derivative
Instruments Designated and Qualifying as Hedging
Instruments
|
||||||||
Cash
flow hedges:
|
||||||||
Interest
rate swap agreements (1)
|
$ | - | $ | 2 | ||||
Foreign
currency swaps (1)
|
1 | 2 | ||||||
Total
cash flow hedges
|
1 | 4 | ||||||
Fair
value hedges:
|
||||||||
Interest
rate swap agreements (2)
|
5 | 12 | ||||||
Embedded
derivatives:
|
||||||||
Deferred
compensation plans (3)
|
(17 | ) | (42 | ) | ||||
Indexed
annuity contracts (4)
|
(54 | ) | (4 | ) | ||||
GLB
embedded derivative reserves (4)
|
(28 | ) | 1,793 | |||||
Reinsurance
related embedded derivatives (4)
|
(85 | ) | (70 | ) | ||||
Total
embedded derivatives
|
(184 | ) | 1,677 | |||||
Total
derivative instruments designated and qualifying as hedging
instruments
|
(178 | ) | 1,693 | |||||
Derivative
Instruments Not Designated and Not Qualifying as Hedging
Instruments
|
||||||||
Interest
rate futures (4)
|
(3 | ) | (586 | ) | ||||
Equity
futures
(4)
|
(285 | ) | (599 | ) | ||||
Interest
rate swap agreements (4)
|
93 | (686 | ) | |||||
Foreign
currency forwards (1)
|
(36 | ) | (119 | ) | ||||
Credit
default swaps (1)
|
- | 1 | ||||||
Total
return swaps (3)
|
19 | 28 | ||||||
Put
options (4)
|
(116 | ) | (526 | ) | ||||
Call
options (based on S&P 500) (4)
|
48 | 50 | ||||||
Variance
swaps (4)
|
5 | (78 | ) | |||||
Currency
futures (4)
|
9 | 7 | ||||||
AFS
securities embedded derivatives (1)
|
1 | 4 | ||||||
Total
derivative instruments not designated and not qualifying as hedging
instruments
|
(265 | ) | (2,504 | ) | ||||
Total
derivative instruments
|
$ | (443 | ) | $ | (811 | ) |
(1)
|
Reported
in net investment income on our Consolidated Statements of Income
(Loss).
|
(2)
|
Reported
in interest and debt expense on our Consolidated Statements of Income
(Loss).
|
(3)
|
Reported
in underwriting, acquisition, insurance and other expenses on our
Consolidated Statements of Income
(Loss).
|
(4)
|
Reported
in realized loss on our Consolidated Statements of Income
(Loss).
|
Credit
|
||||||||||||||||||||
Reason
|
Nature
|
Rating
of
|
Maximum
|
|||||||||||||||||
for
|
of
|
Counter-
|
Fair
|
Potential
|
||||||||||||||||
Maturity
|
Entering
|
Recourse
|
party
|
Value
(1)
|
Payout
|
|||||||||||||||
3/20/2010
|
(2) | (4) | A2/A | $ | - | $ | 10 | |||||||||||||
6/20/2010
|
(2) | (4) | A1/A | - | 10 | |||||||||||||||
12/20/2012
|
(3) | (4) |
Aa2/A+
|
- | 10 | |||||||||||||||
12/20/2012
|
(3) | (4) |
Aa2/A+
|
- | 10 | |||||||||||||||
12/20/2012
|
(3) | (4) | A1/A | - | 10 | |||||||||||||||
12/20/2012
|
(3) | (4) | A1/A | - | 10 | |||||||||||||||
12/20/2016
|
(3) | (4) | A2/A(5) | 13 | 29 | |||||||||||||||
12/20/2016
|
(3) | (4) | A2/A(5) | 8 | 24 | |||||||||||||||
12/20/2016
|
(3) | (4) | A2/A(5) | 10 | 24 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 8 | 22 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 12 | 15 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 6 | 18 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 12 | 17 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 4 | 23 | |||||||||||||||
3/20/2017
|
(3) | (4) | A2/A(5) | 5 | 17 | |||||||||||||||
$ | 78 | $ | 249 |
(1)
|
Broker
quotes are used to determine the market value of credit default
swaps.
|
(2)
|
Credit
default swap was entered into in order to generate income by providing
protection on a highly rated basket of securities in return for a
quarterly payment.
|
(3)
|
Credit
default swap was entered into in order to generate income by providing
default protection in return for a quarterly
payment.
|
(4)
|
Seller
does not have the right to demand indemnification/compensation from third
parties in case of a loss (payment) on the
contract.
|
(5)
|
These
credit default swaps were sold to a counter party of the issuing special
purpose trust as discussed in the “Credit-Linked Notes” section in Note
5.
|
Maximum
potential payout
|
$ | 249 | ||
Less:
|
||||
Counterparty
thresholds
|
30 | |||
Maximum
collateral potentially required to post
|
$ | 219 |
Collateral
|
Collateral
|
|||||||||
S&P
|
Posted
by
|
Posted
by
|
||||||||
Credit
|
Counterparty
|
LNC
|
||||||||
Rating
of
|
(Held
by
|
(Held
by
|
||||||||
Counterparty
|
LNC)
|
Counterparty)
|
||||||||
AAA
|
$ | 9 | $ | - | ||||||
AA
|
115 | - | ||||||||
AA-
|
187 | - | ||||||||
A+ | 275 | (16 | ) | |||||||
A | 288 | (88 | ) | |||||||
$ | 874 | $ | (104 | ) |
For
the Nine Months Ended
|
||||||||||||||||
September
30, 2009
|
||||||||||||||||
Balance
|
Purchase
|
Balance
|
||||||||||||||
As
of
|
Accounting
|
As
of
|
||||||||||||||
Beginning-
|
Adjust-
|
Impair-
|
End-of-
|
|||||||||||||
of-Year
|
ments
|
ment
|
Period
|
|||||||||||||
Retirement
Solutions:
|
||||||||||||||||
Annuities
|
$ | 1,040 | $ | - | $ | (600 | ) | $ | 440 | |||||||
Defined
Contribution
|
20 | - | - | 20 | ||||||||||||
Insurance
Solutions:
|
||||||||||||||||
Life
Insurance
|
2,188 | - | - | 2,188 | ||||||||||||
Group
Protection
|
274 | - | - | 274 | ||||||||||||
Other
Operations
|
174 | 1 | (1 | ) | 174 | |||||||||||
Total
goodwill
|
$ | 3,696 | $ | 1 | $ | (601 | ) | $ | 3,096 |
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Return
of Net Deposits
|
||||||||
Total
account value
|
$ | 42,415 | $ | 33,907 | ||||
Net
amount at risk (1)
|
2,446 | 6,337 | ||||||
Average
attained age of contract holders
|
57
years
|
56
years
|
||||||
Minimum
Return
|
||||||||
Total
account value
|
$ | 204 | $ | 191 | ||||
Net
amount at risk (1)
|
72 | 109 | ||||||
Average
attained age of contract holders
|
69
years
|
68
years
|
||||||
Guaranteed
minimum return
|
5 | % | 5 | % | ||||
Anniversary
Contract Value
|
||||||||
Total
account value
|
$ | 20,605 | $ | 16,950 | ||||
Net
amount at risk (1)
|
4,764 | 8,402 | ||||||
Average
attained age of contract holders
|
65
years
|
65
years
|
(1)
|
Represents
the amount of death benefit in excess of the account
balance. The decrease in net amount at risk when comparing
September 30, 2009, to December 31, 2008, was attributable primarily to
the rise in equity markets and associated increase in the account
values.
|
For
the Nine
|
||||||||
Months
Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Balance
as of beginning-of-year
|
$ | 277 | $ | 38 | ||||
Change
in reserves
|
(39 | ) | 87 | |||||
Benefits
paid
|
(150 | ) | (22 | ) | ||||
Balance
as of end-of-period
|
$ | 88 | $ | 103 |
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Asset
Type
|
||||||||
Domestic
equity
|
$ | 31,318 | $ | 24,878 | ||||
International
equity
|
11,737 | 9,204 | ||||||
Bonds
|
9,041 | 6,701 | ||||||
Money
market
|
5,958 | 5,802 | ||||||
Total
|
$ | 58,054 | $ | 46,585 | ||||
Percent
of total variable annuity separate account values
|
97 | % | 99 | % |
For
the
|
||||
Nine
|
||||
Months
|
||||
Ended
|
||||
September
30,
|
||||
2009
|
||||
Balance
as of beginning-of-year
|
$ | 4,731 | ||
Early
extinguishment of the following capital securities:
|
||||
Portion
of 7%, due 2066 (1)
|
(78 | ) | ||
Portion
of 6.05%, due 2067 (2)
|
(9 | ) | ||
Senior
notes issued (3)
|
495 | |||
Maturity
of LIBOR + 11 bps notes, due 2009
|
(500 | ) | ||
Reclassification
to short-term debt
|
250 | |||
Change
in fair value hedge
|
(104 | ) | ||
Accretion
(amortization) of discounts (premiums), net
|
4 | |||
Balance
as of end-of-period
|
$ | 4,789 |
(1)
|
The
results of the extinguishment of debt were favorable by a ratio of 25
cents to one dollar.
|
(2)
|
The
results of the extinguishment of debt were favorable by a ratio of 23
cents to one dollar.
|
(3)
|
On
June 22, 2009, we issued 8.75% fixed rate senior notes due
2019. We have the option to repurchase the outstanding notes by
paying the greater of (i) 100% of the principal amount of the notes to be
redeemed and (ii) the make-whole amount, plus in each case any accrued and
unpaid interest as of the date of redemption. The make-whole
amount is equal to the sum of the present values of the remaining
scheduled payments on the senior notes, discounted to the date of
redemption on a semi-annual basis, at a rate equal to the sum of the
applicable treasury rate (as defined in the senior notes) plus 50 basis
points.
|
For
the
|
||||
Three
|
||||
Months
|
||||
Ended
|
||||
March
31,
|
||||
2009
|
||||
Principal
balance outstanding prior to payoff
|
$ | 87 | ||
Unamortized
debt issuance costs and discounts prior to payoff
|
(1 | ) | ||
Amount
paid to retire
|
(22 | ) | ||
Gain
on extinguishment of debt, pre-tax
|
$ | 64 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Series
A Preferred Stock
|
||||||||||||||||
Balance
as of beginning-of-period
|
11,557 | 11,662 | 11,565 | 11,960 | ||||||||||||
Conversion
into common stock
|
(10 | ) | (100 | ) | (18 | ) | (398 | ) | ||||||||
Balance
as of end-of-period
|
11,547 | 11,562 | 11,547 | 11,562 | ||||||||||||
Series
B Preferred Stock
|
||||||||||||||||
Balance
as of beginning-of-period
|
- | - | - | - | ||||||||||||
Stock
issued
|
950,000 | - | 950,000 | - | ||||||||||||
Balance
as of end-of-period
|
950,000 | - | 950,000 | - | ||||||||||||
Common
Stock
|
||||||||||||||||
Balance
as of beginning-of-period
|
302,093,017 | 256,801,622 | 255,869,859 | 264,233,303 | ||||||||||||
Stock
issued
|
- | - | 46,000,000 | - | ||||||||||||
Conversion
of Series A preferred stock
|
160 | 1,600 | 288 | 6,368 | ||||||||||||
Stock
compensation/issued for benefit plans
|
12,070 | 114,919 | 284,637 | 861,220 | ||||||||||||
Retirement/cancellation
of shares
|
(31,378 | ) | (1,076,508 | ) | (80,915 | ) | (9,259,258 | ) | ||||||||
Balance
as of end-of-period
|
302,073,869 | 255,841,633 | 302,073,869 | 255,841,633 | ||||||||||||
Common
stock as of end-of-period:
|
||||||||||||||||
Assuming
conversion of preferred stock
|
302,258,621 | 256,026,625 | 302,258,621 | 256,026,625 | ||||||||||||
Diluted
basis
|
311,845,511 | 256,908,832 | 311,845,511 | 256,908,832 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Weighted-average
shares, as used in basic calculation
|
301,803,107 | 255,865,067 | 272,651,819 | 258,192,178 | ||||||||||||
Shares
to cover exercise of CPP warrant
|
11,786,601 | - | 3,928,867 | - | ||||||||||||
Shares
to cover conversion of preferred stock
|
184,787 | 185,672 | 184,931 | 187,101 | ||||||||||||
Shares
to cover non-vested stock
|
568,933 | 315,939 | 525,534 | 276,132 | ||||||||||||
Average
stock options outstanding during the period
|
577,045 | 6,241,386 | 295,438 | 8,478,357 | ||||||||||||
Assumed
acquisition of shares with assumed
|
||||||||||||||||
proceeds
from exercising CPP warrant
|
(5,909,851 | ) | - | (1,969,950 | ) | - | ||||||||||
Assumed
acquisition of shares with assumed
|
||||||||||||||||
proceeds
and benefits from exercising stock
|
||||||||||||||||
options
(at average market price for the year)
|
(386,354 | ) | (6,240,810 | ) | (207,216 | ) | (8,392,562 | ) | ||||||||
Shares
repurchaseable from measured but
|
||||||||||||||||
unrecognized
stock option expense
|
(160,867 | ) | (2,279 | ) | (55,922 | ) | (57,531 | ) | ||||||||
Average
deferred compensation shares
|
1,576,482 | 1,280,279 | 1,563,073 | 1,278,454 | ||||||||||||
Weighted-average
shares, as used in diluted
|
||||||||||||||||
calculation
(1)
|
310,039,883 | 257,645,254 | 276,916,574 | 259,962,129 |
(1)
|
As
a result of a loss from continuing operations for the nine months ended
September 30, 2009, shares used in the EPS calculation represent basic
shares, since using diluted shares would have been anti-dilutive to the
calculation.
|
For
the Nine Months
|
For
the Nine Months
|
|||||||||||||||||||||||
Ended
September 30, 2009
|
Ended
September 30, 2008
|
|||||||||||||||||||||||
Pre-Tax
|
Tax
|
Net
|
Pre-Tax
|
Tax
|
Net
|
|||||||||||||||||||
Net
unrealized gain (loss)
|
||||||||||||||||||||||||
on
AFS securities
|
$ | 4,434 | $ | (1,568 | ) | $ | 2,866 | $ | (3,046 | ) | $ | 1,056 | $ | (1,990 | ) | |||||||||
Unrealized
OTTI on AFS securities
|
(161 | ) | 56 | (105 | ) | - | - | - | ||||||||||||||||
Net
unrealized gain (loss)
|
||||||||||||||||||||||||
on
derivative instruments
|
(102 | ) | (14 | ) | (116 | ) | 3 | (2 | ) | 1 | ||||||||||||||
Foreign
currency translation
|
||||||||||||||||||||||||
adjustment
|
98 | (36 | ) | 62 | (90 | ) | 36 | (54 | ) | |||||||||||||||
Funded
status of employee benefit
|
||||||||||||||||||||||||
plans
|
(34 | ) | 12 | (22 | ) | 12 | (4 | ) | 8 | |||||||||||||||
Total
OCI
|
$ | 4,235 | $ | (1,550 | ) | $ | 2,685 | $ | (3,121 | ) | $ | 1,086 | $ | (2,035 | ) |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Total
realized loss on investments and certain
|
||||||||||||||||
derivative
instruments, excluding trading securities (1)
|
$ | (136 | ) | $ | (315 | ) | $ | (444 | ) | $ | (473 | ) | ||||
Gain
(loss) on certain reinsurance derivative/trading securities (2)
|
71 | (2 | ) | 83 | - | |||||||||||
Indexed
annuity net derivative results (3):
|
||||||||||||||||
Gross
gain (loss)
|
(9 | ) | 8 | - | 19 | |||||||||||
Associated
amortization benefit (expense) of DAC, VOBA, DSI
|
||||||||||||||||
and
DFEL
|
5 | (5 | ) | - | (10 | ) | ||||||||||
Guaranteed
living benefits (4):
|
||||||||||||||||
Gross
gain (loss)
|
(216 | ) | 159 | (450 | ) | 196 | ||||||||||
Associated
amortization benefit (expense) of DAC, VOBA, DSI
|
||||||||||||||||
and
DFEL
|
2 | (59 | ) | (16 | ) | (85 | ) | |||||||||
Guaranteed
death benefits (5):
|
||||||||||||||||
Gross
gain (loss)
|
(97 | ) | 8 | (203 | ) | 10 | ||||||||||
Associated
amortization benefit (expense) of DAC, VOBA, DSI
|
||||||||||||||||
and
DFEL
|
12 | (1 | ) | 26 | (3 | ) | ||||||||||
Gain
on sale of subsidiaries/businesses
|
- | - | 1 | - | ||||||||||||
Total
realized loss
|
$ | (368 | ) | $ | (207 | ) | $ | (1,003 | ) | $ | (346 | ) |
(1)
|
See
“Realized Loss Related to Investments” section in Note
5.
|
(2)
|
Represents
changes in the fair value of total return swaps (embedded derivatives)
related to various modified coinsurance and coinsurance with funds
withheld reinsurance arrangements that have contractual returns related to
various assets and liabilities associated with these
arrangements. Changes in the fair value of these derivatives
are offset by the change in fair value of trading securities in the
portfolios that support these
arrangements.
|
(3)
|
Represents
the net difference between the change in the fair value of the S&P 500
call options that we hold and the change in the fair value of the embedded
derivative liabilities of our indexed annuity products along with changes
in the fair value of embedded derivative liabilities related to index call
options we may purchase in the future to hedge contract holder index
allocations applicable to future reset periods for our indexed annuity
products as required under the Fair Value Measurements and Disclosures
Topic of the FASB ASC. The nine months ended September 30,
2008, included a $10 million gain from the initial impact of adopting the
Fair Value Measurements and Disclosures Topic of the FASB
ASC.
|
(4)
|
Represents
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, including the cost of purchasing the hedging
instruments. The nine months ended September 30, 2008, included
a $34 million loss from the initial impact of adopting the Fair Value
Measurements and Disclosures Topic of the FASB
ASC.
|
(5)
|
Represents
the change in the fair value of the derivatives used to hedge our GDB
riders.
|
For
the Three Months Ended September 30,
|
||||||||||||||||
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
U.S.
Plans
|
||||||||||||||||
Service
cost (1)
|
$ | 1 | $ | - | $ | 1 | $ | 1 | ||||||||
Interest
cost
|
15 | 15 | 2 | 2 | ||||||||||||
Expected
return on plan assets
|
(14 | ) | (19 | ) | (1 | ) | - | |||||||||
Recognized
net actuarial loss
|
7 | 1 | - | - | ||||||||||||
Net
periodic benefit expense (recovery)
|
$ | 9 | $ | (3 | ) | $ | 2 | $ | 3 | |||||||
Non-U.S.
Plans
|
||||||||||||||||
Interest
cost
|
$ | 1 | $ | 5 | ||||||||||||
Expected
return on plan assets
|
(1 | ) | (5 | ) | ||||||||||||
Recognized
net actuarial loss
|
- | 1 | ||||||||||||||
Recognized
net actuarial loss due to curtailment
(2)
|
1 | - | ||||||||||||||
Net
periodic benefit expense
|
$ | 1 | $ | 1 |
For
the Nine Months Ended September 30,
|
||||||||||||||||
Pension
Benefits
|
Other
Postretirement
Benefits
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
U.S.
Plans
|
||||||||||||||||
Service
cost (1)
|
$ | 3 | $ | 1 | $ | 2 | $ | 2 | ||||||||
Interest
cost
|
46 | 46 | 6 | 6 | ||||||||||||
Expected
return on plan assets
|
(42 | ) | (58 | ) | (2 | ) | (1 | ) | ||||||||
Recognized
net actuarial (gain) loss
|
21 | 3 | (1 | ) | (1 | ) | ||||||||||
Net
periodic benefit expense (recovery)
|
$ | 28 | $ | (8 | ) | $ | 5 | $ | 6 | |||||||
Non-U.S.
Plans
|
||||||||||||||||
Service
cost
|
$ | 1 | $ | 2 | ||||||||||||
Interest
cost
|
12 | 15 | ||||||||||||||
Expected
return on plan assets
|
(11 | ) | (16 | ) | ||||||||||||
Recognized
net actuarial loss (2)
|
1 | 2 | ||||||||||||||
Recognized
net actuarial loss due to curtailment
(2)
|
1 | - | ||||||||||||||
Net
periodic benefit expense
|
$ | 4 | $ | 3 |
(1)
|
Amounts
for our pension plans represent general and administrative
expenses.
|
(2)
|
We
retained the UK pension and as a result of the Lincoln UK sale, the plan
was frozen, which resulted in a
curtailment.
|
For
the
|
For
the
|
|||||||
Three
|
Nine
|
|||||||
Months
|
Months
|
|||||||
Ended
|
Ended
|
|||||||
September
30,
|
September
30,
|
|||||||
2009
(1)
|
2009
|
|||||||
Awards
|
||||||||
10-year
LNC stock options
|
(9,072 | ) | 478,521 | |||||
Non-employee
director stock options
|
- | 84,901 | ||||||
Non-employee
agent stock options
|
(65 | ) | 130,654 | |||||
Restricted
stock
|
105,566 | 684,619 | ||||||
Performance
shares
|
- | 48,840 | ||||||
SARs
|
(2,651 | ) | 114,800 |
(1)
|
For
the three months ended September 30, 2009, negative amounts for specific
classes of awards were the result of the revocation of previously granted
awards.
|
As
of September 30, 2009
|
As
of December 31, 2008
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Value
|
Value
|
Value
|
Value
|
|||||||||||||
Assets
|
||||||||||||||||
AFS
securities:
|
||||||||||||||||
Fixed
maturity
|
$ | 60,666 | $ | 60,666 | $ | 48,141 | $ | 48,141 | ||||||||
Equity
|
283 | 283 | 254 | 254 | ||||||||||||
Trading
securities
|
2,548 | 2,548 | 2,333 | 2,333 | ||||||||||||
Mortgage
loans on real estate
|
7,277 | 7,541 | 7,715 | 7,424 | ||||||||||||
Derivative
instruments
|
1,282 | 1,282 | 3,397 | 3,397 | ||||||||||||
Other
investments
|
1,080 | 1,080 | 1,624 | 1,624 | ||||||||||||
Cash
and invested cash
|
3,161 | 3,161 | 5,589 | 5,589 | ||||||||||||
Reinsurance
related embedded derivatives
|
- | - | 31 | 31 | ||||||||||||
Liabilities
|
||||||||||||||||
Future
contract benefits:
|
||||||||||||||||
Indexed
annuity contracts
|
(391 | ) | (391 | ) | (252 | ) | (252 | ) | ||||||||
GLB
embedded derivative reserves
|
(1,101 | ) | (1,101 | ) | (2,904 | ) | (2,904 | ) | ||||||||
Other
contract holder funds:
|
||||||||||||||||
Remaining
guaranteed interest and similar contracts
|
(919 | ) | (919 | ) | (782 | ) | (782 | ) | ||||||||
Account
value of certain investment contracts
|
(24,028 | ) | (24,045 | ) | (21,974 | ) | (22,372 | ) | ||||||||
Short-term
debt (1)
|
(400 | ) | (398 | ) | (815 | ) | (775 | ) | ||||||||
Long-term
debt
|
(4,789 | ) | (4,414 | ) | (4,731 | ) | (2,909 | ) | ||||||||
Reinsurance
related embedded derivatives
|
(39 | ) | (39 | ) | - | - | ||||||||||
Off-Balance-Sheet
|
||||||||||||||||
Guarantees
|
- | - | - | (1 | ) |
(1)
|
The
difference between the carrying value and fair value of short-term debt as
of September 30, 2009, and December 31, 2008, related to current
maturities of long-term debt.
|
·
|
Level
1 – inputs to the valuation methodology are quoted prices available in
active markets for identical investments as of the reporting date as
“blockage discounts” for large holdings of unrestricted financial
instruments where quoted prices are readily and regularly available for an
identical asset or liability in an active market are
prohibited;
|
·
|
Level
2 – inputs to the valuation methodology are other than quoted prices in
active markets, which are either directly or indirectly observable as of
the reporting date, and fair value can be determined through the use of
models or other valuation methodologies;
and
|
·
|
Level
3 – inputs to the valuation methodology are unobservable inputs in
situations where there is little or no market activity for the asset or
liability and the reporting entity makes estimates and assumptions related
to the pricing of the asset or liability, including assumptions regarding
risk.
|
As
of September 30, 2009
|
||||||||||||||||
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
|
$ | 61 | $ | 43,711 | $ | 2,076 | $ | 45,848 | ||||||||
U.S.
