Lincoln National Corporation · NYSE:LNC
Lincoln National — Investor Day (June 2016)
96 slides from Lincoln National's investor day presentation, Jun 9, 2016
Slide 1: Strategic overview
Dennis Glass | President and Chief Executive Officer Strategic overview 2016 Conference for Analysts, Investors and Bankers
Slide 2: Strong franchise that is undervalued
2 2 Strong franchise that is undervalued Operating EPS: 12% CAGR Operating ROE up nearly 300 basis pointsBook value per share, ex. AOCI: 7% CAGRReturned $4 billion of capital to shareholders Balance sheet impacts from low interest ratesEnergy exposure limiting capital flexibilityAbility to adjust to
Slide 3: Will Fuller: Distribution
Will Fuller | President, Annuities, Lincoln Financial Distribution and Lincoln Financial Network Distribution 2016 Conference for Analysts, Investors and Bankers
Slide 4: The power of our distribution franchise is our competitive advantage
2 Distribution Wholesalers provide specialized expertise in Lincoln’s target marketsOur Distribution franchise is differentiated and in demand by our partnersIndependent distribution offers multiple ways to win Distribution Life Insurance Group Protection Annuities Retirement Plan Services General A
Slide 5: Delivering expertise in our target markets
3 1 Source: U.S Census Bureau, Income and Poverty in the United States: 2014, September 2015; Joint Center for Housing Studies of Harvard University, Baseline Household Projection for the Next Decade and Beyond, March 27, 2014. 2 Source: McKinsey Life insurance Trends and Implications, 2016. Deliver
Slide 6: Our wholesaler franchise is in demand by our partners
Scalable national market presence Channelized distribution Specialized expertise Broad product portfolio ProductWithin partner firms Rank2Within industry RankWithin 4+ firms Variable annuity #3 < #1 Fixed annuity #9 < #4 Life insurance #3 < #1 MoneyGuard® #1 = #1 National footprint; large wholesale
Slide 7: We have a large active producer base with room to grow
RETENTION We have a large active producer base With room to grow Add new producers in our core marketsExpansion to new markets of total sales from repeat producers 74% 1/4 selling multiple types of Lincoln products Demonstrated ability to pivot and add new producers Life non-guarantee pivot VA non-l
Slide 8: Productivity enhanced by analytics and digital
$ Producer segmentation on 76 attributes like: Predictive analytics identify producers most likely to sell Lincoln Digital tools enable wholesalers to target, acquire and develop those producers 750 wholesalers $12.8B sales 2008 2015 $14.6B sales Behavioral Demographic Tenure Licensing Asset under m
Slide 9: Department of Labor Fiduciary Standards
7 We are generally encouraged by constructive changes to the final rule Dedicating our full energy to DOL transition Department of Labor Fiduciary Standards Key highlights Commissions acceptable and may be in clients best interestCommissions and fees held to the same standardLifetime income and guar
Slide 10: Commissions and solutions in clients' best interest
1 Lincoln Financial and Hanover Research, Wealth Protection Survey, 2015. 2 Hearing before U.S. Senate Special Committee on Aging, 111th Congress, Lifetime Income Options for Retirement, 2010. 3 Based on Annuity Valuation Mortality 2012 Individual Annuity Reserve Table. $4,500 $11,750 $30,000 $1,000
Slide 11: Leveraging our distribution strengths
Shelf space expansionSales force growth (MoneyGuard® and RPS)Analytics to drive productivityDigital tools for selling and servicing Fee-based annuitiesRegistered investment advisor channelOnline term insurance Lifetime income guaranteesTax-advantaged investing and incomeAlternatives to traditional L
Slide 12: Distribution
10 Our Distribution franchise is differentiated and in demand by our partners Wholesalers provide specialized expertise in Lincoln’s target markets Independent distribution offers multiple ways to win Distribution Distribution Life Insurance Group Protection Annuities Retirement Plan Services Genera
