Lincoln National Corporation · NYSE:LNC
Lincoln National — 2010 Conference for Investors and Bankers
67 slides from Lincoln National's conference presentation, Nov 18, 2010
Slide 1: 2010 Conference for Investors and Bankers: Strategic Overview
Exhibit 99.1 2010 Conference for Investors and Bankers Strategic Overview Dennis Glass President and CEO, Lincoln Financial Group November 18, 2010 l New York, NY
Slide 2: Overview
Overview • Lincoln is focused on targeted businesses with growing demand driven by powerful demographic trends and consumer objectives • Lincoln’s distinctive advantages of scale, strong market position, product design and comprehensive distribution enable us to protect or increase market share prof
Slide 3: The Lincoln Financial Execution Model
The Lincoln Financial Execution Model •Target businesses where customer solutions require a high level of expertise and understanding of risk, allowing us to price for value added •Scale and strong market share give us – Competitive cost position – Market leverage Our – Capacity to invest in distrib
Slide 4: Demographic Trends and Consumer Objective of More Guaranteed Outcomes Benefit Lincoln
Demographic Trends and Consumer Objective of More Guaranteed Outcomes Benefit Lincoln 2020 Ages 35 - Ages 45 - Ages 44 64 65+ 2010 22.4M 44.3M 22.4M households households households 55+% Household estimates based on census projections 4
Slide 5: Driving Profitable Growth: Life Insurance & Annuities
Driving Profitable Growth: Life Insurance & Annuities Market Positioning Ranking1 YTD Revenue Growth2 Life Insurance: income protection, #1 6% estate tax planning Annuities: guaranteed income, accumulation #6 16% Action Steps •Design differentiated and flexible products, e.g. LTC riders •Adjust pric
Slide 6: Driving Profitable Growth: Defined Contribution & Group Protection
Driving Profitable Growth: Defined Contribution & Group Protection Market Positioning Ranking1 YTD Revenue Growth2 DC 403(b) / 401(k): small to middle size #6, #10 7% employers Group Benefits: small to middle size Top 5 est. 7% employers Action Steps •Product – Expand group voluntary offerings – Upg
Slide 7: Driving Profitable Growth: Distribution
Driving Profitable Growth: Distribution Lincoln Financial Distributors (LFD) Lincoln Financial Network (LFN) Among the largest wholesaling firms Third largest independent broker dealer1 in the U.S. 545 wholesalers 7,973 active advisors Action Steps •Leverage integrated distribution and product desig
Slide 8: Capital Strength and Free Cash Flow Provide Flexibility
Capital Strength and Free Cash Flow Provide Flexibility Capital Priorities •Careful approach to excess capital due to slow but positive evolution in rating agency outlook •Modest de-leveraging: minimize debt costs •Effective capital management – Raise quarterly common stock dividend to $0.05/quarter
Slide 9: Multiple Ways for Shareholders to Win
Multiple Ways for Shareholders to Win •Growth in EPS, book value and ROEs driven by – Solid top line growth – Pricing actions – Payoff from strategic investments •Reduced earnings volatility profile – Current interest rate and equity market conditions appropriately reflected on balance sheet •Writin
Slide 10: Life Insurance & Individual Annuities
2010 Conference for Investors and Bankers Life Insurance & Individual Annuities Mark Konen President, Insurance Solutions and Retirement Solutions November 18, 2010 l New York, NY
Slide 11: Key Themes
Key Themes • Compelling market opportunities • Business model drives market leadership • Proven risk management capabilities • Ability to drive bottom line results 2
Slide 12: Significant Life Insurance Opportunities
Significant Life Insurance Opportunities •Very Affluent (> $2.5 million invested assets) – Almost 40% have no individual life insurance – Primary need: estate planning è SGUL •Affluent households 55 and older – Primary needs: retirement income, health care, LTC è MoneyGuard •Mass market – Employer i
Slide 13: Compelling Annuity Opportunities
Compelling Annuity Opportunities •Annuity industry only 9% of $16 trillion U.S. retirement assets1 – Superior planning solutions versus mutual funds è guaranteed lifetime income options, tax smart solutions, downside protection with upside potential •Boomer demographics expanding retirement market –