Government bonds
|
185 | 33 | 3 | 221 | ||||||||||||
Foreign
government bonds
|
- | 417 | 76 | 493 | ||||||||||||
MBS:
|
||||||||||||||||
CMOs
|
- | 5,933 | 96 | 6,029 | ||||||||||||
MPTS
|
- | 2,557 | 108 | 2,665 | ||||||||||||
CMBS
|
- | 2,006 | 247 | 2,253 | ||||||||||||
ABS:
|
||||||||||||||||
CDOs
|
- | 3 | 137 | 140 | ||||||||||||
CLNs
|
- | - | 318 | 318 | ||||||||||||
State
and municipal bonds
|
- | - | 1,464 | 1,464 | ||||||||||||
Hybrid
and redeemable preferred stocks
|
13 | 1,112 | 110 | 1,235 | ||||||||||||
Equity
AFS securities:
|
||||||||||||||||
Banking
securities
|
18 | 138 | - | 156 | ||||||||||||
Insurance
securities
|
3 | - | 41 | 44 | ||||||||||||
Other
financial services securities
|
- | 6 | 21 | 27 | ||||||||||||
Other
securities
|
31 | 2 | 23 | 56 | ||||||||||||
Trading
securities
|
4 | 2,442 | 102 | 2,548 | ||||||||||||
Derivative
investments
|
- | (170 | ) | 1,452 | 1,282 | |||||||||||
Cash
and invested cash
|
- | 3,161 | - | 3,161 | ||||||||||||
Separate
account assets
|
- | 70,111 | - | 70,111 | ||||||||||||
Total
assets
|
$ | 315 | $ | 131,462 | $ | 6,274 | $ | 138,051 | ||||||||
Liabilities
|
||||||||||||||||
Future
contract benefits:
|
||||||||||||||||
Indexed
annuity contracts
|
$ | - | $ | - | $ | (391 | ) | $ | (391 | ) | ||||||
GLB
embedded derivative reserves
|
- | - | (1,101 | ) | (1,101 | ) | ||||||||||
Reinsurance
related embedded derivatives
|
- | (39 | ) | - | (39 | ) | ||||||||||
Total
liabilities
|
$ | - | $ | (39 | ) | $ | (1,492 | ) | $ | (1,531 | ) |
For
the Three Months Ended September 30, 2009
|
||||||||||||||||||||||||
Sales,
|
Transfers
|
|||||||||||||||||||||||
Items
|
Issuances,
|
In
or
|
||||||||||||||||||||||
Included
|
Gains
|
Maturities,
|
Out
|
|||||||||||||||||||||
Beginning
|
in
|
(Losses)
|
Settlements,
|
of
|
Ending
|
|||||||||||||||||||
Fair
|
Net
|
in
|
Calls,
|
Level
3,
|
Fair
|
|||||||||||||||||||
Value
|
Income
|
OCI
|
Net
|
Net
(1)
|
Value
|
|||||||||||||||||||
Investments:
|
||||||||||||||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||||||||||
Corporate
bonds
|
$ | 1,991 | $ | (11 | ) | $ | 171 | $ | 59 | $ | (134 | ) | $ | 2,076 | ||||||||||
U.S.
Government bonds
|
3 | - | - | - | - | 3 | ||||||||||||||||||
Foreign
government bonds
|
100 | - | 5 | (5 | ) | (24 | ) | 76 | ||||||||||||||||
MBS:
|
||||||||||||||||||||||||
CMOs
|
123 | (11 | ) | 15 | (9 | ) | (22 | ) | 96 | |||||||||||||||
MPTS
|
154 | - | 3 | (2 | ) | (47 | ) | 108 | ||||||||||||||||
CMBS
|
230 | - | 27 | (10 | ) | - | 247 | |||||||||||||||||
ABS:
|
||||||||||||||||||||||||
CDOs
|
110 | (8 | ) | 38 | (3 | ) | - | 137 | ||||||||||||||||
CLNs
|
219 | - | 99 | - | - | 318 | ||||||||||||||||||
State
and municipal bonds
|
907 | - | 54 | 423 | 80 | 1,464 | ||||||||||||||||||
Hybrid
and redeemable
|
||||||||||||||||||||||||
preferred
stocks
|
97 | - | 10 | 3 | - | 110 | ||||||||||||||||||
Equity
AFS securities:
|
||||||||||||||||||||||||
Insurance
securities
|
34 | (8 | ) | 15 | - | - | 41 | |||||||||||||||||
Other
financial services securities
|
16 | - | 5 | - | - | 21 | ||||||||||||||||||
Other
securities
|
23 | - | - | - | - | 23 | ||||||||||||||||||
Trading
securities
|
86 | 23 | - | 4 | (11 | ) | 102 | |||||||||||||||||
Derivative
investments
|
1,465 | (85 | ) | 3 | 69 | - | 1,452 | |||||||||||||||||
Future
contract benefits:
|
||||||||||||||||||||||||
Indexed
annuity contracts
|
(294 | ) | (54 | ) | - | (43 | ) | - | (391 | ) | ||||||||||||||
GLB
embedded derivative reserves
|
(1,072 | ) | 20 | - | (49 | ) | - | (1,101 | ) | |||||||||||||||
Total,
net
|
$ | 4,192 | $ | (134 | ) | $ | 445 | $ | 437 | $ | (158 | ) | $ | 4,782 |
For
the Nine Months Ended September 30, 2009
|
||||||||||||||||||||||||
Sales,
|
Transfers
|
|||||||||||||||||||||||
Items
|
Issuances,
|
In
or
|
||||||||||||||||||||||
Included
|
Gains
|
Maturities,
|
Out
|
|||||||||||||||||||||
Beginning
|
in
|
(Losses)
|
Settlements,
|
of
|
Ending
|
|||||||||||||||||||
Fair
|
Net
|
in
|
Calls,
|
Level
3,
|
Fair
|
|||||||||||||||||||
Value
|
Income
|
OCI
|
Net
|
Net
(1)
|
Value
|
|||||||||||||||||||
Investments:
|
||||||||||||||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||||||||||
Corporate
bonds
|
$ | 2,356 | $ | (49 | ) | $ | 223 | $ | (125 | ) | $ | (329 | ) | $ | 2,076 | |||||||||
U.S.
Government bonds
|
3 | - | - | - | - | 3 | ||||||||||||||||||
Foreign
government bonds
|
60 | - | 3 | (7 | ) | 20 | 76 | |||||||||||||||||
MBS:
|
||||||||||||||||||||||||
CMOs
|
161 | (16 | ) | 18 | (18 | ) | (49 | ) | 96 | |||||||||||||||
MPTS
|
18 | - | 4 | 96 | (10 | ) | 108 | |||||||||||||||||
CMBS
|
244 | 1 | 44 | (42 | ) | - | 247 | |||||||||||||||||
ABS:
|
||||||||||||||||||||||||
CDOs
|
152 | (40 | ) | 45 | (20 | ) | - | 137 | ||||||||||||||||
CLNs
|
50 | - | 268 | - | - | 318 | ||||||||||||||||||
State
and municipal bonds
|
126 | - | 52 | 1,169 | 117 | 1,464 | ||||||||||||||||||
Hybrid
and redeemable
|
||||||||||||||||||||||||
preferred
stocks
|
96 | - | - | 6 | 8 | 110 | ||||||||||||||||||
Equity
AFS securities:
|
||||||||||||||||||||||||
Insurance
securities
|
50 | (7 | ) | 19 | (21 | ) | - | 41 | ||||||||||||||||
Other
financial services securities
|
21 | (3 | ) | 6 | (3 | ) | - | 21 | ||||||||||||||||
Other
securities
|
23 | 2 | (1 | ) | (1 | ) | - | 23 | ||||||||||||||||
Trading
securities
|
81 | 22 | - | 1 | (2 | ) | 102 | |||||||||||||||||
Derivative
investments
|
2,148 | (571 | ) | (6 | ) | (119 | ) | - | 1,452 | |||||||||||||||
Future
contract benefits:
|
||||||||||||||||||||||||
Indexed
annuity contracts
|
(252 | ) | (4 | ) | - | (135 | ) | - | (391 | ) | ||||||||||||||
GLB
embedded derivative reserves
|
(2,904 | ) | 1,934 | - | (131 | ) | - | (1,101 | ) | |||||||||||||||
Total,
net
|
$ | 2,433 | $ | 1,269 | $ | 675 | $ | 650 | $ | (245 | ) | $ | 4,782 |
(1)
|
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-period amortized
cost and beginning-of-period fair value was included in OCI and earnings,
respectively, in prior periods.
|
For
the Three Months Ended September 30, 2009
|
||||||||||||||||||||
Gains
|
||||||||||||||||||||
(Losses)
|
||||||||||||||||||||
from
|
||||||||||||||||||||
Sales,
|
Unrealized
|
|||||||||||||||||||
(Amortization)
|
Maturities,
|
Holding
|
||||||||||||||||||
Accretion,
|
Settlements,
|
Gains
|
||||||||||||||||||
Net
|
OTTI
|
Calls
|
(Losses)
(1)
|
Total
|
||||||||||||||||
Investments:
|
||||||||||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||||||
Corporate
bonds
|
$ | 1 | $ | (10 | ) | $ | (2 | ) | $ | - | $ | (11 | ) | |||||||
MBS:
|
||||||||||||||||||||
CMOs
|
- | (10 | ) | (1 | ) | - | (11 | ) | ||||||||||||
ABS:
|
||||||||||||||||||||
CDOs
|
- | (9 | ) | 1 | - | (8 | ) | |||||||||||||
Equity
AFS securities:
|
||||||||||||||||||||
Insurance
securities
|
- | (8 | ) | - | - | (8 | ) | |||||||||||||
Trading
securities (2)
|
- | (1 | ) | - | 24 | 23 | ||||||||||||||
Derivative
investments (3)
|
- | - | (8 | ) | (77 | ) | (85 | ) | ||||||||||||
Future
contract benefits:
|
||||||||||||||||||||
Indexed
annuity contracts
|
- | - | 5 | (59 | ) | (54 | ) | |||||||||||||
GLB
embedded derivative reserves
|
- | - | 8 | 12 | 20 | |||||||||||||||
Total,
net
|
$ | 1 | $ | (38 | ) | $ | 3 | $ | (100 | ) | $ | (134 | ) |
For
the Nine Months Ended September 30, 2009
|
||||||||||||||||||||
Gains
|
||||||||||||||||||||
(Losses)
|
||||||||||||||||||||
from
|
||||||||||||||||||||
Sales,
|
Unrealized
|
|||||||||||||||||||
(Amortization)
|
Maturities,
|
Holding
|
||||||||||||||||||
Accretion,
|
Settlements,
|
Gains
|
||||||||||||||||||
Net
|
OTTI
|
Calls
|
(Losses)
(1)
|
Total
|
||||||||||||||||
Investments:
|
||||||||||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||||||
Corporate
bonds
|
$ | 3 | $ | (47 | ) | $ | (5 | ) | $ | - | $ | (49 | ) | |||||||
MBS:
|
||||||||||||||||||||
CMOs
|
1 | (16 | ) | (1 | ) | - | (16 | ) | ||||||||||||
CMBS
|
1 | - | - | - | 1 | |||||||||||||||
ABS:
|
||||||||||||||||||||
CDOs
|
- | (42 | ) | 2 | - | (40 | ) | |||||||||||||
Equity
AFS securities:
|
||||||||||||||||||||
Insurance
securities
|
- | (8 | ) | 1 | - | (7 | ) | |||||||||||||
Other
financial services securities
|
- | (3 | ) | - | - | (3 | ) | |||||||||||||
Other
securities
|
- | - | 2 | - | 2 | |||||||||||||||
Trading
securities (2)
|
2 | (2 | ) | 22 | 22 | |||||||||||||||
Derivative
investments (3)
|
- | - | (48 | ) | (523 | ) | (571 | ) | ||||||||||||
Future
contract benefits:
|
||||||||||||||||||||
Indexed
annuity contracts
|
- | - | 23 | (27 | ) | (4 | ) | |||||||||||||
GLB
embedded derivative reserves
|
- | - | 37 | 1,897 | 1,934 | |||||||||||||||
Total,
net
|
$ | 7 | $ | (118 | ) | $ | 11 | $ | 1,369 | $ | 1,269 |
(1)
|
This
change in unrealized gains or losses relates to assets and liabilities
that we still held as of September 30,
2009.
|
(2)
|
Amortization
and accretion, net and unrealized holding losses are included in net
investment income on our Consolidated Statements of Income
(Loss). All other amounts are included in realized loss on our
Consolidated Statements of Income
(Loss).
|
(3)
|
All
amounts are included in realized loss on our Consolidated Statements of
Income (Loss).
|
Business
|
Corresponding
Segments
|
|
Retirement
Solutions
|
Annuities
|
|
Defined
Contribution
|
||
Insurance
Solutions
|
Life
Insurance
|
|
Group
Protection
|
·
|
Realized
gains and losses associated with the following (“excluded realized
loss”):
|
|
§
|
Sale
or disposal of securities;
|
|
§
|
Impairments
of securities;
|
|
§
|
Change
in the fair value of embedded derivatives within certain reinsurance
arrangements and the change in the fair value of our trading
securities;
|
|
§
|
Net
difference between the portion of the change in the GDB benefit reserves
resulting from benefit ratio unlocking (“benefit ratio reserves”) within
our variable annuities and the change in the fair value of the derivatives
we own to hedge the changes in the benefit ratio reserves, excluding our
expected cost of purchasing the hedging
instruments;
|
|
§
|
Change
in the GLB embedded derivative reserves and GLB benefit ratio reserves
within our variable annuities net of the change in the fair value of the
derivatives we own to hedge the changes in the embedded derivative
reserves; and
|
|
§
|
Changes
in the fair value of the embedded derivative liabilities related to index
call options we may purchase in the future to hedge contract holder index
allocations applicable to future reset periods for our indexed annuity
products accounted for under the Derivatives and Hedging and the Fair
Value Measurements and Disclosures Topics of the FASB
ASC.
|
·
|
Income
(loss) from the initial adoption of new accounting
standards;
|
·
|
Income
(loss) from reserve changes (net of related amortization) on business sold
through reinsurance;
|
·
|
Gains
(losses) on early retirement of
debt;
|
·
|
Losses
from the impairment of intangible assets;
and
|
·
|
Income
(loss) from discontinued
operations.
|
·
|
Excluded
realized loss;
|
·
|
Amortization
of deferred gains arising from the reserve changes on business sold
through reinsurance; and
|
·
|
Revenue
adjustments from the initial adoption of new accounting
standards.
|
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
||||||||||||||||
Operating
revenues:
|
||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||
Annuities
|
$ | 523 | $ | 675 | $ | 1,559 | $ | 1,916 | ||||||||
Defined
Contribution
|
236 | 241 | 676 | 718 | ||||||||||||
Total
Retirement Solutions
|
759 | 916 | 2,235 | 2,634 | ||||||||||||
Insurance
Solutions:
|
||||||||||||||||
Life
Insurance
|
1,089 | 1,074 | 3,168 | 3,216 | ||||||||||||
Group
Protection
|
414 | 403 | 1,279 | 1,227 | ||||||||||||
Total
Insurance Solutions
|
1,503 | 1,477 | 4,447 | 4,443 | ||||||||||||
Other
Operations
|
120 | 135 | 340 | 412 | ||||||||||||
Excluded
realized loss, pre-tax
|
(302 | ) | (259 | ) | (924 | ) | (420 | ) | ||||||||
Amortization
of deferred gain arising from
|
||||||||||||||||
reserve
changes on business sold through
|
||||||||||||||||
reinsurance,
pre-tax
|
1 | 1 | 2 | 2 | ||||||||||||
Total
revenues
|
$ | 2,081 | $ | 2,270 | $ | 6,100 | $ | 7,071 |
For
the Three
|
For
the Nine
|
|||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
Income (Loss)
|
||||||||||||||||
Income
(loss) from operations:
|
||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||
Annuities
|
$ | 95 | $ | 131 | $ | 234 | $ | 365 | ||||||||
Defined
Contribution
|
43 | 42 | 100 | 124 | ||||||||||||
Total
Retirement Solutions
|
138 | 173 | 334 | 489 | ||||||||||||
Insurance
Solutions:
|
||||||||||||||||
Life
Insurance
|
137 | 137 | 412 | 458 | ||||||||||||
Group
Protection
|
35 | 27 | 94 | 86 | ||||||||||||
Total
Insurance Solutions
|
172 | 164 | 506 | 544 | ||||||||||||
Other
Operations
|
(34 | ) | (39 | ) | (195 | ) | (128 | ) | ||||||||
Excluded
realized loss, after-tax
|
(196 | ) | (169 | ) | (600 | ) | (274 | ) | ||||||||
Gain
on early extinguishment of debt, net of tax
|
- | - | 42 | - | ||||||||||||
Income
from reserve changes (net of related
|
||||||||||||||||
amortization)
on business sold through
|
||||||||||||||||
reinsurance,
after-tax
|
- | - | 1 | 1 | ||||||||||||
Impairment
of intangibles, after-tax
|
1 | - | (601 | ) | (139 | ) | ||||||||||
Income
(loss) from continuing operations, after-tax
|
81 | 129 | (513 | ) | 493 | |||||||||||
Income (loss) from discontinued operations, after-tax |
72
|
19 | (74 | ) | 69 | |||||||||||
Net
income (loss)
|
$ | 153 | $ | 148 | $ | (587 | ) | $ | 562 |
For
the Nine
|
||||||||
Months
Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Significant
non-cash investing and financing transactions:
|
||||||||
Business
dispositions:
|
||||||||
Assets disposed (includes
cash and invested cash)
|
$ | - | $ | (732 | ) | |||
Liabilities disposed
|
- | 126 | ||||||
Cash
received
|
- | 647 | ||||||
Realized
gain on disposal
|
- | 41 | ||||||
Estimated
loss on net assets held-for-sale in prior periods
|
- | (54 | ) | |||||
Loss
on dispositions
|
$ | - | $ | (13 | ) |
·
|
Realized
gains and losses associated with the following (“excluded realized
loss”):
|
|
§
|
Sale
or disposal of securities;
|
|
§
|
Impairments
of securities;
|
|
§
|
Change
in the fair value of embedded derivatives within certain reinsurance
arrangements and the change in the fair value of our trading
securities;
|
|
§
|
Net
difference between the portion of the change in reserves accounted for
under the Financial Services – Insurance – Claim Costs and Liabilities for
Future Policy Benefits Subtopic of the FASB ASC resulting from benefit
ratio unlocking (“benefit ratio reserves”) of our guaranteed death benefit
(“GDB”) riders within our variable annuities and the change in the fair
value of the derivatives we own to hedge the changes in the benefit ratio
reserves, excluding our expected cost of purchasing the hedging
instruments, the net of which is referred to as “GDB derivatives
results”;
|
|
§
|
Change
in the fair value of the embedded derivatives of our guaranteed living
benefit (“GLB”) riders within our variable annuities accounted for under
the Derivatives and Hedging and the Fair Value Measurements and
Disclosures Topics of the FASB ASC (“embedded derivative reserves”) and
GLB benefit ratio reserves, net of the change in the fair value of the
derivatives we own to hedge the changes in the embedded derivative
reserves, the net of which is referred to as “GLB net derivative results”;
and
|
|
§
|
Changes
in the fair value of the embedded derivative liabilities related to index
call options we may purchase in the future to hedge contract holder index
allocations applicable to future reset periods for our indexed annuity
products accounted for under the Derivatives and Hedging and the Fair
Value Measurements and Disclosures Topics of the FASB ASC (“indexed
annuity forward-starting option”).
|
·
|
Income
(loss) from the initial adoption of new accounting
standards;
|
·
|
Income
(loss) from reserve changes (net of related amortization) on business sold
through reinsurance;
|
·
|
Gains
(losses) on early retirement of
debt;
|
·
|
Losses
from the impairment of intangible assets;
and
|
·
|
Income
(loss) from discontinued
operations.
|
·
|
Excluded
realized loss;
|
·
|
Amortization
of deferred gains arising from the reserve changes on business sold
through reinsurance; and
|
·
|
Revenue
adjustments from the initial adoption of new accounting
standards.