Slide 13: Mark Konen: Life Insurance
Mark Konen | President, Insurance and Retirement Solutions Life Insurance 2016 Conference for Analysts, Investors and Bankers
Slide 14: Life Insurance
2 Life Insurance CONSISTENT MARKET LEADERSHIP THROUGH DISCIPLINED RISK MANAGEMENT AND SUSTAINABLE AND COMPELLING WEALTH PROTECTION SOLUTIONS Scale, diversification, and innovation distinguishes Lincoln in the marketplaceMortality provides reliable long-term earnings despite volatilityNew business an
Slide 15: Power of distribution and broad product portfolio
45% of clients want to minimize amount of taxes paid1Guaranteed universal lifeVariable universal lifeIndexed universal life 59% of clients want to put money away for retirement1Indexed universal lifeVariable universal life 60% of clients want to protect their wealth or assets1MoneyGuard®Guaranteed u
Slide 16: Positioned for sustainable market leadership
4 4 Positioned for Sustainable market leadership Meeting generational insurance needs through innovative products and streamlined processes Growing while expanding into Generation X and millennial markets Leading the industry in existing baby boomer and mature markets LincXpressSMStreamlined submiss
Slide 17: Superior product scale and diversification
Only company to have all products represent between 10% and 30% of total sales 5 Product Rank VUL #1 Linked benefit #1 UL #9 Term #10 GUL #3 Executive benefits #3 Total life #3 Total life ex. whole life #1 1 Source: LIMRA U.S. Retail Individual Life Insurance Sales Participant Report - Fourth Quarte
Slide 18: Franchise driving growth on our terms
6 franchise driving growth on our terms Emphasizing sales without long-term (LT) guarantees Key drivers support long-term growth 48% 2010 sales:$637M 2015 sales:$725M ■ With LT guarantee■ Without LT guarantee 48% 52% 67% 33% Sales+3% CAGR Account values +5% CAGR In-force face amount+3% CAGR
Slide 19: Mortality: long-term consistency, short-term volatility
2010 2011 2012 2013 2014 2015 2016 7 Mortality: long-term consistency, Short-Term Volatility Underlying risk profile remains strong with long-term earnings power Average daily claim counts by month since 2010 Seasonality Volatility % of total net claims from claims $5M+ 1 Mortality results have been
Slide 20: Attractive new business
8 Product 2015 Sales mix Expected IRR Best estimate Scenarios Forward curve1 Mortality110% VUL 27% ● ● ● MoneyGuard® 26% ● ● ● UL 13% ● ● ● Term 12% ● ● ● GUL 11% ● ● ● Executive benefits 11% ● ● ● TOTAL 100% ● ● ● 8 Attractive new business Profitability & risk profile ● Above 12%● 10 -12%● Below 10
Slide 21: Proactive actions to address headwinds
Inforce management Product diversification 9 2010 2011 2012 2013 2014 2015 Key economic headwind:interest rates PROACTIVE actions to address HEADWINDS Demonstrated ability to respond to market conditions while protecting and growing the franchise Crediting rates Other actions 1 Potential prospective
Slide 22: Positioned for earnings growth
10 Positioned For Earnings Growth ~$80M ~$(70)M ~$(5)M Restoring growth Earnings growth through new business franchise and in-force management 1 Life unlocking for 2012 is $47M and for 2015 is $(117)M. Capital redeployment impact of $(45)M. $482M
Slide 23: Life Insurance
11 Life Insurance New business and in-force actions will overcome headwinds Scale, diversification, and innovation distinguishes Lincoln in the marketplace Mortality provides reliable long-term earnings despite volatility Distribution Life Insurance Group Protection Annuities Retirement Plan Service
Slide 24: Mark Konen: Group Protection
Mark Konen | President, Insurance and Retirement Solutions Group Protection 2016 Conference for Analysts, Investors and Bankers
Slide 25: Group Protection
2 Group Protection CONTINUING LOSS RATIO IMPROVEMENT AND ACCELERATING PREMIUM GROWTH WILL RESTORE PROFITABILITY TO OUR TARGET MARGIN RANGE OF 5-7% Embedding pricing and claims management discipline to sustain loss ratio improvementGrowing target markets by leveraging distribution and investing in ca
