485BPOS 1 a20-7341_1485bpos.htm POST-EFFECTIVE AMENDMENT FILED PURSUANT TO SECURITIES ACT RULE 485(B)
As filed with the Securities and Exchange Commission on April 23, 2020
1933 Act Registration No. 333-04999
1940 Act Registration No. 811-07645
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 33
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 121
Lincoln National Variable Annuity Account L
(Exact Name of Registrant)
Group Variable Annuity I, II & III
THE LINCOLN NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
1300 South Clinton Street
Post Office Box 1110
Fort Wayne, Indiana 46801
(Address of Depositor’s Principal Executive Offices)
Depositor’s Telephone Number, Including Area Code: (260) 455-2000
Leon E. Roday, Esquire
The Lincoln National Life Insurance Company
150 North Radnor Chester Road
Radnor, PA 19087
(Name and Address of Agent for Service)
Copy to:
Scott C. Durocher, Esquire
The Lincoln National Life Insurance Company
350 Church Street
Hartford, Connecticut 06103
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective:
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 2020, pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on __________, pursuant to paragraph (a)(1) of Rule 485
Title of Securities being registered:
Interests in a separate account under group flexible
payment deferred variable annuity contracts.
Lincoln National Variable Annuity Account L
Group Variable Annuity Contracts I, II, & III  
May 1, 2020
Home Office:
The Lincoln National Life Insurance Company
1300 South Clinton Street
Fort Wayne, IN 46802
Servicing Office:
The Lincoln National Life Insurance Company
PO Box 2340
Fort Wayne, IN 46801-2340
1-800-341-0441
www.LincolnFinancial.com
 
This prospectus describes a group annuity contract and an individual certificate that is issued by The Lincoln National Life Insurance Company (Lincoln Life or Company). This prospectus is for use with qualified retirement plans. Generally, you do not pay federal income tax on the contract's growth until it is paid out. Qualified retirement plans already provide for tax deferral. Therefore, there should be reasons other than tax deferral for acquiring the contract within a qualified plan. The contract is designed to accumulate Account Value , and as permitted by the plan, to provide retirement income over a certain period of time, or for life, subject to certain conditions. If the Annuitant dies before the Annuity Commencement Date, a Death Benefit may be payable.
If the Contractowner gives certain rights to Plan Participants, we issue active life certificates to them. Participants choose whether Account Value accumulates on a variable or a fixed (guaranteed) basis or both. If a Participant allocates contributions to the fixed account, we guarantee principal and a minimum interest rate.
All contributions for benefits on a variable basis will be placed in Lincoln National Variable Annuity Account L (VAA). The VAA is a segregated investment account of Lincoln Life. If a Participant puts all or some contributions into one or more of the contract's Subaccounts, the Participant takes all the investment risk on the Account Value and the retirement income. If the selected Subaccounts make money, Account Value goes up; if they lose money, it goes down. How much it goes up or down depends on the performance of the selected Subaccounts. We do not guarantee how any of the Subaccounts or their funds will perform. Also, neither the U.S. Government nor any federal agency insures or guarantees the investment in the contract.
The available Subaccounts, and the funds in which they invest, are listed below. The Contractowner decides which of these Subaccounts are available under the contract for Participant allocations. For more information about the investment objectives, policies and risk of the funds please refer to the Prospectuses for the funds.