|
·
|
Continued
deterioration in general economic and business conditions, both domestic
and foreign, that may affect foreign exchange rates, premium levels,
claims experience, the level of pension benefit costs and funding and
investment results;
|
·
|
Continued
economic declines and credit market illiquidity could cause us to realize
additional impairments on investments and certain intangible assets,
including goodwill and a valuation allowance against deferred tax assets,
which may reduce future earnings and/or affect our financial condition and
ability to raise additional capital or refinance existing debt as it
matures;
|
·
|
Uncertainty
about the impact of the U.S. Treasury’s Troubled Asset Relief Program
(“TARP”) on the economy;
|
·
|
The
cost and other consequences of our participation in the TARP Capital
Purchase Program (“CPP”), including the impact of existing regulation and
future regulations to which we may become
subject;
|
·
|
Legislative,
regulatory or tax changes, both domestic and foreign, that affect the cost
of, or demand for, LNC’s products, the required amount of reserves and/or
surplus, or otherwise affect our ability to conduct business, including
changes to statutory reserves and/or risk-based capital (“RBC”)
requirements related to secondary guarantees under universal life and
variable annuity products such as Actuarial Guideline (“AG”) 43 (“AG43,”
also known as Commissioners Annuity Reserve Valuation Method for Variable
Annuities or “VACARVM”); restrictions on revenue sharing and 12b-1
payments; and the potential for U.S. Federal tax
reform;
|
·
|
The
initiation of legal or regulatory proceedings against LNC or its
subsidiaries, and the outcome of any legal or regulatory proceedings, such
as: adverse actions related to present or past business
practices common in businesses in which LNC and its subsidiaries compete;
adverse decisions in significant actions including, but not limited to,
actions brought by federal and state authorities and extra-contractual and
class action damage cases; new decisions that result in changes in law;
and unexpected trial court rulings;
|
·
|
Changes
in interest rates causing a reduction of investment income, the margins of
LNC’s fixed annuity and life insurance businesses and demand for LNC’s
products;
|
·
|
A
decline in the equity markets causing a reduction in the sales of LNC’s
products, a reduction of asset-based fees that LNC charges on various
investment and insurance products, an acceleration of amortization of
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
LNC’s variable annuity products;
|
·
|
Ineffectiveness
of LNC’s various hedging strategies used to offset the impact of changes
in the value of liabilities due to changes in the level and volatility of
the equity markets and interest
rates;
|
·
|
A
deviation in actual experience regarding future persistency, mortality,
morbidity, interest rates or equity market returns from LNC’s assumptions
used in pricing its products, in establishing related insurance reserves
and in the amortization of intangibles that may result in an increase in
reserves and a decrease in net income, including as a result of
stranger-originated life insurance
business;
|
·
|
Changes
in GAAP that may result in unanticipated changes to LNC’s net
income;
|
·
|
Lowering
of one or more of LNC’s debt ratings issued by nationally recognized
statistical rating organizations and the adverse impact such action may
have on LNC’s ability to raise capital and on its liquidity and financial
condition;
|
·
|
Lowering
of one or more of the insurer financial strength ratings of LNC’s
insurance subsidiaries and the adverse impact such action may have on the
premium writings, policy retention, profitability of its insurance
subsidiaries and liquidity;
|
·
|
Significant
credit, accounting, fraud or corporate governance issues that may
adversely affect the value of certain investments in the portfolios of
LNC’s companies requiring that LNC realize losses on such
investments;
|
·
|
The
impact of acquisitions and divestitures, restructurings, product
withdrawals and other unusual items, including LNC’s ability to integrate
acquisitions and to obtain the anticipated results and synergies from
acquisitions;
|
·
|
The
adequacy and collectibility of reinsurance that LNC has
purchased;
|
·
|
Acts
of terrorism, a pandemic, war or other man-made and natural catastrophes
that may adversely affect LNC’s businesses and the cost and availability
of reinsurance;
|
·
|
Competitive
conditions, including pricing pressures, new product offerings and the
emergence of new competitors, that may affect the level of premiums and
fees that LNC can charge for its
products;
|
·
|
The
unknown impact on LNC’s business resulting from changes in the
demographics of LNC’s client base, as aging baby-boomers move from the
asset-accumulation stage to the asset-distribution stage of life;
and
|
·
|
Loss
of key management, financial planners or
wholesalers.
|
Business
|
Corresponding
Segments
|
Retirement
Solutions
|
Annuities
|
Defined
Contribution
|
|
Insurance
Solutions
|
Life
Insurance
|
Group
Protection
|
·
|
Unstable
credit markets that impact our financing alternatives, spreads and
other-than-temporary securities
impairments;
|
·
|
Volatile
equity markets that have a significant impact on our hedge program
performance and revenues;
|
·
|
Continuation
of the low interest rate environment, which affects the investment margins
and reserve levels for many of our products, such as fixed annuities and
UL;
|
·
|
Possible
additional intangible asset impairments, such as goodwill, if the
financial performance of our reporting units deteriorates, our market
capitalization remains below book value for a prolonged period of time or
business valuation assumptions (such as discount rates and equity market
volatility) are adversely affected;
|
·
|
Achieving
continued sales success with our portfolio of products, including
marketplace acceptance of new variable annuity features, as well as
retaining management and wholesaler talent to maintain our competitive
position; and
|
·
|
Continuing
focus by the government on tax and healthcare reform including potential
changes in company dividends-received deduction (“DRD”) calculations,
which may affect the value and profitability of our products and overall
earnings.
|
·
|
Increase
our product development activities together with identifying future
product development initiatives, with a focus on further reducing risk
related to guaranteed benefit riders available on with certain variable
annuity contracts;
|
·
|
Manage
our expenses aggressively through cost reduction and process improvement
initiatives combined with continued financial discipline and execution
excellence throughout our
operations;
|
·
|
Execute
on financing strategies addressing the statutory reserve strain related to
our secondary guarantee UL products in order to manage our capital
position effectively in accordance with our pricing guidelines;
and
|
·
|
Closely
monitor our capital and liquidity positions taking into account the
fragile economic recovery and changing statutory accounting and reserving
practices.
|
Hypothetical
|
||||||||||||
Hypothetical
|
Impact
to
|
|||||||||||
Actual
Experience Differs
|
Impact
to
|
Net
Income
|
||||||||||
From
Those Our Model
|
Net
Income
|
for
DAC (1)
|
||||||||||
Projections
Assume
|
for
EGPs
|
Amortization
|
Description
of Expected Impact
|
|||||||||
Higher
equity markets
|
Favorable
|
Favorable
|
Increase
to fee income and decrease to changes in
|
|||||||||
reserves.
|
||||||||||||
Lower
equity markets
|
Unfavorable
|
Unfavorable
|
Decrease
to fee income and increase to changes in
|
|||||||||
reserves.
|
||||||||||||
Higher
investment margins
|
Favorable
|
Favorable
|
Increase
to interest rate spread on our fixed product
|
|||||||||
line,
including fixed portion of variable.
|
||||||||||||
Lower
investment margins
|
Unfavorable
|
Unfavorable
|
Decrease
to interest rate spread on our fixed product
|
|||||||||
line,
including fixed portion of variable.
|
||||||||||||
Higher
credit losses
|
Unfavorable
|
Unfavorable
|
Decrease
to realized gains on investments.
|
|||||||||
Lower
credit losses
|
Favorable
|
Favorable
|
Increase
to realized gains on investments.
|
|||||||||
Higher
lapses
|
Unfavorable
|
Unfavorable
|
Decrease
to fee income, partially offset by decrease to
|
|||||||||
benefits
due to shorter contract life.
|
||||||||||||
Lower
lapses
|
Favorable
|
Favorable
|
Increase
to fee income, partially offset by increase to
|
|||||||||
benefits
due to longer contract life.
|
||||||||||||
Higher
death claims
|
Unfavorable
|
Unfavorable
|
Decrease
to fee income and increase to changes in
|
|||||||||
reserves
due to shorter contract life.
|
||||||||||||
Lower
death claims
|
Favorable
|
Favorable
|
Increase
to fee income and decrease to changes in
|
|||||||||
reserves
due to longer contract life.
|
(1)
|
DAC
refers to the associated amortization of DAC, VOBA, DSI and DFEL and
changes in future contract
benefits.
|
For
the Three
|
||||||||
Months
Ended
|
||||||||
September
30,
|
||||||||
2009
|
2008
|
|||||||
Insurance
fees:
|
||||||||
Retirement
Solutions - Annuities
|
$ | 3 | $ | (1 | ) | |||
Insurance
Solutions - Life Insurance
|
20 | (28 | ) | |||||
Total
insurance fees
|
23 | (29 | ) | |||||
Realized
gain (loss):
|
||||||||
GLB
|
(26 | ) | 48 | |||||
Total
realized gain (loss)
|
(26 | ) | 48 | |||||
Total
revenues
|
(3 | ) | 19 | |||||
Benefits:
|
||||||||
Retirement Solutions - Annuities
|
1 | 1 | ||||||
Insurance
Solutions - Life Insurance
|
(2 | ) | 85 | |||||
Total
benefits
|
(1 | ) | 86 | |||||
Underwriting,
acquisition, insurance and other expenses:
|
||||||||
Retirement Solutions - Annuities
|
10 | (2 | ) | |||||
Retirement Solutions - Defined Contribution
|
(8 | ) | - | |||||
Insurance Solutions - Life Insurance
|
33 | (81 | ) | |||||
Total
underwriting, acquisition, insurance and other expenses
|
35 | (83 | ) | |||||
Total
benefits and expenses
|
34 | 3 | ||||||
Income
from continuing operations before taxes
|
(37 | ) | 16 | |||||
Federal
income tax expense (benefit)
|
(13 | ) | 6 | |||||
Income
from continuing operations
|
$ | (24 | ) | $ | 10 |
·
|
New
business for 10 years and run off of cash flows on in-force and new
business for the life of the reporting
unit;
|
·
|
Adjustments
of several assumptions in our projections to reflect conservatism in the
near-term as a result of the current volatility in the capital markets,
including:
|
|
§
|
Lower
equity market returns for 2 years;
|
|
§
|
Lower
alternative investment income returns for 2
years;
|
|
§
|
Higher
line of credit costs related to reserve
securitizations;
|
·
|
Discount
rates ranging from 11.0% to 16.0%, which were based on the weighted
average cost of capital for each of our reporting units adjusted for the
risks associated with the operations. We used 11.0% for our
Insurance Solutions – Life reporting unit and 16.0% for our Retirement
Solutions – Annuities reporting
unit.
|
·
|
Few
recent transactions based on volume and level of activity in the market,
therefore there is not sufficient frequency and volume to provide pricing
information on an ongoing basis;
|
·
|
Price
quotations are not based on current
information;
|
·
|
Price
quotations vary substantially either over time or among market
makers;
|
·
|
Indexes
that previously were highly correlated with the fair values of the asset
are demonstrably uncorrelated with recent fair
values;
|
·
|
Abnormal,
or significant increases in, liquidity risk premiums or implied yields for
quoted prices when compared with reasonable estimates using realistic
assumptions of credit and other nonperformance risk for the asset
class;
|
·
|
Abnormally
wide bid-ask spread or significant increases in the bid-ask spread;
and
|
·
|
Little
information is released publicly.
|
·
|
The
seller is in or near bankruptcy or receivership or the seller was required
to sell the asset to meet regulatory
requirements;
|
·
|
There
was a usual and customary marketing period, but the seller marketed the
asset to a single market participant;
and
|
·
|
The
transaction price is significantly different relative to other similar
transactions.
|
|
RESULTS
OF CONSOLIDATED OPERATIONS
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Revenues
|
||||||||||||||||||||||||
Insurance
premiums
|
$ | 491 | $ | 514 | -4 | % | $ | 1,541 | $ | 1,507 | 2 | % | ||||||||||||
Insurance
fees
|
766 | 754 | 2 | % | 2,158 | 2,314 | -7 | % | ||||||||||||||||
Net
investment income
|
1,071 | 1,068 | 0 | % | 3,055 | 3,170 | -4 | % | ||||||||||||||||
Realized
loss:
|
||||||||||||||||||||||||
Total
OTTI losses on securities
|
(148 | ) | (237 | ) | 38 | % | (578 | ) | (395 | ) | -46 | % | ||||||||||||
Portion
of loss recognized in OCI
|
68 | - |
NM
|
259 | - |
NM
|
||||||||||||||||||
Net
OTTI losses on securities recognized
|
||||||||||||||||||||||||
in
earnings
|
(80 | ) | (237 | ) | 66 | % | (319 | ) | (395 | ) | 19 | % | ||||||||||||
Realized
gain (loss), excluding OTTI
|
||||||||||||||||||||||||
losses
on securities
|
(288 | ) | 30 |
NM
|
(684 | ) | 49 |
NM
|
||||||||||||||||
Total
realized loss
|
(368 | ) | (207 | ) | -78 | % | (1,003 | ) | (346 | ) |
NM
|
|||||||||||||
Amortization
of deferred gain on business sold
|
||||||||||||||||||||||||
through
reinsurance
|
18 | 19 | -5 | % | 56 | 57 | -2 | % | ||||||||||||||||
Other
revenues and fees
|
103 | 122 | -16 | % | 293 | 369 | -21 | % | ||||||||||||||||
Total
revenues
|
2,081 | 2,270 | -8 | % | 6,100 | 7,071 | -14 | % | ||||||||||||||||
Benefits
and Expenses
|
||||||||||||||||||||||||
Interest
credited
|
623 | 625 | 0 | % | 1,848 | 1,849 | 0 | % | ||||||||||||||||
Benefits
|
569 | 813 | -30 | % | 2,072 | 2,118 | -2 | % | ||||||||||||||||
Underwriting,
acquisition, insurance and
|
||||||||||||||||||||||||
other
expenses
|
760 | 642 | 18 | % | 2,103 | 2,065 | 2 | % | ||||||||||||||||
Interest
and debt expense
|
68 | 69 | -1 | % | 130 | 209 | -38 | % | ||||||||||||||||
Impairment
of intangibles
|
(1 | ) | - |
NM
|
601 | 175 | 243 | % | ||||||||||||||||
Total
benefits and expenses
|
2,019 | 2,149 | -6 | % | 6,754 | 6,416 | 5 | % | ||||||||||||||||
Income
(loss) from continuing operations
|
||||||||||||||||||||||||
before
taxes
|
62 | 121 | -49 | % | (654 | ) | 655 |
NM
|
||||||||||||||||
Federal
income tax expense (benefit)
|
(19 | ) | (8 | ) |
NM
|
(141 | ) | 162 |
NM
|
|||||||||||||||
Income
(loss) from continuing operations
|
81 | 129 | -37 | % | (513 | ) | 493 |
NM
|
||||||||||||||||
Income
(loss) from discontinued
|
||||||||||||||||||||||||
operations,
net of federal income taxes
|
72 | 19 | 279 | % | (74 | ) | 69 |
NM
|
||||||||||||||||
Net
income (loss)
|
$ | 153 | $ | 148 | 3 | % | $ | (587 | ) | $ | 562 |
NM
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Revenues
|
||||||||||||||||||||||||
Operating
revenues:
|
||||||||||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||||||||||
Annuities
|
$ | 523 | $ | 675 | -23 | % | $ | 1,559 | $ | 1,916 | -19 | % | ||||||||||||
Defined
Contribution
|
236 | 241 | -2 | % | 676 | 718 | -6 | % | ||||||||||||||||
Total
Retirement Solutions
|
759 | 916 | -17 | % | 2,235 | 2,634 | -15 | % | ||||||||||||||||
Insurance
Solutions:
|
||||||||||||||||||||||||
Life
Insurance
|
1,089 | 1,074 | 1 | % | 3,168 | 3,216 | -1 | % | ||||||||||||||||
Group
Protection
|
414 | 403 | 3 | % | 1,279 | 1,227 | 4 | % | ||||||||||||||||
Total
Insurance Solutions
|
1,503 | 1,477 | 2 | % | 4,447 | 4,443 | 0 | % | ||||||||||||||||
Other
Operations
|
120 | 135 | -11 | % | 340 | 412 | -17 | % | ||||||||||||||||
Excluded
realized loss, pre-tax
|
(302 | ) | (259 | ) | -17 | % | (924 | ) | (420 | ) |
NM
|
|||||||||||||
Amortization
of deferred gain arising from
|
||||||||||||||||||||||||
reserve
changes on business sold through
|
||||||||||||||||||||||||
reinsurance,
pre-tax
|
1 | 1 | 0 | % | 2 | 2 | 0 | % | ||||||||||||||||
Total
revenues
|
$ | 2,081 | $ | 2,270 | -8 | % | $ | 6,100 | $ | 7,071 | -14 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Income (Loss)
|
||||||||||||||||||||||||
Income
(loss) from operations:
|
||||||||||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||||||||||
Annuities
|
$ | 95 | $ | 131 | -27 | % | $ | 234 | $ | 365 | -36 | % | ||||||||||||
Defined
Contribution
|
43 | 42 | 2 | % | 100 | 124 | -19 | % | ||||||||||||||||
Total
Retirement Solutions
|
138 | 173 | -20 | % | 334 | 489 | -32 | % | ||||||||||||||||
Insurance
Solutions:
|
||||||||||||||||||||||||
Life
Insurance
|
137 | 137 | 0 | % | 412 | 458 | -10 | % | ||||||||||||||||
Group
Protection
|
35 | 27 | 30 | % | 94 | 86 | 9 | % | ||||||||||||||||
Total
Insurance Solutions
|
172 | 164 | 5 | % | 506 | 544 | -7 | % | ||||||||||||||||
Other
Operations
|
(34 | ) | (39 | ) | 13 | % | (195 | ) | (128 | ) | -52 | % | ||||||||||||
Excluded
realized loss, after-tax
|
(196 | ) | (169 | ) | -16 | % | (600 | ) | (274 | ) |
NM
|
|||||||||||||
Early
extinguishment of debt
|
- | - |
NM
|
42 | - |
NM
|
||||||||||||||||||
Income
from reserve changes (net of related
|
||||||||||||||||||||||||
amortization)
on business sold through
|
||||||||||||||||||||||||
reinsurance,
after-tax
|
- | - |
NM
|
1 | 1 | 0 | % | |||||||||||||||||
Impairment
of intangibles, after-tax
|
1 | - |
NM
|
(601 | ) | (139 | ) |
NM
|
||||||||||||||||
Income
(loss) from continuing
|
||||||||||||||||||||||||
operations,
after-tax
|
81 | 129 | -37 | % | (513 | ) | 493 |
NM
|
||||||||||||||||
Income
(loss) from discontinued
|
||||||||||||||||||||||||
operations,
after-tax
|
72 | 19 | 279 | % | (74 | ) | 69 |
NM
|
||||||||||||||||
Net
income (loss)
|
$ | 153 | $ | 148 | 3 | % | $ | (587 | ) | $ | 562 |
NM
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Deposits
|
||||||||||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||||||||||
Annuities
|
$ | 3,088 | $ | 2,948 | 5 | % | $ | 7,901 | $ | 9,410 | -16 | % | ||||||||||||
Defined
Contribution
|
1,103 | 1,334 | -17 | % | 3,794 | 4,306 | -12 | % | ||||||||||||||||
Insurance
Solutions - Life Insurance
|
1,074 | 1,082 | -1 | % | 3,151 | 3,276 | -4 | % | ||||||||||||||||
Total
deposits
|
$ | 5,265 | $ | 5,364 | -2 | % | $ | 14,846 | $ | 16,992 | -13 | % | ||||||||||||
Net
Flows
|
||||||||||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||||||||||
Annuities
|
$ | 1,601 | $ | 944 | 70 | % | $ | 3,074 | $ | 3,714 | -17 | % | ||||||||||||
Defined
Contribution
|
144 | 93 | 55 | % | 1,057 | 610 | 73 | % | ||||||||||||||||
Insurance
Solutions - Life Insurance
|
562 | 690 | -19 | % | 1,659 | 2,018 | -18 | % | ||||||||||||||||
Total
net flows
|
$ | 2,307 | $ | 1,727 | 34 | % | $ | 5,790 | $ | 6,342 | -9 | % |
As
of September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Account
Values
|
||||||||||||
Retirement
Solutions:
|
||||||||||||
Annuities
|
$ | 71,146 | $ | 66,475 | 7 | % | ||||||
Defined
Contribution
|
34,322 | 32,573 | 5 | % | ||||||||
Insurance
Solutions - Life Insurance
|
31,272 | 32,283 | -3 | % | ||||||||
Total
account values
|
$ | 136,740 | $ | 131,331 | 4 | % |
·
|
A
$10 million net favorable retrospective unlocking of DAC, VOBA, DSI, DFEL
and the reserves for annuity and life insurance products with living
benefit and death benefit guarantees in the third quarter of 2009 due
primarily to lower lapses and higher equity market performance than our
model projections assumed, compared to a $107 million unfavorable
retrospective unlocking in the third quarter of 2008 due primarily to
lower equity market performance and premiums received and higher death
claims and future GDB claims than our model projections
assumed;
|
·
|
A
decrease in realized losses on our AFS securities attributable primarily
to lower OTTI;
|
·
|
A $55 million adjustment to the
loss on disposition of our Lincoln UK segment as a result of finalizing
treatment of the UK pension, refining certain tax estimates and closing
out various hedges put in place at the time of the announcement (see
“Acquisitions and
Dispositions” above
and Note 3 for additional information on the disposition of our
discontinued operations);
and
|
·
|
A
reduction in the federal income tax expense due primarily to lower income
from continuing operations, partially offset by more favorable permanent
differences in 2008 relating to favorable tax return true-ups driven by
the separate account DRD and other
items.
|
·
|
The overall unfavorable GLB net
derivatives results, excluding unlocking, in the third quarter 2009, which
was due to a reduction in the NPR component of the liability that is not
included in the hedge program attributable to a narrowing of credit
spreads, compared to favorable GLB net derivatives results in the third
quarter of 2008 as the NPR adjustment was favorable attributable primarily
to widening credit spreads that more than offset the unfavorable GLB hedge
program performance due to extreme market conditions (see “Realized Loss” below for
more information on our GLB liability and derivative
performance);
|
·
|
Higher
DAC, VOBA, DSI and DFEL amortization, net of interest and excluding
unlocking, due primarily to the reduction in EGPs (see “Retirement
Solutions – Annuities – Additional Segment Information” below for more
information);
|
·
|
Higher
benefits due primarily to an increase in the growth in benefit
reserves from higher expected GDB benefit
payments;
|
·
|
A
$25 million unfavorable prospective unlocking (a $19 million decrease from
assumption changes and a $6 million decrease from model refinements) of
DAC, VOBA, DSI, DFEL and the reserves for annuity and life insurance
products with living benefit and death benefit guarantees due primarily to
lower investment spreads and higher expenses, mortality and lapses in the
third quarter of 2009 than our model projections assumed, compared to a
$10 million favorable prospective unlocking (a $44 million increase from
assumption changes reflecting primarily updates to implied ultimate
volatility net of a $34 million decrease from model refinements) in the
third quarter of 2008 (see “Critical Accounting Policies and Estimates –
DAC, VOBA, DSI and DFEL” for more information);
and
|
·
|
Higher
underwriting, acquisition, insurance and other expenses, excluding
amortization of DAC and VOBA, due primarily to higher account-value-based
trail commissions driven by positive net flows that more than offset the
impact of unfavorable equity markets since the third quarter of 2008,
higher incentive compensation accruals as a result of higher earnings and
production performance relative to planned goals and higher expenses
attributable to our U.S. pension plans (see discussion in “Additional
Segment Information” below), partially offset by lower merger expenses as
many of our integration efforts related to our acquisition of
Jefferson-Pilot have been
completed.
