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This document is dated May 2, 2012. 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 First Quarter 2012 Results

Operating Return on Equity of 11.2% on Book Value Per Share Growth of 4.5%
Strong Sales Increases in Retirement Plan Services and Group Protection Reflect Strategic Investments
Repurchased $150 million of Shares in the Quarter

Topics:   First Quarter 2012 — Segment Results   | Annuities  | Retirement Plan Services  | Life Insurance  | Group Protection  | Other Operations  | Realized Gains and Losses  | Unrealized Gains and Losses  | Capital  | ASU 2010-26  | Book Value  | Reconciliation Table & Digest of Earnings

PHILADELPHIA, May 2, 2012 — Lincoln Financial Group (NYSE:LNC) today reported net income for the first quarter of 2012 of $245 million, or $0.83 per diluted share, compared to net income in the first quarter of 2011 of $314 million, or $0.97 per diluted share.

First quarter income from operations was $296 million, or $1.00 per diluted share, compared to $322 million, or $1.00 per diluted share, in the first quarter of 2011.

($ in millions except per share data) For the Quarter Ended
2012 2011
Net Income (Loss) $ 245 $ 314
Net Income (Loss) Per Diluted Share 0.83 0.97
Income (Loss) from Operations 296 322
Income (Loss) from Operations Per Diluted Share 1.00 1.00
Average Diluted Shares 295.9 322.9
ROE (Income from Operations) 11.2% 11.6%
ROE (Net Income) 9.3% 11.3%
Book value per share, including AOCI $ 46.43 $ 38.45
Book value per share, excluding AOCI $ 37.25 $ 35.67

"Our strong first quarter operating results continue to reflect the actions we have taken to grow our top line and protect margins across our businesses." said Dennis R. Glass, president and CEO of Lincoln Financial Group. "Sales increases in Retirement Plan Services and Group Protection are the direct result of strategic investments we have made in these areas, while strong capital generation drove higher share repurchases."

First Quarter 2012 Highlights:

  • Total account balances increased 5% and reached a record $170 billion.
  • Positive net flows helped drive record annuity account balances of $92 billion.
  • Retirement Plan Services deposits of $1.5 billion, up 13%, helped drive a 58% increase in net flows to $212 million.
  • Sales of Moneyguard® increased 19% to $41 million.
  • Group Protection sales increased 47% to $67 million in response to investments in distribution and product expansion.

The current quarter included no items of note while the prior year quarter included $34 million (as adjusted for ASU 2010-26) of net positive notable items.

First Quarter 2012 — Segment Results


Annuities
The Annuities segment reported income from operations of $137 million in the first quarter of 2012 compared to $144 million in the year-ago period which included $18 million of net positive notable items.

Variable annuity deposits of $2.2 billion were flat with the prior-year quarter and up 8% from the fourth quarter driven by strong equity market performance and consistent with industry growth. Variable annuity net flows of $0.5 billion were in line with the prior-year quarter.

Fixed annuity deposits of $295 million were down 35% from the first quarter of last year as low interest rates continued to dampen demand. Fixed annuity net outflows were $170 million compared to net inflows of $31 million in the prior-year quarter.

Account values ended the quarter at a record $92 billion, up 4% from the prior-year quarter and up 7% from the fourth quarter.

Retirement Plan Services
Retirement Plan Services reported income from operations of $35 million compared to $48 million in the year-ago period, which included $9 million of net positive notable items.

Our investments in technology and distribution continue to advance business results. Gross deposits of $1.5 billion were up 13% versus the prior-year quarter and benefitted from a 74% increase in small case sales. These strong deposits, along with improved retention and market growth, drove quarter end account balances to a record high $42 billion. Total net flows in the current quarter were $212 million, up 58% as compared to the 2011 quarter.

Life Insurance
Life Insurance income from operations was $142 million compared to $142 million in the first quarter of 2011 which included $2 million of net positive notable items.

Life insurance sales of $122 million decreased 24% over the prior-year quarter reflecting a decline in secondary guarantee universal life sales in response to pricing actions. The company's strategy to direct sales to higher return products, including indexed universal life, variable universal life and term insurance, was successful as the aggregate sales of these products increased 11% over the prior-year quarter.

Life insurance in force of $580 billion grew 2% and account values of $36 billion increased 5% over the prior-year quarter.

Group Protection
For the first quarter, Group Protection income from operations was $16 million, compared to $24 million in the prior-year period, which included $5 million of notable items. The non-medical loss ratio of 75% in the current quarter increased from 74% in the first quarter of 2011 due to a fluctuation in mortality, which led to higher than expected claims.

Group Protection sales of $67 million for the quarter increased 47% from lower than expected sales in the prior-year quarter. Non-medical net earned premiums were $431 million in the first quarter, up 7% over the year-ago period on strong sales.

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Other Operations

The operating loss in Other Operations was $34 million in the quarter versus a loss of $37 million in the prior-year quarter.

Realized Gains and Losses

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

  • A net gain from general account investments of $6 million, as compared to a $3 million net loss in the prior-year quarter.
  • Strong performance by the variable annuity hedge program of $19 million was offset by a non-economic adjustment of $84 million related to the non-performance risk reserve component, which is unhedged.

Unrealized Gains and Losses

The company reported a net unrealized gain of $6.4 billion, pre-tax, on its available-for-sale securities as of March 31, 2012, compared to a net unrealized gain of $2.8 billion as of March 31, 2011, and $6.5 billion as of December 31, 2011.

Capital

During the quarter, the company completed the following capital-related transactions:

  • Repurchased 6 million shares of stock at a cost of $150 million.
  • Issued $300 million of 4.20% Senior Notes due 2022 with proceeds to be used to refinance $300 million of 5.65% senior debt maturing in August.

ASU 2010-26, Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

The financial results reported for the quarter reflect the retrospective adoption of ASU 2010-26, effective January 1, 2012. In accordance with ASU 2010-26, which modifies the accounting guidance for deferred acquisition costs ("DAC"), the company has adjusted its financial results for the periods prior to the first quarter of 2012.

Book Value

As of March 31, 2012, book value per share of common stock, including accumulated other comprehensive income ("AOCI"), increased 21% to $46.43 from a year ago. Book value per share, excluding AOCI, was $37.25 up 4.5% from $35.67 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 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 first quarter results with investors in a conference call beginning at 10:00 a.m. (ET) on Thursday, May 3, 2012. 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 first quarter 2012 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 $170 billion as of March 31, 2012. 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.

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

Media Contact:
Michael Arcaro
484-583-1799
Email: 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 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 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 guarantees under universal life such as a change to reserve calculations under Actuarial Guideline 38, or "AG38" (also known as The Application of the Valuation of Life Insurance Policies Model Regulation) 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 class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
  • 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;
  • 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 the potential incorporation of International Financial Reporting Standards into the U.S Financial Reporting System 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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Hello future.
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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