AllianceBernstein Variable Products Series Fund:
AB VPS Global Thematic Growth Portfolio
AB VPS Large Cap Growth Portfolio
American Century Variable Portfolios, Inc.:
American Century VP Balanced Fund
American Funds Insurance Series®:
American Funds Global Growth Fund
American Funds Growth Fund
American Funds Growth-Income Fund
American Funds International Fund
BlackRock Variable Series Funds, Inc.:
BlackRock Global Allocation V.I. Fund
Delaware VIP® Trust:
Delaware VIP® Diversified Income Series
Delaware VIP® High Yield Series
Delaware VIP® REIT Series
Delaware VIP® Small Cap Value Series
Delaware VIP® Smid Cap Core Series
Deutsche DWS Variable Series II:
DWS Alternative Asset Allocation VIP Portfolio
Fidelity® Variable Insurance Products:
Fidelity® VIP Asset Manager Portfolio
Fidelity® VIP Contrafund® Portfolio
Fidelity® VIP Freedom 2020 PortfolioSM
Fidelity® VIP Freedom 2025 PortfolioSM
Fidelity® VIP Freedom 2030 PortfolioSM
Fidelity® VIP Freedom 2035 PortfolioSM
Fidelity® VIP Freedom 2040 PortfolioSM
Fidelity® VIP Freedom 2045 PortfolioSM
Fidelity® VIP Freedom 2050 PortfolioSM
Fidelity® VIP Freedom 2055 PortfolioSM
Fidelity® VIP Freedom 2060 PortfolioSM
Fidelity® VIP Growth Portfolio
Janus Aspen Series:
Janus Henderson Global Research Portfolio
Lincoln Variable Insurance Products Trust:
LVIP Baron Growth Opportunities Fund
LVIP BlackRock Advantage Allocation Fund
LVIP BlackRock Global Real Estate Fund
LVIP BlackRock Inflation Protected Bond Fund
LVIP Blended Large Cap Growth Managed Volatility Fund
LVIP Blended Mid Cap Managed Volatility Fund
LVIP Delaware Bond Fund
LVIP Delaware Diversified Floating Rate Fund
LVIP Delaware Social Awareness Fund
LVIP Delaware Wealth Builder Fund
LVIP Dimensional U.S. Core Equity 1 Fund
LVIP Franklin Templeton Global Equity Managed Volatility Fund
LVIP Global Conservative Allocation Managed Risk Fund
 
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LVIP Global Growth Allocation Managed Risk Fund
LVIP Global Income Fund
LVIP Global Moderate Allocation Managed Risk Fund
LVIP JPMorgan Retirement Income Fund
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund
LVIP Mondrian International Value Fund
LVIP SSGA Bond Index Fund
LVIP SSGA Emerging Markets 100 Fund
LVIP SSGA Global Tactical Allocation Managed Volatility Fund
LVIP SSGA International Index Fund
LVIP SSGA International Managed Volatility Fund
LVIP SSGA S&P 500 Index Fund**
LVIP SSGA Small-Cap Index Fund
LVIP T. Rowe Price 2010 Fund
LVIP T. Rowe Price 2020 Fund
LVIP T. Rowe Price 2030 Fund
LVIP T. Rowe Price 2040 Fund
LVIP T. Rowe Price 2050 Fund
LVIP T. Rowe Price 2060 Fund*
LVIP T. Rowe Price Structured Mid-Cap Growth Fund
Neuberger Berman Advisers Management Trust:
Neuberger Berman AMT Sustainable Equity Portfolio
T. Rowe Price International Series, Inc.
T. Rowe Price International Stock Portfolio
*Refer to the Description of Funds section of this prospectus for specific information regarding availability of funds.
** The Index to which this fund is managed is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by one or more of the portfolio’s service providers (licensee). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (S&P); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by the licensees. S&P®, S&P GSCI® and the Index are trademarks of S&P and have been licensed for use by SPDJI and its affiliates and sublicensed for certain purposes by the licensee. The Index is not owned, endorsed, or approved by or associated with any additional third party. The licensee’s products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, their respective affiliates, or their third party licensors, and none of these parties or their respective affiliates or third party licensors make any representation regarding the advisability of investing in such products, nor do they have any liability for any errors, omissions, or interruptions of the Index.
Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission (“SEC”), you may not be receiving paper copies of the funds’ shareholder reports from us by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and we will notify you by mail each time a report is posted and will provide you with a website link to access the report. We will also provide instructions for requesting paper copies.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you do not need to take any action. You may elect to receive shareholder reports and other communications electronically by following the instructions we have provided.
You may elect to receive all future reports in paper free of charge by informing us that you wish to continue receiving paper copies of your shareholder reports by contacting us at the telephone number listed on the first page of this prospectus. Your election to receive reports in paper will apply to all funds available under your contract.
This prospectus gives you information about the contracts and certificates that contractowners and participants should know before investing. You should also review the prospectuses for the funds that accompany this prospectus, and keep all prospectuses for future reference.
Neither the SEC nor any state securities commission has approved this contract or determined that this prospectus is accurate or complete. Any representation to the contrary is a criminal offense.
More information about the contracts is in the current Statement of Additional Information (SAI), dated the same date as this prospectus. The SAI terms are made part of this prospectus, and for a free copy of the SAI, write: The Lincoln National Life Insurance Company, P. O. Box 2340, Fort Wayne, IN 46808 or call 1-800-341-0441. The SAI and other information about Lincoln Life and the VAA are also available on the SEC's website (http://www.sec.gov). There is a table of contents for the SAI on the last page of this prospectus.