|
·
|
Impairment
of goodwill in the first quarter of 2009 of $600 million for Retirement
Solutions – Individual Annuities due to continued market volatility, the
corresponding increase in discount rates and lower annuity sales compared
to $139 million of impairment of goodwill and our Federal Communications
Commission license intangible assets on our remaining radio clusters in
the second quarter of 2008 attributable to declines in
advertising revenues for the entire radio market (see “Critical Accounting
Policies and Estimates – Goodwill and Other Intangible Assets” above for
additional information on our goodwill impairment); however, these
non-cash impairments did not impact our liquidity and will not impact our
future liquidity;
|
·
|
The overall unfavorable GLB net
derivatives results, excluding unlocking, in the first nine months of
2009, which was due to a reduction in the NPR component of the liability
that is not included in the hedge program attributable to a narrowing of
credit spreads, compared to favorable GLB net derivatives results in the
first nine months of 2008 as the NPR adjustment was favorable attributable
primarily to widening credit spreads that more than offset the unfavorable
GLB hedge program performance due to extreme market conditions (see “Realized Loss” below for
more information on our GLB liability and derivative
performance);
|
·
|
The
$115 million loss on disposition of our Lincoln UK segment during 2009
(see “Acquisitions and Dispositions” above and Note 3 for additional
information on the disposition of our discontinued
operations);
|
·
|
Lower
earnings from our variable annuity and mutual fund products as a result of
declines in the equity markets;
|
·
|
Lower
net investment income attributable primarily to less favorable investment
income on surplus and alternative investments due primarily to a
deterioration of the capital markets (see “Consolidated Investments –
Alternative Investments” below for additional information on our
alternative investments) as well as holding higher cash balances related
to our short-term liquidity strategy during the recent volatile markets
that has reduced our portfolio
yield;
|
·
|
The
$64 million unfavorable impact from the rescission of the reinsurance
agreement on certain disability income business sold to Swiss Re in the
first quarter of 2009, as discussed in “Reinsurance”
below;
|
·
|
Higher
DAC, VOBA, DSI and DFEL amortization, net of interest and excluding
unlocking, due primarily to the reduction in EGPs (see “Retirement
Solutions – Annuities – Additional Segment Information” below for more
information);
|
·
|
Higher
benefits due primarily to an increase in the growth in benefit
reserves from higher expected GDB benefit payments;
and
|
·
|
The
impact of prospective unlocking discussed
above.
|
·
|
A
$42 million gain in the first quarter of 2009 associated with the early
extinguishment of long-term debt;
|
·
|
A
reduction in federal income tax expense due primarily to favorable tax
return true-ups driven by the separate account DRD, foreign tax credit
adjustments and other items;
|
·
|
Lower
broker-dealer expenses due primarily to lower sales of non-proprietary
products, lower interest and debt expenses as a result of a decline in
interest rates and average balances of outstanding debt in 2009, lower
merger expenses as many of our integration efforts related to our
acquisition of Jefferson-Pilot have been completed and the implementation
of several expense initiatives, partially offset by restructuring charges
related to many of these initiatives and higher incentive compensation
accruals as a result of higher earnings and production performance
relative to planned goals;
|
·
|
A
$97 million unfavorable retrospective unlocking of DAC, VOBA, DSI, DFEL
and the reserves for annuity and life insurance products with living
benefit and death benefit guarantees during the first nine months of 2009
due primarily to the overall performance of our GLB derivative program
(see “Realized Loss” below for more information on our GLB derivative
performance), partially offset by lower lapses and higher equity market
performance than our model projections assumed, compared to a $118 million
unfavorable retrospective unlocking during the first nine months of 2008
due primarily to the impact of lower equity market performance and
premiums received, higher death claims and future GDB claims than our
model projections assumed and model adjustments on certain life insurance
policies;
|
·
|
A
decrease in realized losses on our AFS securities attributable primarily
to lower OTTI; and
|
·
|
The
$16 million impact of the initial adoption of the Fair Value Measurements
and Disclosures Topic of the FASB ASC on January 1,
2008.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Operating
Revenues
|
||||||||||||||||||||||||
Insurance
premiums (1)
|
$ | 17 | $ | 52 | -67 | % | $ | 77 | $ | 103 | -25 | % | ||||||||||||
Insurance
fees
|
223 | 246 | -9 | % | 598 | 749 | -20 | % | ||||||||||||||||
Net
investment income
|
271 | 243 | 12 | % | 756 | 736 | 3 | % | ||||||||||||||||
Operating
realized gain (loss) (2)
|
(61 | ) | 52 |
NM
|
(73 | ) | 74 |
NM
|
||||||||||||||||
Other
revenues and fees (3)
|
73 | 82 | -11 | % | 201 | 254 | -21 | % | ||||||||||||||||
Total
operating revenues
|
523 | 675 | -23 | % | 1,559 | 1,916 | -19 | % | ||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Interest
credited
|
185 | 170 | 9 | % | 511 | 496 | 3 | % | ||||||||||||||||
Benefits
(2)
|
(43 | ) | 112 |
NM
|
69 | 199 | -65 | % | ||||||||||||||||
Underwriting,
acquisition, insurance and other
|
||||||||||||||||||||||||
expenses
|
268 | 254 | 6 | % | 728 | 774 | -6 | % | ||||||||||||||||
Total
operating expenses
|
410 | 536 | -24 | % | 1,308 | 1,469 | -11 | % | ||||||||||||||||
Income
from operations before taxes
|
113 | 139 | -19 | % | 251 | 447 | -44 | % | ||||||||||||||||
Federal
income tax expense
|
18 | 8 | 125 | % | 17 | 82 | -79 | % | ||||||||||||||||
Income
from operations
|
$ | 95 | $ | 131 | -27 | % | $ | 234 | $ | 365 | -36 | % |
(1)
|
Insurance
premiums includes primarily our single premium immediate annuities, which
have a corresponding offset in benefits for changes in
reserves.
|
(2)
|
The
change in benefit ratio reserves for this segment was $(76) million and
$(101) million for the three and nine months ended September 30, 2009,
respectively, driven by variable account growth, as compared to $50
million and $65 million in the corresponding periods of 2008; however,
this impact is offset within operating realized gain (loss) as discussed
below.
|
(3)
|
Other
revenues and fees consists primarily of broker-dealer earnings that are
subject to market volatility.
|
·
|
Lower
insurance fees driven primarily by lower average daily variable account
values due to unfavorable equity
markets;
|
·
|
A
reduction in federal income tax expense in the third quarter of 2008 due
primarily to favorable tax return true-ups driven by the separate account
DRD and other items;
|
·
|
Higher
underwriting, acquisition, insurance and other expenses, excluding
amortization of DAC and VOBA, due primarily to higher account-value-based
trail commissions driven by positive net flows that more than offset the
impact of unfavorable equity markets since the third quarter of 2008,
higher incentive compensation accruals as a result of higher earnings and
production performance relative to planned goals and higher expenses
attributable to our U.S. pension plans (see discussion in “Additional
Segment Information” below);
|
·
|
Higher
benefits, excluding the change in benefit ratio reserves in operating
realized gain (loss), due primarily to an increase in the growth in
benefit reserves from higher expected
GDB
benefit payments;
|
·
|
A
$6 million unfavorable prospective unlocking from assumption changes of
DAC, VOBA, DSI, DFEL and reserves for our guarantee riders in 2009 due
primarily to higher maintenance expenses partially offset by higher
expense assessments than our model projections assumed compared to none in
2008 (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and
DFEL” for more information);
|
·
|
Higher
DAC, VOBA, DSI and DFEL amortization, net of interest and excluding
unlocking, due primarily to the reduction in EGPs discussed in “Additional
Segment Information” below; and
|
·
|
A
less favorable net broker-dealer margin attributable primarily to lower
sales of non-proprietary products, lower earnings due to lower production
levels and higher legal accruals.
|
·
|
A
$16 million favorable retrospective unlocking of DAC, VOBA, DSI, DFEL and
reserves for our guarantee riders during the third quarter of 2009 due
primarily to lower lapses and the impact of higher equity market
performance than our model projections assumed, compared to a $9 million
unfavorable retrospective unlocking during the third quarter of 2008 due
primarily to lower equity market performance than our model projections
assumed; and
|
·
|
Higher
net investment income, partially offset by higher interest credited,
driven primarily by higher average fixed account values, including the
fixed portion of variable annuity contracts, attributable primarily to
positive net flows and an increase in investment income on surplus
investments due primarily to more favorable investment income on
alternative investments, partially offset by our liquidity strategy of
maintaining higher cash balances during the recent volatile markets that
remained present early in the third quarter of 2009 that has reduced our
portfolio yield by 3 basis points for the third quarter of
2009.
|
·
|
Lower
insurance fees driven primarily by lower average daily variable account
values due to unfavorable equity
markets;
|
·
|
Higher
benefits, excluding the change in benefit ratio reserves in operating
realized gain (loss), due primarily to an increase in the growth in
benefit reserves from higher expected GDB benefit
payments;
|
·
|
A
less favorable net broker-dealer margin attributable primarily to lower
sales of non-proprietary products;
|
·
|
The
impact of the prospective unlocking discussed
above;
|
·
|
Higher
underwriting, acquisition, insurance and other expenses, excluding
amortization of DAC and VOBA, due primarily to higher account-value-based
trail commissions driven by positive net flows since the third quarter of
2008, partially offset by the impact of unfavorable equity markets on
account values, higher incentive compensation accruals as a result of
higher earnings and production performance relative to planned goals and
higher expenses attributable to our U.S. pension plans (see discussion in
“Additional Segment Information” below);
and
|
·
|
Higher
DAC, VOBA, DSI and DFEL amortization, net of interest and excluding
unlocking, due primarily to the reduction in EGPs discussed in “Additional
Segment Information” below.
|
·
|
A
reduction in federal income tax expense due primarily to the decrease in
earnings and favorable tax return true-ups driven by the separate account
DRD, foreign tax credit adjustments and other items in the first nine
months of 2009;
|
·
|
A
$14 million favorable retrospective unlocking of DAC, VOBA, DSI, DFEL and
reserves for our guarantee riders during the first nine months of 2009 due
primarily to lower lapses and higher equity market performance than our
model projections assumed, compared to a $6 million unfavorable
retrospective unlocking during the first nine months of 2008 due primarily
to lower equity market performance than our model projections assumed;
and
|
·
|
Higher
net investment income, partially offset by higher interest credited,
driven primarily by higher average fixed account values, including the
fixed portion of variable annuity contracts, attributable primarily to
positive net flows and by actions implemented since the third quarter of
2008 to reduce interest crediting rates, partially offset by our liquidity
strategy of maintaining higher cash balances during the recent volatile
markets that has reduced our portfolio yield by 25 basis points for the
first nine months of 2009, a decline in investment income on surplus
investments due primarily to less favorable investment income on
alternative investments (see “Consolidated Investments – Alternative
Investments” below for additional
information).
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Insurance
Fees
|
||||||||||||||||||||||||
Mortality,
expense and other assessments
|
$ | 228 | $ | 245 | -7 | % | $ | 609 | $ | 748 | -19 | % | ||||||||||||
Surrender
charges
|
9 | 13 | -31 | % | 27 | 32 | -16 | % | ||||||||||||||||
DFEL:
|
||||||||||||||||||||||||
Deferrals
|
(16 | ) | (13 | ) | -23 | % | (39 | ) | (38 | ) | -3 | % | ||||||||||||
Prospective
unlocking - assumption changes
|
3 | (1 | ) |
NM
|
3 | (1 | ) |
NM
|
||||||||||||||||
Retrospective
unlocking
|
(2 | ) | 3 |
NM
|
(11 | ) | 3 |
NM
|
||||||||||||||||
Amortization,
net of interest, excluding
|
||||||||||||||||||||||||
unlocking
|
1 | (1 | ) | 200 | % | 9 | 5 | 80 | % | |||||||||||||||
Total
insurance fees
|
$ | 223 | $ | 246 | -9 | % | $ | 598 | $ | 749 | -20 | % |
As
of September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Account
Values
|
||||||||||||
Variable
portion of variable annuities
|
$ | 52,429 | $ | 49,982 | 5 | % | ||||||
Fixed
portion of variable annuities
|
3,990 | 3,547 | 12 | % | ||||||||
Total
variable annuities
|
56,419 | 53,529 | 5 | % | ||||||||
Fixed
annuities, including indexed
|
15,776 | 14,142 | 12 | % | ||||||||
Fixed
annuities ceded to reinsurers
|
(1,049 | ) | (1,196 | ) | 12 | % | ||||||
Total
fixed annuities
|
14,727 | 12,946 | 14 | % | ||||||||
Total
account values
|
$ | 71,146 | $ | 66,475 | 7 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Averages
|
||||||||||||||||||||||||
Daily
variable account values, excluding the fixed
|
||||||||||||||||||||||||
portion
of variable
|
$ | 49,135 | $ | 54,717 | -10 | % | $ | 44,036 | $ | 55,929 | -21 | % | ||||||||||||
Daily
S&P 500
|
994.45 | 1,255.42 | -21 | % | 900.22 | 1,325.03 | -32 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Flows on Account Values
|
||||||||||||||||||||||||
Variable
portion of variable annuity deposits
|
$ | 1,063 | $ | 1,672 | -36 | % | $ | 2,741 | $ | 5,602 | -51 | % | ||||||||||||
Variable
portion of variable annuity withdrawals
|
(977 | ) | (1,216 | ) | 20 | % | (2,914 | ) | (3,704 | ) | 21 | % | ||||||||||||
Variable
portion of variable annuity net flows
|
86 | 456 | -81 | % | (173 | ) | 1,898 |
NM
|
||||||||||||||||
Fixed
portion of variable annuity deposits
|
766 | 896 | -15 | % | 2,400 | 2,631 | -9 | % | ||||||||||||||||
Fixed
portion of variable annuity withdrawals
|
(105 | ) | (124 | ) | 15 | % | (391 | ) | (358 | ) | -9 | % | ||||||||||||
Fixed
portion of variable annuity net flows
|
661 | 772 | -14 | % | 2,009 | 2,273 | -12 | % | ||||||||||||||||
Total
variable annuity deposits
|
1,829 | 2,568 | -29 | % | 5,141 | 8,233 | -38 | % | ||||||||||||||||
Total
variable annuity withdrawals
|
(1,082 | ) | (1,340 | ) | 19 | % | (3,305 | ) | (4,062 | ) | 19 | % | ||||||||||||
Total
variable annuity net flows
|
747 | 1,228 | -39 | % | 1,836 | 4,171 | -56 | % | ||||||||||||||||
Fixed
indexed annuity deposits
|
846 | 215 | 293 | % | 1,864 | 789 | 136 | % | ||||||||||||||||
Fixed
indexed annuity withdrawals
|
(115 | ) | (114 | ) | -1 | % | (516 | ) | (299 | ) | -73 | % | ||||||||||||
Fixed
indexed annuity net flows
|
731 | 101 |
NM
|
1,348 | 490 | 175 | % | |||||||||||||||||
Other
fixed annuity deposits
|
413 | 165 | 150 | % | 896 | 388 | 131 | % | ||||||||||||||||
Other
fixed annuity withdrawals
|
(290 | ) | (550 | ) | 47 | % | (1,006 | ) | (1,335 | ) | 25 | % | ||||||||||||
Other
fixed annuity net flows
|
123 | (385 | ) | 132 | % | (110 | ) | (947 | ) | 88 | % | |||||||||||||
Total
annuity deposits
|
3,088 | 2,948 | 5 | % | 7,901 | 9,410 | -16 | % | ||||||||||||||||
Total
annuity withdrawals
|
(1,487 | ) | (2,004 | ) | 26 | % | (4,827 | ) | (5,696 | ) | 15 | % | ||||||||||||
Total
annuity net flows
|
$ | 1,601 | $ | 944 | 70 | % | $ | 3,074 | $ | 3,714 | -17 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Other
Changes to Account Values
|
||||||||||||||||||||||||
Interest
credited and change in market value on
|
||||||||||||||||||||||||
variable,
excluding the fixed portion of variable
|
$ | 6,211 | $ | (7,069 | ) | 188 | % | $ | 9,928 | $ | (12,571 | ) | 179 | % | ||||||||||
Transfers
from the fixed portion of variable
|
||||||||||||||||||||||||
annuity
products to the variable portion of
|
||||||||||||||||||||||||
variable
annuity products
|
609 | 742 | -18 | % | 1,749 | 2,218 | -21 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Investment Income
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
$ | 248 | $ | 222 | 12 | % | $ | 707 | $ | 675 | 5 | % | ||||||||||||
Commercial
mortgage loan prepayment and bond
|
||||||||||||||||||||||||
makewhole
premiums
(1)
|
1 | 1 | 0 | % | 1 | 2 | -50 | % | ||||||||||||||||
Alternative
investments
(2)
|
- | - |
NM
|
- | (1 | ) | 100 | % | ||||||||||||||||
Surplus
investments (3)
|
22 | 19 | 16 | % | 48 | 57 | -16 | % | ||||||||||||||||
Broker-dealer
|
- | 1 | -100 | % | - | 3 | -100 | % | ||||||||||||||||
Total
net investment income
|
$ | 271 | $ | 243 | 12 | % | $ | 756 | $ | 736 | 3 | % | ||||||||||||
Interest
Credited
|
||||||||||||||||||||||||
Amount
provided to contract holders
|
$ | 205 | $ | 187 | 10 | % | $ | 541 | $ | 550 | -2 | % | ||||||||||||
Adjustment
(4)
|
(8 | ) | - |
NM
|
- | - |
NM
|
|||||||||||||||||
DSI
deferrals
|
(20 | ) | (25 | ) | 20 | % | (54 | ) | (76 | ) | 29 | % | ||||||||||||
Interest
credited before DSI amortization
|
177 | 162 | 9 | % | 487 | 474 | 3 | % | ||||||||||||||||
DSI
amortization:
|
||||||||||||||||||||||||
Retrospective
unlocking
|
(7 | ) | 3 |
NM
|
(8 | ) | 2 |
NM
|
||||||||||||||||
Amortization,
excluding unlocking
|
15 | 5 | 200 | % | 32 | 20 | 60 | % | ||||||||||||||||
Total
interest credited
|
$ | 185 | $ | 170 | 9 | % | $ | 511 | $ | 496 | 3 | % |
(1)
|
See
“Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond
Makewhole Premiums” below for additional
information.
|
(2)
|
See
“Consolidated Investments – Alternative Investments” below for additional
information.
|
(3)
|
Represents
net investment income on the required statutory surplus for this segment
and includes the impact of investment income on alternative investments
for such assets that are held in the portfolios supporting statutory
surplus versus the portfolios supporting product
liabilities.
|
(4)
|
During
the third quarter of 2009, we recorded an adjustment for a
misclassification between benefits and interest credited that did not
impact the results for the nine months ended September 30,
2009.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Basis
|
Months
Ended
|
Basis
|
|||||||||||||||||||||
September
30,
|
Point
|
September
30,
|
Point
|
|||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Interest
Rate Spread
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
5.68 | % | 5.82 | % | (14 | ) | 5.47 | % | 5.85 | % | (38 | ) | ||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
make whole premiums
|
0.02 | % | 0.02 | % | - | 0.01 | % | 0.02 | % | (1 | ) | |||||||||||||
Alternative
investments
|
0.01 | % | 0.00 | % | 1 | 0.00 | % | -0.01 | % | 1 | ||||||||||||||
Net
investment income yield on reserves
|
5.71 | % | 5.84 | % | (13 | ) | 5.48 | % | 5.86 | % | (38 | ) | ||||||||||||
Interest
rate credited to contract holders (1)
|
3.98 | % | 3.95 | % | 3 | 3.81 | % | 3.83 | % | (2 | ) | |||||||||||||
Interest
rate spread
|
1.73 | % | 1.89 | % | (16 | ) | 1.67 | % | 2.03 | % | (36 | ) |
(1)
|
The
adjustment to interest credited discussed above had a 17 basis point
impact on the interest rate credited to contract holders for the third
quarter of 2009.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Other
Information
|
||||||||||||||||||||||||
Average
invested assets on reserves
|
$ | 17,496 | $ | 15,615 | 12 | % | $ | 17,220 | $ | 15,691 | 10 | % | ||||||||||||
Average
fixed account values, including the
|
||||||||||||||||||||||||
fixed
portion of variable
|
18,715 | 17,174 | 9 | % | 17,892 | 17,291 | 3 | % | ||||||||||||||||
Transfers
from the fixed portion of variable
|
||||||||||||||||||||||||
annuity
products to the variable portion of
|
||||||||||||||||||||||||
variable
annuity products
|
(609 | ) | (742 | ) | 18 | % | (1,749 | ) | (2,218 | ) | 21 | % | ||||||||||||
Net
flows for fixed annuities, including the
|
||||||||||||||||||||||||
fixed
portion of variable
|
1,515 | 488 | 210 | % | 3,247 | 1,816 | 79 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Underwriting,
Acquisition, Insurance and
|
||||||||||||||||||||||||
Other
Expenses
|
||||||||||||||||||||||||
Commissions
|
$ | 185 | $ | 161 | 15 | % | $ | 467 | $ | 513 | -9 | % | ||||||||||||
General
and administrative expenses
|
82 | 83 | -1 | % | 231 | 243 | -5 | % | ||||||||||||||||
Taxes,
licenses and fees
|
5 | 5 | 0 | % | 15 | 21 | -29 | % | ||||||||||||||||
Total
expenses incurred, excluding
|
||||||||||||||||||||||||
broker-dealer
|
272 | 249 | 9 | % | 713 | 777 | -8 | % | ||||||||||||||||
DAC
and VOBA deferrals
|
(181 | ) | (170 | ) | -6 | % | (467 | ) | (534 | ) | 13 | % | ||||||||||||
Total
pre-broker-dealer expenses incurred,
|
||||||||||||||||||||||||
excluding
amortization, net of interest
|
91 | 79 | 15 | % | 246 | 243 | 1 | % | ||||||||||||||||
DAC
and VOBA amortization, net of interest:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
10 | (2 | ) |
NM
|
10 | (2 | ) |
NM
|
||||||||||||||||
Retrospective
unlocking
|
(53 | ) | 35 |
NM
|
(68 | ) | 35 |
NM
|
||||||||||||||||
Amortization,
net of interest, excluding
|
||||||||||||||||||||||||
unlocking
|
145 | 63 | 130 | % | 330 | 241 | 37 | % | ||||||||||||||||
Broker-dealer
expenses incurred
|
75 | 79 | -5 | % | 210 | 257 | -18 | % | ||||||||||||||||
Total
underwriting, acquisition, insurance
|
||||||||||||||||||||||||
and
other expenses
|
$ | 268 | $ | 254 | 6 | % | $ | 728 | $ | 774 | -6 | % | ||||||||||||
DAC
and VOBA Deferrals
|
||||||||||||||||||||||||
As
a percentage of sales/deposits
|
5.9 | % | 5.8 | % | 5.9 | % | 5.7 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Operating
Revenues
|
||||||||||||||||||||||||
Insurance
fees
|
$ | 48 | $ | 56 | -14 | % | $ | 133 | $ | 178 | -25 | % | ||||||||||||
Net
investment income
|
190 | 181 | 5 | % | 541 | 527 | 3 | % | ||||||||||||||||
Operating
realized loss
(1)
|
(5 | ) | - |
NM
|
(6 | ) | - |
NM
|
||||||||||||||||
Other
revenues and fees
|
3 | 4 | -25 | % | 8 | 13 | -38 | % | ||||||||||||||||
Total
operating revenues
|
236 | 241 | -2 | % | 676 | 718 | -6 | % | ||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Interest
credited
|
111 | 107 | 4 | % | 334 | 320 | 4 | % | ||||||||||||||||
Benefits
(1)
|
(6 | ) | - |
NM
|
(12 | ) | - |
NM
|
||||||||||||||||
Underwriting,
acquisition, insurance and other
|
||||||||||||||||||||||||
expenses
|
71 | 77 | -8 | % | 220 | 229 | -4 | % | ||||||||||||||||
Total
operating expenses
|
176 | 184 | -4 | % | 542 | 549 | -1 | % | ||||||||||||||||
Income
from operations before taxes
|
60 | 57 | 5 | % | 134 | 169 | -21 | % | ||||||||||||||||
Federal
income tax expense
|
17 | 15 | 13 | % | 34 | 45 | -24 | % | ||||||||||||||||
Income
from operations
|
$ | 43 | $ | 42 | 2 | % | $ | 100 | $ | 124 | -19 | % |
(1)
|
The
change in benefit ratio reserves for this segment was $(6) million and
$(9) million for the three and nine months ended September 30, 2009,
respectively, driven by variable account growth, as compared to none in
the corresponding periods of 2008; however, this impact is offset within
operating realized gain (loss) as discussed
below.
