Lincoln National Corporation · NYSE:LNC
Lincoln National — Investor Day (November 2007)
98 slides from Lincoln National's investor day presentation, Nov 13, 2007
Slide 1: Strategic Overview
Dennis Glass Lincoln Financial Group President and Chief Executive Officer Strategic Overview
Slide 2: Strong Year-over-Year Asset and Sales Growth
AUM Life Annuities Defined Contribution Delaware Retail Mutual Funds Group Protection Premiums + 39% + 22% + 23% + 35% + 15% * Data represents 3Q06 YTD versus 3Q07 YTD sales and includes JP results prior to 2Q06; Life sales represent target premium plus 5% of excess premium (including adjustments fo
Slide 3: Focused on Top Line and Bottom Line Growth
Focused on Top Line and Bottom Line Growth Change the growth trend line by over allocating resources to high growth retirement businesses - VA a good example Invest in distribution expansion Use acquisitions to accelerate growth in select sub-scale businesses Execute on the details Innovate in the r
Slide 4: Distribution Growth and Productivity Driving Sales Results
530 37 6,576 120 + 17% + 170% 3% + 19% + 22% 14% Productivity Increases Lincoln Financial Distributors Employer Markets - Defined Contribution Lincoln Financial Network Employer Markets - Group Protection Distribution Growth and Productivity Driving Sales Results Year-end 2006 Headcount 2007 Growth
Slide 5: Opportunities for Further Market Penetration - Annuities
Variable annuities Fixed annuities Independents/ FPs/IBDs Banks Stockbrokers Source: McKinsey Research, LIMRA 2006 Individual Annuities Sales Survey, LFG High potential Opportunities for Further Market Penetration - Annuities 2006 Lincoln rank and market share Channels #1 18% #10 4% #9 3% #5 9% #7 9
Slide 6: Opportunities for Further Market Penetration - Life
Career/ affiliated PPGAs/IP Life brokerage/ MGA Stock-brokers/ Banks Source: LIMRA 2006; VUL/VL Universal life High potential Opportunities for Further Market Penetration - Life 2006 Lincoln rank and market share #4 8% #9 4% #2 10% #4 10% #2 20% #3 9% $0.8 $0.9 $0.1 LFD Market Size in $ Billions Pro
Slide 7: Opportunities for Further Market Penetration - DC
Career agents Advisors/ brokers ($ Billions) $590 $181 $188 $769 Consultants/ institutional direct $376 $1552 Large/ mega Micro/ small Medium Health care K-12 Higher ed High potential Opportunities for Further Market Penetration - DC Size, 2006 403(b) 401(k) #3 #3 #8 #11
Slide 8: Product Development and Innovation Driving Sales
Product Development and Innovation Driving Sales Unified Product Portfolio MoneyGuard ® Reserve NY VUL ONE Unified Product Portfolio Lincoln Lifetime Income Lincoln SmartIncome SM Inflation Annuity i4LIFE ® Advantage SmartFuture SM Closed End Fund Life Annuity DC Asset Management
Slide 9: Distribution and Manufacturing
Distribution Manufacturing IM Life yes yes Annuity yes yes EM DC no no COLI no no Group Protection <200 lives yes yes >200 lives no no UK Investment Management Retail no no Institutional yes yes
Slide 10: Executing on Details - Operating Effectiveness
“Operating effectiveness equals margin improvement and increased earnings for reinvesting in the business.” Executing on Details - Operating Effectiveness Unit costs decreasing across the Company Raising merger cost savings target by 10% LFD and LFN are operating within allowables (vs. a loss of ~$3
Slide 11: The Retirement Opportunity
YJ 43 e The Retirement Opportunity ee > Estimated cumulative net flows on retirement asset pools, 2008-12 Deposit IRA Mutual Annuities Reverse DC Life LTC Private Other Total funds mortgage insurance DB Deposits and IRAs will capture ~85% of net retirement flows in the next 5 years However, movement
Slide 12: Questions?
Questions?
