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This document is dated August 2, 2011. It may not be accurate after such date and LNC does not undertake to update or keep it accurate after such date.

Forward Looking Statements — Cautionary Language

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Lincoln Financial Group Reports Second Quarter 2011 Results

Net Income of $325 million Up 28% from Second Quarter 2010
Income from Operations of $349 million Up 20%

Topics:   Second Quarter 2011 — Segment Results   | Retirement Solutions  | Insurance Solutions  | Other Operations  | Realized Gains and Losses  | Unrealized Gains and Losses  | Stock Repurchase  | Book Value  | Reconciliation Table  | Digest of Earnings 

PHILADELPHIA, August 2, 2011 — Lincoln Financial Group (NYSE:LNC) today reported net income for the second quarter of 2011 of $325 million, or $1.01 per diluted share available to common stockholders, compared to net income in the second quarter of 2010 of $255 million, or $0.33 per diluted share available to common stockholders.

Second quarter income from operations was $349 million, or $1.09 per diluted share available to common stockholders, compared to $290 million, or $0.86 per diluted share available to common stockholders, in the second quarter of 2010.

($ in millions except per share data) For the Quarter Ended
2011 2010 
Net Income (Loss) $ 325  $ 255 
Net Income (Loss) Available to Common Stockholders 324  104 
Net Income (Loss) Per Diluted Share Available to Common Stockholders 1.01  0.33 
Income (Loss) from Operations 349  290 
Income (Loss) from Operations Per Diluted Share Available to Common Stockholders 1.09  0.86 
Average Diluted Shares 319.9  314.6 

"We're pleased with the results in the second quarter, which reflected strong revenue growth and solid operating performance in our businesses," said President and CEO Dennis R. Glass. "Sales across our businesses continued to benefit from broad product offerings and consistent distribution presence while margins in the group protection segment improved over the prior-year period," added Glass. "Solid results in the first half of 2011, a strong capital position and accelerated share repurchases in the quarter underscore our confidence in the outlook for Lincoln Financial."

Second Quarter 2011 Operating Highlights:

  • Total account balances of $164 billion up 17%
  • Annuity deposits of $2.9 billion up 4%
  • Life insurance sales of $157 million up 12%
  • Defined Contribution pre-tax operating margin increases to 23%
  • Group Protection non-medical loss ratio improves to 73%
  • Consolidated deposits of $5.4 billion
  • Consolidated net flows of $1.4 billion

The quarter included approximately $34 million or $0.11 per share of net favorable items. The details are included in the segment commentary below.

Second Quarter 2011 — Segment Results

Retirement Solutions

Individual Annuities
The Individual Annuities segment reported income from operations of $150 million in the second quarter of 2011 versus income from operations of $116 million in the year-ago period, reflecting a 21% increase in annuity account values.

Total annuity deposits of $2.9 billion were up 4% over the prior-year quarter. Total net flows in the current quarter were $0.7 billion as compared to $1.2 billion in the 2010 quarter.

The quarter included better than expected investment income of $4 million primarily from alternative investments and prepayment premiums, $8 million of favorable DAC adjustments and $2 million of tax adjustments.

Defined Contribution
Defined Contribution reported income from operations of $42 million, versus income from operations of $36 million for the same period a year ago, reflecting a 15% increase in account values.

Gross deposits of $1.2 billion were down 13% versus the prior-year quarter. Total net flows in the current quarter were $(178) million as compared to $182 million in the 2010 quarter. Deposits and flows in the quarter reflect the uneven nature of the mid-large case business, and are expected to turn around in the second half of 2011.

The quarter included better than expected investment income of $4 million primarily from prepayment premiums partially offset by $2 million of other expenses.

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Insurance Solutions

Life Insurance
Life Insurance income from operations was $152 million, compared to $151 million in the second quarter of 2010.

Life insurance sales of $157 million increased 12% over the prior-year quarter. Life insurance in force of $571 billion grew 3% and account values of $35 billion increased 8% over the prior-year quarter.

The quarter included better than expected investment income of $5 million primarily from alternative investments and prepayment premiums offset by $4 million of other items.

Group Protection
Group Protection's income from operations was $26 million, compared to $23 million in the prior-year period. The non-medical loss ratio of 73% in the current quarter declined from 75% in the second quarter of 2010.

Non-medical net earned premiums were $409 million in the second quarter, up 7% over the year-ago period. Annualized sales of $67 million increased 3%.

The current quarter benefited from $3 million related to better than expected net investment income, DAC adjustments and other expenses.

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Other Operations

The operating loss in Other Operations was $22 million in the quarter versus a loss of $36 million in the prior-year quarter. Results in the quarter benefited from $14 million of favorable items including lower than expected expenses and taxes of $9 million and $2 million, respectively.

Realized Gains and Losses

In the quarter, net realized losses and impairments totaled $27 million, pre-DAC and pre-tax, compared to a gain of $3 million in prior-year quarter.

Unrealized Gains and Losses

The company reported a net unrealized gain of approximately $3.6 billion, pre-tax, on its available-for-sale securities at June 30, 2011. This compares to a net unrealized gain of approximately $3.0 billion at June 30, 2010.