|
·
|
Higher
net investment income driven primarily by higher average fixed account
values, including the fixed portion of variable annuity contracts, driven
by transfers from variable to fixed since the third quarter of 2008,
partially offset by our liquidity strategy of maintaining higher cash
balances during the recent volatile markets that remained present early in
the third quarter of 2009 that has reduced our portfolio yield by 11 basis
points for the third quarter of
2009;
|
·
|
A
$5 million favorable prospective unlocking from assumption changes of DAC,
VOBA, DSI and reserves for our guarantee riders in 2009 due primarily to a
compensation-related change in our wholesaling distribution organization
that lowered deferrals as a percentage of total expenses incurred and
lower maintenance expenses than our model projections assumed (see
“Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” for
more information); and
|
·
|
A
$2 million unfavorable retrospective unlocking of DAC, VOBA, DSI and
reserves for our guarantee riders during the third quarter of 2008 due
primarily to lower equity market performance and higher lapses than our
model projections assumed.
|
·
|
Lower
insurance fees driven primarily by lower average daily variable account
values resulting from the unfavorable equity markets and an overall shift
in business mix toward products with lower expense assessment
rates;
|
·
|
Higher
interest credited driven primarily by higher average fixed account values,
including the fixed portion of variable annuity contracts, driven by
transfers from variable to fixed since the third quarter of 2008,
partially offset by actions implemented during the third quarter of 2009
to reduce interest crediting rates;
and
|
·
|
Higher
underwriting, acquisition, insurance and other expenses, excluding
unlocking, due primarily to higher incentive compensation accruals as a
result of higher earnings and production performance relative to planned
goals.
|
·
|
Lower
insurance fees driven primarily by lower average daily variable account
values resulting from the unfavorable equity markets and an overall shift
in business mix toward products with lower expense assessment rates;
and
|
·
|
Higher
interest credited driven primarily by higher average fixed account values,
including the fixed portion of variable annuity contracts, driven by
transfers from variable to fixed since the third quarter of 2008,
partially offset by actions implemented during the third quarter of 2009
to reduce interest crediting rates.
|
·
|
Higher
net investment income driven primarily by higher average fixed account
values, including the fixed portion of variable annuity contracts, driven
by transfers from variable to fixed since the third quarter of 2008,
partially offset by our liquidity strategy of maintaining higher cash
balances during the recent volatile markets that has reduced our portfolio
yield by 15 basis points and a decline in investment income on surplus
investments due primarily to less favorable investment income on
alternative investments (see “Consolidated Investments – Alternative
Investments” below for additional
information);
|
·
|
The
impact of the prospective unlocking discussed above;
and
|
·
|
A
$1 million unfavorable retrospective unlocking of DAC, VOBA, DSI and
reserves for our guarantee riders during the first nine months of 2009 due
primarily to higher lapses and maintenance expenses and lower equity
market performance than our model projections assumed, compared to a $3
million unfavorable retrospective unlocking during the first nine months
of 2008 due primarily to lower equity market performance and higher lapses
than our model projections assumed.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Insurance
Fees
|
||||||||||||||||||||||||
Annuity
expense assessments
|
$ | 41 | $ | 50 | -18 | % | $ | 113 | $ | 159 | -29 | % | ||||||||||||
Mutual
fund fees
|
6 | 5 | 20 | % | 16 | 14 | 14 | % | ||||||||||||||||
Total
expense assessments
|
47 | 55 | -15 | % | 129 | 173 | -25 | % | ||||||||||||||||
Surrender
charges
|
1 | 1 | 0 | % | 4 | 5 | -20 | % | ||||||||||||||||
Total
insurance fees
|
$ | 48 | $ | 56 | -14 | % | $ | 133 | $ | 178 | -25 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Averages
|
||||||||||||||||||||||||
Daily
variable account values, excluding the
|
||||||||||||||||||||||||
fixed
portion of variable
|
$ | 11,881 | $ | 15,582 | -24 | % | $ | 10,839 | $ | 16,369 | -34 | % | ||||||||||||
Daily
S&P 500
|
994.45 | 1,255.42 | -21 | % | 900.22 | 1,325.03 | -32 | % |
As
of September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Account
Values
|
||||||||||||
Variable
portion of variable annuities
|
$ | 12,620 | $ | 13,480 | -6 | % | ||||||
Fixed
portion of variable annuities
|
6,128 | 6,114 | 0 | % | ||||||||
Total
variable annuities
|
18,748 | 19,594 | -4 | % | ||||||||
Fixed
annuities
|
6,030 | 5,304 | 14 | % | ||||||||
Total
annuities
|
24,778 | 24,898 | 0 | % | ||||||||
Mutual
funds
|
9,544 | 7,675 | 24 | % | ||||||||
Total
annuities and mutual funds
|
$ | 34,322 | $ | 32,573 | 5 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Account
Value Roll Forward – By Product
|
||||||||||||||||||||||||
Total Micro – Small
Segment:
|
||||||||||||||||||||||||
Balance
at beginning-of-period
|
$ | 5,234 | $ | 7,286 | -28 | % | $ | 4,888 | $ | 7,798 | -37 | % | ||||||||||||
Gross
deposits
|
290 | 389 | -25 | % | 852 | 1,276 | -33 | % | ||||||||||||||||
Withdrawals
and deaths
|
(319 | ) | (465 | ) | 31 | % | (853 | ) | (1,429 | ) | 40 | % | ||||||||||||
Net
flows
|
(29 | ) | (76 | ) | 62 | % | (1 | ) | (153 | ) | 99 | % | ||||||||||||
Transfers
between fixed and variable accounts
|
- | - |
NM
|
(4 | ) | (12 | ) | 67 | % | |||||||||||||||
Inter-product
transfer (1)
|
- | (653 | ) | 100 | % | - | (653 | ) | 100 | % | ||||||||||||||
Investment
increase and change in market value
|
580 | (767 | ) | 176 | % | 902 | (1,190 | ) | 176 | % | ||||||||||||||
Balance
at end-of-period
|
$ | 5,785 | $ | 5,790 | 0 | % | $ | 5,785 | $ | 5,790 | 0 | % | ||||||||||||
Total Mid – Large Segment:
|
||||||||||||||||||||||||
Balance
at beginning-of-period
|
$ | 11,425 | $ | 9,985 | 14 | % | $ | 9,540 | $ | 9,463 | 1 | % | ||||||||||||
Gross
deposits
|
617 | 687 | -10 | % | 2,304 | 2,203 | 5 | % | ||||||||||||||||
Withdrawals
and deaths
|
(259 | ) | (222 | ) | -17 | % | (703 | ) | (679 | ) | -4 | % | ||||||||||||
Net
flows
|
358 | 465 | -23 | % | 1,601 | 1,524 | 5 | % | ||||||||||||||||
Transfers
between fixed and variable accounts
|
16 | (4 | ) |
NM
|
13 | (44 | ) | 130 | % | |||||||||||||||
Inter-product
transfer (1)
|
- | 653 | -100 | % | - | 653 | -100 | % | ||||||||||||||||
Investment
increase and change in market value
|
1,173 | (789 | ) | 249 | % | 1,818 | (1,286 | ) | 241 | % | ||||||||||||||
Balance
at end-of-period
|
$ | 12,972 | $ | 10,310 | 26 | % | $ | 12,972 | $ | 10,310 | 26 | % | ||||||||||||
Total Multi-Fund® and Other Variable
Annuities:
|
||||||||||||||||||||||||
Balance
at beginning-of-period
|
$ | 14,668 | $ | 17,770 | -17 | % | $ | 14,450 | $ | 18,797 | -23 | % | ||||||||||||
Gross
deposits
|
196 | 258 | -24 | % | 638 | 827 | -23 | % | ||||||||||||||||
Withdrawals
and deaths
|
(381 | ) | (554 | ) | 31 | % | (1,181 | ) | (1,588 | ) | 26 | % | ||||||||||||
Net
flows
|
(185 | ) | (296 | ) | 38 | % | (543 | ) | (761 | ) | 29 | % | ||||||||||||
Transfers
between fixed and variable accounts
|
(1 | ) | (1 | ) | - | - | (1 | ) | 100 | % | ||||||||||||||
Inter-segment
transfer
|
- | - |
NM
|
- | 295 | -100 | % | |||||||||||||||||
Investment
increase and change in market value
|
1,083 | (1,000 | ) | 208 | % | 1,658 | (1,857 | ) | 189 | % | ||||||||||||||
Balance
at end-of-period
|
$ | 15,565 | $ | 16,473 | -6 | % | $ | 15,565 | $ | 16,473 | -6 | % | ||||||||||||
Total Annuities and Mutual
Funds:
|
||||||||||||||||||||||||
Balance
at beginning-of-period
|
$ | 31,327 | $ | 35,041 | -11 | % | $ | 28,878 | $ | 36,058 | -20 | % | ||||||||||||
Gross
deposits
|
1,103 | 1,334 | -17 | % | 3,794 | 4,306 | -12 | % | ||||||||||||||||
Withdrawals
and deaths
|
(959 | ) | (1,241 | ) | 23 | % | (2,737 | ) | (3,696 | ) | 26 | % | ||||||||||||
Net
flows
|
144 | 93 | 55 | % | 1,057 | 610 | 73 | % | ||||||||||||||||
Transfers
between fixed and variable accounts
|
15 | (5 | ) |
NM
|
9 | (57 | ) | 116 | % | |||||||||||||||
Inter-segment
transfer
|
- | - |
NM
|
- | 295 | -100 | % | |||||||||||||||||
Investment
increase and change in market value
|
2,836 | (2,556 | ) | 211 | % | 4,378 | (4,333 | ) | 201 | % | ||||||||||||||
Balance
at end-of-period (2)
|
$ | 34,322 | $ | 32,573 | 5 | % | $ | 34,322 | $ | 32,573 | 5 | % |
(1)
|
On
September 30, 2008, $653 million relating to the Lincoln Employee 401(k)
Plan transferred from LINCOLN DIRECTORSM
to LINCOLN
ALLIANCE®.
|
(2)
|
Includes
mutual fund account values. Mutual funds are not included in
the separate accounts reported on our Consolidated Balance Sheets as we do
not have any ownership interest in
them.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Flows on Account Values
|
||||||||||||||||||||||||
Variable
portion of variable annuity deposits
|
$ | 387 | $ | 532 | -27 | % | $ | 1,173 | $ | 1,767 | -34 | % | ||||||||||||
Variable
portion of variable annuity withdrawals
|
(471 | ) | (723 | ) | 35 | % | (1,299 | ) | (2,202 | ) | 41 | % | ||||||||||||
Variable
portion of variable annuity net flows
|
(84 | ) | (191 | ) | 56 | % | (126 | ) | (435 | ) | 71 | % | ||||||||||||
Fixed
portion of variable annuity deposits
|
79 | 94 | -16 | % | 256 | 279 | -8 | % | ||||||||||||||||
Fixed
portion of variable annuity withdrawals
|
(178 | ) | (228 | ) | 22 | % | (570 | ) | (620 | ) | 8 | % | ||||||||||||
Fixed
portion of variable annuity net flows
|
(99 | ) | (134 | ) | 26 | % | (314 | ) | (341 | ) | 8 | % | ||||||||||||
Total
variable annuity deposits
|
466 | 626 | -26 | % | 1,429 | 2,046 | -30 | % | ||||||||||||||||
Total
variable annuity withdrawals
|
(649 | ) | (951 | ) | 32 | % | (1,869 | ) | (2,822 | ) | 34 | % | ||||||||||||
Total
variable annuity net flows
|
(183 | ) | (325 | ) | 44 | % | (440 | ) | (776 | ) | 43 | % | ||||||||||||
Fixed
annuity deposits
|
227 | 196 | 16 | % | 787 | 623 | 26 | % | ||||||||||||||||
Fixed
annuity withdrawals
|
(149 | ) | (183 | ) | 19 | % | (466 | ) | (541 | ) | 14 | % | ||||||||||||
Fixed
annuity net flows
|
78 | 13 |
NM
|
321 | 82 | 291 | % | |||||||||||||||||
Total
annuity deposits
|
693 | 822 | -16 | % | 2,216 | 2,669 | -17 | % | ||||||||||||||||
Total
annuity withdrawals
|
(798 | ) | (1,134 | ) | 30 | % | (2,335 | ) | (3,363 | ) | 31 | % | ||||||||||||
Total
annuity net flows
|
(105 | ) | (312 | ) | 66 | % | (119 | ) | (694 | ) | 83 | % | ||||||||||||
Mutual
fund deposits
|
410 | 512 | -20 | % | 1,578 | 1,637 | -4 | % | ||||||||||||||||
Mutual
fund withdrawals
|
(161 | ) | (107 | ) | -50 | % | (402 | ) | (333 | ) | -21 | % | ||||||||||||
Mutual
fund net flows
|
249 | 405 | -39 | % | 1,176 | 1,304 | -10 | % | ||||||||||||||||
Total
annuity and mutual fund deposits
|
1,103 | 1,334 | -17 | % | 3,794 | 4,306 | -12 | % | ||||||||||||||||
Total
annuity and mutual fund
|
||||||||||||||||||||||||
withdrawals
|
(959 | ) | (1,241 | ) | 23 | % | (2,737 | ) | (3,696 | ) | 26 | % | ||||||||||||
Total
annuity and mutual fund
|
||||||||||||||||||||||||
net
flows
|
$ | 144 | $ | 93 | 55 | % | $ | 1,057 | $ | 610 | 73 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Other
Changes to Account Values
|
||||||||||||||||||||||||
Interest
credited and change in market value on
|
||||||||||||||||||||||||
variable,
excluding the fixed portion of variable
|
$ | 1,581 | $ | (1,854 | ) | 185 | % | $ | 2,322 | $ | (3,296 | ) | 170 | % | ||||||||||
Transfers
from the fixed portion of variable
|
||||||||||||||||||||||||
annuity
products to the variable portion of
|
||||||||||||||||||||||||
variable
annuity products
|
21 | (117 | ) | 118 | % | (164 | ) | (318 | ) | 48 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Investment Income
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
$ | 174 | $ | 165 | 5 | % | $ | 510 | $ | 489 | 4 | % | ||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums (1)
|
2 | 5 | -60 | % | 3 | 7 | -57 | % | ||||||||||||||||
Alternative
investments (2)
|
1 | - |
NM
|
- | (2 | ) | 100 | % | ||||||||||||||||
Surplus
investments (3)
|
13 | 11 | 18 | % | 28 | 33 | -15 | % | ||||||||||||||||
Total
net investment income
|
$ | 190 | $ | 181 | 5 | % | $ | 541 | $ | 527 | 3 | % | ||||||||||||
Interest
Credited
|
$ | 111 | $ | 107 | 4 | % | $ | 334 | $ | 320 | 4 | % |
(1)
|
See
“Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond
Makewhole Premiums” below for additional
information.
|
(2)
|
See
“Consolidated Investments – Alternative Investments” below for additional
information.
|
(3)
|
Represents
net investment income on the required statutory surplus for this segment
and includes the impact of investment income on alternative investments
for such assets that are held in the portfolios supporting statutory
surplus versus the portfolios supporting product
liabilities.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Basis
|
Months
Ended
|
Basis
|
|||||||||||||||||||||
September
30,
|
Point
|
September
30,
|
Point
|
|||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Interest
Rate Spread
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
5.85 | % | 5.94 | % | (9 | ) | 5.78 | % | 5.91 | % | (13 | ) | ||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums
|
0.08 | % | 0.17 | % | (9 | ) | 0.03 | % | 0.08 | % | (5 | ) | ||||||||||||
Alternative
investments
|
0.03 | % | -0.01 | % | 4 | 0.00 | % | -0.02 | % | 2 | ||||||||||||||
Net
investment income yield on reserves
|
5.96 | % | 6.10 | % | (14 | ) | 5.81 | % | 5.97 | % | (16 | ) | ||||||||||||
Interest
rate credited to contract holders
|
3.66 | % | 3.77 | % | (11 | ) | 3.73 | % | 3.79 | % | (6 | ) | ||||||||||||
Interest
rate spread
|
2.30 | % | 2.33 | % | (3 | ) | 2.08 | % | 2.18 | % | (10 | ) |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Other
Information
|
||||||||||||||||||||||||
Average
invested assets on reserves
|
$ | 11,895 | $ | 11,146 | 7 | % | $ | 11,762 | $ | 11,034 | 7 | % | ||||||||||||
Average
fixed account values, including the
|
||||||||||||||||||||||||
fixed
portion of variable
|
12,114 | 11,321 | 7 | % | 11,960 | 11,233 | 6 | % | ||||||||||||||||
Transfers
from the fixed portion of variable
|
||||||||||||||||||||||||
annuity
products to the variable portion of
|
||||||||||||||||||||||||
variable
annuity products
|
(21 | ) | 117 |
NM
|
164 | 318 | -48 | % | ||||||||||||||||
Net
flows for fixed annuities, including the
|
||||||||||||||||||||||||
fixed
portion of variable
|
(21 | ) | (121 | ) | 83 | % | 7 | (259 | ) | 103 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Underwriting,
Acquisition, Insurance and
|
||||||||||||||||||||||||
Other
Expenses
|
||||||||||||||||||||||||
Commissions
|
$ | 16 | $ | 17 | -6 | % | $ | 46 | $ | 56 | -18 | % | ||||||||||||
General
and administrative expenses
|
53 | 53 | 0 | % | 161 | 158 | 2 | % | ||||||||||||||||
Taxes,
licenses and fees
|
3 | 3 | 0 | % | 9 | 10 | -10 | % | ||||||||||||||||
Total
expenses incurred
|
72 | 73 | -1 | % | 216 | 224 | -4 | % | ||||||||||||||||
DAC
deferrals
|
(15 | ) | (20 | ) | 25 | % | (51 | ) | (66 | ) | 23 | % | ||||||||||||
Total
expenses recognized before amortization
|
57 | 53 | 8 | % | 165 | 158 | 4 | % | ||||||||||||||||
DAC
and VOBA amortization, net of interest:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
(8 | ) | - |
NM
|
(8 | ) | - |
NM
|
||||||||||||||||
Retrospective
unlocking
|
(2 | ) | 3 |
NM
|
- | 5 | -100 | % | ||||||||||||||||
Amortization,
net of interest, excluding
|
||||||||||||||||||||||||
unlocking
|
24 | 21 | 14 | % | 63 | 66 | -5 | % | ||||||||||||||||
Total
underwriting, acquisition, insurance
|
||||||||||||||||||||||||
and
other expenses
|
$ | 71 | $ | 77 | -8 | % | $ | 220 | $ | 229 | -4 | % | ||||||||||||
DAC
Deferrals
|
||||||||||||||||||||||||
As
a percentage of annuity sales/deposits
|
2.2 | % | 2.4 | % | 2.3 | % | 2.5 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Operating
Revenues
|
||||||||||||||||||||||||
Insurance
premiums
|
$ | 93 | $ | 91 | 2 | % | $ | 277 | $ | 267 | 4 | % | ||||||||||||
Insurance
fees
|
494 | 451 | 10 | % | 1,426 | 1,386 | 3 | % | ||||||||||||||||
Net
investment income
|
495 | 522 | -5 | % | 1,446 | 1,541 | -6 | % | ||||||||||||||||
Amortization
of deferred loss on business sold
|
||||||||||||||||||||||||
through
reinsurance
|
(1 | ) | - |
NM
|
(1 | ) | - |
NM
|
||||||||||||||||
Other
revenues and fees
|
8 | 10 | -20 | % | 20 | 22 | -9 | % | ||||||||||||||||
Total
operating revenues
|
1,089 | 1,074 | 1 | % | 3,168 | 3,216 | -1 | % | ||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Interest
credited
|
293 | 305 | -4 | % | 886 | 902 | -2 | % | ||||||||||||||||
Benefits
|
320 | 400 | -20 | % | 1,000 | 1,006 | -1 | % | ||||||||||||||||
Underwriting,
acquisition, insurance and other
|
||||||||||||||||||||||||
expenses
|
284 | 167 | 70 | % | 700 | 621 | 13 | % | ||||||||||||||||
Total
operating expenses
|
897 | 872 | 3 | % | 2,586 | 2,529 | 2 | % | ||||||||||||||||
Income
from operations before taxes
|
192 | 202 | -5 | % | 582 | 687 | -15 | % | ||||||||||||||||
Federal
income tax expense
|
55 | 65 | -15 | % | 170 | 229 | -26 | % | ||||||||||||||||
Income
from operations
|
$ | 137 | $ | 137 | 0 | % | $ | 412 | $ | 458 | -10 | % |
·
|
Lower
net investment income due primarily to unfavorable results from our
investment income on alternative investments (see “Consolidated
Investments – Alternative Investments” below for additional information)
and the reinsurance transaction effective December 31, 2008, discussed in
“Additional Segment Information”
below;
|
·
|
A
$7 million unfavorable prospective unlocking of DAC, VOBA, DFEL and
secondary guarantee life insurance product reserves from assumption
changes due primarily to lower investment spreads and higher expenses,
mortality and lapse rates than our model projections assumed in 2009
compared to a $21 million unfavorable prospective unlocking (a $34 million
unfavorable unlocking from model refinements, net of a $13 million
favorable unlocking from assumption changes due primarily to higher
investment spreads and lower death claims, lapse rates and expenses than
our model projections assumed and adjustments to secondary guarantee life
insurance product reserves) in 2008 (see “Critical Accounting Policies and
Estimates – DAC, VOBA, DSI and DFEL” for more information);
and
|
·
|
The
impact of the coinsurance agreement discussed in “Additional Segment
Information” below, which resulted in reductions in insurance fees, net
investment income, interest credited, benefits and underwriting,
acquisition, insurance and other
expenses.
