Lincoln National Corporation · NYSE:LNC
Lincoln National — 2009 Conference for Investors and Bankers
63 slides from Lincoln National's conference presentation, Nov 17, 2009
Slide 1: Strategic Overview
Dennis R. Glass 2009 Conference for Investors and Bankers President and Chief Executive Officer Lincoln Financial Group ©2009 Lincoln National Corporation Strategic Overview
Slide 2: Actions Taken Over Past 12 Months to Focus on Core Businesses
2 Capital Purchase Program $950 Dividend, Expense Cuts $650 LNUK $300 Reinsurance $240 Delaware Investments $400 Actions Taken Over Past 12 Months to Focus on Core Businesses and Support Franchise Equity and Debt $1,190
Slide 3: Considerable Tailwinds from Consumer Trends Post-Crisis and Demographics
3 Despite the weakened macro- economy, demand characteristics for Lincoln products are strong Increased risk aversion and consumer demand for guarantees and advice Continued shift in consumer demographics toward retirees Rising taxes at both the state and federal levels Source: McKinsey Consumer Fin
Slide 4: Lincoln One of Four Competitors with Significant Market Position in Core Businesses
4 Individual Life Variable Annuity Group large case Top 20+ player No participation Top 10 player Top 11-20 player Fixed Annuity Based on sales rankings from industry sources 1 (data compiled by McKinsey & Co.) Asset Management Group <500 lives 2 DC 401(k) DC 403(b) Competitors 1 Metrics used to cal
Slide 5: Top Partner Status with Key Distribution Firms
5 Lincoln’s share of volume and ranking for key strategic partners Major Wire / Bank Major Wire / Bank 10 Major Wire / Bank Top MGA Top MGA Top MGA Top Regional Top Independent BD Top Independent BD Major Wire / Bank 33 23 26 30 14 15 25 4 3 4 4 1 5 7 1 1 2 3 2 1 2 1 MoneyGuard is included as normal
Slide 6: Clearly Focused on Four Core Insurance and Retirement Businesses
6 Life Insurance 49% Individual Annuities 28% Defined Contribution 12% Group Protection 11% 1 Based on LFG after-tax third quarter of 2009 YTD income from operations, excluding Other Operations. Clearly Focused on Four Core Insurance and Retirement Businesses Earnings 1 2010 Focus
Slide 7: Life Insurance and Individual Annuities
Mark Konen Will Fuller 2009 Conference for Investors and Bankers President Insurance Solutions and Retirement Solutions President Lincoln Financial Distributors ©2009 Lincoln National Corporation Life Insurance and Individual Annuities
Slide 8: Cornerstones of Our Success
2 Product Innovation and Responsiveness Securing Financial Futures Operational Effectiveness Comprehensive Risk Management Distribution Depth and Breadth Cornerstones of Our Success
Slide 9: Scale Fuels Market Leadership
3 Scale Fuels Market Leadership Compelling - - And competitive products, along with a distribution organization that is both a differentiator and a value creator for Lincoln Comprehensive - - Suite of solutions and a multi-channel, multi-product distribution model Consistent - - Approach to product
Slide 10: Life Insurance Overview
4 1 Source: LIMRA, based on YTD sales as of June 30, 2009, except Life/LTC ranking which is based on FY 2008 sales 2 As of September 30, 2009 UL # 1 Life-LTC # 1 VUL # 4 Term # 16 Life Insurance Overview Leveraging scale to drive value #3 life insurance provider in 2009 1 $532 billion of life insura
Slide 11: Leveraging Scale and Footprint to Grow Life Insurance Sales Across Key Partners
5 1 Based on YTD sales as of September 30, 2009, specialty represents COLI/BOLI Driving sales through multiple channels Leveraging presence in MGA to increase MoneyGuard sales Lincoln ranked top 1, 2 or 3 Life carrier in many key distribution firms Expanded distribution relationships Increased advis
Slide 12: Increasing Market Share in a Changing Sales Environment
6 Increasing market share Shift to term life and lower face amount UL policies Significant increase in number of policies sold (UL +26%, Term +107%)3 COLI / BOLI VUL UL Term $415 $530 1 As of September 30, 2009; 2 Source: LIMRA, based on YTD sales as of June 30, 2009; 3 YTD 3Q09 versus YTD 3Q08 2008