Slide 14: Consistently Strong Market Presence
Consistently Strong Market Presence Core Life Market Share and Total Annuity Market Share and Rankings1 Rankings1 Ranked Ranked Ranked Ranked Ranked #2 #2 #2 #2 #1 Ranked Ranked Ranked #6 Ranked Ranked #7 #5 #6 #6 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 •Leading market positions pre- and p
Slide 15: Unparalleled Product Breadth
Unparalleled Product Breadth Comparative Market Positioning1 Top 10 player Not in Top 20 Top 11-20 player Product LNC Competitors UL #1 Life - LTC Combo #1 VUL #6 Term #11 Product LNC Competitors Variable #5 Annuity Indexed Annuity #7 Fixed Annuity #9 1 Based on LIMRA YTD sales as of 06/30/2010 6
Slide 16: Game Changing, Needs-Based Innovation
Game Changing, Needs-Based Innovation SGUL Secondary SmartIncome need w/out for American Guarantee New Redefined Inflation Capital LTC Legacy MoneyGuard UL i4Life Directions VULONE MoneyGuard Annuity Solutions Annuity 1987 1988 1998 2000 2003 2005 2006 2007 2009 2010 •Proven track record of innovati
Slide 17: Risk Management Expertise - Focus on Fundamentals
Risk Management Expertise - Focus on Fundamentals • Disciplined approach to product design and pricing • Detailed monitoring of new business profitability • Proactive management of interest rate and equity risk • Deep understanding of mortality and policyholder behavior 8
Slide 18: Interest Rate Risk Management
Interest Rate Risk Management •Interest Rate Management embedded in upfront product design – SGUL product design has low liquidity – Allows for very long investment strategy - primarily 30 year bonds •Life spreads have held up well; annuity spreads a non-issue Life Spreads1 •Life spread compression
Slide 19: Equity Risk Management
Pe Equity Risk Management 1 * Equity Risk Management embedded in upfront VA Product Guarantees product design CompanyA 7.9% |CompanyF 6.6% — Tight linkage between product design and hedging CompanyB 7.0% (Eire)ih 6.4% — Careful balance of hedge costs and market positioning CompanyC 7.0% |CompanyG 6.
Slide 20: Mortality and Policyholder Behavior
Mortality and Policyholder Behavior Mortality - Actual vs. Pricing1 100% 95% 87% 94% •Expertise in mortality risk – Industry leading underwriting – Mortality experience better than pricing 2007 2008 2009 2010 YTD* •Thoughtful approach to policyholder behavior assumptions – Conservative SGUL lapse as
Slide 21: Solid In-force ROE
Solid In-force ROE Adjusted YTD ROE1 17% 10% Life Annuity (VA and Fixed) •Solid ROE despite historically low risk free rates •Life ROE dampened (~200 bps) due to: – Unfinanced excess reserves – Merger “P-GAAP” – Low ROE on ISWL block from early 1990s •Annuity ROE have averaged 15%+ over last 5 years
Slide 22: Attractive New Business ROE
Attractive New Business ROE Life Annuity New Business ROE New Business ROE 15% 13- 11% 12- 16% 14% 2010 Target 2010 Target YTD1 Range YTD1 Range VA 15-18% Fixed 10- 12% •Strong 2010 new business returns despite challenging environment •Product repricing to maintain profitability 1 2010 YTD through S
Slide 23: Our Cycle of Success
Our Cycle of Success Execute Business Model Innovative & Responsive Products Distribution Depth and Breadth Operational Effectiveness Comprehensive Risk Management Invest in the Business Capitalize on Consistency People Compelling & Comprehensive Technology/Operations Solutions Core and Explore Cons
Slide 24: Defined Contribution
2010 Conference for Investors and Bankers Defined Contribution Chuck Cornelio President, Defined Contribution November 18, 2010 l New York, NY
Slide 25: Defined Contribution - Creating Value for Lincoln
Defined Contribution - Creating Value for Lincoln • Focusing on the market segments with the fastest growth • Accelerating growth through our strategic investments in technology and distribution platforms • Improving support & service to plan sponsors while enhancing education offerings to enable be
Slide 26: Focusing on Growth Markets
Focusing on Growth Markets Segment Position as of 3Q 2010 Opportunity & Focus Non Profit/ Plans: 13,000 • Focus on Healthcare 403(b) Participants: 1.1M – Healthcare will generate 3.2M new jobs by 2018, more AUM: $28B than any other industry1 – Currently: 4th in AUM & 3rd in deposits2 – Market growth