|
·
|
Lower
net investment income due primarily to unfavorable results from our
investment income on alternative investments (see “Consolidated
Investments – Alternative Investments” below for additional information)
and the reinsurance transaction effective December 31, 2008, discussed in
“Additional Segment Information”
below;
|
·
|
An
increase in benefits, excluding unlocking, attributable primarily to an
increase in secondary guarantee life insurance product reserves from
continued growth in the business;
and
|
·
|
The
impact of the coinsurance agreement discussed in “Additional Segment
Information” below, which resulted in reductions in insurance fees, net
investment income, interest credited, benefits and underwriting,
acquisition, insurance and other
expenses.
|
·
|
The
impact of prospective unlocking discussed
above;
|
·
|
Lower
underwriting, acquisition, insurance and other expenses, excluding
unlocking, due primarily to a decrease in DAC and VOBA amortization as a
result of lower gross margins in the first and second quarters of 2009,
attributable primarily to lower investment income on alternative
investments; and
|
·
|
A
reduction in federal income tax expense due primarily to favorable tax
return true-ups in the first quarter of
2009.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Insurance
Fees
|
||||||||||||||||||||||||
Mortality
assessments
|
$ | 317 | $ | 332 | -5 | % | $ | 981 | $ | 982 | 0 | % | ||||||||||||
Expense
assessments
|
186 | 178 | 4 | % | 538 | 520 | 3 | % | ||||||||||||||||
Surrender
charges
|
33 | 18 | 83 | % | 81 | 52 | 56 | % | ||||||||||||||||
DFEL:
|
||||||||||||||||||||||||
Deferrals
|
(108 | ) | (97 | ) | -11 | % | (305 | ) | (276 | ) | -11 | % | ||||||||||||
Amortization,
net of interest:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
20 | (4 | ) |
NM
|
20 | (4 | ) |
NM
|
||||||||||||||||
Prospective
unlocking - model refinements
|
- | (25 | ) | 100 | % | - | (25 | ) | 100 | % | ||||||||||||||
Retrospective
unlocking
|
8 | 12 | -33 | % | 12 | 27 | -56 | % | ||||||||||||||||
Amortization,
net of interest, excluding
|
||||||||||||||||||||||||
unlocking
|
38 | 37 | 3 | % | 99 | 110 | -10 | % | ||||||||||||||||
Total
insurance fees
|
$ | 494 | $ | 451 | 10 | % | $ | 1,426 | $ | 1,386 | 3 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Sales
by Product
|
||||||||||||||||||||||||
UL:
|
||||||||||||||||||||||||
Excluding
MoneyGuard®
|
$ | 91 | $ | 144 | -37 | % | $ | 278 | $ | 382 | -27 | % | ||||||||||||
MoneyGuard®
|
18 | 14 | 29 | % | 44 | 37 | 19 | % | ||||||||||||||||
Total
UL
|
109 | 158 | -31 | % | 322 | 419 | -23 | % | ||||||||||||||||
VUL
|
7 | 12 | -42 | % | 23 | 39 | -41 | % | ||||||||||||||||
COLI
and BOLI
|
14 | 13 | 8 | % | 31 | 54 | -43 | % | ||||||||||||||||
Term/whole
life
|
16 | 7 | 129 | % | 39 | 18 | 117 | % | ||||||||||||||||
Total
sales
|
$ | 146 | $ | 190 | -23 | % | $ | 415 | $ | 530 | -22 | % | ||||||||||||
Net
Flows
|
||||||||||||||||||||||||
Deposits
|
$ | 1,074 | $ | 1,082 | -1 | % | $ | 3,151 | $ | 3,276 | -4 | % | ||||||||||||
Withdrawals
and deaths
|
(512 | ) | (392 | ) | -31 | % | (1,492 | ) | (1,258 | ) | -19 | % | ||||||||||||
Net
flows
|
$ | 562 | $ | 690 | -19 | % | $ | 1,659 | $ | 2,018 | -18 | % | ||||||||||||
Contract
holder assessments
|
$ | 747 | $ | 705 | 6 | % | $ | 2,205 | $ | 2,060 | 7 | % |
As
of September 30,
|
||||||||||||
2009
|
2008
|
Change
|
||||||||||
Account
Values
|
||||||||||||
UL
(1)
|
$ | 24,631 | $ | 24,951 | -1 | % | ||||||
VUL
(1)
|
4,369 | 5,056 | -14 | % | ||||||||
Interest-sensitive
whole life
|
2,272 | 2,276 | 0 | % | ||||||||
Total
account values
|
$ | 31,272 | $ | 32,283 | -3 | % | ||||||
In-Force
Face Amount
|
||||||||||||
UL
and other (1)
|
$ | 289,124 | $ | 306,293 | -6 | % | ||||||
Term
insurance
|
242,889 | 233,671 | 4 | % | ||||||||
Total
in-force face amount
|
$ | 532,013 | $ | 539,964 | -1 | % |
(1)
|
Effective
with the March 31, 2009, coinsurance agreement, UL and VUL account values
were reduced by $938 million and $640 million, respectively, and UL and
other face amount in force was reduced by $20.9
billion.
|
·
|
UL
(excluding linked-benefit products) and VUL (including COLI and BOLI) –
first year commissionable premiums plus 5% of excess premiums received,
including an adjustment for internal replacements of approximately 50% of
commissionable premiums;
|
·
|
MoneyGuard® (our
linked-benefit product) – 15% of premium deposits;
and
|
·
|
Whole
life and term – 100% of first year paid
premiums.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Investment Income
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
$ | 487 | $ | 478 | 2 | % | $ | 1,454 | $ | 1,425 | 2 | % | ||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums
(1)
|
3 | 1 | 200 | % | 7 | 14 | -50 | % | ||||||||||||||||
Alternative
investments (2)
|
(20 | ) | 21 |
NM
|
(73 | ) | 35 |
NM
|
||||||||||||||||
Surplus
investments (3)
|
25 | 22 | 14 | % | 58 | 67 | -13 | % | ||||||||||||||||
Total
net investment income
|
$ | 495 | $ | 522 | -5 | % | $ | 1,446 | $ | 1,541 | -6 | % | ||||||||||||
Interest
Credited
|
$ | 293 | $ | 305 | -4 | % | $ | 886 | $ | 902 | -2 | % |
(1)
|
See
“Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond
Makewhole Premiums” below for additional
information.
|
(2)
|
See
“Consolidated Investments – Alternative Investments” below for additional
information.
|
(3)
|
Represents
net investment income on the required statutory surplus for this segment
and includes the impact of investment income on alternative investments
for such assets that are held in the portfolios supporting statutory
surplus versus the portfolios supporting product
liabilities.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Basis
|
Months
Ended
|
Basis
|
|||||||||||||||||||||
September
30,
|
Point
|
September
30,
|
Point
|
|||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Interest
Rate Yields and Spread
|
||||||||||||||||||||||||
Attributable to interest-sensitive
products:
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
5.97 | % | 5.92 | % | 5 | 5.95 | % | 5.94 | % | 1 | ||||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums
|
0.04 | % | 0.02 | % | 2 | 0.03 | % | 0.06 | % | (3 | ) | |||||||||||||
Alternative
investments
|
-0.29 | % | 0.31 | % | (60 | ) | -0.35 | % | 0.18 | % | (53 | ) | ||||||||||||
Net
investment income yield on reserves
|
5.72 | % | 6.25 | % | (53 | ) | 5.63 | % | 6.18 | % | (55 | ) | ||||||||||||
Interest
rate credited to contract holders
|
4.22 | % | 4.35 | % | (13 | ) | 4.22 | % | 4.36 | % | (14 | ) | ||||||||||||
Interest
rate spread
|
1.50 | % | 1.90 | % | (40 | ) | 1.41 | % | 1.82 | % | (41 | ) | ||||||||||||
Attributable to traditional
products:
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on real
|
||||||||||||||||||||||||
estate
and other, net of investment expenses
|
5.98 | % | 6.06 | % | (8 | ) | 5.98 | % | 6.13 | % | (15 | ) | ||||||||||||
Commercial
mortgage loan prepayment
|
||||||||||||||||||||||||
and
bond makewhole premiums
|
0.01 | % | 0.00 | % | 1 | 0.01 | % | 0.04 | % | (3 | ) | |||||||||||||
Alternative
investments
|
0.02 | % | -0.01 | % | 3 | 0.00 | % | -0.01 | % | 1 | ||||||||||||||
Net
investment income yield on reserves
|
6.01 | % | 6.05 | % | (4 | ) | 5.99 | % | 6.16 | % | (17 | ) |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Averages
|
||||||||||||||||||||||||
Attributable to interest-sensitive
products:
|
||||||||||||||||||||||||
Invested
assets on reserves (1)
|
$ | 27,734 | $ | 27,398 | 1 | % | $ | 27,721 | $ | 26,773 | 4 | % | ||||||||||||
Account
values - universal and whole life (1)
|
27,465 | 27,713 | -1 | % | 27,660 | 27,063 | 2 | % | ||||||||||||||||
Attributable to traditional
products:
|
||||||||||||||||||||||||
Invested
assets on reserves
|
4,916 | 4,814 | 2 | % | 4,873 | 5,137 | -5 | % |
(1)
|
We
experienced declines in our average calculations for invested assets on
reserves and account values attributable to interest-sensitive products
during the second quarter of 2009 as a result of the coinsurance agreement
effective March 31, 2009, which reduced these balances by $927 million and
$938 million, respectively, on that
date.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Benefits
|
||||||||||||||||||||||||
Death
claims direct and assumed
|
$ | 541 | $ | 536 | 1 | % | $ | 1,643 | $ | 1,612 | 2 | % | ||||||||||||
Death
claims ceded
|
(231 | ) | (249 | ) | 7 | % | (719 | ) | (722 | ) | 0 | % | ||||||||||||
Reserves
released on death
|
(99 | ) | (80 | ) | -24 | % | (294 | ) | (271 | ) | -8 | % | ||||||||||||
Net
death benefits
|
211 | 207 | 2 | % | 630 | 619 | 2 | % | ||||||||||||||||
Change
in secondary guarantee life insurance
|
||||||||||||||||||||||||
product
reserves:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
(2 | ) | 8 |
NM
|
(2 | ) | 8 |
NM
|
||||||||||||||||
Prospective
unlocking - model refinements
|
- | 76 | -100 | % | - | 76 | -100 | % | ||||||||||||||||
Other
|
57 | 32 | 78 | % | 168 | 86 | 95 | % | ||||||||||||||||
Change
in secondary guarantee life insurance
|
||||||||||||||||||||||||
product
reserves - reinsurance
|
(4 | ) | 6 |
NM
|
29 | 6 |
NM
|
|||||||||||||||||
Other
benefits (1)
|
58 | 71 | -18 | % | 175 | 211 | -17 | % | ||||||||||||||||
Total
benefits
|
$ | 320 | $ | 400 | -20 | % | $ | 1,000 | $ | 1,006 | -1 | % | ||||||||||||
Death
claims per $1,000 of inforce
|
1.61 | 1.55 | 4 | % | 1.59 | 1.55 | 3 | % |
(1)
|
Other
benefits includes primarily traditional product changes in reserves and
dividends.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Underwriting,
Acquisition, Insurance and
|
||||||||||||||||||||||||
Other
Expenses
|
||||||||||||||||||||||||
Commissions
|
$ | 159 | $ | 209 | -24 | % | $ | 478 | $ | 584 | -18 | % | ||||||||||||
General
and administrative expenses
|
112 | 102 | 10 | % | 332 | 308 | 8 | % | ||||||||||||||||
Taxes,
licenses and fees
|
31 | 36 | -14 | % | 87 | 95 | -8 | % | ||||||||||||||||
Total
expenses incurred
|
302 | 347 | -13 | % | 897 | 987 | -9 | % | ||||||||||||||||
DAC
and VOBA deferrals
|
(213 | ) | (261 | ) | 18 | % | (635 | ) | (744 | ) | 15 | % | ||||||||||||
Total
expenses recognized before amortization
|
89 | 86 | 3 | % | 262 | 243 | 8 | % | ||||||||||||||||
DAC
and VOBA amortization, net of interest:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
33 | (32 | ) | 203 | % | 33 | (32 | ) | 203 | % | ||||||||||||||
Prospective
unlocking - model refinements
|
- | (49 | ) | 100 | % | - | (49 | ) | 100 | % | ||||||||||||||
Retrospective
unlocking
|
20 | 26 | -23 | % | 38 | 53 | -28 | % | ||||||||||||||||
Amortization,
net of interest, excluding
|
||||||||||||||||||||||||
unlocking
|
141 | 135 | 4 | % | 364 | 403 | -10 | % | ||||||||||||||||
Other
intangible amortization
|
1 | 1 | 0 | % | 3 | 3 | 0 | % | ||||||||||||||||
Total
underwriting, acquisition, insurance
|
||||||||||||||||||||||||
and
other expenses
|
$ | 284 | $ | 167 | 70 | % | $ | 700 | $ | 621 | 13 | % | ||||||||||||
DAC
and VOBA Deferrals
|
||||||||||||||||||||||||
As
a percentage of sales
|
145.9 | % | 137.4 | % | 153.0 | % | 140.4 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Operating
Revenues
|
||||||||||||||||||||||||
Insurance
premiums
|
$ | 379 | $ | 371 | 2 | % | $ | 1,183 | $ | 1,134 | 4 | % | ||||||||||||
Net
investment income
|
34 | 31 | 10 | % | 92 | 89 | 3 | % | ||||||||||||||||
Other
revenues and fees
|
1 | 1 | 0 | % | 4 | 4 | 0 | % | ||||||||||||||||
Total
operating revenues
|
414 | 403 | 3 | % | 1,279 | 1,227 | 4 | % | ||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Interest
credited
|
1 | 1 | 0 | % | 2 | 1 | 100 | % | ||||||||||||||||
Benefits
|
261 | 268 | -3 | % | 836 | 823 | 2 | % | ||||||||||||||||
Underwriting,
acquisition, insurance and other
|
||||||||||||||||||||||||
expenses
|
99 | 92 | 8 | % | 297 | 271 | 10 | % | ||||||||||||||||
Total
operating expenses
|
361 | 361 | 0 | % | 1,135 | 1,095 | 4 | % | ||||||||||||||||
Income
from operations before taxes
|
53 | 42 | 26 | % | 144 | 132 | 9 | % | ||||||||||||||||
Federal
income tax expense
|
18 | 15 | 20 | % | 50 | 46 | 9 | % | ||||||||||||||||
Income
from operations
|
$ | 35 | $ | 27 | 30 | % | $ | 94 | $ | 86 | 9 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Income
from Operations by Product Line
|
||||||||||||||||||||||||
Life
|
$ | 16 | $ | 9 | 78 | % | $ | 29 | $ | 30 | -3 | % | ||||||||||||
Disability
|
18 | 16 | 13 | % | 63 | 51 | 24 | % | ||||||||||||||||
Dental
|
(1 | ) | 1 |
NM
|
(3 | ) | 1 |
NM
|
||||||||||||||||
Total
non-medical
|
33 | 26 | 27 | % | 89 | 82 | 9 | % | ||||||||||||||||
Medical
|
2 | 1 | 100 | % | 5 | 4 | 25 | % | ||||||||||||||||
Total
income from operations
|
$ | 35 | $ | 27 | 30 | % | $ | 94 | $ | 86 | 9 | % |
·
|
More
favorable total non-medical loss ratio experience, slightly below the low
end of our expected range; and
|
·
|
Growth
in insurance premiums driven by normal, organic business growth in our
non-medical products.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Insurance
Premiums by Product Line
|
||||||||||||||||||||||||
Life
|
$ | 142 | $ | 136 | 4 | % | $ | 432 | $ | 402 | 7 | % | ||||||||||||
Disability
|
173 | 168 | 3 | % | 518 | 499 | 4 | % | ||||||||||||||||
Dental
|
36 | 38 | -5 | % | 111 | 112 | -1 | % | ||||||||||||||||
Total
non-medical
|
351 | 342 | 3 | % | 1,061 | 1,013 | 5 | % | ||||||||||||||||
Medical
|
28 | 29 | -3 | % | 122 | 121 | 1 | % | ||||||||||||||||
Total
insurance premiums
|
$ | 379 | $ | 371 | 2 | % | $ | 1,183 | $ | 1,134 | 4 | % | ||||||||||||
Sales
|
$ | 80 | $ | 68 | 18 | % | $ | 194 | $ | 187 | 4 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Benefits
and Interest Credited by Product Line
|
||||||||||||||||||||||||
Life
|
$ | 95 | $ | 100 | -5 | % | $ | 314 | $ | 293 | 7 | % | ||||||||||||
Disability
|
115 | 116 | -1 | % | 326 | 337 | -3 | % | ||||||||||||||||
Dental
|
29 | 29 | 0 | % | 92 | 89 | 3 | % | ||||||||||||||||
Total
non-medical
|
239 | 245 | -2 | % | 732 | 719 | 2 | % | ||||||||||||||||
Medical
|
23 | 24 | -4 | % | 106 | 105 | 1 | % | ||||||||||||||||
Total
benefits and interest credited
|
$ | 262 | $ | 269 | -3 | % | $ | 838 | $ | 824 | 2 | % | ||||||||||||
Loss
Ratios by Product Line
|
||||||||||||||||||||||||
Life
|
66.6 | % | 74.0 | % | 72.8 | % | 72.7 | % | ||||||||||||||||
Disability
|
66.8 | % | 68.6 | % | 62.8 | % | 67.6 | % | ||||||||||||||||
Dental
|
79.7 | % | 75.9 | % | 83.4 | % | 79.2 | % | ||||||||||||||||
Total
non-medical
|
68.1 | % | 71.6 | % | 69.0 | % | 70.9 | % | ||||||||||||||||
Medical
|
82.0 | % | 86.2 | % | 86.9 | % | 87.7 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Underwriting,
Acquisition, Insurance
|
||||||||||||||||||||||||
and
Other Expenses
|
||||||||||||||||||||||||
Commissions
|
$ | 44 | $ | 42 | 5 | % | $ | 131 | $ | 123 | 7 | % | ||||||||||||
General
and administrative expenses
|
48 | 45 | 7 | % | 144 | 134 | 7 | % | ||||||||||||||||
Taxes,
licenses and fees
|
9 | 9 | 0 | % | 27 | 28 | -4 | % | ||||||||||||||||
Total
expenses incurred
|
101 | 96 | 5 | % | 302 | 285 | 6 | % | ||||||||||||||||
DAC
and VOBA deferrals
|
(13 | ) | (13 | ) | 0 | % | (38 | ) | (40 | ) | 5 | % | ||||||||||||
Total
expenses recognized before amortization
|
88 | 83 | 6 | % | 264 | 245 | 8 | % | ||||||||||||||||
DAC
and VOBA amortization, net of interest
|
11 | 9 | 22 | % | 33 | 26 | 27 | % | ||||||||||||||||
Total
underwriting, acquisition, insurance
|
||||||||||||||||||||||||
and
other expenses
|
$ | 99 | $ | 92 | 8 | % | $ | 297 | $ | 271 | 10 | % | ||||||||||||
DAC
and VOBA Deferrals
|
||||||||||||||||||||||||
As
a percentage of insurance premiums
|
3.4 | % | 3.5 | % | 3.2 | % | 3.5 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Operating
Revenues
|
||||||||||||||||||||||||
Insurance
premiums
|
$ | - | $ | 1 | -100 | % | $ | 4 | $ | 4 | 0 | % | ||||||||||||
Net
investment income
|
81 | 90 | -10 | % | 221 | 277 | -20 | % | ||||||||||||||||
Amortization
of deferred gain on business
|
||||||||||||||||||||||||
sold
through reinsurance
|
18 | 18 | 0 | % | 55 | 55 | 0 | % | ||||||||||||||||
Media
revenues (net)
|
17 | 21 | -19 | % | 51 | 66 | -23 | % | ||||||||||||||||
Other
revenues and fees
|
4 | 5 | -20 | % | 9 | 10 | -10 | % | ||||||||||||||||
Total
operating revenues
|
120 | 135 | -11 | % | 340 | 412 | -17 | % | ||||||||||||||||
Operating
Expenses
|
||||||||||||||||||||||||
Interest
credited
|
33 | 43 | -23 | % | 115 | 130 | -12 | % | ||||||||||||||||
Benefits
|
38 | 29 | 31 | % | 178 | 87 | 105 | % | ||||||||||||||||
Media
expenses
|
13 | 14 | -7 | % | 40 | 45 | -11 | % | ||||||||||||||||
Other
expenses
|
23 | 39 | -41 | % | 120 | 132 | -9 | % | ||||||||||||||||
Interest
and debt expenses
|
68 | 69 | -1 | % | 194 | 209 | -7 | % | ||||||||||||||||
Total
operating expenses
|
175 | 194 | -10 | % | 647 | 603 | 7 | % | ||||||||||||||||
Loss
from operations before taxes
|
(55 | ) | (59 | ) | 7 | % | (307 | ) | (191 | ) | -61 | % | ||||||||||||
Federal
income tax benefit
|
(21 | ) | (20 | ) | -5 | % | (112 | ) | (63 | ) | -78 | % | ||||||||||||
Loss
from operations
|
$ | (34 | ) | $ | (39 | ) | 13 | % | $ | (195 | ) | $ | (128 | ) | -52 | % |
·
|
Lower
other expenses attributable primarily to higher merger-related expenses in
the third quarter of 2008 as a result of higher system integration work
related to our administrative systems and lower branding expenses in the
third quarter of 2009 due to cost save initiatives;
and
|
·
|
More
favorable tax items that impacted the effective tax rate related primarily
to changes in tax preferred
investments.