Slide 13: Secondary Guarantee UL Product Management
7 Secondary Guarantee UL Product Management Changing competitive landscape New products earn 12 - 15% returns without capital solution Pricing and compensation changes Focus on less capital-intensive “cells” Leverage underwriting expertise Manage interest rate risk Liability structure Æ long investm
Slide 14: MoneyGuard
8 2005 2006 2007 2008 2009 YTD 2 MoneyGuard Sales (in PAP, millions) 3Q08 YTD MoneyGuard Sales 1 Source: LIMRA, based on sales 2 As of September 30, 2009 MoneyGuard Product meets consumer preference for flexible benefits solutions Simplified story and product processes (fall 2006) 70% market share i
Slide 15: Life Insurance 2010 Focus
9 Life Insurance 2010 Focus Maintain product leadership Build on core distribution strength Explore opportunities with financial advisors who do not currently sell life insurance
Slide 16: Individual Annuities Overview
10 Variable Annuities # 7 Fixed Annuities # 13 Indexed Annuities # 4 1 Source: MARC and LIMRA, based on YTD sales as of June 30, 2009 2 As of September 30, 2009 Individual Annuities Overview Leveraging scale, traditionally conservative approach to drive value # 5 overall annuity provider 1 $72 billi
Slide 17: Leveraging Scale and Footprint to Grow Annuity Sales Across Key Partners
11 1 Based on YTD sales as of September 30, 2009, VA includes fixed portion Leverage distribution strength and product mix Expand distribution relationships Increase wholesaler productivity VA Indexed Fixed Leveraging Scale and Footprint to Grow Annuity Sales Across Key Partners Key Takeaways: Sales
Slide 18: Resilient Business Model in a Changing Sales Environment
12 Increasing wholesaler productivity Broad product portfolio to meet shifting demand Distribution relationships drive long-term value 1 Variable includes fixed portion Variable 1 Indexed/Fixed $7.9 $9.4 Resilient Business Model in a Changing Sales Environment Key Takeaways: YTD Sales by Product ($
Slide 19: Industry Redesign of VA Living Benefits
13 Move toward more conservative products & guarantees Lincoln objective - be a consistent market participant Stayed at conservative end of the spectrum of guarantees 1 Calculated as initial withdrawal as a percentage of principal, buying at 60 and holding to 65 Source: Variable Annuity Internal Com
Slide 20: Inforce VA Risk Profile
14 Writing business consistently through market cycles improves risk profile Did not add roll-up to GMWB until early 2008 No significant change in policyholder behavior during crisis Conservative death benefit guarantees Hedge Program covers all VA guarantees Assets cover liabilities 9/30/09 GMWB Ex
Slide 21: New Business Profitability
15 VA FA Combined 1Q 09 VA FA Combined 2Q 09 VA FA Combined 3Q 09 1 Represents un-levered returns based on pricing assumptions and capital markets conditions during the quarter New Business Profitability Strong Indexed/Fixed returns in early 2009 help balance VA returns VA product changes (removing
Slide 22: Individual Annuities 2010 Focus
16 Individual Annuities 2010 Focus Maintain product leadership Build on core distribution strengths Simplify and enhance advisor experience Explore new opportunities for annuities
Slide 23: The Retail Model & Consumer Behavior
Bob Dineen 2009 Conference for Investors and Bankers President and Chief Executive Officer Lincoln Financial Network ©2009 Lincoln National Corporation The Retail Model & Consumer Behavior
Slide 24: Lincoln Financial Network Overview
2 Lincoln Financial Network Overview LFN Positioned for Growth Investment in Recruiting Platform Trend in the Industry towards Independence
Slide 25: LFN Offers a Unique Value Proposition
3 2007: First year of new national recruiting effort Successfully recruiting experienced, productive advisors Full Service Support A National Support Network for Advisors and their Clients LFN Offers a Unique Value Proposition For Planners and Producers Independent Growth of Advisor Population