Slide 26: Loss ratio improvement driven by disciplined pricing
3 Loss Ratio improvement Driven by Disciplined Pricing Focus on new and renewal pricing strategyRun-off of unprofitable business Reduce magnitude of renewal rate actions leading to improved persistency Recent renewal results reduced loss ratios and drove margin improvement Future renewal strategy wi
Slide 27: Loss ratio improvement driven by claims management
4 Loss Ratio improvement Driven by Claims Management Optimize new claims management technologyLeverage analytics and predictive modeling Strengthen talentImprove examiner proficiencyReduced LTD claim examiner caseload by 15% 2015 vs. 2014 Claims management process reengineeringInvest in medical and
Slide 28: Recent record of loss ratio and earnings improvement
5 RECENT record of Loss Ratio and Earnings Improvement Path to recovery continuesImproved loss ratio driven by pricing discipline and effective claims management Success led to significant earnings growth; progress towards target marginContinue to drive loss ratios to long-term levels in the low 70%
Slide 29: Targeting fast growing market segments
6 Targeting Fast Growing Market Segments 1 Source: LIMRA, market share and industry growth rates based on industry sales data. Ranked #9 in 2015Sales grew from 37% of total in 2011 to 49% in 201511% industry growth Expand on strength of core 100-1,000 employee market capabilitiesIncrease penetration
Slide 30: Resilient distribution positioned to drive growth
7 Resilient Distribution positioned to drive growth Consumer marketingData and analyticsEducation and adviceCustomer buying experience Service deliveryOnboarding process and data exchangeSelling and renewal processesValue added services – absence management 2 Pricing actions adversely affected sales
Slide 31: Positioned for margin expansion
8 Positioned for Margin Expansion Loss ratio improvement Premium growth Target markets Disciplined pricingClaims management Employee-paid productsSmall and mid-sized businessesStrategic initiatives Leveraging distributionSales growth reemergingImproved renewal persistency Margin expansion
Slide 32: Group Protection
9 Group Protection Growing target markets by leveraging distribution and investing in capabilities and technology Embedding pricing and claims management discipline to sustain loss ratio improvement Increasing sales and improving renewal persistency will drive premium Distribution Life Insurance Gro
Slide 33: Will Fuller: Annuities
Will Fuller | President, Annuities, Lincoln Financial Distribution and Lincoln Financial Network Annuities 2016 Conference for Analysts, Investors and Bankers
Slide 34: Annuities
2 annuities OUR BUSINESS MODEL DELIVERS CONSISTENT AND IMPRESSIVE RESULTS THROUGH A DISCIPLINED APPROACH TO THE ANNUITY BUSINESS Quality book of business resulting from our strategy of consistency and selling on our termsIndustry leading end-to-end risk management with proven resultsLeveraging our b
Slide 35: Track record of consistent financial results
3 Track record of consistent financial results Consistent earnings growth with limited volatility Achieving excellent returns through a cycle 2007 2009 2011 2013 2015 2007 2009 2011 2013 2015 Annuity operating earnings 1 Return on equity, excluding goodwill.2 Includes operating earnings and VA net d
Slide 36: Executing our strategy of consistency
4 Executing our strategy of consistency Avoided the “arms race”Introduced patented i4LIFE®Leveraged living benefit reinsuranceCreated LFD 2007 and prior Stayed the course; sold through the cycleLowered living benefitsIncreased fee for guaranteesAdded investment restrictions 2008 to 2011 Introduced r
Slide 37: Total annuities account values
Total Annuities account values $122B as of YE2015 5 Annuity account values are diverse by product and risk Fixed annuities VA without GLB² VA with GLB: risk-managed fundsVA with GLB: non-risk-managed funds 1 Guaranteed living benefits.2 Includes reinsured portion of VA with GLBs.