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Table of Contents
Item Page
Special Terms 4
Expense Tables 5
Summary of Common Questions 6
Condensed Financial Information 7
The Lincoln National Life Insurance Company 8
Fixed Side of the Contract 9
Variable Annuity Account (VAA) 9
Investments of the VAA 10
Charges and Other Deductions 14
The Contracts 18
Purchase of the Contracts 18
Transfers On or Before the Annuity Commencement Date 20
Death Benefit Before the Annuity Commencement Date 22
Withdrawals 22
Annuity Payouts 25
Distribution of the Contracts 26
Federal Tax Matters 27
Additional Information 31
Voting Rights 31
Return Privilege 31
State Regulation 32
Records and Reports 32
Cyber Security and Business Interruption Risks 32
Other Information 32
Legal Proceedings 33
Contents of the Statement of Additional Information (SAI) for Lincoln National Variable Annuity Account L 35
Appendix A—Condensed Financial Information A-1
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Special Terms
In this prospectus, the following terms have the indicated meanings:
Account or Variable Annuity Account (VAA)—The segregated investment account, Account L, into which we set aside and invest the assets for the variable side of the contract offered in this prospectus.
Account Value—At a given time before the Annuity Commencement Date, the value of all Accumulation Units for a contract plus the value of the fixed side of the contract.
Accumulation Unit—A measure used to calculate Contract Value for the variable side of the contract before the Annuity Commencement Date.
Annuitant—The person upon whose life the annuity benefit payments are based, and upon whose death a Death Benefit may be paid.
Annuity Commencement Date—The Valuation Date when funds are withdrawn or converted into Annuity Units or fixed dollar payout for payment of retirement income benefits under the Annuity Payout option you select .
Annuity Payout—A regularly scheduled payment (under any of the available annuity options) that occurs after the Annuity Commencement Date. Payments may be variable or fixed, or a combination of both.
Annuity Unit—A measure used to calculate the amount of Annuity Payouts for the variable side of the contract after the Annuity Commencement Date.
Beneficiary—The person or entity designated by the Participant to receive any Death Benefit paid if the Participant dies before the Annuity Commencement Date.
Contractowner—The party named on the group annuity contract (for example, an employer, a retirement plan trust, an association, or other entity allowed by law).
Contributions—Amounts paid into the contract.
Death Benefit—Before the Annuity Commencement Date, the amount payable to your designated Beneficiary if a Participant dies.
FINRA—Financial Industry Regulatory Authority.
Good Order—The actual receipt at our Home Office of the requested transaction in writing or by other means we accept, along with all information and supporting legal documentation necessary to complete the transaction. The forms we provide will identify the necessary documentation. We may, in our sole discretion, determine whether any particular transaction request is in Good Order, and we reserve the right to change or waive any Good Order requirements at any time.
Lincoln Life (we, us, our, Company)—The Lincoln National Life Insurance Company.
Participant—An employee or other person affiliated with the Contractowner on whose behalf we maintain an account under the contract.
Participant Year—A 12-month period starting with the date we receive the first contribution on behalf of a Participant and on each anniversary after that.
Plan—The retirement program that an employer offers to its employees for which a contract is used to accumulate funds.
SEC—Securities and Exchange Commission.
Subaccount—The portion of the VAA that reflects investments in Accumulation and Annuity Units of a class of a particular fund available under the contracts. There is a separate Subaccount which corresponds to each class of a fund.
Valuation Date—Each day the New York Stock Exchange (NYSE) is open for trading.
Valuation Period—The period starting at the close of trading (normally 4:00 p.m. New York time) on each day that the NYSE is open for trading (Valuation Date) and ending at the close of such trading on the next Valuation Date.
 
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Expense Tables
The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the contract.
The following table describes the fees and expenses that Contractowners or Participants will pay at the time that you buy the contract, surrender the contract, or transfer contract value between investment options and/or the fixed account. State premium taxes may also be deducted.
Contractowner/Participant Transaction Expenses for GVA I, II & III:
The maximum surrender charge (contingent deferred sales charge) (as a percentage of an Account Value withdrawn):
GVA I   GVA II   GVA III
5%*   6%*   None
* The surrender charge percentage is reduced over time. The later the redemption occurs, the lower the surrender charge with respect to that surrender or withdrawal. We may reduce or waive this charge in certain situations. See Charges and Other Deductions – Surrender Charges.