Slide 27: Actions to Capture Market Share
Actions to Capture Market Share • Recordkeeping Consolidation: 5 to 1 Technology • Scalable for organic and acquisition driven growth & Service • Improved service offerings promoting plan sponsor retention and participant enrollment & contributions • 300 “feet on the street” to service plan sponsors
Slide 28: Delivering Results and Building for Long-Term Growth
Delivering Results and Building for Long-Term Growth Ending AUM and Participants 2008 2009 20101 Ending Assets Net Flows $0.8B $1.0B $0.0B Participants •Enrollment/Participation rebounding (Alliance) – Average contribution per participant up 4.5% – New participants up 9% •Account values rebounding –
Slide 29: Delivering Results and Building for Long-Term Growth
Delivering Results and Building for Long-Term Growth DC Income from Operations $175 aise ae $133 $125 $122 $100 $75 $50 2008 2009 YTD 3Q 2010 ROE? 13.3% 13.2% 15.8% Pre-Tax Margin 16% 20% 23% eIRR pricing target 13-15% * Operating efficiencies and account value growth supporting margins 1 Excluding
Slide 30: Key Defined Contribution Themes
Key Defined Contribution Themes • Targeting markets with growing demand • Improving our offerings to take market share • Driving efficiencies throughout our operating model • Generating earnings growth and attractive returns on equity 7
Slide 31: Group Protection
2010 Conference for Investors and Bankers Group Protection Mark Konen President, Insurance Solutions and Retirement Solutions November 18, 2010 l New York, NY
Slide 32: A History of Sustained Growth
A History of Sustained Growth 12% CAGR 7% CAGR 2004 2005 2006 2007 2008 2009 Earnings Inforce Premium •Sustained growth in premiums and earnings •Leadership position in core market of under 1000 lives •#3 Group LTD and #5 Life carrier by new contracts issued1 •Voluntary sales ~38% of total new sales
Slide 33: Strong Experience Over Sustained Period of Time
Strong Experience Over Sustained Period of Time Non-Medical Loss Ratios 71%-74% Target Range 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD1 •Strong loss ratio history •Actions in progress – LTD rates increased 3.5% (effective Dec 2010) •2010 elevated after very strong 2009 – Pursuing 5
Slide 34: Productive, Experienced and Growing Distribution Force
Productive, Experienced and Growing Distribution Force Sales Force — Headcount Average Productivity (in thousands)* 150 $3,200 143 $2,996 $3,000 134 127 127 $2,800 125 uA $2,600 10 $2,400 117 120 $2,200 100 $2,000 12/31/08 12/31/09 6/30/10 Target 2008 2009 12/31/10 MMlExperiencedReps Ml Small Case &
Slide 35: The Voluntary Opportunity
The Voluntary Opportunity Market Shift: 29% of employers plan to switch one or more benefits to 100% employee-paid Industry Sales by Distributor Segment Industry Product Mix Life DI Accident Critical Illness/ Cancer Dental HI/Vol Med 30% of all Benefit Brokers All Other are Small Benefit Brokers Act
Slide 36: Key Group Protection Themes
Key Group Protection Themes • Sustained history of success • Appropriate actions to improve loss ratios • Core business and distribution growth • Focus on expanding voluntary presence 6
Slide 37: Lincoln Financial Network
2010 Conference for Investors and Bankers Lincoln Financial Network Bob Dineen President & CEO, Lincoln Financial Network November 18, 2010 l New York, NY
Slide 38: Lincoln Financial Network Overview
Lincoln Financial Network Overview • An advice and wealth management growth story with significant drivers • A source of value for Lincoln Financial Group • Keys to sustained growth 1 Investment News, December 2009 2
Slide 39: Advice and Wealth Management Growth Story
Advice and Wealth Management Growth Story Sustained Growth Trend Growth Drivers Number of Active LFN Advisors •National recruiting •Affiliation model •Shift to independence •Planning capabilities •Consumer trends 2007 2008 2009 2010 Third largest independent broker-dealer1 1 Investment News, Decembe
Slide 40: A Unique Value Proposition for Planners and Producers
A Unique Value Proposition for Planners and Producers Multiple Models of Affiliation Full Service Support Independent LFA / Sagemark ABGA GA LFS A national support network for advisors and their clients •4 channels of affiliation •2 broker-dealers •2 clearing relationships •National network of plann