Slide 38: Consistency and discipline lead to a high quality book
Sorted by range of VA sales as % of beginning account value, 2008-20151 6 Consistency and discipline lead to a high quality book Tight range mitigates market timing risk Consistent relationships with distribution partnersDollar cost averaging across market cyclesDisciplined pricing and management ac
Slide 39: Proven ability to manage economic risks
7 Proven ability to manage economic risks Hedge program protects the balance sheet Recognized as industry leading programProven results, with minimal impact on ROE over time Steady FIA hedge results1 2014 2013 2015 1 Fixed indexed annuities is abbreviated as FIA. Straightforward approachCall option
Slide 40: Industry leading assumption setting practices
■ Actual ■ Expected 8 Industry leading assumption setting practices Long history of setting reasonable assumptionsRobust annual assumption reviewsEnhanced assumption analytics applied to entire in-force VA book in 2012Leverages Lincoln experience combined with third party expertise (Oliver Wyman, To
Slide 41: Value of new business consistently above peer average
Value of new business consistently above peer average Oliver Wyman: Lincoln consistently sells VA business with above average profitability¹ Relative profitability for VA with living benefits 9 ● Lincoln ■ Peer group Average 1 Oliver Wyman calculations, based on market‐consistent valuation of one or
Slide 42: Consumer needs and demographics support growth
10 consumer needs and demographics support growth 1 Source: 2016 McKinsey & Company, Life Insurance Trends and Implications; ages 55+ included.2 Source: 2013 Gallup Organization Survey. Near-term headwinds Long-term fundamental tailwinds 2014 2015 S&P 500 30yr treasury Variable annuity sales pressur
Slide 43: Expanding sales beyond variable annuity living benefits
11 Expanding sales beyond variable annuity living benefits 11 Significant tailwinds in select markets 500%+ increase in sales since 2012 Fixed income annuities Fixed indexed annuities Expanded portfolio; consumer-friendly product design Non-guaranteed variable annuities Nearly one-third of variable
Slide 44: DOL rule is manageable
12 DOL rule is manageable Constructive changes to final ruleRecognized both commissions and fees can serve a client’s best interestAcknowledged value of lifetime incomeVA and FIA on level playing fieldGrandfathering of existing contractsOur plan to transition and pivotContinue to focus on non-qualif
Slide 45: Leveraging our strengths
Investor Advantage® - successful investment oriented VAFee-based for American Legacy® & ChoicePlus VA & FIAExpanded FIA - shorter surrender periods and new indices Fixed indexed - consumer friendly indexed annuitySPIA -highest lifetime income opportunityDeferred income annuity - QLAC1 endorsement fo
Slide 46: Annuities
14 annuities Industry leading end-to-end risk management with proven results Quality book of business resulting from our strategy of consistency and selling on our terms Leveraging our best-in-class distribution and diverse product portfolio to win Distribution Life Insurance Group Protection Annuit
Slide 47: Mark Konen: Retirement Plan Services
Mark Konen | President, Insurance and Retirement Solutions Retirement Plan Services 2016 Conference for Analysts, Investors and Bankers
Slide 48: Retirement plan services
2 Retirement plan services OUR VALUE PROPOSITION IS RESONATING IN THE MARKETS WE TARGET AS EVIDENCED BY SUCCESS WE’RE SEEING IN SALES AND NET FLOWS Growing and gaining scale in target markets: government, healthcare and small marketOur differentiated customer experience attracts new business and gro
Slide 49: Growing sales in our target markets
3 Government: 457 Healthcare: 403(b) Small market: 401(k) Focused on the fastest growing markets that provide consistent, profitable returns and value our high-touch service offering Fastest growing provider in market1 Leveraging leading market position (#3)1 Sales growth outpacing overall industry