Stock Repurchase

During the quarter the company repurchased 5.1 million shares of stock at a cost of $150 million.

Book Value

As of June 30, 2011, book value per share of common stock, including accumulated other comprehensive income ("AOCI"), increased 10% to $44.04 from a year ago. Book value per share, excluding AOCI, was $40.43 up 9% from $36.93 a year ago.

This press release may contain statements that are forward looking, and actual results may differ materially, especially given the current economic and credit conditions. Please see the Forward Looking Statements — Cautionary Language that follow for additional factors that may cause actual results to differ materially from our current expectations.

The tables attached to this release define and reconcile income from operations, return on equity ("ROE"), and book value per share excluding AOCI, non-GAAP measures, to net income, ROE, and book value per share including AOCI calculated in accordance with GAAP.

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Lincoln Financial Group will discuss the company's second quarter results with investors in a conference call beginning at 11:00 a.m. (ET) on Wednesday, August 3, 2011. Interested persons are invited to listen through the internet. Please go to www.LincolnFinancial.com/webcast at least fifteen minutes prior to the event to register, download and install any necessary streaming media software. Interested persons may also listen to the call by dialing the following numbers:

  • Dial: 877 776-4049 (Domestic)
             914 495-8602 (International)
  • Ask for the Lincoln National Conference Call.

The company will also post its second quarter 2011 statistical supplement on its Web site, www.LincolnFinancial.com/earnings.

Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. With headquarters in the Philadelphia region, the companies of Lincoln Financial Group had assets under management of $164 billion as of June 30, 2011. Through its affiliated companies, Lincoln Financial Group offers: annuities; life, group life, disability and dental insurance; 401(k) and 403(b) plans; savings plans; and comprehensive financial planning and advisory services. For more information, including a copy of our most recent SEC reports containing our balance sheets, please visit www.LincolnFinancial.com.


Investor Contacts:
Jim Sjoreen
484 583-1420
E-mail: InvestorRelations@LFG.com

Media Contact:
Laurel O'Brien
484 583-1735
E-mail: MediaRelations@LFG.com


Financial data will be posted at www.LincolnFinancial.com/earnings


Forward Looking Statements — Cautionary Language

Certain statements made in these documents and in 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 forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: "believe", "anticipate", "expect", "estimate", "project", "will", "shall" and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in Lincoln's businesses, prospective services or products, future performance or financial results, and the outcome of contingencies, such as legal proceedings. Lincoln claims the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements include, among others:

  • Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results;
  • Adverse capital and credit market conditions could cause us to realize impairments on investments and certain intangible assets, including goodwill and a valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;
  • Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding Company's ability to meet its obligations;
  • Legislative, regulatory or tax changes, both domestic and foreign, that affect the cost of, or demand for, our subsidiaries' products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserves and/or risk-based capital, or "RBC," requirements related to secondary guarantees under universal life and variable annuity products such as Actuarial Guideline 43, or "AG43" (also known as Commissioners Annuity Reserve Valuation Method for Variable Annuities or "VACARVM"); restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. Federal tax reform;
  • 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 regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and extra-contractual and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
  • Changes in or sustained low interest rates causing reductions in investment income, estimated gross profits to our variable annuity and universal life products, the margins of our subsidiaries' fixed annuity and life insurance businesses and demand for their products;
  • A decline in the equity markets causing a reduction in the sales of our subsidiaries' products, a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products, an acceleration of amortization of deferred acquisition costs, or "DAC," value of business acquired, or "VOBA," deferred sales inducements, or "DSI," and deferred front end sales loads, or "DFEL," and an increase in liabilities related to guaranteed benefit features of our subsidiaries' variable annuity products;
  • Ineffectiveness of our various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
  • A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries' products, in establishing related insurance reserves and in the amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings;
  • Changes in accounting principles generally accepted in the United States, or "GAAP," including convergence with International Financial Reporting Standards, as well as the methodologies, estimations and assumptions thereunder, that may result in unanticipated changes to our net income;
  • Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;
  • Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;
  • Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios as well as counterparties to which we are exposed to credit risk requiring that we realize losses on investments;
  • The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including our ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions;
  • The adequacy and collectibility 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 the cost and availability of reinsurance;
  • Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;
  • The unknown effect on our subsidiaries' businesses resulting from changes in the demographics of their client base, as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life; and
  • Loss of key management, financial planners or wholesalers.

The risks included here are not exhaustive. Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other documents filed with the SEC include additional factors which could impact our business and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the impact of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, Lincoln disclaims any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.

The reporting of RBC measures is not intended for the purpose of ranking any insurance company or for use in connection with any marketing, advertising or promotional activities.

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Lincoln Financial Group is the marketing name for Lincoln National Corporation and insurance
company affiliates, including The Lincoln National Life Insurance Company, Fort Wayne, IN,
and in New York, Lincoln Life & Annuity Company of New York, Syracuse, NY. Variable products
distributed by broker/dealer-affiliate Lincoln Financial Distributors, Inc., Radnor, PA. Securities
and investment advisory services offered through other affiliates. Explore Lincoln.

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