|
·
|
Lower
net investment income related to our short-term liquidity strategy during
the recent volatile markets that has reduced our portfolio yield and lower
dividend income from our holdings of Bank of America common stock due to
dividend rate cuts, partially offset by higher invested assets driven by
distributable earnings received from our insurance segments, dividends
received from our other segments and issuances of common stock, preferred
stock and debt, partially offset by transfers to other segments for
other-than-temporary impairments;
|
·
|
Unfavorable
results of our run-off disability income business due primarily to the
rescission of the Swiss Re reinsurance agreement discussed below;
and
|
·
|
Lower
media earnings related primarily to the general weakening of the U.S
economy causing substantial declines in revenues throughout the radio
market.
|
·
|
The
$64 million unfavorable impact in the first quarter of 2009 of the
rescission of the reinsurance agreement on certain disability income
business sold to Swiss Re as discussed in “Reinsurance” below, which
resulted in pre-tax increases in benefits of $78 million, interest
credited of $15 million and other expenses of $5 million, partially offset
by a $34 million tax benefit;
|
·
|
Lower
net investment income related to our short-term liquidity strategy during
the recent volatile markets that has reduced our portfolio yield and lower
dividend income from our holdings of Bank of America common stock due to
dividend rate cuts, partially offset by higher invested assets driven by
distributable earnings received from our insurance segments, dividends
received from our other segments and issuances of common stock, preferred
stock and debt, partially offset by transfers to other segments for
other-than-temporary impairments;
|
·
|
Lower
media earnings related primarily to the general weakening of the U.S
economy causing substantial declines in revenues throughout the radio
market; and
|
·
|
Unfavorable
results of our run-off disability income business due primarily to
the rescission discussed above.
|
·
|
Lower
other expenses attributable primarily to higher merger-related expenses as
a result of higher system integration work related to our administrative
systems and relocation costs associated with the move of our corporate
office in 2008 and lower branding expenses in 2009 due to cost save
initiatives, partially offset by restructuring charges of $22 million in
2009 related to expense reduction initiatives that are discussed further
below;
|
·
|
Lower
interest and debt expenses as a result of a decline in interest rates that
affect our variable rate borrowings and lower average balances of
outstanding debt in 2009; and
|
·
|
More
favorable tax items that impacted the effective tax rate related primarily
to changes in tax preferred
investments.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Other
Expenses
|
||||||||||||||||||||||||
Merger-related
expenses
|
$ | 3 | $ | 13 | -77 | % | $ | 14 | $ | 44 | -68 | % | ||||||||||||
Restructuring
charges for expense initiatives
|
1 | - |
NM
|
34 | - |
NM
|
||||||||||||||||||
Branding
|
4 | 8 | -50 | % | 13 | 27 | -52 | % | ||||||||||||||||
Retirement
Income Security Ventures
|
2 | 4 | -50 | % | 6 | 9 | -33 | % | ||||||||||||||||
Taxes,
licenses and fees
|
(1 | ) | 2 |
NM
|
4 | 5 | -20 | % | ||||||||||||||||
Other
|
14 | 12 | 17 | % | 49 | 47 | 4 | % | ||||||||||||||||
Total
other expenses
|
$ | 23 | $ | 39 | -41 | % | $ | 120 | $ | 132 | -9 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
Pre-Tax
|
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
||||||||||||||||||
Operating
realized gain (loss):
|
||||||||||||||||||||||||
Indexed
annuity net derivatives results
|
$ | - | $ | 2 | -100 | % | $ | - | $ | - |
NM
|
|||||||||||||
GLB
|
8 | 11 | -27 | % | 28 | 27 | 4 | % | ||||||||||||||||
GDB
|
(74 | ) | 39 |
NM
|
(107 | ) | 47 |
NM
|
||||||||||||||||
Total
operating realized gain (loss)
|
(66 | ) | 52 |
NM
|
(79 | ) | 74 |
NM
|
||||||||||||||||
Realized
loss related to certain investments
|
(136 | ) | (315 | ) | 57 | % | (444 | ) | (473 | ) | 6 | % | ||||||||||||
Gain
(loss) on certain reinsurance derivative/
|
||||||||||||||||||||||||
trading
securities
|
71 | (2 | ) |
NM
|
83 | - |
NM
|
|||||||||||||||||
GLB
net derivatives results
|
(222 | ) | 89 |
NM
|
(494 | ) | 85 |
NM
|
||||||||||||||||
GDB
derivatives results
|
(11 | ) | (33 | ) | 67 | % | (70 | ) | (41 | ) | -71 | % | ||||||||||||
Indexed
annuity forward-starting option
|
(4 | ) | 2 |
NM
|
- | 9 | -100 | % | ||||||||||||||||
Gain
on sale of subsidiaries/businesses
|
- | - |
NM
|
1 | - |
NM
|
||||||||||||||||||
Total
excluded realized loss
|
(302 | ) | (259 | ) | -17 | % | (924 | ) | (420 | ) |
NM
|
|||||||||||||
Total
realized loss
|
$ | (368 | ) | $ | (207 | ) | -78 | % | $ | (1,003 | ) | $ | (346 | ) |
NM
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
After-Tax
|
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
||||||||||||||||||
Operating
realized gain (loss):
|
||||||||||||||||||||||||
Indexed
annuity net derivatives results
|
$ | - | $ | 1 | -100 | % | $ | - | $ | - |
NM
|
|||||||||||||
GLB
|
5 | 7 | -29 | % | 18 | 18 | 0 | % | ||||||||||||||||
GDB
|
(48 | ) | 25 |
NM
|
(70 | ) | 31 |
NM
|
||||||||||||||||
Total
operating realized gain (loss)
|
(43 | ) | 33 |
NM
|
(52 | ) | 49 |
NM
|
||||||||||||||||
Realized
loss related to certain investments
|
(88 | ) | (205 | ) | 57 | % | (288 | ) | (307 | ) | 6 | % | ||||||||||||
Gain
(loss) on certain reinsurance derivative/
|
||||||||||||||||||||||||
trading
securities
|
46 | (1 | ) |
NM
|
54 | - |
NM
|
|||||||||||||||||
GLB
net derivatives results
|
(144 | ) | 58 |
NM
|
(321 | ) | 54 |
NM
|
||||||||||||||||
GDB
derivative results
|
(7 | ) | (22 | ) | 68 | % | (46 | ) | (27 | ) | -70 | % | ||||||||||||
Indexed
annuity forward-starting option
|
(3 | ) | 1 |
NM
|
- | 6 | -100 | % | ||||||||||||||||
Gain
on sale of subsidiaries/businesses
|
- | - |
NM
|
1 | - |
NM
|
||||||||||||||||||
Total
excluded realized loss
|
(196 | ) | (169 | ) | -16 | % | (600 | ) | (274 | ) |
NM
|
|||||||||||||
Total
realized loss
|
$ | (239 | ) | $ | (136 | ) | -76 | % | $ | (652 | ) | $ | (225 | ) |
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
liabilities.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Indexed
Annuity Net Derivatives Results
|
||||||||||||||||||||||||
Change
in fair value of S&P 500 call options
|
$ | (47 | ) | $ | 42 |
NM
|
$ | (49 | ) | $ | 167 |
NM
|
||||||||||||
Change
in fair value of embedded derivatives
|
48 | (37 | ) | 230 | % | 50 | (167 | ) | 130 | % | ||||||||||||||
Associated
amortization expense of DAC,
|
||||||||||||||||||||||||
VOBA,
DSI and DFEL
|
(1 | ) | (3 | ) | 67 | % | (1 | ) | - |
NM
|
||||||||||||||
Total
indexed annuity net derivatives
|
||||||||||||||||||||||||
results
|
- | 2 | -100 | % | - | - |
NM
|
|||||||||||||||||
GLB
|
||||||||||||||||||||||||
Pre-DAC
(1) amount
|
10 | 18 | -44 | % | 37 | 51 | -27 | % | ||||||||||||||||
Associated
amortization expense of DAC,
|
||||||||||||||||||||||||
VOBA,
DSI and DFEL:
|
||||||||||||||||||||||||
Retrospective
unlocking (2)
|
3 | 4 | -25 | % | 13 | 7 | 86 | % | ||||||||||||||||
Amortization,
excluding unlocking
|
(5 | ) | (11 | ) | 55 | % | (22 | ) | (31 | ) | 29 | % | ||||||||||||
Total
GLB
|
8 | 11 | -27 | % | 28 | 27 | 4 | % | ||||||||||||||||
GDB
|
||||||||||||||||||||||||
Pre-DAC
(1)
amount
|
(84 | ) | 51 |
NM
|
(120 | ) | 66 |
NM
|
||||||||||||||||
Associated
amortization expense of DAC,
|
||||||||||||||||||||||||
VOBA,
DSI and DFEL:
|
||||||||||||||||||||||||
Retrospective
unlocking (2)
|
(38 | ) | 18 |
NM
|
(59 | ) | 19 |
NM
|
||||||||||||||||
Amortization,
excluding unlocking
|
48 | (30 | ) | 260 | % | 72 | (38 | ) | 289 | % | ||||||||||||||
Total
GDB
|
(74 | ) | 39 |
NM
|
(107 | ) | 47 |
NM
|
||||||||||||||||
Total
Operating Realized Gain (Loss)
|
$ | (66 | ) | $ | 52 |
NM
|
$ | (79 | ) | $ | 74 |
NM
|
(1)
|
DAC
refers to the associated amortization of DAC, VOBA, DSI and
DFEL.
|
(2)
|
Related
primarily to the emergence of gross
profits.
|
As
of
|
As
of
|
As
of
|
As
of
|
|||||||||||||
September
30,
|
June
30,
|
March
31,
|
December
31,
|
|||||||||||||
2009
|
2009
|
2009
|
2008
|
|||||||||||||
10-year
CDS spread
|
2.49 | % | 5.52 | % | 23.25 | % | 6.34 | % | ||||||||
NPR
factor related to 10-year CDS spread
|
0.20 | % | 0.82 | % | 1.49 | % | 1.23 | % | ||||||||
Unadjusted
embedded derivative liability
|
$ | 1,014 | $ | 1,197 | $ | 3,064 | $ | 3,416 |
*
|
DAC
refers to the associated amortization of DAC, VOBA, DSI and
DFEL.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
GLB
Net Derivatives Results
|
||||||||||||||||||||||||
Net
valuation premium, net of reinsurance
|
$ | 31 | $ | 21 | 48 | % | $ | 81 | $ | 58 | 40 | % | ||||||||||||
Change
in reserves hedged:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
(17 | ) | 80 |
NM
|
(17 | ) | 80 |
NM
|
||||||||||||||||
Prospective
unlocking - model refinements
|
(9 | ) | - |
NM
|
(9 | ) | - |
NM
|
||||||||||||||||
Other
|
210 | (651 | ) | 132 | % | 2,419 | (812 | ) |
NM
|
|||||||||||||||
Change
in market value of derivative assets
|
(241 | ) | 319 |
NM
|
(2,385 | ) | 388 |
NM
|
||||||||||||||||
Hedge
program effectiveness
|
||||||||||||||||||||||||
(ineffectiveness)
|
(57 | ) | (252 | ) | 77 | % | 8 | (344 | ) | 102 | % | |||||||||||||
Change
in reserves not hedged (NPR
|
||||||||||||||||||||||||
component)
|
(212 | ) | 372 |
NM
|
(600 | ) | 481 |
NM
|
||||||||||||||||
Change
in derivative assets not hedged (NPR
|
||||||||||||||||||||||||
component)
|
5 | - |
NM
|
10 | - |
NM
|
||||||||||||||||||
Change
in benefit ratio reserves not hedged
|
7 | - |
NM
|
14 | - |
NM
|
||||||||||||||||||
Associated
amortization expense of DAC,
|
||||||||||||||||||||||||
VOBA,
DSI and DFEL:
|
||||||||||||||||||||||||
Prospective
unlocking - assumption changes
|
- | (31 | ) | 100 | % | - | (31 | ) | 100 | % | ||||||||||||||
Retrospective
unlocking (1)
|
(75 | ) | (69 | ) | -9 | % | (216 | ) | (59 | ) |
NM
|
|||||||||||||
Amortization,
excluding unlocking
|
79 | 48 | 65 | % | 209 | 14 |
NM
|
|||||||||||||||||
Loss
from the initial adoption of new accounting
|
||||||||||||||||||||||||
standard,
after-DAC (2)
(3)
|
- | - |
NM
|
- | (34 | ) | 100 | % | ||||||||||||||||
Total
GLB net derivatives results
|
$ | (222 | ) | $ | 89 |
NM
|
$ | (494 | ) | $ | 85 |
NM
|
||||||||||||
GDB
Derivatives Results
|
||||||||||||||||||||||||
Change
in benefit ratio reserves
|
$ | 84 | $ | (51 | ) | 265 | % | $ | 120 | $ | (66 | ) | 282 | % | ||||||||||
Change
in fair value of derivatives, excluding
|
||||||||||||||||||||||||
expected
cost of hedging instruments
|
(97 | ) | 8 |
NM
|
(203 | ) | 10 |
NM
|
||||||||||||||||
Associated
amortization expense of DAC,
|
||||||||||||||||||||||||
VOBA,
DSI and DFEL:
|
||||||||||||||||||||||||
Retrospective
unlocking (1)
|
(5 | ) | (16 | ) | 69 | % | (36 | ) | (17 | ) |
NM
|
|||||||||||||
Amortization,
excluding unlocking
|
7 | 26 | -73 | % | 49 | 32 | 53 | % | ||||||||||||||||
Total
GDB derivatives results
|
$ | (11 | ) | $ | (33 | ) | 67 | % | $ | (70 | ) | $ | (41 | ) | -71 | % |
|
(1)
|
Related
primarily to the emergence of gross
profits.
|
|
(2)
|
This
new accounting standard was the Fair Value Measurements and Disclosures
Topic of the FASB ASC.
|
|
(3)
|
DAC
refers to the associated amortization of DAC, VOBA, DSI and
DFEL.
|
For
the Three
|
For
the Nine
|
||||||||||||||||||||
Months
Ended
|
Months
Ended
|
||||||||||||||||||||
September
30,
|
September
30,
|
||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
||||||||||||||||
Indexed
Annuity Forward-Starting Option
|
|||||||||||||||||||||
Pre-DAC
(1)
amounts
|
$ | (11 | ) | $ | 4 |
NM
|
$ | (1 | ) | $ | (2 | ) | 50 | % | |||||||
Associated
amortization expense of DAC,
|
|||||||||||||||||||||
VOBA,
DSI and DFEL
|
7 | (2 | ) |
NM
|
1 | 1 | 0 | % | |||||||||||||
Gain
from the initial adoption of new accounting
|
|||||||||||||||||||||
standard,
after-DAC (1)
(2)
|
- | - |
NM
|
- | 10 | -100 | % | ||||||||||||||
Total
|
$ | (4 | ) | $ | 2 |
NM
|
$ | - | $ | 9 | -100 | % |
(1)
|
This
new accounting standard was the Fair Value Measurements and Disclosures
Topic of the FASB ASC.
|
(2)
|
DAC
refers to the associated amortization of DAC, VOBA, DSI and
DFEL.
|
Fair
Value as of September 30, 2009
|
||||||||||||||||||||||
Prime/
|
||||||||||||||||||||||
Prime
|
Non
-
|
|||||||||||||||||||||
Agency
|
Agency
|
Alt-A
|
Subprime
|
Total
|
||||||||||||||||||
Type
|
||||||||||||||||||||||
Collateralized
mortgage obligations ("CMOs") and
|
||||||||||||||||||||||
Mortgage
pass-throughs ("MPTS")
|
$ | 7,320 | $ | 919 | $ | 478 | $ | - | $ | 8,717 | ||||||||||||
Asset-backed
securities ("ABS") home equity
|
- | - | 240 | 405 | 645 | |||||||||||||||||
Total
by type (1)
|
$ | 7,320 | $ | 919 | $ | 718 | $ | 405 | $ | 9,362 | ||||||||||||
Rating
|
||||||||||||||||||||||
AAA
|
$ | 7,298 | $ | 304 | $ | 158 | $ | 215 | $ | 7,975 | ||||||||||||
AA
|
5 | 37 | 117 | 23 | 182 | |||||||||||||||||
A | 17 | 48 | 50 | 25 | 140 | |||||||||||||||||
BBB
|
- | 36 | 16 | 27 | 79 | |||||||||||||||||
BB
and below
|
- | 494 | 377 | 115 | 986 | |||||||||||||||||
Total
by rating (1)(2)
|
$ | 7,320 | $ | 919 | $ | 718 | $ | 405 | $ | 9,362 | ||||||||||||
Origination
Year
|
||||||||||||||||||||||
2004
and prior
|
$ | 2,970 | $ | 317 | $ | 277 | $ | 206 | $ | 3,770 | ||||||||||||
2005 | 919 | 187 | 209 | 142 | 1,457 | |||||||||||||||||
2006 | 331 | 143 | 189 | 52 | 715 | |||||||||||||||||
2007 | 1,311 | 272 | 43 | - | 1,626 | |||||||||||||||||
2008 | 372 | - | - | - | 372 | |||||||||||||||||
2009 | 1,417 | - | - | 5 | 1,422 | |||||||||||||||||
Total
by origination year (1)
|
$ | 7,320 | $ | 919 | $ | 718 | $ | 405 | $ | 9,362 | ||||||||||||
Total
AFS securities
|
$ | 60,949 | ||||||||||||||||||||
Total
by origination year as a percentage of
|
||||||||||||||||||||||
total
AFS securities
|
15.4 | % | ||||||||||||||||||||
Total
non-agency, Alt-A & subprime as a
|
||||||||||||||||||||||
percentage
of total AFS securities
|
3.4 | % |
|
(1)
|
Does
not include the fair value of trading securities totaling $220 million,
which support our Modco reinsurance agreements because investment results
for these agreements are passed directly to the reinsurers. The
$220 million in trading securities consisted of $192 million prime, $16
million Alt-A and $12 million
subprime.
|
|
(2)
|
For
the table above, credit ratings shown in the document are based on ratings
provided by the major credit rating agencies (Fitch Ratings, Moody’s and
S&P) or are based on internal ratings for those securities where
external ratings are not available. For securities where the
ratings assigned by the major rating agencies are not equivalent, the
second highest of the three ratings assigned is
used.
|
Amortized
Cost as of September 30, 2009
|
||||||||||||||||||||||
Prime/
|
||||||||||||||||||||||
Prime
|
Non
-
|
|||||||||||||||||||||
Agency
|
Agency
|
Alt-A
|
Subprime
|
Total
|
||||||||||||||||||
Type
|
||||||||||||||||||||||
CMOs
and MPTS
|
$ | 6,939 | $ | 1,261 | $ | 663 | $ | - | $ | 8,863 | ||||||||||||
ABS
home equity
|
- | - | 394 | 732 | 1,126 | |||||||||||||||||
Total
by type (1)
|
$ | 6,939 | $ | 1,261 | $ | 1,057 | $ | 732 | $ | 9,989 | ||||||||||||
Rating
|
||||||||||||||||||||||
AAA
|
$ | 6,917 | $ | 333 | $ | 190 | $ | 291 | $ | 7,731 | ||||||||||||
AA
|
5 | 46 | 157 | 34 | 242 | |||||||||||||||||
A | 16 | 53 | 68 | 54 | 191 | |||||||||||||||||
BBB
|
- | 53 | 30 | 52 | 135 | |||||||||||||||||
BB
and below
|
1 | 776 | 612 | 301 | 1,690 | |||||||||||||||||
Total
by rating (1)(2)
|
$ | 6,939 | $ | 1,261 | $ | 1,057 | $ | 732 | $ | 9,989 | ||||||||||||
Origination
Year
|
||||||||||||||||||||||
2004
and prior
|
$ | 2,802 | $ | 367 | $ | 363 | $ | 312 | $ | 3,844 | ||||||||||||
2005 | 866 | 254 | 296 | 264 | 1,680 | |||||||||||||||||
2006 | 309 | 213 | 315 | 151 | 988 | |||||||||||||||||
2007 | 1,213 | 427 | 83 | - | 1,723 | |||||||||||||||||
2008 | 351 | - | - | - | 351 | |||||||||||||||||
2009 | 1,398 | - | - | 5 | 1,403 | |||||||||||||||||
Total
by origination year (1)
|
$ | 6,939 | $ | 1,261 | $ | 1,057 | $ | 732 | $ | 9,989 | ||||||||||||
Total
AFS securities
|
$ | 60,835 | ||||||||||||||||||||
Total
by origination year as a percentage of
|
||||||||||||||||||||||
total
AFS securities
|
16.4 | % | ||||||||||||||||||||
Total
non-agency, Alt-A & subprime as a
|
||||||||||||||||||||||
percentage
of total AFS securities
|
5.0 | % |
|
(1)
|
Does
not include the amortized cost of trading securities totaling $235
million, which support our Modco reinsurance agreements because investment
results for these agreements are passed directly to the
reinsurers. The $235 million in trading securities consisted of
$195 million prime, $23 million Alt-A and $17 million
subprime.
|
|
(2)
|
For
the table above, credit ratings shown in the document are based on ratings
provided by the major credit rating agencies (Fitch Ratings, Moody’s and
S&P) or are based on internal ratings for those securities where
external ratings are not available. For securities where the
ratings assigned by the major rating agencies are not equivalent, the
second highest of the three ratings assigned is
used.