Slide 50: Impact of DOL fiduciary rule manageable
4 Impact of DOL Fiduciary Rule Manageable 1 Best interest contract exemption is abbreviated as BIC.
Slide 51: Actions to grow sales and drive positive flows
5 Actions to Grow Sales And Drive Positive Flows Shifting mix of business to drive more consistent positive flows Accelerating growth with targeted strategic actions Expansion Strategic partners Product development Customer experience Expanding and upgrading distribution force across all markets30%
Slide 52: Driving results through our customer experience
Participants who meet 1-on-1 with our retirement consultants 30% 2X Larger increases in their contribution rate More likely to increase contributions Increases in the advisors and consultants doing repeat business 6 Driving Results Through our Customer Experience Participants Plan sponsors Intermedi
Slide 53: Enhancing the digital experience
7 Enhancing the digital experience Mobile optimized - consistent experience on any deviceStreamlined design and intuitive navigation“Retirement income” snapshot that includes an income estimate and planning tool“Click-to-contribute” functionality, which makes it easier for participants to take actio
Slide 54: Moderating expense growth
8 Moderating expense growth Profitable actions to drive the bottom line Disciplined focus on modest expensegrowthShifting investment from infrastructure investments to growth-oriented areas like distribution and client facing teams Infrastructure investments Focused investments and expense efficienc
Slide 55: Growing earnings in target markets
9 Growing Earnings in Target Markets Headwinds from low rates continue to persistGrowing small and mid-large market earnings to combat impact from interest rates Future earnings growth driven by asset growth and in-force optimization Multi-Fund® and other runoff 1 Average quarterly earnings from 201
Slide 56: Retirement Plan Services
10 Retirement Plan Services Our differentiated customer experience attracts new business and grows our in-force Growing and gaining scale in target markets: government, healthcare and small market Taking profitable actions to reduce impacts of continued low interest rates Distribution Life Insurance
Slide 57: Ellen Cooper: General Account Investments
©2016 Lincoln National Corporation June 9, 2016 Ellen Cooper | Executive Vice President and Chief Investment Officer General Account Investments 2016 CONFERENCE FOR ANALYSTS, INVESTORS AND BANKERS
Slide 58: General account investments
* GENERAL ACCOUNT INVESTMENTS DISCIPLINED ALM AND RISK MANAGEMENT DRIVELINCOLN’S INVESTMENT APPROACH Proactive strategies to improve investment income and diversificationPace of portfolio yield decline continues to moderateActively reduced energy exposure to mitigate potential losses Distribution Li
Slide 59: New money fixed income strategy
1 Includes all rated securities and CMLs.2 Full-year 2015. Newmoney yield4.2% ALM15% Avg.10-yrUST2.1% PublicIG51% 34% CMLsPrivate IGMid market loansNon-agency RMBSCorporate BIG +210 bps * NEW MONEY FIXED INCOME STRATEGY New money yields consistently 1.8-2.0% over the average 10 Yr. US Treasury and 1
Slide 60: Disciplined commercial mortgage loan strategy
DISCIPLINED COMMERCIAL MORTGAGE LOAN STRATEGY Growing the CML portfolio * Debt service coverage 1.98x Loan-to-value 51% Average loan size $7M Debt yield 15% Highly diversified High quality Portfolio attributes Achieving an incremental 30-40 basis points in new money yield1Disciplined underwriting an
Slide 61: Growing the alternatives portfolio and shifting the mix
* GROWING THE ALTERNATIVES PORTFOLIO AND SHIFTING THE MIX Historical performance1 Shift the mix towards private equity 2015 2016E 2018E Hedge funds Private equity (% of alternatives portfolio) Achieved a 10% annualized return since 2012 1 Annualized quarterly data from 1Q12 through 1Q16. Income
Slide 62: Well diversified and high quality portfolio
WELL DIVERSIFIED AND HIGH QUALITY PORTFOLIO Average quality rating is A- Below investment grade assets: 5.6% of fixed income assets $98.1B total invested assetsNet unrealized gain of $5.5B on AFS assetsPortfolio is well diversified across sectors, issuers and asset classes * Asset class1 Credit qual
Slide 63: Lower risk assets than peers provides flexibility
* LOWER RISK ASSETS THAN PEERS PROVIDES FLEXIBILITY 1 Source: J.P. Morgan - Risk assets consist of high yield bonds, unaffiliated equity, real estate, mortgages overdue 90 days, mortgages in foreclosure, and schedule BA assets (including alternative investments) compiled from 12/31/2015 statutory st
Slide 64: Pace of portfolio yield decline continues to moderate
PACE OF PORTFOLIO YIELD DECLINE CONTINUES TO MODERATE Projections based on 4% new money yield * 1 Projection period assumes 4% annual portfolio growth, consistent with historical experience. 2010 to 2014 2015 to 2019 2020 to 2024 ~10bps yield decline per year ~3bps yield decline per year ~20bps yiel
Slide 65: Proactively reduced energy exposure
