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This document is dated October 30, 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 Third Quarter 2013 Results

Operating EPS of $1.34 up 6% drives ROE of 13%
Book Value per Share, excluding AOCI, of $44.37 up 11%
Enters into $4 billion Variable Annuity Living Benefit Reinsurance Agreement

Topics:   Third 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, October 30, 2013 — Lincoln Financial Group (NYSE:LNC) today reported net income for the third quarter of 2013 of $337 million, or $1.23 per diluted share, compared to net income in the third quarter of 2012 of $428 million, or $1.51 per diluted share. Net income in the prior-year quarter included $0.34 per diluted share of additional unlocking benefit compared to the current quarter. Third quarter income from operations was $367 million, or $1.34 per diluted share, compared to $362 million, or $1.27 per diluted share, in the third quarter of 2012.

"Lincoln delivered another quarter of strong earnings growth driven by strong sales, positive net flows and favorable equity markets," said Dennis R. Glass, president and CEO of Lincoln Financial Group. "Long-term ROE development is being helped by the sales growth of re-priced products, the change in new business mix to higher return products and significant share repurchase activity. The ability to sell more product at higher prices demonstrates the capacity of our franchise to build long-term value. In addition, our new $4 billion variable annuity living benefit reinsurance agreement is evidence of our industry leading innovation and commitment to product risk diversification."

(millions of dollars except per share data)      As of or For the
     Quarter Ended
      As of or For the
     Nine Months Ended
       2013            2012            2013            2012
Net Income (Loss) $ 337 $ 428 $ 893 $ 992
Net Income (Loss) Per Diluted Share 1.23 1.51 3.24 3.42
Revenues 3,009 2,954 8,847 8,562
Income (Loss) from Operations 367 362 1,002 974
Income (Loss) from Operations Per Diluted Share 1.34 1.27 3.63 3.36
Average Diluted Shares 273.7 284.7 276.0 289.8
ROE (Income from Operations) 12.7% 13.4% 11.8% 12.2%
ROE (Net Income) 11.7% 15.8% 10.5% 12.5%
Book Value per Share, Including AOCI $ 50.62 $ 54.94 $ 50.62 $ 54.94
Book Value per Share, Excluding AOCI 44.37 39.86 44.37 39.86

Operating Highlights — Third Quarter 2013 vs. Third Quarter 2012:

  • Consolidated account balances of $197 billion up 13%
  • Consolidated net flows of $2.3 billion up 76%
  • Operating revenues of $3.1 billion up 6%
  • Annuities total deposits of $3.6 billion up 36%
  • Retirement Plan Services total deposits of $1.9 billion up 8%
  • Life Insurance sales of $163 million up 46%
  • Group Protection sales of $107 million up 10%

The quarter included net favorable items of approximately $0.10, including $0.05 associated with the Company's annual review of DAC assumptions.

Third Quarter 2013 — Segment Results


The Annuities segment reported income from operations of $198 million in the quarter, up 42% from $139 million in the prior-year quarter. Gross annuity deposits in the third quarter of $3.6 billion drove net flows of $1.2 billion and a 15% increase in account values to $109 billion. Positive net flows and strong equity market performance contributed to the earnings growth.

Variable annuity deposits were $3.4 billion, up 56% from the prior-year quarter and down 13% from the second quarter of 2013. The sequential decrease in sales is a result of pricing and wholesaler compensation changes and reflects management's actions to limit the growth of sales of products that include long-term guarantees. As a result, variable annuity deposits without a guaranteed living benefit rider increased 20% from second quarter 2013 while deposits with a living benefit rider decreased 16% in the same period.

In October, the company entered into a reinsurance treaty covering new sales of its flagship variable annuity guaranteed living benefit product. Under the terms of the treaty, the reinsurer will provide 50% coinsurance on up to a total of $8 billion of new living benefit guarantee sales occurring through December 31, 2014. The company will retain 100% of the product cash flows excluding the living benefit guarantee.

The quarter included net favorable items of $4 million related primarily to taxes.

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Retirement Plan Services

Retirement Plan Services reported income from operations of $33 million compared to $29 million in the prior-year quarter.

Total deposits of $1.9 billion, up 8% versus the prior-year quarter, benefitted from strong sales in the Mid-Large market. Total net flows in the quarter were $219 million as compared to $232 million in the prior-year quarter. Both strong equity markets' performance and effective retention efforts drove a 14% increase in account balances to $49 billion.

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Life Insurance

Life Insurance income from operations was $140 million compared to $152 million in the prior-year quarter.

Life insurance sales of $163 million increased 46% over the prior-year quarter as the company's shift away from longer duration guarantees continued with increasing sales of higher return, less interest rate sensitive products. Sales of those products, which include variable universal life, indexed universal life, flexible premium MoneyGuard® and term life insurance products, increased by 124% over the prior-year quarter. Sales of guaranteed universal life accounted for just 19% of third quarter sales.

Life insurance in-force of $608 billion grew 4% and average account values of $39 billion increased 7% over the prior-year quarter.

The quarter included net favorable items of approximately $15 million related primarily to DAC unlocking. The prior-year quarter included $17 million of net positive items.

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Group Protection

For the third quarter, Group Protection income from operations was $23 million compared to $16 million in the prior-year period. The non-medical loss ratio was 73.4% compared to 75.7% in the prior-year quarter and within the company's targeted range.

Group Protection sales of $107 million for the quarter increased 10% from the same period last year. Non-medical net earned premiums were $494 million in the third quarter, up 10% over the year-ago period.

The quarter included net favorable items of approximately $3 million.

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Other Operations

Other Operations reported a loss from operations of $27 million in the quarter versus a gain of $26 million in the prior-year quarter.

The quarter included net favorable items of approximately $6 million related primarily to expenses. The prior-year quarter included net favorable items of approximately $58 million due to tax-related adjustments and partially offset by elevated expenses.

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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 $7 million as compared to a $3 million net gain in the prior-year quarter.
  • A $16 million variable annuity net derivatives loss, including positive hedge program performance of $6 million and a $22 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 $4.3 billion, pre-tax, on its available-for-sale securities at September 30, 2013. This compares to a net unrealized gain of $9.4 billion at September 30, 2012.

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During the quarter, the company repurchased 2.3 million shares of stock at a cost of $100 million. Year-to-date, the company has repurchased 10.0 million shares at a cost of $350 million. The quarter's average diluted share count of 273.7 million shares was down 4% from the third quarter of 2012, the result of repurchasing 13.8 million shares of stock since September 30, 2012.

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Book Value

As of September 30, 2013, book value per share, including accumulated other comprehensive income ("AOCI"), of $50.62 decreased 8% from a year ago. Book value per share, excluding AOCI, of $44.37 increased 11% 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 third quarter results with investors in a conference call beginning at 10:00 a.m. (ET) on Thursday, October 31, 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 third 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 $197 billion as of September 30, 2013. Through its affiliated companies, Lincoln Financial Group offers: annuities; life, group life, disability and dental insurance; employer-sponsored retirement 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, including another shut down of the U.S. federal government and/or failure to reach agreement on the U.S. federal government's debt ceiling, 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.