Slide 26: Significant Contributions to the Corporation
4 * Defined as distribution revenues, less producer compensation and fully allocated expenses ** Reflects LFN percentage of total LFG production, YTD as of September 30, 2009 26% life insurance PAP** ~$100 million ~50% in-force life insurance block 11% annuity deposits** ~$1 billion Bottom Line Oper
Slide 27: Consumer Sentiment Shift Post-Crisis
5 Pre-Crisis February 2008 Post-Crisis April 2009 20% of retirees say that they are less financially secure than they thought they would be* 49% of retirees say that they are less financially secure than they thought they would be* 53% of retirees are risk- averse* (call themselves extremely or some
Slide 28: The Need for Advice
6 * U.S. Census Bureau The Need for Advice Opportunity for Lincoln and the Industry Of 79 million baby boomers … … only 20% have a clear plan for their retirement* Consumers are more risk-averse $3 trillion “on the sidelines” in minimal interest accounts Implications: muted recovery plus low interes
Slide 29: Executing and Evolving the LFD Model
Will Fuller 2009 Conference for Investors and Bankers President and Chief Executive Officer Lincoln Financial Distributors ©2009 Lincoln National Corporation Executing and Evolving the LFD Model
Slide 30: Build on LFD's Strengths and Position in the Industry
8 Goal is to Build on LFD’s Strengths and Position in the Industry to Increase Our Contribution to Lincoln Annuities 288 Life Insurance 223 Defined Contribution 44 LFD Sales Force
Slide 31: 2009 was a Transitional Year
9 Client needs and preferences Distribution partnerships Execution Execute in the Current Environment Adjust to Market Realities Align to enterprise structure Contain / reduce expenses Right-size sales force for market opportunity Align sales structure with consumer demand Protect and strengthen dis
Slide 32: Drive Execution and Growth: Focus on Core Strengths
10 Grow Sales in core products Annuities Life Insurance Defined Contribution Pursue natural cross-sell synergies Increase wholesaler productivity Drive Execution and Growth: Focus on Core Strengths and Additive Opportunities Core Focus
Slide 33: Client Centric Approach to Distribution
11 Financial Institutions General Agents Lincoln Financial Network Driving Growth and Profitability in 2010 and Beyond with A Client Centric Approach to Distribution Establish a “360°view” of distribution relationships with shared goals Improve client experience with formalized “Voice of the Custome
Slide 34: Defined Contribution and Group Protection
Mark Konen 2009 Conference for Investors and Bankers ©2009 Lincoln National Corporation President Insurance Solutions and Retirement Solutions Defined Contribution and Group Protection
Slide 35: Defined Contribution Overview
2 Small Case Market (Director Program) Large Case Market (Alliance Program) Multi-Fund and Other Sales 3 AUM 3 1 Source: LIMRA, as of June 30, 2009 2 Source: LIMRA, YTD as of June 30, 2009 3 YTD as of September 30, 2009 $3.8 billion $34.3 billion Defined Contribution Overview Focus on 403(b) consoli
Slide 36: Defined Contribution Increasing Net Flows
3 Deposits Outflows Net Flows Production Results ($ billions) Market “frozen” throughout much of 2009 Solid production despite economic pressures Improved lapse experience driving increase in net flows Total DC participants up 5% over last year Defined Contribution Increasing Net Flows Key Takeaways
Slide 37: Defined Contribution Distribution Depth and Breadth
4 Mid-Large 403(b) and Corporate Micro-Small 401(k) Distribution Force Plan Sponsor-Focused 10 external and 6 internal wholesalers 21 account executives Participant Focused 300 Retirement Consultants and Advisors 16 external and 8 internal wholesalers Leverage LFD strategic relationships Participant
Slide 38: 2010 Focus - Leveraging Participant Relationships
