Indiana                

35-1140070

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)



150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania

19087

(Address of principal executive offices)

(Zip Code)



Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock

LNC

                 New York Stock Exchange

Warrants, each to purchase one share of common stock

LNC.WS

                 New York Stock Exchange



Item

Page

PART I

1.

Financial Statements



2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements – Cautionary Language

Introduction

    Executive Summary



    Critical Accounting Policies and Estimates

Results of Consolidated Operations

Results of Annuities



Results of Retirement Plan Services

Results of Life Insurance

Results of Group Protection



Results of Other Operations 



Realized Gain (Loss) and Benefit Ratio Unlocking



Consolidated Investments 

Review of Consolidated Financial Condition

   Liquidity and Capital Resources



3.

Quantitative and Qualitative Disclosures About Market Risk



4.

Controls and Procedures



PART II



1.

Legal Proceedings



1A.

Risk Factors



2.

Unregistered Sales of Equity Securities and Use of Proceeds



6.

Exhibits





Exhibit Index for the Report on Form 10-Q



Signatures







As of

As of

March 31,

December 31,



2019

2018



(Unaudited)

ASSETS

Investments:

Fixed maturity available-for-sale securities, at fair value (amortized cost:  2019 – $92,894; 2018 – $92,429)

$

$

Trading securities

Equity securities

Mortgage loans on real estate

Policy loans

Derivative investments

Other investments

Total investments

Cash and invested cash

Deferred acquisition costs and value of business acquired

Premiums and fees receivable

Accrued investment income

Reinsurance recoverables

Funds withheld reinsurance assets

Goodwill

Other assets

Separate account assets

Total assets

$

$



LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities

Future contract benefits

$

$

Other contract holder funds

Short-term debt

 -

Long-term debt

Reinsurance related embedded derivatives

Funds withheld reinsurance liabilities

Payables for collateral on investments

Other liabilities

Separate account liabilities

Total liabilities



Contingencies and Commitments (See Note 11)



Stockholders’ Equity

Preferred stock – 10,000,000 shares authorized

 -

 -

Common stock – 800,000,000 shares authorized; 202,987,229 and 205,862,760 shares

issued and outstanding as of March 31, 2019, and December 31, 2018, respectively

Retained earnings

Accumulated other comprehensive income (loss)

Total stockholders’ equity

Total liabilities and stockholders’ equity

$

$







For the Three



Months Ended



March 31,

2019

2018

Revenues

Insurance premiums

$

$

Fee income

Net investment income

Realized gain (loss):

Total other-than-temporary impairment losses on securities

)

)

Portion of loss recognized in other comprehensive income

 -

Net other-than-temporary impairment losses on securities recognized in earnings

)

)

Realized gain (loss), excluding other-than-temporary impairment losses on securities

)

Total realized gain (loss)

)

Amortization of deferred gain on business sold through reinsurance

 -

Other revenues

Total revenues

Expenses

Interest credited

Benefits

Commissions and other expenses

Interest and debt expense

Strategic digitization expense

Total expenses

Income (loss) before taxes

Federal income tax expense (benefit)

Net income (loss)

Other comprehensive income (loss), net of tax

)

Comprehensive income (loss)

$

$

)



Net Income (Loss) Per Common Share

Basic

$

$

Diluted



Cash Dividends Declared Per Common Share

$

$







For the Three



Months Ended



March 31,



2019

2018



Common Stock

Balance as of beginning-of-year

$

$

Stock compensation/issued for benefit plans

)

Retirement of common stock/cancellation of shares

)

 -

Balance as of end-of-period



Retained Earnings

Balance as of beginning-of-year

Cumulative effect from adoption of new accounting standards

 -

)

Net income (loss)

Retirement of common stock

)

 -

Common stock dividends declared

)

)

Balance as of end-of-period



Accumulated Other Comprehensive Income (Loss)

Balance as of beginning-of-year

Cumulative effect from adoption of new accounting standards

 -

Other comprehensive income (loss), net of tax

)

Balance as of end-of-period

Total stockholders’ equity as of end-of-period

$

$





For the Three



Months Ended



March 31,



2019

2018

Cash Flows from Operating Activities

Net income (loss)

$

$

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Deferred acquisition costs, value of business acquired, deferred sales inducements

and deferred front-end loads deferrals and interest, net of amortization

)