The next table describes the fees and expenses that you will pay periodically during the time that you own the contract, not including fund fees and expenses.
Annual account fee (per Participant): $25
Loan establishment fee (per loan): $50
Systematic withdrawal option fee: $30
The annual fee may be paid by an employer on behalf of Participants. It is not charged during the annuity period. We may reduce or waive these charges in certain situations. See Charges and Other Deductions.
Separate Account L expenses for GVA I, II, & III Subaccounts (as a percentage of average daily net assets in the Subaccounts):
“standard” mortality and expense risk charge
1.00%
“breakpoint” mortality and expense charge*
.75%
* Only certain contract or plans are eligible for a breakpoint charge. See – Charges and Other Deductions.
The next item shows the minimum and maximum total annual operating expenses charged by the funds that you may pay
periodically during the time that you own the contract. The expenses are for the year ended December 31, 2019, adjusted to reflect anticipated changes in fees and expenses, or, for new portfolios, are based on estimates for the current fiscal year. More detail concerning each fund's fees and expenses is contained in the prospectus for each fund.
  Minimum   Maximum
Total Annual Fund Operating Expenses (expenses that are deducted from fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses)
0.23%   2.08%
Total Annual Fund Operating Expenses (after contractual waivers/reimbursements*)
0.23%   1.24%
*Some of the funds have entered into contractual waiver or reimbursement arrangements that may reduce fund management and other fees and/or expenses during the period of the arrangement. These arrangements vary in length, but no arrangement will terminate before April 30, 2021. There can be no assurance that fund expense waivers or reimbursements will be extended beyond their current terms as outlined in each fund prospectus, and they may not cover certain expenses such as extraordinary expenses. Certain of these arrangements may provide that amounts previously waived or reimbursed may be recovered in future years. See each fund prospectus for complete information regarding annual operating expenses and any waivers or reimbursements in effect for a particular fund.
Certain underlying funds have reserved the right to impose fees when fund shares are redeemed within a specified period of time of purchase (“redemption fees”). As of the date of this prospectus, none have done so. See The Contracts - Market Timing for a discussion of redemption fees.
For information concerning compensation paid for the sale of the contracts, see Distribution of the Contracts.
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EXAMPLES
This Example is intended to help Contractowners or Participants compare the cost of investing in the contract with the cost of investing in other variable annuity contracts. These costs include Contractowner/Participant transaction expenses, contract fees, separate account annual expenses, and fund fees and expenses.
The Example assumes that you invest $10,000 in the contract for the time periods indicated. The Example also assumes that your investment has a 5% return each year, the maximum fees and expenses of any of the funds. Although your actual costs may be higher or lower, based on these assumptions, your costs would be:
1) If you surrender your contract at the end of the applicable period:
  1 year   3 years   5 years   10 years
GVA I Standard*
$824   $1,491   $2,184   $3,500
GVA II Standard*
$926   $1,597   $2,294   $3,791
GVA III Standard*
$312   $954   $1,620   $3,402
2) If you do not surrender your contract at the end of the applicable time period:
  1 year   3 years   5 years   10 years
GVA I Standard*
$315   $963   $1,635   $3,430
GVA II Standard*
$315   $963   $1,635   $3,430
GVA III Standard*
$312   $954   $1,620   $3,402
* Examples shown may be less for plans qualifying for “breakpoint” mortality and expense risk charge.
The Expense Tables reflect expenses of the VAA as well as the maximum fees and expenses of any of the funds. We provide these examples, which are unaudited, to show the direct and indirect costs and expenses of the contract.
For more information, See – Charges and Other Deductions in the prospectus, and in the prospectuses for the funds. Premium taxes may also apply, although they do not appear in the examples. These examples should not be considered a representation of past or future expense. Actual expenses may be more or less than those shown.
Summary of Common Questions
What kind of contract is this? It is a group variable annuity contract between the Contractowner and Lincoln Life. It may provide for a fixed annuity and/or a variable annuity. This prospectus primarily describes the variable side of the contract. See The Contracts. This prospectus provides a general description of the contract. The contract and certain riders, benefits, service features and enhancements may not be available in all states, and the charges may vary in certain states. You should refer to your contract for any state specific provisions. Please check with your investment representative regarding their availability.