5 2010 Focus - Leveraging Participant Relationships Untapped Opportunity Over a million DC participants Need for retirement planning guidance Maximize participant lifecycle with Lincoln Differentiated service models depending on client needs High-Touch model with Retirement Consultants and Advisors
Slide 39: 2010 Focus - Continued
6 2010 Focus - Continued Strengthen core service offering Attract new assets and maintain existing plans Key investments UNIFIER enhancements Website upgrades Focus on key Strategic Partners and TPAs in small 401(k) space Leverage LFD relationships Increase wholesaler productivity
Slide 40: Group Protection Overview
7 Less than 500 Lives 501-1000 Lives 1000+ Lives Sales by Product 2 Short-Term Disability Dental Group Life/AD&D Long-Term Disability 1 Source: LIMRA, YTD as of June 30, 2009 2 Based on YTD annualized sales as of September 30, 2009 $194 million Group Protection Overview Leveraging service expertise
Slide 41: Group Protection Distribution Depth and Breadth
8 1 As of September 30, 2009 2 YTD as of September 30, 2009 compared to YTD September 30, 2008 Group Protection Distribution Depth and Breadth Distribution model 2 Regional VP’s 12 Regional Directors 122 sales reps (wholesalers) 1 Focus on rep productivity Number of reps down slightly from 2008 Caut
Slide 42: Group Protection Sales Growth
9 8% CAGR Gaining momentum with a strong pipeline Year-over-year third quarter 2009 sales up 17% +4% Group Protection Sales Growth
Slide 43: Group Protection Non-Medical Premium Growth
10 Net Earned Premium Solid growth in spite of difficult environment Case lapses consistent with recent history Unemployment and wage actions depressing inforce premium growth 11% CAGR +5% Group Protection Non-Medical Premium Growth
Slide 44: Group Protection Strong, Consistent Loss Ratios
11 74% 71% 68% Historic Guidance Consistently strong loss ratios over several years Disciplined risk selection and claims management expertise Recent disability loss ratios extremely good Expect near-term loss ratios to continue to trend favorably to historic guidance Significant investments in clai
Slide 45: 2010 Focus - The Voluntary Opportunity
12 1 Source: Eastbridge Consulting Group, Inc., An Update on the Voluntary Industry, May 2008 2 Best’s Review, July 2009 2010 Focus - The Voluntary Opportunity Compelling Industry Opportunity Continued trend of employers shifting costs to employees 79% of employers with 101-500 lives offer at least
Slide 46: 2010 Focus - Continued
13 2010 Focus - Continued Expansion of field force Increase rep base to capitalize on opportunities Continue to increase rep productivity Complete reengineering of claims system and processes Increased efficiency and effectiveness Enhanced ability to manage claims
Slide 47: Cornerstones of Our Success
14 Product Innovation and Responsiveness Securing Financial Futures Operational Effectiveness Comprehensive Risk Management Distribution Depth and Breadth Cornerstones of Our Success
Slide 48: Financial Overview: Earnings and Capital
Fred Crawford 2009 Conference for Investors and Bankers ©2009 Lincoln National Corporation Chief Financial Officer Financial Overview Earnings and Capital
Slide 49: 2009 Market Recovery
2 S&P 500 Equity Markets Account values recovering - variable fees, NAR, DAC, statutory results Rates rising & spreads tightening - portfolio yields flat and hedge volatility Unrealized gains/losses recover - some trading account profits generated Interest Rates & Spreads Barclays Credit OAS 10yr Tr
Slide 50: Third Quarter Results
3 $228 $263 Life Insurance Group Protection Annuities Defined Contrib. Avg. diluted shares 257.8 262.4 310.0 1 See appendix at the end of this presentation for a definition and reconciliation of income from operations to net income and a schedule of notable items 3Q Income From Continuing Operations
Slide 51: Insurance and Protection Businesses Stable and Building Returns
4 Life 36% Dental 10% Group Net Earned Premium $1.6b Medical 10% UL 43% VUL 14% MG 7% Life GAAP Reserves $42b Whole Life 10% Term 3% Life Segment 9% Group Segment 16% 1 Reflects YTD reported un-leveraged returns excluding goodwill. Note: Life Insurance GAAP reserves as of September 30, 2009. Group P