Sub-sectordiversification2 * Reduced fixed income energy exposure1 Credit quality2 1 As a percent of total invested assets.2 As of 3/31/2016. Proactively reduced our energy exposure primarily through sales~50% of securities sold are now rated below investment grade2 Energy portfolio remains diversif
Slide 66: Energy and metals & mining stress losses are manageable
* Stress scenario assumptions Stress scenario projected losses1 Our sales targeted securities most likely to be at risk of a credit loss in a sustained period of low prices Name-by-name fundamental analysis to project losses in stress scenarios 1 Stress scenario projected losses are best estimates b
Slide 67: General account investments
* GENERAL ACCOUNT INVESTMENTS Pace of portfolio yield decline continues to moderate Proactive strategies to improve investment income and diversification Actively reduced energy exposure to mitigate potential losses Distribution Life Insurance Group Protection Annuities Retirement Plan Services Gene
Slide 68: Randy Freitag: Financial overview
Randy Freitag | Executive Vice President and Chief Financial Officer Financial overview 2016 Conference for Analysts, Investors and Bankers
Slide 69: Strong, resilient, repeatable financial results
2 Financial Overview Strong financial results and fundamentals not reflected in valuationGreater transparency on key focus areas of low rates and VAsConsistent capital generation and deployment with further flexibility Distribution LifeInsurance Group Protection Annuities Retirement Plan Services Ge
Slide 70: Solid top and bottom line growth
3 3 Solid top and bottom line growth Operating EPS Strong EPS growth z Steady revenue growth with controlled expenses z 1 See Appendix for a reconciliation of non-GAAP measures to their most comparable GAAP measures. G&A as a percent of revenue represents general and administrative expenses, net o
Slide 71: Steady improvement in key stakeholder metrics
4 4 Steady improvement in key stakeholder metrics valuation drivers Strong capital levels BVPS growth and ROE expansion Track record of improving valuation drivers1Book value per share (BVPS), ex. AOCI: 7% CAGROperating ROE: up 260bpsOperating ROE, ex. notable items: 12.2% in 2015 Peer analysis of R
Slide 72: Financial results compare favorably to peers
5 5 Financial results compare favorably to peers Financial measures compare 2015 to 2009 and peers include AFL, CNO, GNW, MET, PFG, PRU, TMK and UNM. Source: SNL Financial; Volatility, represented by the variation coefficient, is calculated as the standard deviation of quarterly income from 1Q09 to
Slide 73: Key drivers continue to support solid financial results
6 Key drivers continue to support solid financial results Organic earnings Capital management Capital markets +2-4% +1-2% +4-5% (2-3)% +2-3% +0-1% Target~8-10% Capital market assumptions Equity markets6-8% total return Interest rates Remain at current levels Target annual EPS growth of 8 to 10%
Slide 74: What investors want to know
7 What investors want to know When do low interest rates pressure the balance sheet? What if interest rates move lower for even longer? What drives the profitability and capitalization of your VA book? What is the RBC impact of recapturing LNBar? Interest rates Variable annuities
Slide 75: Well positioned for low rate challenges
Well positioned for low rate challenges 8 1 Spread compression is a percent of income from operations, excluding notable items. 1) New business returns 2) Spread compression1 3) Balance sheet 4-5% 2-3% Strength even in much lower interest rate scenarios Manageable EPS headwind and lower than prior y
Slide 76: Strong reserve adequacy, even in lower rate scenarios
1 Assumes no regulatory or other assumption changes and assumes interest rates based on a 10-year U.S. Treasury. Strong Reserve Adequacy, even In lower rate scenarios Significant statutory reserve adequacyReserve adequacy up 40% since 2012Sufficiency even with meaningfully lower interest rates 9 Bas
Slide 77: Key components of a high quality annuity book
10 Key components of a high quality annuity book More consistent level of sales Lower benefits Sorted by range of VA sales as % of beginning account value, 2008-20151 Robust hedge program 2010 2011 2012 2013 2014 2015 Implies NARlarger than LNC for products issued in 2008 4X 1 Source: Morningstar.2
Slide 78: Market presence and lower benefits reduce tail risk
11 Market Presence and lower benefits reduce tail risk Less risk… 1 Source: 10-K and other financial statements published by each company; all values on this slide are as of 12/31/2015. Peer average includes AIG, AXA, Aegon, AMP, HIG, Jackson, MET, PRU and VOYA; not all peers disclose allocated equi
Slide 79: Appropriate use of LNBar
LNBar well capitalizedHelps handle mismatch between statutory reserving and fair value accountingNAIC and Oliver Wyman have acknowledged mismatch and are working to address Letter of credit (LOC) in place to protect against a reserve credit shortfall in extreme scenariosLOC has never been used 12 Ap