What is the Variable Annuity Account (VAA)? It is a separate account we established under Indiana insurance law, and registered with the SEC as a unit investment trust. VAA assets are allocated to one or more Subaccounts, according to your investment choices. VAA assets are not chargeable with liabilities arising out of any other business which we may conduct. See Variable Annuity Account.
What are my investment choices? You may allocate your Purchase Payments to the VAA or to the fixed account, if available. Based upon your instruction for Purchase Payments, the VAA applies your Purchase Payments to one or more of the Subaccounts, which, in turn, invests in a corresponding underlying fund. Each fund holds a portfolio of securities consistent with its investment policy. See Investments of the Variable Annuity Account – Description of the Funds.
Who invests my money? Several different investment advisers manage the investment options. See Investments of the Variable Annuity Account – Description of the Funds.
How do the contracts work? If we approve the application, we will send the Contractowner a contract. When Participants make Contributions, they buy Accumulation Units. If the Participant decides to receive retirement income payments, we convert Accumulation Units to Annuity Units. Retirement income payments will be based on the number of Annuity Units received and the value of each Annuity Unit on payout days. See – The Contracts and Annuity Payouts.
What charges do I pay under the contract?
If Participants in GVA I or GVA II withdraw account values, a surrender charge of 0-5% or 0-6%, respectively, of the gross withdrawal amount applies depending upon how many participation years the Participant has been in the contract. We may reduce or waive surrender charges in certain situations. See Charges and Other Deductions – Surrender Charge for GVA I and GVA II.
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There is no surrender charge for GVA III.
We charge an annual account fee charge of $25 per Participant Account. We will deduct any applicable premium tax from contributions or Account Value at the time the tax is incurred or at another time we choose or a time as required by law.
We apply a charge to the daily net asset value of the VAA and those charges are:
“standard” mortality and expense risk charge
1.00%
“breakpoint” mortality and expense charge*
.75%
See—Charges and Other Deductions.
The funds' investment management fees, 12b-1 fees, expenses and expense limitations, if applicable, are more fully described in the prospectuses for the funds.
What contributions are necessary, and how often? Contributions made on behalf of Participants may be in any amount, subject to Company maximum limits, unless the Contractowner or the plan has a minimum amount. See The Contracts – Contributions.
How will my Annuity Payouts be calculated? If a Participant decides to annuitize, you may select an annuity option and start receiving Annuity Payouts from your contract as a fixed option or variable option or a combination of both. See Annuity Payouts - Annuity Options. The dollar amount of the first periodic variable Annuity Payout is determined by applying the total value of your Accumulation Units to the annuity tables contained in the contract. See the SAI – Annuity Payouts for more information on how Annuity Payouts are calculated. Participants in the VAA benefit from any gain, and take a risk of any loss, in the value of the securities in the funds' portfolios, which would decrease the amount applied to any payout option and the related payments.
What happens if a Participant dies before annuitizing? Depending upon the Plan, the Beneficiary may receive a Death Benefit and have options as to how the Death Benefit is paid. See The Contracts – Death Benefit.
What happens if I die on or after the Annuity Commencement Date? Once you reach the Annuity Commencement Date, any applicable Death Benefit will terminate.
May Participants transfer Account Value between Subaccounts, and between the VAA and the fixed account? Before the Annuity Commencement Date, yes, subject to the terms of the Plan. See The Contracts – Transfers On or Before the Annuity Commencement Date and Transfers After the Annuity Commencement Date.
May a Participant withdraw Account Value? Yes, during the accumulation period, subject to contract requirements, to the restrictions of any Plan, and to certain restrictions under GVA III. See – Charges and Other Deductions. Under GVA III the following restrictions apply:
• a Participant may not transfer more than 20% of his or her fixed account holdings to the VAA each year, unless the Participant intends to liquidate his or her fixed Account Value;
• liquidation of the entire fixed account value must be over 5 annual installments. See Fixed Account Withdrawal/Transfer Limits for GVA III.
The Contractowner must also approve Participant withdrawals under Section 401(a) plans and plan subject to Title I of ERISA. Certain charges may apply. See – Charges and other deductions. A portion of withdrawal proceeds may be taxable. In addition, a 10% Internal Revenue Service (IRS) additional tax may apply to distributions before age 59 1/2. A withdrawal also may be subject to 20% withholding. See – Federal Tax Matters.