Trading securities purchases, sales and maturities, net

)

Change in premiums and fees receivable

)

)

Change in accrued investment income

)

)

Change in future contract benefits and other contract holder funds

)

)

Change in reinsurance related assets and liabilities

)

)

Change in accrued expenses

)

)

Change in federal income tax accruals

Realized (gain) loss

)

Amortization of deferred gain on business sold through reinsurance

)

 -

Other

Net cash provided by (used in) operating activities

)



Cash Flows from Investing Activities

Purchases of available-for-sale securities and equity securities

)

)

Sales of available-for-sale securities and equity securities

Maturities of available-for-sale securities

Purchases of alternative investments

)

)

Sales and repayments of alternative investments

Issuance of mortgage loans on real estate

)

)

Repayment and maturities of mortgage loans on real estate

Issuance and repayment of policy loans, net

Net change in collateral on investments, derivatives and related settlements

)

Other

)

)

Net cash provided by (used in) investing activities

)

)



Cash Flows from Financing Activities

Payment of long-term debt, including current maturities

 -

)

Issuance of long-term debt, net of issuance costs

 -

Payment related to early extinguishment of debt

 -

)

Deposits of fixed account values, including the fixed portion of variable

Withdrawals of fixed account values, including the fixed portion of variable

)

)

Transfers to and from separate accounts, net

)

)

Common stock issued for benefit plans

)

)

Repurchase of common stock

)

 -

Dividends paid to common stockholders

)

)

Net cash provided by (used in) financing activities



Net increase (decrease) in cash, invested cash and restricted cash

)

Cash, invested cash and restricted cash as of beginning-of-year

Cash, invested cash and restricted cash as of end-of-period

$

$



Standard

Description

Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2016-02, Leases and all related amendments

This standard establishes a new accounting model for leases.  Lessees will recognize most leases on the balance sheet as a right-of-use (“ROU”) asset and a related lease liability.  The lease liability is measured as the present value of the lease payments over the lease term with the ROU asset measured at the lease liability amount and including adjustments for certain lease incentives and initial direct costs.  Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP.  This ASU permits a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption.  Early adoption is permitted.

January 1, 2019

We adopted this standard and all related amendments, which resulted in the recognition of $207 million in ROU assets and $214 million in operating lease liabilities reported in other assets and other liabilities, respectively, on our Consolidated Balance Sheets as of January 1, 2019.  Comparative periods continue to be measured and presented under historical guidance, and only the period of adoption is subject to this ASU.  Also, on transition, we have elected not to reassess:  1) whether expired or existing contracts contain a lease under the new definition of a lease; 2) lease classification for expired or existing leases; and 3) whether previously capitalized initial direct costs would qualify for capitalization under this ASU.  Additionally, there is not a significant difference in our pattern of lease expense recognition under this ASU, and there is no impact on cash flows.  For more information, see Note 11.

ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities

These amendments require an entity to shorten the amortization period for certain callable debt securities held at a premium so that the premium is amortized to the earliest call date.  Early adoption is permitted, and the ASU requires adoption under a modified retrospective basis through a cumulative effect adjustment to the beginning balance of retained earnings.

January 1, 2019

We adopted the provisions of this ASU, which did not result in a change to our existing practices; therefore, no cumulative effect adjustment was recorded.  As such, there was no impact on our consolidated financial condition and results of operations.

ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities

These amendments change both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.  These amendments retain the threshold of highly effective for hedging relationships, remove the requirement to bifurcate between the portions of the hedging relationship that are effective and ineffective, record hedge item and hedging instrument results in the same financial statement line item, require quantitative assessment initially for all hedging relationships unless the hedging relationship meets the definition of either the shortcut method or critical terms match method and allow the contractual specified index rate to be designated as the hedged risk in a cash flow hedge of interest rate risk of a variable rate financial instrument.  These amendments also eliminate the benchmark interest rate concept for variable rate instruments.  Early adoption is permitted. 

January 1, 2019

We adopted the provisions of this ASU, which did not have an impact on our consolidated financial condition and results of operations.  This ASU does result in our modification of certain hedge documentation and effectiveness methods, which we have reflected in applicable disclosures in Note 6.



Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

ASU 2016-13, Measurement of Credit Losses on Financial Instruments

These amendments adopt a new model to measure and recognize credit losses for most financial assets.  The method used to measure estimated credit losses for available-for-sale (“AFS”) debt securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the amortized cost of those debt securities.  The amendments will permit entities to recognize improvements in credit loss estimates on AFS debt securities by reducing the allowance account immediately through earnings.  The amendments will be adopted through a cumulative effect adjustment to the beginning balance of retained earnings as of the first reporting period in which the amendments are effective.  Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein.             

January 1, 2020

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations, with a primary focus on our fixed maturity securities, mortgage loans and reinsurance recoverables.

ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts

These amendments make changes to the accounting and reporting for long-duration contracts issued by an insurance entity that will significantly change how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and deferred acquisition costs (“DAC”).  Under this ASU, insurers will be required to review cash flow assumptions at least annually and update them if necessary.  They also will have to make quarterly updates to the discount rate assumptions they use to measure the liability for future policyholder benefits.  The ASU creates a new category of market risk benefits (i.e., features that protect the contract holder from capital market risk and expose the insurer to that risk) that insurers will have to measure at fair value.  The ASU provides various transition methods by topic that entities may elect upon adoption.  Early adoption is permitted.     

January 1, 2021

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations.







Preliminary



Fair Value

Assets

Investments

$

Mortgage loans on real estate

Cash and invested cash

Reinsurance recoverables

Premiums and fees receivable

Accrued investment income

Other intangible assets acquired

Other assets acquired

Separate account assets

Total assets acquired

$



Liabilities

Future contract benefits

$

Other contract holder funds

Other liabilities acquired

Separate account liabilities

Total liabilities assumed

$



Net identifiable assets acquired

$

Goodwill

Net assets acquired

$







For the Three



Months Ended



March 31,



2018

Revenue

$

Net income







As of March 31, 2019

As of December 31, 2018



Number

Number



of

Notional

Carrying

of

Notional

Carrying



Instruments

Amounts

Value

Instruments

Amounts

Value

Assets

Fixed maturity securities:

Total return swap

$

$

 -

$

$

 -

Total assets

$

$

 -

$

$

 -









As of March 31, 2019



Amortized

Gross Unrealized

Fair



Cost

Gains

Losses

OTTI (1)

Value

Fixed maturity AFS securities:

Corporate bonds

$

$

$

$

$

ABS

)

U.S. government bonds

 -

Foreign government bonds

 -

 -

RMBS

)

CMBS

)

CLOs

)

State and municipal bonds

 -

Hybrid and redeemable preferred securities

 -

Total fixed maturity AFS securities

$

$

$

$

)

$







As of December 31, 2018



Amortized

Gross Unrealized

Fair



Cost

Gains

Losses

OTTI (1)

Value

Fixed maturity AFS securities:

Corporate bonds

$

$

$

$

)

$

ABS

)

U.S. government bonds

 -

Foreign government bonds

 -

 -

RMBS

)

CMBS

)

CLOs

)

State and municipal bonds

 -

Hybrid and redeemable preferred securities

 -

Total fixed maturity AFS securities

$

$

$

$

)

$

⁽¹⁾

Includes unrealized (gains) and losses on credit-impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date.







Amortized

Fair



Cost

Value

Due in one year or less

$

$

Due after one year through five years

Due after five years through ten years

Due after ten years

Subtotal

Structured securities (ABS, MBS, CLOs)

Total fixed maturity AFS securities

$

$







As of March 31, 2019

Less Than or Equal

Greater Than



to Twelve Months

Twelve Months

Total



Gross 

Gross 

Gross 

Unrealized

Unrealized

Unrealized



Fair

Losses and

Fair

Losses and

Fair

Losses and



Value

OTTI

Value

OTTI

Value

OTTI

Fixed maturity AFS securities:

Corporate bonds

$

$

$

$

$

$

ABS

U.S. government bonds

 -

RMBS

CMBS

 -

CLOs

State and municipal bonds

Hybrid and redeemable

preferred securities

Total fixed maturity AFS securities

$

$

$

$

$

$



Total number of fixed maturity AFS securities in an unrealized loss position







As of December 31, 2018

Less Than or Equal

Greater Than



to Twelve Months

Twelve Months

Total



Gross 

Gross 

Gross 

Unrealized

Unrealized

Unrealized



Fair

Losses and

Fair

Losses and

Fair

Losses and



Value

OTTI

Value