Slide 13: Patrick Coyne, Delaware Investments
Patrick Coyne Delaware Investments President
Slide 14: Gross Inflows and AUM 2002-2007
0 5 10 15 20 25 30 35 2002 2003 2004 2005 2006 YTD 9/30/07 0 40 80 120 160 200 2002 and 2003 Sales and AUM excludes Mondrian Asset & Gross Inflows Added Large Cap Value Team Added Emerging Markets Team Added Focus Growth Team Added Int’l Value Equity Team Sold DIAL Announcement of LCP discussions As
Slide 15: Fixed Income Update
Fixed Income Update Transaction Overview Logan Circle Partners (LCP) transaction closed on Oc tober 31, 2007 Delaware remains fully committed to the fixed income business Since spring 2007, we have actively recruited and hired seasoned individuals to replace departed team members Delaware currently
Slide 16: Fixed Income Update: Marginal Impact on Overall Business
Total AUM Advisory Revenues Data pro-forma using September 30, 2007 assets and 3Q07 revenues Fixed Income Update Marginal Impact on Overall Business
Slide 17: Investment Styles With > $500M in AUM
ie Styles With > $500M In AUM Style 2002* 2007** Large Cap Growth Focus Core Plus Fixed Income CBOs/CDOs Large Cap Value Core d Income viviviv| International Equity Small Cap Growth Small Cap Growth II Nuclear ada dadadadbdbdadhdadad Large Cap Core * September 2002; Adjusted for Mondrian transaction
Slide 18: Mutual Fund Sales
Sales exclude 529, Optimum Funds, Closed End and Dividend Reinvestments Mutual Fund Sales
Slide 19: Delaware Mutual Fund Family distinctions
Delaware Mutual Fund Family • In February 2007 Barron’s, ranked #4 based on – 2nd time in 4 years that Delaware achieved Top 5 distinction • Ranked one of the top fund families of 2007 by Lipper – Won 7 Lipper Awards for 3-, 5-, and 10-year performance2 Individual Fund Distinctions • Delaware Divide
Slide 20: Building On Our Momentum
1 Gross Proceeds Building On Our Momentum Accelerating Organic Growth Retail Scale Exploring opportunities, including M&A, to build retail scale Proprietary in-house international value equity and emerging markets teams Internal products now offered as alternatives to capacity-constrained Mondrian p
Slide 21: Building On Our Momentum: Rationalization of Business
Building On Our Momentum Constant Rationalization of our Business Transfer of certain investment accounting administrative activities to our provider of asset services Exit of 529 business Reducing sub advisory expenses by bringing new teams on board to replace external managers Natural leverage of
Slide 22: Improving Operating Results: Pre-Tax Operating Margins
* Pre-tax operating margin defined as income (loss) from operations before federal income taxes divided by operating revenue Improving Operating Results Pre-Tax Operating Margins* Anticipate pre-tax operating margins for full-year 2008 in 19% - 20% range
Slide 23: Questions?
Questions?
Slide 24: Appendix
Appendix
Slide 25: Lipper Performance
All data as of 9/30/07 Lipper Performance Percent of Funds by Style in Top Half of Lipper universes Domestic Equity International / Global Equity Taxable Fixed Income Tax-Free Fixed Income
Slide 26: Historical Financials
Indicates Sept. YTD 2006 Indicates Sept. YTD 2006 Indicates Sept. YTD 2006 * Pre-tax operating margin defined as income (loss) from operations before federal income taxes divided by operating revenue Historical Financials Total Operating Revenue ($ million) Total Operating Expenses ($ million) Pre-T
Slide 27: Wes Thompson, Employer Markets: Investing for Long-Term Growth
Wes Thompson Employer Markets President, Lincoln Employer Markets Investing for Long-Term Growth
Slide 28: Employer Markets' Mission
Employer Markets’ Mission Addressing the retirement income security needs of employers and their employees through: Defined Contribution Plans Group Protection Plans and Executive Benefits • • •
Slide 29: Employer Markets Business Today
Defined Contribution 53% Group Protection 32% 23% of LFG Earnings $43.7 billion in Account Values $262.9 million in Income from Operations Employer Markets Business Today Employer Markets Income from Operations* Executive Benefits & Other 15% * As of September 30, 2007 YTD
Slide 30: LFG's DC Business
Healthcare Education 403(b) Mid-Large Healthcare & Corporate 401(k) and 403(b) Small Corporate 401(k) Advisor-based Consultants Brokers Independent Planners, Wirehouses, Banks, TPAs Market Focus Distribution LFG’s DC Business Multi-Fund ® Alliance ® Director SM (Annuity) (Mutual Fund) (Group Variabl