Slide 52: Life Reserve Management
5 Current Reserve Financing $1.8b LOC facility through 2012 $400mm long-term financing $800mm of reserves held $25b of UL reserves $6b of Whole Life & Term reserves $2.5b of UL reserves $500mm of Term reserves Term-out a portion of LOC needs in next few years Plans to execute on a $300mm term soluti
Slide 53: Retirement Returns
6 Retirement AUM = $105 billion DC Mutual Funds DC Fixed Annuities DC Variable Annuities 1 Individual Fixed Annuities Individual Variable Annuities 14% 18% 6% 9% 49% 4% Fixed Portion of Individual Variable Annuities 1 Includes fixed portion of VA 2 Reflects year-to-date reported un-leveraged returns
Slide 54: Individual Variable Annuities Proven Risk Management and Full Economic Hedge
7 Account Value Step Up <1% 36% Individual VA AUM 1 = $56 billion Hi-Water Mark 8% Return of Premium LB NAR 3 $6.5b $3.1b DB NAR 3 $14.8b $7.3b Hedge Target $3.7b $1.1b Hedge Assets $4.3b $1.2b GAAP Reserves $3.2b $1.2b Statutory Reserves 2 $1.1b $.8b 12/31/08 9/30/09 16% 46% No Guarantee Guaranteed
Slide 55: General Account Investment Results
8 All data shown for available-for-sale securities. All realized loss data presented on a pre-DAC and tax basis; excludes losses on derivatives; includes losses on sold securities. * Excludes the impairment on Bank of America common stock securities of $131 million, pre-tax, held at the holding comp
Slide 56: Capital Positioned to Withstand Stressed Markets
9 1 Represents statutory results of Lincoln National Life Insurance Company, Lincoln Life & Annuity of New York, and First-Penn Pacific Life Insurance Company; The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing,
Slide 57: Financial Flexibility
10 $900mm of liquid investments 1 CP: $150mm issued under A2/P2 program 1 Next maturity of $250mm due March 2010 Delaware sale on track with $400mm in proceeds Expect to push some capital down into subsidiaries Considering refinancing alternatives to pre-fund 2010 maturity Target 12-18 months of cas
Slide 58: Appendix
Appendix
Slide 59: Non-GAAP Financial Measures
12 Income (loss) from operations and ROE, as used in the earnings release, are non-GAAP financial measures and are not substitutes for net income (loss) and ROE, calculated using GAAP measures. Income (loss) from operations represents after-tax results excluding, as applicable, realized gains and lo
Slide 60: Net Income to Income from Operations Reconciliation
13 Less: Preferred stock dividends and accretion of discount Minority adjustment Less: Excluded realized gain (loss) Income from reserve changes (net of related amortization) on business sold through reinsurance Gain on early extinguishment of debt Impairment of intangibles Income (loss) from discon
Slide 61: 1Q 2009 Income From Operations Schedule of Notable Items
14 Reported DAC Unlocking Tax-related items Expenses Other (net) Total* Alternative Investments** 74 74 * Excludes alternative investment income ** Reflects actual income or (loss) on alternative investment portfolio 30 30 142 142 (2) 26 26 (108) (64) (44) 1Q 2009 Income From Operations Schedule of
Slide 62: 2Q 2009 Income From Operations Schedule of Notable Items
15 Reported DAC Unlocking Tax-related items Expenses Mortality Other (net) Total* Alternative Investments** 65 65 (5) 28 28 (3) 133 2 5 3 123 (20) 34 34 (1) (52) (19) (33) * Excludes alternative investment income ** Reflects actual income or (loss) on alternative investment portfolio 2Q 2009 Income
Slide 63: 3Q 2009 Income From Operations Schedule of Notable Items
16 Reported DAC Unlocking Tax-related items Other Total* Alternative Investments** 95 11 3 1 80 2 43 5 38 1 137 (12) 6 143 (5) 35 35 (33) (33) 1 * Excludes alternative investment income ** Reflects actual income or (loss) on alternative investment portfolio 3Q 2009 Income From Operations Schedule of
Lincoln National — 2009 Conference for Investors and Bankers on 6ix