Slide 80: Strong capital generation and flexibility
Strong capital generation creates flexibilityCapital management funded by free cash flow2Strong and steady share repurchase activity$3.3B since 2011; $200M in 1Q16Significant increases in shareholder dividend400% increase in quarterly dividend since 2011Maintained strong RBC ratio during active capi
Slide 81: Robust free cash flow drives capital deployment
Free cash flow driving accretive capital deploymentFree cash flow relative to market cap continues to outpace peers8.1% compared to peers at 7.3%Capital management funded by free cash flowIncreased long-term target at year-endto 50-55%Expect to exceed long-term target in 2016Returning capital to sha
Slide 82: Financial overview
15 Financial Overview Greater transparency on key focus areas of low rates and VAs Strong financial results and fundamentals not reflected in valuation Consistent capital generation and deployment with further flexibility Distribution LifeInsurance Group Protection Annuities Retirement Plan Services
Slide 83: Appendix
Appendix 2016 Conference for Analysts, Investors and Bankers
Slide 84: Forward Looking Statements – Cautionary Language
2 2 Forward Looking Statements – Cautionary Language Certain statements made in this presentation and in other written or oral statements made by Lincoln or on Lincoln's behalf are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). A forw
Slide 85: Forward Looking Statements – Cautionary Language (cont.)
3 3 Forward Looking Statements – Cautionary Language (cont.) Uncertainty about the effect of rules and regulations to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us and the economy, and financial services sector in particular; The initiation of legal or regu
Slide 86: The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items; The
4 The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items; The adequacy and collectability of reinsurance that we have purchased;Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and
Slide 87: Explanatory notes on use of non-GAAP measures
5 Explanatory notes on use of non-gaap measures Management believes that income from operations, return on equity and operating revenues better explain the results of the company’s ongoing businesses in a manner that allows for a better understanding of the underlying trends in the company’s current
Slide 88: Definitions of Non-GAAP Measures used in this presentation
6 Definitions of Non-GAAP Measures used in this presentation Income (loss) from operations, operating revenues and return on equity (including and excluding average goodwill within average equity), excluding AOCI, using annualized income (loss) from operations are financial measures we use to evalua
Slide 89: Definitions of Non-GAAP Measures (cont.)
7 Definitions of Non-GAAP Measures used in this presentation (cont.) Return on equity, excluding AOCI Return on equity measures how efficiently we generate profits from the resources provided by our net assets. Return on equity is calculated by dividing annualized income (loss) from operations by av
Slide 90: Corporate federal tax rate and sales definitions
Corporate federal tax fateThe company uses its prevailing corporate federal income tax rate of 35% while taking into account any permanent differences for events recognized differently in its financial statements and federal income tax returns when reconciling non-GAAP measures to the most comparabl
Slide 91: Reconciliation of net income to income from operations
9 Reconciliation of net income to income from operations 1 The numerator used in the calculation of our diluted EPS is adjusted to remove the mark-to-market adjustment for deferred units of LNC stock in our deferred compensation plans if the effect of equity classification would result in a more dil
Slide 92: Reconciliation of book value per share
10 Reconciliation of Book Value per share
Slide 93: Notable items reconciliation: income from operations and operating EPS
11 notable items reconciliation: income from operations and operating eps 1 The income used in the calculation of our diluted operating earnings per share is our operating income, reduced by preferred stock dividends and accretion of discount. Preferred stock dividends and accretion of discount tota
Slide 94: Reconciliation of return on average equity
12 Reconciliation of return on average equity 1 Excludes AOCI.
Slide 95: Reconciliation of annuities return on equity to pro-forma
13 Reconciliation OF ANNUITIES RETURN ON EQUITY TO ANNUITIES PRO-FORMA RETURN ON EQUITY 1 Excludes AOCI. 2 Not adjusted for tax restatement as data is not available. 3 Estimates were required to produce 2007 - 2008 data.
Slide 96: Calculations of net amount at risk and sources
Calculations of net amount at riskCalculations of net amount at risk, especially GLB, vary from company to company, as described in sources. Sources: GLB: Ameriprise, 2015 10-K; Lincoln, 2015 10-K and internal report for associated account values; Hartford, 4Q 2015 Financial Supplement; AIG, 2015 10