Slide 31: The Changing DC Business Mix
* As of September 30, 2007 YTD ** As of June 30, 2007 YTD *** Alliance data throughout the presentation includes the fixed portion of the contract. Earnings** Account Value* Deposits* Alliance (Mid-Large Mutual Fund)*** Director/LALR (Small GVA) Multi-Fund (403(b) Annuity) Other 25% 50% 3% 50% 19% 2
Slide 32: The Changing DC Business Mix: Net Flows
* As of September 30, 2007 YTD Director/LALR (Small GVA) Alliance (Mid-Large Mutual Fund) Multi-Fund (403(b) Annuity) Other The Changing DC Business Mix Positive Net Flows From “New” Products Business Mix is Shifting to the Mid-Market Mutual Fund and Small Market Group Variable Annuity Platforms Net
Slide 33: The Changing DC Business Mix: Earnings Implications
Annuity 403(b) Net Flows - $1,054 million ROA (bps) 75 Earnings Implication -$7.9 million x = Mid-Large Mutual Fund Net Flows $3,000 million ROA (bps) 25- 40 Earnings Implication $7.5 - $12 million x = The Changing DC Business Mix Earnings Implications However, the changing mix of Lincoln’s DC busin
Slide 34: Strategy to Replace and Grow Earnings
Strategy to Replace and Grow Earnings Building the Business Clear Focus on Growth Markets Invest in Distribution and New Channels Expand Product and Service Capabilities Improve Operating Effectiveness • • • •
Slide 35: Clear Focus on Growth Markets: AUM Projections
2004 2007E 2012E Clear Focus on Growth Markets AUM Projections Defined Contribution Market AUM, $ Trillions * Includes 457 and 401(a), as well as money purchase plans, profit sharing plans, and deferred compensation plans Source: ICI; Cerulli; EM internal projections of DC net flows (from Cerulli, 2
Slide 36: View of Today's Deposits
*As of September 30, 2007 YTD ** DirectorSM deposits include $25 million of deposits from the LALR product. $948m $2,161m $1,228m ** Healthcare Education 403(b) Mid-Large Healthcare & Corporate 401(k) and 403(b) Small Corporate 401(k) Consultants Brokers Independent Planners, Wirehouses, Banks, TPAs
Slide 37: Investing in Distribution Capacity and Productivity: Alliance
* 2007 Wholesales as of YTD 3Q07, 2008 Wholesalers are projected **Internal and External Wholesaler counts include Sales Management 99% Investing In Distribution Capacity and Productivity Mid-Large Healthcare & Corporate 403(b) & 401(k) Market Alliance ® Number of Wholesalers** Sales
Slide 38: Investing in Distribution Capacity and Productivity: Director
8% * 2007 Wholesales as of YTD 3Q07, 2008 Wholesalers are projected **Internal and External Wholesaler counts include Sales Management Investing In Distribution Capacity and Productivity Small Corporate 401(k) Market Director SM and LALR SM Number of Wholesalers** Sales
Slide 39: Wholesaler Tenure
2+ Years 10% <1 Year 73% 2+ Years 27% Tenure Director SM /LALR SM Wholesalers*: Tenure Alliance ® Wholesalers*: <1 Year 18% Investing In Distribution Capacity and Productivity 1-2 Years 17% 1-2 Years 55% * 2007 Wholesalers as of YTD September 30, 2007
Slide 40: Capitalizing on Strategic Partner Model
Wire Morgan Stanley UBS AG Edwards Wachovia Smith Barney Merrill Lynch Independent Planner LFN Edward Jones LPL Raymond James HD Vest AIG Investing In Distribution Capitalizing on Strategic Partner Model Strategic Partner Focus…Room to Grow * Estimated Annual Sales Top Firms Serving Small to Mid Mar
Slide 41: Expanding Product and Service Capabilities
Expanding Product and Service Capabilities The Customer Experience Achieving Strategic Scale in Manufacturing by Launching Innovative Product Solutions Lincoln American Legacy Retirement SM SmartFuture SM i4LIFE ® Advantage Lincoln Ibbotson Insight Series Investing in Service Improvements Lincoln Un
Slide 42: Improving Operating Effectiveness
Defined Contribution G & A expenses Average Account Value G & A as annualized % of AV $165 $35,174 62 bps $210 $31,891 66 bps Improving Operating Effectiveness Disciplined Financial Management 2007 Sept. YTD 2006 Full Year $ in millions
Slide 43: What To Expect In 2008
What To Expect In 2008 Strong organic deposit growth in our target markets Improvement in net flows Ongoing product enhancements Additional platform improvements
Slide 44: Taking Market Share: Sources of Competitive Advantage
Taking Market Share Sources of Competitive Advantage* Scale and Brand Differentiated Service Distribution Education and Advice Product Innovation * McKinsey Research • • • • •
Slide 45: Questions?