Do Participants get a free look at their certificates? A Participant under a Section 403(b) or 408 plan and certain nonqualified plans can cancel the active life certificate within ten days (in some states longer) of the date the Participant receives the certificate. The Participant needs to give notice to our Servicing Office. See – Return Privilege.
Condensed Financial Information
The Appendix to this prospectus provides more information about Accumulation Unit values.
Investment Results
The VAA advertises the annual performance of the Subaccounts for the funds on both a standardized and non-standardized basis.
The standardized calculation measures average annual total return. This is based on a hypothetical $1,000 payment made at the beginning of a one-year, a five-year and a 10-year period. This calculation reflects all fees and charges that are or could be imposed on all Contractowner accounts.
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The non-standardized calculation compares changes in Accumulation Unit values from the beginning of the most recently completed calendar year to the end of that year. It may also compare changes in Accumulation Unit values over shorter or longer time periods. This calculation reflects mortality and expense risk charges. It also reflects management fees and other expenses of the fund. It does not include the surrender charge or the account charge; if included, they would decrease the performance.
There can be no assurance that a money market fund will be able to maintain a stable net asset value of $1.00 per share. During periods of low interest rates the yield of a money market fund may become extremely low and possible negative. In addition, if the yield of a Subaccount investing in a money market fund becomes negative, due in part to Contract fees and expenses, your Contract Value may decline. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The sponsor of a money market fund has no legal obligation to provide financial support to the fund any you should not expect that the sponsor will provide financial support to the fund at any time. If, under SEC rules, a money market fund suspends payments of redemption proceeds, we will delay payment of any transfer, withdrawal, or benefit from a Subaccount investing in the money market fund until the fund resumes payment. If, under SEC rules, a money market fund institutes a liquidity fee, we may assess the fee against your Contract Value if a payment is made to your from a Subaccount investing in the money market fund.
The Lincoln National Life Insurance Company
The Lincoln National Life Insurance Company (Lincoln Life or Company), organized in 1905, is an Indiana-domiciled insurance company, engaged primarily in the direct issuance of life insurance contracts and annuities. Lincoln Life is wholly owned by Lincoln National Corporation (LNC), a publicly held insurance and financial services holding company incorporated in Indiana. Lincoln Life is obligated to pay all amounts promised to Contractowners under the contracts.
Depending on when you purchased your contract, you may be permitted to make allocations to the fixed account, which is part of our general account. See The Fixed Side of the Contract. In addition, any guarantees under the contract that exceed your Contract Value, such as those associated with Death Benefit options and Living Benefit Riders are paid from our general account (not the VAA). Therefore, any amounts that we may pay under the contract in excess of Contract Value are subject to our financial strength and claims-paying ability and our long-term ability to make such payments.
We issue other types of insurance policies and financial products as well. In addition to any amounts we are obligated to pay in excess of Contract Value under the contracts, we also pay our obligations under these products from our assets in the general account. Moreover, unlike assets held in the VAA, the assets of the general account are subject to the general liabilities of the Company and, therefore, to the Company’s general creditors. In the event of an insolvency or receivership, payments we make from our general account to satisfy claims under the contract would generally receive the same priority as our other Contractowner obligations.
The general account is not segregated or insulated from the claims of the insurance company’s creditors. Investors look to the financial strength of the insurance companies for these insurance guarantees. Therefore, guarantees provided by the insurance company as to benefits promised in the prospectus are subject to the claims paying ability of the insurance company and are subject to the risk that the insurance company may not be able to cover or may default on its obligations under those guarantees.
Our Financial Condition.  Among the laws and regulations applicable to us as an insurance company are those which regulate the investments we can make with assets held in our general account. In general, those laws and regulations determine the amount and type of investments which we can make with general account assets.
In addition, state insurance regulations require that insurance companies calculate and establish on their financial statements, a specified amount of reserves in order to meet the contractual obligations to pay the claims of our Contractowners. In order to meet our claims-paying obligations, we regularly monitor our reserves to ensure we hold sufficient amounts to cover actual or expected contract and claims payments. However, it is important to note that there is no guarantee that we will always be able to meet our claims paying obligations, and that there are risks to purchasing any insurance product.