Slide 41: Balanced Sales and Revenue Mix
Balanced Sales and Revenue Mix Wealth Management Strategies •Comprehensive Financial Planning •Estate Planning •Business Succession •Retirement Planning Revenue Mix •Investment Planning Planning Fees & Transactional Life Revenue Investments Insurance 57% Fee Based 32% 43% and Recurring Revenue Annui
Slide 42: Delivering Significant Value to Lincoln
Delivering Significant Value to Lincoln For full year 2009 6
Slide 43: Keys to Sustained Growth
Keys to Sustained Growth •Growing number of productive, process-driven advisors – Retention of top-tier advisors remains strong – Recruiting of productive advisors very strong •Supporting independence through open architecture & affiliation choice •Deep financial planning expertise & commitment to a
Slide 44: Lincoln Financial Distributors
2010 Conference for Investors and Bankers Lincoln Financial Distributors Will Fuller President, Lincoln Financial Distributors November 18, 2010 l New York, NY
Slide 45: LFD: Sustainable Competitive Advantage for Lincoln
LFD: Sustainable Competitive Advantage for Lincoln Multiple strengths to deliver new business growth • Current investing behaviors reflect high levels of risk aversion and focus on managing outcomes • Our centralized distribution model offers strategic partners a single point of contact for multiple
Slide 46: LFD's Powerful Distribution Platform
LFD’s Powerful Distribution Platform Industry leading wholesale distribution franchise drives a diverse mix of business Sales by Channel* Sales by Product? Experienced Wholesaler Force Total 545 Annuities 287 Life 122 MoneyGuard 83 Small Market DC 27 Mid-Market DC 18 Hi Bank ©) Brokerage HB individu
Slide 47: Growth Strategy Centers on Distribution
Growth Strategy Centers on Distribution Focus on expanding breadth and depth Deepening relationships with strategic partners $3.6 • 17% of sales generated through Fueling $18.3 Billion expansion strategies1: growth Billion – New partners through – New product introductions / additions expansion – Fo
Slide 48: Driving Productivity Gains
Driving Productivity Gains Significant opportunity to increase productivity and expand base of producers Increasing Sales Per Growing Advisor Selling Population Wholesaler +26% +13% 2008 2009/YTD 20082 20102 20101 •Retention and upgrade of talent •Increased access to producers •Cross-sell capabiliti
Slide 49: Focused on Sustainable, Profitable Growth
Focused on Sustainable, Profitable Growth Poised to capitalize on our strengths with multiple ways to win Access To Producers Core Product Capabilities Core High High LFN Independent VA MoneyGuard Brokerage Producers Fixed General Wirehouses Indexed Annuity Agency Current Regional Assumption UL Seco
Slide 50: Financial Overview
2010 Conference for Investors and Bankers Financial Overview Fred Crawford Chief Financial Officer, Lincoln Financial Group November 18, 2010 l New York, NY
Slide 51: Financial "State of the Union"
Financial “State of the Union” • Value drivers of positive product flows yielding growth in account values, in-force, net earned premium, and DC renewal deposits… position earnings to ride economic recovery • Core margins are healthy overall - asset-based revenue building, stable mortality margins a
Slide 52: Key Value Drivers Advancing
Key Value Drivers Advancing 3Q Income From Operations Long-Term Earnings Drivers Adjusted for Notable Items1 ($ in millions) (3Q 2009 to 3Q 2010) $282 •Consolidated Account Values: $263 – $150 billion up 10% Life Insurance •In-force Life Insurance: Group Protection – $557 billion up 5% Annuities •Gr
Slide 53: Market Assumptions & GAAP Sensitivities
Market Assumptions & GAAP Sensitivities Interest Rates • New Money Investment Rate Assumption – Current new money rates decreased by 100 bps recovering to 6.25% over 8 years – Life portfolio rate drops 20-25 bps and recovers over 10 year period • Interest Rate Stress Scenario1 – Reinvestment rates a
Slide 54: Capital & Market Sensitivities
Capital & Market Sensitivities Life Reserve Funding Interest Rates • Cash Flow Testing – Annual testing results on both aggregate life and ULSG specific expected to pass under low rate scenario – Approximately $800m of life reserves held in excess of economic calculations provide a natural buffer •