Questions?
Slide 46: Mark Konen, Individual Markets: Scale, Momentum, Opportunity
Mark Konen Individual Markets President Scale, Momentum, Opportunity
Slide 47: Strategic Scale Enabling Investments in the Business
Life Insurance 1 Variable Annuities 5 Fixed / Indexed Annuities 10 Strategic Scale Enabling Investments in the Business Product Industry Ranking* $103 billion in account values** $518 billion of life insurance in-force** Annualized sales over $13 billion*** Over $1 billion in annualized operating ea
Slide 48: Variable Annuity Growth Taking Market Share
12 th 3.3% 8 th 5.5% 6 th 6.4% 5 th 6.6% 5 th 6.9% $6.7 3Q06 YTD Variable Annuity Growth Taking Market Share * Industry and market share based on VARDS data through 3Q07 YTD Industry Rank* Market Share* 27% Growth YTD 3Q07 vs. 3Q06 Lincoln Yearly Total VA Sales
Slide 49: Annuity Competitive Landscape
Sources: McKinsey Retirement Practice, ICI, Strategic Insight, Empirical Research Partners, SRI Deposits Mutual funds Annuities Deposits Mutual funds Annuities Annuity Competitive Landscape Significant Opportunity to Grow Large share of assets in deposits and mutual funds Significant money in motion
Slide 50: Life Insurance Growth Taking Market Share
5 th 5.6% 5 th 6.0% 1 st 7.0% $405 3Q06 YTD Life Insurance Growth Taking Market Share * Industry and market share based on VARDS data through 3Q07 YTD Industry Rank* Market Share* 39% Growth YTD 3Q07 vs. 3Q06 Lincoln Life Insurance Sales
Slide 51: Life Insurance Competitive Landscape
Source: LIMRA $ in Billions Big companies taking market share Increased focus on protection Flat VUL sales since 2003 present potential opportunity Lincoln well-positioned to capitalize on industry trends 3.6 2.8 2001 1.9 3.0 2006 Life Insurance Competitive Landscape Leveraging Critical Success Fact
Slide 52: Blueprint for Profitable Growth
Product Innovation and Responsiveness Retirement Income Security Operational Effectiveness Comprehensive Risk Management Distribution Depth and Breadth Strategic Cornerstones Blueprint for Profitable Growth
Slide 53: Product Innovation and Responsiveness
Unified Product Portfolio, including: – Lincoln LifeElements SM Indexed UL – Lincoln S/VUL ONE 2007 – Lincoln AssetEdge SM VUL Additional innovation: – 4LATER ® Advantage – Lincoln Lifetime Income Advantage (VA) – Lincoln Living Income SM Advantage (IA) – Lincoln SmartIncome SM Inflation Annuity
Slide 54: Operational Effectiveness: Driving Down Expense Ratios
Annuity G & A expenses Average Account Value G & A as annualized % of AV Life G & A expenses Collected Premiums G & A as a % of premiums $233 $62,046 50 bps $336 $3,324 10.1% $233 $70,511 44 bps $331 $3,476 9.5% $271 $43,498 62 bps $297 $2,407 12.3% Operational Effectiveness Driving Down Expense Rat
Slide 55: Customer-Centric, Scale-Enabled Competitive Differentiator
Customer-Centric, Scale-Enabled = Competitive Differentiator Front Line Cross-Functional Team Underwriting Account Executive Operations Manager Sr. NBA NBA NBA NBA NBA Underwriting Director Underwriter Underwriter Underwriter Underwriter Underwriting Team Structure Operational Effectiveness Industry
Slide 56: Variable Annuity Hedging Effectiveness
Expected run rate cost of $2.0 - $3.0 million, after tax, after DAC, per quarter Q3 results driven by volatile market conditions Would not expect significant breakage in more normal environment Comprehensive Risk Management Variable Annuity Hedging Effectiveness
Slide 57: Comprehensive Risk Management
Macro: Balanced business mix: $2,761M Total** Margins Distribution diversification Comprehensive Risk Management Ensuring Stability of Results Micro: Disciplined New Business Pricing and Monitoring YTD new business expected returns: Annuity 18%, Life 13%* Equity Risk Management Asset Liability Manag
Slide 58: Annuity and Life Earnings Driving Bottom Line Growth
Life Income from Operations Annuity Income from Operations Annuity and Life Earnings Driving Bottom Line Growth Total Individual Markets Income from Operations 11% growth
Slide 59: Individual Markets: Profitable Growth
Profitable Growth Strategic scale Momentum Opportunity Execution Individual Markets
Slide 60: Questions?
