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This document is dated July 31, 2013. 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 2013 Results

Operating EPS of $1.27 up 17% drives ROE of 12%
Book Value per Share, excluding AOCI, of $43.21 up 13%
Consolidated Deposits of $7.1 billion drives 82% Increase in Net Flows

Topics:   Second Quarter 2013 — Segment Results   | Annuities  | Retirement Plan Services  | Life Insurance  | Group Protection  | Other Operations  | Realized Gains and Losses  | Unrealized Gains and Losses  | Capital  | Book Value  | Reconciliation Table & Digest of Earnings

RADNOR, PA, July 31, 2013 — Lincoln Financial Group (NYSE:LNC) today reported net income for the second quarter of 2013 of $317 million, or $1.15 per diluted share, compared to net income in the second quarter of 2012 of $321 million, or $1.09 per diluted share. Second quarter income from operations was $351 million, or $1.27 per diluted share, compared to $319 million, or $1.09 per diluted share, in the second quarter of 2012.

"We had an exceptionally good earnings quarter, and the level and mix of sales will help provide for future growth and further ROE development," said Dennis R. Glass, president and CEO of Lincoln Financial Group. "The quarter provided a good demonstration of the various actions we have taken to improve our operating results including product pricing, claims management, risk management and distribution expansion, all of which are reflected in the results."

(millions of dollars except per share data)      As of or For the
     Quarter Ended
      As of or For the
     Six Months Ended
       2013            2012            2013            2012
Net Income (Loss) $ 317 $ 321 $ 556 $ 564
Net Income (Loss) Available to Common Stockholders 317 317 556 566
Net Income (Loss) Per Diluted Share Available to Common Stockholders 1.15 1.09 2.01 1.93
Revenues 2,999 2,898 5,838 5,608
Income (Loss) from Operations 351 319 635 612
Income (Loss) from Operations Per Diluted Share Available to Common Stockholders 1.27 1.09 2.29 2.09
Average Diluted Shares 275.7 290.0 277.1 293.5
ROE (Income from Operations) 12.4% 12.1% 11.3% 11.6%
ROE (Net Income) 11.2% 12.2% 9.9% 10.7%
Book Value per Share, Including AOCI $ 50.37 $ 50.26 $ 50.37 $ 50.26
Book Value per Share, Excluding AOCI 43.21 38.16 43.21 38.16

2Q2013 Operating Highlights:

  • Consolidated account balances of $189 billion up 12%
  • Consolidated net flows of $2.9 billion up 82%
  • Operating revenues of $3.0 billion up 6%
  • Annuities total deposits of $4.2 billion up 46%
  • Retirement Plan Services total deposits of $1.6 billion up 25%
  • Life Insurance sales of $183 million up 43%
  • Group Protection sales of $95 million up 7%

There were no notable items in the quarter. The quarter's results did include earnings fluctuations of approximately $0.07 for higher-than-expected net investment income from prepayment premiums and alternative investments.

Second Quarter 2013 — Segment Results


The Annuities segment reported income from operations of $195 million in the second quarter of 2013, up 23%, from $158 million in the prior-year quarter.

Gross annuity deposits in the second quarter of $4.2 billion drove net flows of $1.7 billion and a 14% increase in account values to $103 billion. Variable annuity deposits were $3.9 billion, up 62% from the prior-year quarter and up 33% from the first quarter of 2013.

Variable annuity deposits in the quarter reflected accelerated sales ahead of benefit changes implemented in May, which are evidence of the company's ongoing efforts to manage its presence in the marketplace through product and pricing changes. Of the $3.9 billion of variable annuity gross deposits in the quarter, 80% of the deposits included a guaranteed living benefit rider built on risk-managed funds, and 9% did not include a guaranteed living benefit rider.

Relative to expectations, prepayment investment income increased earnings by $9 million.

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Retirement Plan Services

Retirement Plan Services reported income from operations of $39 million compared to $38 million in the prior-year quarter.

Momentum in the Retirement business continued in the quarter with strong deposit growth and successful retention efforts driving another quarter of positive net flows. Total deposits of $1.6 billion were up 25% versus the prior-year quarter driven by Mid-Large market sales. Total net flows in the current quarter were $337 million as compared to $194 million in the prior-year quarter, contributing to a 14% increase in account balances to $47 billion.

Relative to expectations, prepayment investment income increased earnings by $5 million.

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Life Insurance

Life Insurance income from operations was $135 million, flat with the prior-year quarter.

Life insurance sales of $183 million increased 43% over the prior-year quarter as the company's pivot strategy continued to shift the mix of new sales towards higher return, less interest rate sensitive products. Sales of Pivot products, which include variable universal life, indexed universal life, flexible premium MoneyGuard® and term life insurance products, increased by 137% over the prior year quarter. Sales of guaranteed universal life continued to decline and accounted for just 15% of second quarter sales, down from 30% in the prior-year quarter.

Life insurance in-force of $601 billion grew 3% and average account values of $38 billion increased 6% over the prior-year quarter.

Relative to expectations, prepayment and alternative investment income increased earnings by $5 million.

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Group Protection

For the second quarter, Group Protection income from operations was $22 million compared to $27 million in the prior-year period. The non-medical loss ratio was 73.5% compared to 72.7% in the prior-year quarter and within the company's targeted range.

Group Protection sales of $95 million for the quarter increased 7% from the same period last year. Non-medical net earned premiums were $482 million in the second quarter, up 9% over the year-ago period.

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Other Operations

Other Operations reported a loss from operations of $40 million in the quarter versus a loss of $39 million in the prior-year quarter.

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Realized Gains and Losses

Realized gains/losses (after-tax) in the quarter included:

  • A net loss from general account investments of $22 million as compared to a $45 million net loss in the prior-year quarter.
  • An $11 million variable annuity net derivatives loss, including positive hedge program performance of $5 million and a $16 million loss associated with the non-performance risk component.

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Unrealized Gains and Losses

The company reported a net unrealized gain of $4.8 billion, pre-tax, on its available-for-sale securities at June 30, 2013. This compares to a net unrealized gain of $7.8 billion at June 30, 2012.

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During the quarter, the company repurchased 4.3 million shares of stock at a cost of $150 million. Year-to-date, the company has repurchased 7.7 million shares at a cost of $250 million. The quarter's average diluted share count of 275.7 million shares was down 5% from the second quarter of 2012, the result of repurchasing 15.7 million shares of stock since June 30, 2012.

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Book Value

As of June 30, 2013, book value per share, including accumulated other comprehensive income ("AOCI"), of $50.37 was flat with the prior-year quarter. Book value per share, excluding AOCI, of $43.21 increased 13% from the prior-year period.

This press release may contain statements that are forward-looking, and actual results may differ materially, especially given the current economic and capital markets 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 10:00 a.m. (ET) on Thursday, August 1, 2013. 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 2013 statistical supplement on its website, 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 $189 billion as of June 30, 2013. 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
Email: InvestorRelations@LFG.com

Media Contact:
Michael Arcaro
Email: Michael.Arcaro@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 global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the 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 reserve requirements related to secondary guarantee universal life and annuities; regulations regarding captive reinsurance arrangements; restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. Federal tax reform;
  • Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits and demand for our products;
  • Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities;
  • 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 class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
  • 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 risk management policies and procedures, including 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 ("IFRS"), 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;
  • Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
  • Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems;
  • 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 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.