Slide 55: Investment Portfolio
Investment Portfolio Year-to-Date purchases of $10 Billion •Credit Profile: AAA (13%); AA (17%); A(41%); BBB(26%); Below Investment Grade (3%) •Life YTD gross yield of 5.5% and retirement 4.75% with overall duration of 9 years ABS, CDO, Other Foreign Bonds, 0.2% MBS, $79.6 Billion 12.5% 3.2% 11.6% (
Slide 56: Significant Improvement In Asset Quality
Significant Improvement In Asset Quality •Well-diversified General Account portfolio Realized Losses & Impairments – Average credit quality of “A” – Below investment grade at 7.5% of rated assets, down 180 bps year-over-year •CMBS – Low allocation; 3% of assets – 70% rated AA or better; 80% 2005 and
Slide 57: Strong Underlying Capital Trends
Strong Underlying Capital Trends Risk Based Capital Ratio1 & Leverage2 Leverage and Liquidity (3Q 2010) • Holding company idle liquidity just under $800m 24.5% 28.0% 22.6% • Leverage at the mid-point of our stated range of 20% to 25% • Expect to reduce leverage with free cash flow over 518% next thr
Slide 58: Outlook Heading Into 2011
Outlook Heading Into 2011 • Core Life & Annuity franchise delivers consistent results - positive flows, production growth leveraging product breadth, market share maintained with distribution productivity gains • DC deposit & Group premium growth rates continue driven by productivity gains, platform
Slide 59: Appendix
EE Appendix [ jLincoln * Financial Group» Hello futures
Slide 60: Definition of Income (Loss) from Operations and Return on Equity
Definition of Income (Loss) from Operations and Return on Equity Income (loss) from operations and return on equity, 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. We exclude the after-tax effect
Slide 61: Reconciliation of Net Income to Income from Operations
Po es Reconciliation of Net Income to Income from Operations $ in millions, except per share data) Preferred stock dividends and accretion of discount: (16.3) (18.4) (18.3) Write- off of unamortized discount on preferred stock at redemption (130.6) Adjustment for deferred units of LNC stock in non-d
Slide 62: Definition of Calculation of the Leverage Ratio
Definition of Calculation of the Leverage Ratio (Numbers in $millions) The numerator in this calculation is arrived at by adding total debt, ($6,044 at 9/30/2010; $5,400 at 12/31/2009; $5,546 at 12/31/2008), excluding 75% of our capital securities, ($1,114 at 9/30/2010; $1,114 at 12/31/2009; $1,178
Slide 63: Reconciliation of Return on Average Equity For the Nine Months Ended September 30, 2010
Reconciliation of Return on Average Equity For the Nine Months Ended September 30, 2010 14
Slide 64: 3Q 2010 Income From Operations Schedule of Notable Items
3Q 2010 Income From Operations Schedule of Notable Items Retirement Solutions Other ($ in millions) Defined Life Operations Annuities Contribution Insurance Group Protection1 Reported 126 50 60 10 (40) DAC Unlocking (2) 11 (82) Mortality (10) Expense (2) Tax-related items 14 (2) Other (net) (3) Tota
Slide 65: 2Q 2010 Income From Operations Schedule of Notable Items
2Q 2010 Income From Operations Schedule of Notable Items Retirement Solutions Other ($ in millions) Defined Life Annuities Group Protection1 Operations Contribution Insurance Reported 116 36 151 23 (36) DAC Unlocking 15 (1) Mortality/Morbidity Expense (3) Tax-related items Other (net) (2) Total 101
Slide 66: 1Q 2010 Income From Operations Schedule of Notable Items
1Q 2010 Income From Operations Schedule of Notable Items Retirement Solutions Other ($ in millions) Defined Life Annuities Operations Contribution Insurance Group Protection1 Reported 119 36 137 21 (37) DAC Unlocking 21 Mortality/Morbidity (8) Expense (2) (4) Other (net) (4) Total 98 36 151 21 (33)
Slide 67: 3Q 2009 Income From Operations Schedule of Notable Items
3Q 2009 Income From Operations Schedule of Notable Items Retirement Solutions Other ($ in millions) Defined Life Operations Annuities Group Protection Contribution Insurance Reported 95 43 137 35 (33) DAC Unlocking 11 5 (12) Tax-related items 3 6 Other (net) 1 Total 80 38 143 35 (33) 18
Lincoln National — 2010 Conference for Investors and Bankers on 6ix