Questions?
Slide 61: Terry Mullen, Lincoln Financial Distributors
Terry Mullen Lincoln Financial Distributors President and CEO Lincoln Financial Distributors
Slide 62: Sales Growth By Channel 3Q07 vs. 3Q06
Sales Growth By Channel 3Q07 vs. 3Q06 The depth and breadth of our success ($ millions) Channel YTD 3Q07 YTD 3Q06 Growth Rat Life 1 MGA $ 369 $ 246 50% IP 121 91 33% Wire/Bank 45 44 2% Total $ 535 $ 381 40% Variable Annuities 2 IP $4,236 $3,204 32% Wire 3,542 3,020 17% Bank/Other 707 483 46% Total $
Slide 63: Sales Growth By Product 2001-2006
1 Includes term and JP sales prior to 2Q06 2 Source: LIMRA International, Inc., including term 3 Source: ICI Retail Long-Term New Sales 4 Source: VARDS Online by Morningstar New Sales Life 17% 1 4% 2 Mutual Funds 17% 6% 3 Variable Annuity - ChoicePlus 34% 8% 4 Variable Annuity - American Legacy 25%
Slide 64: Solutions-Based Distribution Model
The right business model, the right strategy, the right people Wholesaling Scale and Quality Strategic Partnerships Unique Solutions-Based Distribution Model Annuities Investments Wirehouse & Regional B/Ds Marketing General Agents Independent Planners Banks Life
Slide 65: Scale Of Wholesaling Distribution
Variable Annuities 49% Investments 3 12% Number of Wholesalers 1 MoneyGuard 8% Fixed Annuities 5% Wholesalers by Product As of September 30, 2007 2 2 1 Includes External Wholesalers, Internal Wholesalers and Sales Management 2 2007 Wholesalers as of YTD 3Q07, 2008 represents preliminary projections
Slide 66: Strategic Wholesaler Expansion
Strategic Wholesaler Expansion Redesigning territories and building deeper relationships Workforce Planning - Sample Analysis - IXI:
Slide 67: Wholesaler Quality
Wholesaler Tenure As of September 30, 2007 2+ Years 52% <1 Year 26% 2+ Years 43% <1 Year 25% As of September 30, 2005 1 1 Excludes Jefferson-Pilot wholesalers Wholesaler Quality Retention leading to increased productivity 1-2 Years 22% 1-2 Years 32%
Slide 68: Strategic Priorities 2008 - 2010
Strategic Priorities 2008 - 2010 Attract and retain top wholesaling talent Continue to surpass industry average variable annuity, life and linked benefit sales Develop current and new strategic partnerships Continue to grow the population of financial advisors selling multiple LFG products
Slide 69: Questions?
Questions?
Slide 70: Bob Dineen, Lincoln Financial Network
Bob Dineen Lincoln Financial Network President and CEO Lincoln Financial Network Jefferson Pilot Securities Corp. Lincoln Financial Advisors Corp.