|
As
of September 30, 2009
|
As
of September 30, 2009
|
||||||||||||||||
Amount
|
%
|
Amount
|
%
|
||||||||||||||
Property
Type
|
State
Exposure
|
||||||||||||||||
Office
building
|
$ | 2,511 | 35 | % |
CA
|
$ | 1,493 | 21 | % | ||||||||
Industrial
|
1,929 | 26 | % |
TX
|
627 | 9 | % | ||||||||||
Retail
|
1,726 | 24 | % |
MD
|
430 | 6 | % | ||||||||||
Apartment
|
665 | 9 | % |
FL
|
329 | 5 | % | ||||||||||
Hotel/Motel
|
215 | 3 | % |
VA
|
315 | 4 | % | ||||||||||
Mixed
use
|
133 | 2 | % |
TN
|
311 | 4 | % | ||||||||||
Other
commercial
|
98 | 1 | % |
AZ
|
303 | 4 | % | ||||||||||
$ | 7,277 | 100 | % |
WA
|
289 | 4 | % | ||||||||||
IL
|
268 | 4 | % | ||||||||||||||
NC
|
264 | 4 | % | ||||||||||||||
GA
|
244 | 3 | % | ||||||||||||||
Geographic
Region
|
PA
|
211 | 3 | % | |||||||||||||
Pacific
|
$ | 1,890 | 26 | % |
NV
|
205 | 3 | % | |||||||||
South
Atlantic
|
1,728 | 24 | % |
OH
|
195 | 2 | % | ||||||||||
East
North Central
|
750 | 10 | % |
IN
|
174 | 2 | % | ||||||||||
Mountain
|
711 | 10 | % |
MA
|
156 | 2 | % | ||||||||||
West
South Central
|
667 | 9 | % |
MN
|
155 | 2 | % | ||||||||||
Middle
Atlantic
|
482 | 7 | % |
NJ
|
142 | 2 | % | ||||||||||
East
South Central
|
442 | 6 | % |
SC
|
131 | 2 | % | ||||||||||
West
North Central
|
396 | 5 | % |
NY
|
129 | 2 | % | ||||||||||
New
England
|
211 | 3 | % |
Other
states under 2%
|
906 | 12 | % | ||||||||||
$ | 7,277 | 100 | % | $ | 7,277 | 100 | % |
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Retirement
Solutions:
|
||||||||
Annuities
|
$ | 77 | $ | 89 | ||||
Defined
Contribution
|
61 | 72 | ||||||
Insurance
Solutions:
|
||||||||
Life
Insurance
|
480 | 603 | ||||||
Group
Protection
|
29 | 8 | ||||||
Other
Operations
|
33 | 4 | ||||||
Total
alternative investments
|
$ | 680 | $ | 776 |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Retirement
Solutions:
|
||||||||||||||||||||||||
Annuities
|
$ | 2 | $ | 2 | 0 | % | $ | (6 | ) | $ | 1 |
NM
|
||||||||||||
Defined
Contribution
|
2 | 1 | 100 | % | (3 | ) | (2 | ) | -50 | % | ||||||||||||||
Insurance
Solutions:
|
||||||||||||||||||||||||
Life
Insurance
|
(17 | ) | 23 |
NM
|
(79 | ) | 36 |
NM
|
||||||||||||||||
Group
Protection
|
1 | 1 | 0 | % | (2 | ) | 1 |
NM
|
||||||||||||||||
Other
Operations
|
1 | - |
NM
|
2 | - |
NM
|
||||||||||||||||||
Total
alternative investments
(1)
|
$ | (11 | ) | $ | 27 |
NM
|
$ | (88 | ) | $ | 36 |
NM
|
(1)
|
Includes
net investment income on the alternative investments supporting the
required statutory surplus of our insurance
businesses.
|
As
of
|
As
of
|
|||||||
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Venture
capital
|
$ | 308 | $ | 341 | ||||
Hedge
funds
|
182 | 223 | ||||||
Real
estate
|
90 | 110 | ||||||
Oil
and gas
|
100 | 102 | ||||||
Total
alternative investments
|
$ | 680 | $ | 776 |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Net
Investment Income
|
||||||||||||||||||||||||
Fixed
maturity AFS securities
|
$ | 899 | $ | 833 | 8 | % | $ | 2,577 | $ | 2,510 | 3 | % | ||||||||||||
Equity
AFS securities
|
2 | 6 | -67 | % | 5 | 22 | -77 | % | ||||||||||||||||
Trading
securities
|
40 | 41 | -2 | % | 119 | 126 | -6 | % | ||||||||||||||||
Mortgage
loans on real estate
|
114 | 120 | -5 | % | 349 | 354 | -1 | % | ||||||||||||||||
Real
estate
|
4 | 4 | 0 | % | 10 | 15 | -33 | % | ||||||||||||||||
Standby
real estate equity commitments
|
- | 1 | -100 | % | 1 | 3 | -67 | % | ||||||||||||||||
Policy
loans
|
42 | 46 | -9 | % | 128 | 133 | -4 | % | ||||||||||||||||
Invested
cash
|
1 | 9 | -89 | % | 13 | 39 | -67 | % | ||||||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums (1)
|
6 | 8 | -25 | % | 11 | 28 | -61 | % | ||||||||||||||||
Alternative
investments
(2)
|
(11 | ) | 27 |
NM
|
(88 | ) | 36 |
NM
|
||||||||||||||||
Consent
fees
|
1 | 2 | -50 | % | 4 | 4 | 0 | % | ||||||||||||||||
Other
investments
|
3 | - |
NM
|
8 | (3 | ) |
NM
|
|||||||||||||||||
Investment
income
|
1,101 | 1,097 | 0 | % | 3,137 | 3,267 | -4 | % | ||||||||||||||||
Investment
expense
|
(30 | ) | (29 | ) | -3 | % | (82 | ) | (96 | ) | 15 | % | ||||||||||||
Net
investment income
|
$ | 1,071 | $ | 1,068 | 0 | % | $ | 3,055 | $ | 3,171 | -4 | % |
(1)
|
See
“Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below
for additional information.
|
(2)
|
See
“Alternative Investments” above for additional
information.
|
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Basis
|
Months
Ended
|
Basis
|
|||||||||||||||||||||
September
30,
|
Point
|
September
30,
|
Point
|
|||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Interest
Rate Yield
|
||||||||||||||||||||||||
Fixed
maturity securities, mortgage loans on
|
||||||||||||||||||||||||
real
estate and other, net of investment expenses
|
5.82 | % | 5.87 | % | (5 | ) | 5.82 | % | 5.89 | % | (7 | ) | ||||||||||||
Commercial
mortgage loan prepayment and
|
||||||||||||||||||||||||
bond
makewhole premiums
|
0.03 | % | 0.05 | % | (2 | ) | 0.02 | % | 0.05 | % | (3 | ) | ||||||||||||
Alternative
investments
|
-0.06 | % | 0.15 | % | (21 | ) | -0.16 | % | 0.07 | % | (23 | ) | ||||||||||||
Consent
fees
|
0.01 | % | 0.01 | % | - | 0.01 | % | 0.01 | % | - | ||||||||||||||
Standby
real estate equity commitments
|
0.00 | % | 0.01 | % | (1 | ) | 0.00 | % | 0.01 | % | (1 | ) | ||||||||||||
Net
investment income yield on invested assets
|
5.80 | % | 6.09 | % | (29 | ) | 5.69 | % | 6.03 | % | (34 | ) |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Average
invested assets at amortized cost
|
$ | 73,805 | $ | 70,150 | 5.2 | % | $ | 71,573 | $ | 70,121 | 2.1 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Fixed
maturity AFS securities:
|
||||||||||||||||||||||||
Gross
gains
|
$ | 23 | $ | 19 | 21 | % | $ | 110 | $ | 44 | 150 | % | ||||||||||||
Gross
losses
|
(166 | ) | (372 | ) | 55 | % | (579 | ) | (592 | ) | 2 | % | ||||||||||||
Equity
AFS securities:
|
||||||||||||||||||||||||
Gross
gains
|
- | 1 | -100 | % | 4 | 1 |
NM
|
|||||||||||||||||
Gross
losses
|
(8 | ) | (25 | ) | 68 | % | (16 | ) | (32 | ) | 50 | % | ||||||||||||
Gain
on other investments
|
2 | 1 | 100 | % | (58 | ) | 29 |
NM
|
||||||||||||||||
Associated
amortization expense of DAC, VOBA,
|
||||||||||||||||||||||||
DSI
and DFEL and changes in other contract
|
||||||||||||||||||||||||
holder
funds and funds withheld
|
||||||||||||||||||||||||
reinsurance
liabilities
|
25 | 91 | -73 | % | 128 | 139 | -8 | % | ||||||||||||||||
Total
realized loss on investments, excluding
|
(124 | ) | (285 | ) | 56 | % | (411 | ) | (411 | ) | 0 | % | ||||||||||||
trading
securities
|
||||||||||||||||||||||||
Loss
on certain derivative instruments
|
(12 | ) | (30 | ) | 60 | % | (33 | ) | (62 | ) | 47 | % | ||||||||||||
Total
realized loss on investments and
|
||||||||||||||||||||||||
certain
derivative instruments,
|
||||||||||||||||||||||||
excluding
trading securities
|
$ | (136 | ) | $ | (315 | ) | 57 | % | $ | (444 | ) | $ | (473 | ) | 6 | % |
For
the Three
|
For
the Nine
|
|||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
|||||||||||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
|||||||||||||||||||
Fixed
Maturity Securities
|
||||||||||||||||||||||||
Corporate
bonds
|
$ | 29 | $ | 205 | -86 | % | $ | 187 | $ | 331 | -44 | % | ||||||||||||
Mortgage-backed
securities:
|
||||||||||||||||||||||||
CMOs
|
70 | 76 | -8 | % | 213 | 153 | 39 | % | ||||||||||||||||
ABS:
|
||||||||||||||||||||||||
CDOs
|
10 | - |
NM
|
39 | 1 |
NM
|
||||||||||||||||||
Hybrid
and redeemable preferred securities
|
17 | 1 |
NM
|
18 | 1 |
NM
|
||||||||||||||||||
Total
fixed maturity securities
|
126 | 282 | -55 | % | 457 | 486 | -6 | % | ||||||||||||||||
Equity
Securities
|
||||||||||||||||||||||||
Insurance
securities
|
- | 1 | -100 | % | - | 1 | -100 | % | ||||||||||||||||
Other
financial services securities
|
8 | 24 | -67 | % | 10 | 24 | -58 | % | ||||||||||||||||
Other
securities
|
- | - |
NM
|
6 | 7 | -14 | % | |||||||||||||||||
Total
equity securities
|
8 | 25 | -68 | % | 16 | 32 | -50 | % | ||||||||||||||||
Gross
OTTI recognized in
|
||||||||||||||||||||||||
net
income (loss)
|
134 | 307 | -56 | % | 473 | 518 | -9 | % | ||||||||||||||||
Associated
amortization expense
|
||||||||||||||||||||||||
of
DAC, VOBA, DSI and DFEL
|
(54 | ) | (70 | ) | 23 | % | (154 | ) | (123 | ) | -25 | % | ||||||||||||
Net
OTTI recognized in
|
||||||||||||||||||||||||
net
income (loss), pre-tax
|
$ | 80 | $ | 237 | -66 | % | $ | 319 | $ | 395 | -19 | % |
For
the Three
|
For
the Nine
|
For
the
|
||||||||||||||||||
Months
Ended
|
Months
Ended
|
Year
Ended
|
||||||||||||||||||
September
30,
|
September
30,
|
December
31,
|
||||||||||||||||||
2009
|
2008
|
2009
|
2008
|
2008
|
||||||||||||||||
Dividends
from Subsidiaries
|
||||||||||||||||||||
LNL,
excluding Lincoln Financial Media
|
$ | - | $ | 100 | $ | 403 | $ | 400 | $ | 400 | ||||||||||
Lincoln
Financial Media (1)
|
- | 3 | 4 | 656 | 659 | |||||||||||||||
First
Penn-Pacific
|
- | - | 50 | 50 | 50 | |||||||||||||||
Delaware
Investments
|
3 | 15 | 8 | 43 | 51 | |||||||||||||||
Lincoln
Barbados
|
- | - | 300 | - | - | |||||||||||||||
Lincoln
UK
|
- | - | - | 24 | 24 | |||||||||||||||
Other
|
- | - | - | - | 54 | |||||||||||||||
Loan
Repayments and Interest from
|
||||||||||||||||||||
Subsidiary
|
||||||||||||||||||||
LNL
interest on intercompany notes (2)
|
22 | 22 | 63 | 63 | 83 | |||||||||||||||
$ | 25 | $ | 140 | $ | 828 | $ | 1,236 | $ | 1,321 | |||||||||||
Other
Cash Flow and Liquidity Items
|
||||||||||||||||||||
Net
proceeds on common stock issuance
|
$ | - | $ | - | $ | 652 | $ | - | $ | - | ||||||||||
TARP
CPP proceeds
|
950 | - | 950 | - | - | |||||||||||||||
Net
capital received from (paid for taxes on) stock
|
||||||||||||||||||||
option
exercises and restricted stock
|
(1 | ) | 1 | (1 | ) | 15 | 15 | |||||||||||||
$ | 949 | $ | 1 | $ | 1,601 | $ | 15 | $ | 15 |
(1)
|
For
2008, amount includes proceeds on the sale of certain discontinued media
operations.
|
(2)
|
Primarily
represents interest on the holding company’s $1.3 billion in surplus note
investments in LNL.
|
For
the Nine Months Ended September 30, 2009
|
||||||||||||||||||||||||
Change
|
||||||||||||||||||||||||
Maturities
|
in
Fair
|
|||||||||||||||||||||||
Beginning
|
and
|
Value
|
Other
|
Ending
|
||||||||||||||||||||
Balance
|
Issuance
|
Repayments
|
Hedges
|
Changes
(1)
|
Balance
|
|||||||||||||||||||
Short-Term
Debt
|
||||||||||||||||||||||||
Commercial
paper
|
$ | 315 | $ | - | $ | - | $ | - | $ | (166 | ) | $ | 149 | |||||||||||
Current
maturities of long-term debt
|
500 | - | (500 | ) | - | 250 | 250 | |||||||||||||||||
Other
short-term debt
|
- | - | - | - | 1 | 1 | ||||||||||||||||||
Total
short-term debt
|
$ | 815 | $ | - | $ | (500 | ) | $ | - | $ | 85 | $ | 400 | |||||||||||
Long-Term
Debt
|
||||||||||||||||||||||||
Senior
notes
|
$ | 2,555 | $ | 495 | $ | - | $ | (104 | ) | $ | (247 | ) | $ | 2,699 | ||||||||||
Bank
borrowing
|
200 | - | - | - | - | 200 | ||||||||||||||||||
Federal
Home Loan Bank
|
||||||||||||||||||||||||
of
Indianapolis ("FHLBI") advance
|
250 | - | - | - | - | 250 | ||||||||||||||||||
Junior
subordinated debentures
|
||||||||||||||||||||||||
issued
to affiliated trusts
|
155 | - | - | - | - | 155 | ||||||||||||||||||
Capital
securities
|
1,571 | - | (87 | ) | - | 1 | 1,485 | |||||||||||||||||
Total
long-term debt
|
$ | 4,731 | $ | 495 | $ | (87 | ) | $ | (104 | ) | $ | (246 | ) | $ | 4,789 |
(1)
|
Includes
the net increase (decrease) in commercial paper, non-cash reclassification
of long-term debt to current maturities of long-term debt, accretion of
discounts and (amortization) of
premiums.
|
As
of September 30, 2009
|
|||||||||
Expiration
|
Maximum
|
Borrowings
|
|||||||
Date
|
Available
|
Outstanding
|
|||||||
Revolving
Credit Facilities
|
|||||||||
Credit
facility with the FHLBI (1)
|
Not
Applicable
|
$ | 411 | $ | 350 | ||||
Five-year
revolving credit facility
|
March
2011
|
1,750 | - | ||||||
Five-year
revolving credit facility
|
February
2011
|
1,350 | - | ||||||
Total
|
$ | 3,511 | $ | 350 | |||||
Letters
of credit issued
|
$ | 2,095 |
(1)
|
Our
borrowing capacity under this credit facility does not have an expiration
date and continues while our investment in the FHLBI common stock remains
outstanding as long as LNL maintains a satisfactory level of
creditworthiness and does not incur a material adverse change in its
financial, business, regulatory or other areas that would materially
affect its operations and viability. Of the borrowings
outstanding as of September 30, 2009, $250 million is classified within
long-term debt and $100 million is classified within payables for
collateral under securities loaned and derivatives on our Consolidated
Balance Sheets. The maturity dates of the borrowings are
discussed below.
|
For
the Three
|
For
the Nine
|
For
the
|
||||||||||||||||||||||||||
Months
Ended
|
Months
Ended
|
Year
Ended
|
||||||||||||||||||||||||||
September
30,
|
September
30,
|
December
31,
|
||||||||||||||||||||||||||
2009
|
2008
|
Change
|
2009
|
2008
|
Change
|
2008
|
||||||||||||||||||||||
Common
dividends to stockholders
|
$ | 3 | $ | 106 | -97 | % | $ | 59 | $ | 323 | -82 | % | $ | 429 | ||||||||||||||
Repurchase
of common stock
|
- | 50 | -100 | % | - | 476 | -100 | % | 476 | |||||||||||||||||||
Total
cash returned to
|
||||||||||||||||||||||||||||
stockholders
|
$ | 3 | $ | 156 | -98 | % | $ | 59 | $ | 799 | -93 | % | $ | 905 | ||||||||||||||
Number
of shares issued
|
- | - |
NM
|
46.000 | - |
NM
|
- | |||||||||||||||||||||
Average
price per share
|
$ | - | $ | - |
NM
|
$ | 14.34 | $ | - |
NM
|
$ | - | ||||||||||||||||
Number
of shares repurchased
|
- | 1.010 | -100 | % | - | 9.091 | -100 | % | 9.091 | |||||||||||||||||||
Average
price per share
|
$ | - | $ | 49.55 | -100 | % | $ | - | $ | 52.31 | -100 | % | $ | 52.31 |
S&P
500
|
S&P
500
|
|||||||
at
700 (2)
|
at
800 (2)
|
|||||||
Segment
|
||||||||
Retirement
Solutions – Annuities
(1)
|
$ | (110 | ) | $ | (80 | ) | ||
Retirement
Solutions – Defined Contribution
(1)
|
(25 | ) | (20 | ) |
(1)
|
If
the level of the S&P 500 dropped to 700 immediately after September
30, 2009, and remained at that level in subsequent periods we project that
we would have a RTM prospective unlocking of approximately $250 million to
$310 million, after-tax, for Retirement Solutions late in
2011. If the level of the S&P 500 dropped to 800
immediately after September 30, 2009, and remained at that
level in subsequent periods we project that we would have a RTM
prospective unlocking of approximately $200 million to $240 million,
after-tax, for Retirement Solutions late in
2012.
|
(2)
|
The
baseline for these impacts assumes 9% annual equity market growth
beginning on October 1, 2009. The baseline is then compared to
scenarios of S&P 500 at the 700 and 800 levels, which assume the index
stays at those levels for the next twelve months and grows at 9% annually
thereafter. The difference between the baseline and S&P 500
at the 700 and 800 level scenarios is presented in the
table.
|
As
of
|
As
of
|
|||||||||
September
30,
|
December
31,
|
|||||||||
2009
|
2008
|
|||||||||
Rating
|
||||||||||
AAA
|
$ | 4 | $ | 20 | ||||||
AA
|
290 | 333 | ||||||||
A | 125 | 209 | ||||||||
BBB
|
7 | - | ||||||||
Total
|
$ | 426 | $ | 562 |
(a)
Total
|
(c)
Total Number
|
(d)
Approximate Dollar
|
||||||||||||||
Number
|
(b)
Average
|
of
Shares (or Units)
|
Value
of Shares (or
|
|||||||||||||
of
Shares
|
Price
Paid
|
Purchased
as Part of
|
Units)
that May Yet Be
|
|||||||||||||
(or
Units)
|
per
Share
|
Publicly
Announced
|
Purchased
Under the
|
|||||||||||||
Period
|
Purchased
(1)
|
(or
Unit)
|
Plans
or Programs (2)
|
Plans
or Programs (3)
|
||||||||||||
7/1/09
- 7/31/09
|
433 | $ | 15.06 | - | $ | 1,204 | ||||||||||
8/1/09
- 8/31/09
|
11,636 | 23.22 | - | 1,204 | ||||||||||||
9/1/09
- 9/30/09
|
18,855 | 23.97 | - | 1,204 |
(1)
|
Of
the total number of shares purchased, no shares were received in
connection with the exercise of stock options and related taxes and 30,924
shares were withheld for taxes on the vesting of restricted
stock. For the quarter ended September 30, 2009, there were no
shares purchased as part of publicly announced plans or
programs.
|
(2)
|
On
February 23, 2007, our Board approved a $2.0 billion increase to our
securities repurchase authorization, bringing the total authorization at
that time to $2.6 billion. As of September 30, 2009, our
security repurchase authorization was $1.2 billion. 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 15 are not included in our
security repurchase. As required under the Troubled Asset
Relief Program (“TARP”) Capital Purchase Program (“CPP”), repurchases of
the Company’s outstanding preferred and common stock are subject to
certain restrictions (unless the U.S. Treasury consents). In
addition to these restrictions, in connection with this arrangement, the
Company will comply with enhanced compensation restrictions for certain
executives and
employees.
|
(3)
|
As
of the last day of the applicable
month.
|
LINCOLN
NATIONAL CORPORATION
|
||
By:
|
/s/ FREDERICK J.
CRAWFORD
|
|
Frederick
J. Crawford
Executive
Vice President and Chief Financial Officer
|
||
By:
|
/s/ DOUGLAS N.
MILLER
|
|
Douglas
N. Miller
Vice
President and Chief Accounting Officer
|
||
Date: November
6, 2009
|
2.1
|
Purchase
And Sale Agreement By And Among Lincoln National Corporation, Lincoln
National Investment Companies, Inc. And Macquarie Bank Limited, dated as
of August 18, 2009 is filed herewith.*
|
4.1
|
Warrant
for the Purchase of Shares of Common Stock is incorporated by reference to
Exhibit 3.1 to LNC’s Form 8-K (File No. 1-6028) filed with the SEC on July
10, 2009.
|
10.1
|
Form
of Indemnification between LNC and each director filed
herewith.
|
10.2
|
Letter
Agreement, dated July 10, 2009, between LNC and the U.S. Department of the
Treasury is incorporated by reference to Exhibit 10.1 to LNC’s Form 8-K
(File No. 1-6028) filed with the SEC on July 10, 2009.
|
10.3
|
Side
Letter, dated July 10, 2009, between LNC and the U.S. Department of the
Treasury is incorporated by reference to Exhibit 10.2 to LNC’s Form 8-K
(File No. 1-6028) filed with the SEC on July 10, 2009.
|
10.4
|
Form
of Waiver, is incorporated by reference to Exhibit 10.3 to LNC’s Form 8-K
(File No. 1-6028) filed with the SEC on July 10, 2009.
|
12.1
|
Historical
Ratio of Earnings to Fixed Charges.
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification
of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
101
|
Attached
as Exhibit 101 to this report are the following Interactive Data Files
formatted in XBRL (Extensible Business Reporting Language): (i)
Consolidated Balance Sheets for the quarter ended September 30, 2009 and
period ended December 31, 2008, (ii) Consolidated Statements of Income for
the three and nine months ended September 30, 2009 and 2008; (iii)
Consolidated Statements of Stockholders’ Equity for the nine months ended
September 30, 2009 and 2008; and (iv) the Consolidated Statements of Cash
Flow for the nine months ended September 30, 2009 and
2008. Users of this data are advised pursuant to Rule 401 of
Regulation S-T that the information contained in the XBRL documents is
unaudited and these are not the official publicly filed financial
statements of Lincoln National
Corporation.
|