Slide 71: Lincoln Financial Network Overview
Lincoln Financial Network Overview LFN positioned for top & bottom-line growth Multi-channel model is a competitive advantage for recruiting and retaining top advisors Retirement Income is a particularly compelling opportunity for Retail Distribution
Slide 72: Lincoln Financial Network Overview
Independent Full Service Support JPSC GA ABGA / DAN LFA / Sagemark Lincoln Financial Network Overview 6,950 affiliated producing advisors* 4 channels of independent distribution 2 broker dealers $89B customer assets** * Advisors as of September 30, 2007. ** Aggregate customer assets for which an LFN
Slide 73: Contribution to Lincoln Financial
Contribution to Lincoln Financial 22% life insurance PAP $122 million of life target premium 12% annuity premium* $1.4 billion of annuity and retirement investments ~50% in-force permanent life insurance block Year-to-Date September 30, 2007 • • * Represents individual and employer-sponsored annuity
Slide 74: Delivering Positive Results
2006 & 2007 YTD show combined JP distribution and LFA/Sagemark Prior periods reflect operating loss for LFA/Sagemark stand-alone Operating results are allocated to Individual Markets and Employer Markets for external reporting 2003 2004 2005 2006 2007 YTD Delivering Positive Results Operating Income
Slide 75: An Extraordinary Year
An Extraordinary Year 2007 September Year-to-Date results (Compared to the same period last year) +29% Life sales +14% Variable Annuity sales -35% Fixed Annuity Sales +63% Delaware mutual fund sales Non-enterprise results +25% Variable Life and Annuity Sales +22% Managed Asset Fees +20% Total Broker
Slide 76: 2007 Growth Drivers
2007 Growth Drivers Multi-channel Model (flexibility and choice) Investment build-out of our National Recruiting Platform Positive trends in GA / affiliated brokerage activations Investment in a more competitive compensation structure Fixed Life VA / Mutual Fund • •
Slide 77: Retirement Income Security
“Distribution strategies with most success for end consumers rely on face to face consultations and personal referrals; independent financial advisors are capturing greater share of the retirement market.” - McKinsey Survey, October 2007 LFN Retirement Income Security Life & Legacy (Retirement Speci
Slide 78: Recruiting and Retention
Recruiting and Retention From September 30, 2006 to September 30, 2007 Continue positive trend of Net Gross Dealer Concession (GDC) Growth from Full-time Recruits Drive incremental GDC Growth from affiliated brokerage activations Added 375 producing advisors Added 15 national recruiting professional
Slide 79: Outlook For An Even Better 2008
Outlook For An Even Better 2008 Sustainable, attractive model Growing number of loyal, productive advisors Open architecture & affiliation choice Best-in-class products and wholesaling Deep financial planning expertise Forward-thinking retirement strategies The leverage of Lincoln Financial Group Sc
Slide 80: Questions?
Questions?
Slide 81: Fred Crawford: Financial Outlook & Capital Management
Fred Crawford Lincoln Financial Group Chief Financial Officer Financial Outlook & Capital Management
Slide 82: A Look Inside Our Financial Plan
3 Year Rolling Plan - Sets Incentive Compensation Currently In-Process - Approved by Board in February A Look Inside Our Financial Plan Earnings & Capital Plan Budget Process Sales Plan Strategic Investments
Slide 83: Third Quarter: Strong Fundamentals
Fundamentals Markets 3Q Income from Operations Adjusted for Merger Expenses & Schedule of Special Items $350mm $378mm Life Insurance Annuities Defined Contrib. Group Protection Investment Mgmt. UK, Media, Executive Benefits** Other Operations Avg. diluted shares 282.4 272.5 Third Quarter: Strong Fun
Slide 84: 2008 Outlook: Asset Fee Revenue
2008 Outlook Asset Fee Revenue* ($ millions) $325 $420 S&P 500 Variable Annuities Defined Contribution Asset Management Retirement Asset Gathering Engine Total Average Variable Assets ($ billions) Continued VA deposits and flow strength DC flows driven by Alliance Delaware retail deposits continue t
Slide 85: 2008 Outlook: Fixed Margin
2008 Outlook Fixed Margin* ($ millions) $271 $268 Defined Contribution Life Annuities Fixed Margin - “A Mixed Story” Annuity: Spreads of 200 bps. - negative flows diminish Life: Spreads of 180 bps. - steady asset growth; securitization impact DC: Spreads under pressure at 225 bps - with stable asset
Slide 86: General Account Conditions
Income** ($ mm) Book Value* ($ mm) Hedge Funds Pvt. Equity Energy/RE $589 $761 A 28% BBB 32% AAA 23% AA 10% BB 3% B & Lower 2% Adj. Cash 2% Alternative Investments $60 Billion Bond Portfolio Average Rating “A” General Account Conditions ¨ Target a 10-12% portfolio return Life = BV of $500mm Annuitie
Slide 87: Life and Group 2008 Outlook
Life - 2008 Outlook Group - 2008 Outlook Total Charges* ($ millions) $253b $269b Interest-Sensitive In-force ($ B) Non-Medical Loss Ratio Net Earned Premium ($ mm) 11% Life Disability Dental Steady Mortality & Morbidity Margins Stable 6-8% growth in earnings drivers Growth in VUL and M-Guard Settlin
Slide 88: Operating Effectiveness
Integrating, Investing, and Growing ….all at the same time Improving expense ratios in all major segments Making significant technology & infrastructure investments 3-year save target increased to $195m-$205m range Enterprise Expense Ratio 2006 2007(E) 2008-2009 Operating Effectiveness Expenses* to
Slide 89: Capital Conditions: 2008 Outlook
Capital Targets 2008 Outlook RBC (%)** 21.1% 21.6% Leverage* (%) “AA” Capital Conditions Available Capital: • Capital margin ~ $400 mm • B of A stock ~ $150 mm (A-T) • Reserve relief ~ $300 mm • FCF run-rate ~ $200 mm +/- “AA” capital ratios RBC 350% to 400% Leverage 20-25% Capital structure (10/20/
Slide 90: ROE & Book Value Progression
ROE Drivers 12.2% 12.9% ROE* (%) BVPS ($/share ex AOCI) ROE & Book Value Progression Growth in high-ROE segments Capital management Favorable capital conditions Progress towards 15% in 3 yrs Capital Returned to Shareholders ($ millions) * ROE is based upon income from operations adjusted for special
Slide 91: Lincoln Media Update
Divested Media Businesses Remaining Media Investment Date Agreement Signed Purchase Price ($ mm) 2007 Broadcast Cash Flow Multiple Strong offers reflected quality of Lincoln Financial Media’s operations Purchase multiples reflect acquisition levels competitive with “normalized” credit and M&A market
Slide 92: Media - Pro Forma Impact
Key Assumptions Pro Forma Impact Calculations (1)Net of fees and expenses. (2)Accretion/dilution and ROE impact is based upon annualized 3Q2007 income from operations adjusted for special items. See Appendix for non-GAAP financial information and/or reconciliations. Other assumptions include LNC sha
Slide 93: Financial Plan Roll-Forward
Capital Mid-point of the “AA” range Executed on capital projects General account well positioned Earnings $1.36 adjusted (ex merger exp.) L&A, GP (80% of total) up 13% with strong fundamentals Market volatility Production Excellent retail growth - LFD/LFN Institutional - “a mixed story” Capital Supp
Slide 94: Appendix
Appendix
Slide 95: Net Income to Operating Earnings Reconciliation
Less: Net realized gains (losses) on investments and derivatives Net gain on reinsurance derivative/trading account securities Reserve development and related amortization on business sold through reinsurance Income from Operations Net Income Income from Operations (Excluding accumulated other compr
Slide 96: Book Value Per Share Reconciliation
Book Value Per Share Reconciliation 6/30/06 9/30/06 12/31/06 3/31/07 6/30/07 9/30/07 Book value per share including AOCI $40.48 $43.39 $44.21 $44.42 $43.57 $44.41 Per share impact of AOCI (0.12) 2.19 2.22 2.44 0.5 50.73 Book value per share excluding AOCI $40.60 $41.20 $41.99 $41.98 $43.02 $43.68
Slide 97: 3Q 2007 Income From Operations
3Q 2007 Income From Operations (Schedule of Special Items) ($ Millions) come Loss Tax Merger Rat Report T 1s Expected Other?) Total Third Quarter 2007 Individual Markets Life $174 $15 $(3) $5 $(1) $16 Annuities 107 (17) 2 (16) Employer Markets Defined a (3) a 2 a) @) Contribution Group 33 8 Fy Prote
Slide 98: 3Q 2006 Income From Operations
3Q 2006 Income From Operations (Schedule of Special Items) ($ Millions) Loss Ratio vs es Expected Other‘?! Third Quarter 2006 Individual Markets Life $123 saa) sq) 2 si $(17) Annuities 129 O) 2 27 1 29 Employer Markets Defined 53 2 4 (3) 4 Contribution Group 2 7 @ 5 Protection Investment 13 () () Ma