State insurance regulators also require insurance companies to maintain a minimum amount of capital in excess of liabilities, which acts as a cushion in the event that the insurer suffers a financial impairment, based on the inherent risks in the insurer’s operations. These risks include those associated with losses that we may incur as the result of defaults on the payment of interest or principal on assets held in our general account, which include bonds, mortgages, general real estate investments, and stocks, as well as the loss in value of these investments resulting from a loss in their market value.
COVID-19. The worldwide coronavirus, or COVID-19, outbreak in the first quarter of 2020 has led to an extreme downturn in and volatility of the financial markets, record-low interest rates and wide-ranging changes in consumer behavior. As the economic and regulatory environment continues to react and evolve, we cannot reasonably estimate the length or severity of this event or the impact to our results of operations, financial condition and cash flows. However, in general, a deterioration in general economic and business conditions can have a negative impact on contract values, investment results and claims experience, while declines in or sustained low interest rates can cause a reduction in investment income, the interest margins of our businesses and demand for our products.
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How to Obtain More Information.  We encourage both existing and prospective Contractowners to read and understand our financial statements. We prepare our financial statements on both a statutory basis and according to Generally Accepted Accounting Principles (GAAP). Our audited GAAP financial statements, as well as the financial statements of the VAA, are located in the SAI. If you would like a free copy of the SAI, please write to us at: PO Box 2340, Fort Wayne, IN 46801-2340, or call 1-800-341-0441. In addition, the SAI is available on the SEC’s website at http://www.sec.gov. You may obtain our audited statutory financial statements and any unaudited statutory financial statements that may be available by visiting our website at www.LincolnFinancial.com.
You also will find on our website information on ratings assigned to us by one or more independent rating organizations. These ratings are opinions of an operating insurance company’s financial capacity to meet the obligations of its insurance and annuity contracts based on its financial strength and/or claims-paying ability. Additional information about rating agencies is included in the SAI.
Lincoln Financial Group is the marketing name for Lincoln National Corporation (NYSE:LNC) and its affiliates. Through its affiliates, Lincoln Financial Group offers annuities, life, group life and disability insurance, 401(k) and 403(b) plans, and comprehensive financial planning and advisory services.
Fixed Side of the Contract
The portion of the Account Value allocated to the fixed side of the contract becomes part of our general account, and does not participate in the investment experience of the VAA. The general account is subject to regulation and supervision by the Indiana Insurance Department as well as the insurance laws and regulations of the jurisdictions in which the contracts are distributed.
In reliance on certain exemptions, exclusions and rules, we have not registered interests in the general account as a security under the Securities Act of 1933 (1933 Act) and have not registered the general account as an investment company under the Investment Company Act of 1940 (1940 Act). Accordingly, neither the general account nor any interests in it are regulated under the 1933 Act or the 1940 Act. We have been advised that the staff of the SEC has not made a review of the disclosures which are included in this prospectus which relate to our general account and to the fixed account under the contract. These disclosures, however, may be subject to certain provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses. This prospectus is generally intended to serve as a disclosure document only for aspects of the contract involving the VAA, and therefore contains only selected information regarding the fixed side of the contract. Complete details regarding the fixed side of the contract are in the contract.
Contributions allocated to the fixed side of the contract are guaranteed to be credited with a minimum interest rate, specified in the contract. A Contribution allocated to the fixed side of the contract is credited with interest beginning on the next calendar day following the date of receipt if all Participant data is complete. Lincoln Life may vary the way in which it credits interest to the fixed side of the contract from time to time.
ANY INTEREST IN EXCESS OF THE GUARANTEED MINIMUM INTEREST RATE WILL BE DECLARED IN ADVANCE AT LINCOLN LIFE'S SOLE DISCRETION. CONTRACTOWNERS AND PARTICIPANTS BEAR THE RISK THAT NO INTEREST IN EXCESS OF THE GUARANTEED MINIMUM INTEREST RATE WILL BE DECLARED.
Under GVA III, special limits apply to transfers and withdrawals from the fixed account. See – Charges and Other Deductions-Fixed Account Withdrawal/Transfer Limits for GVA III.
Variable Annuity Account (VAA)
On April 29, 1996, the VAA was established as an insurance company separate account under Indiana law. It is registered with the SEC as a unit investment trust under the provisions of the Investment Company Act of 1940 (1940 Act). The VAA is a segregated investment account, meaning that its assets may not be charged with liabilities resulting from any other business that we may conduct. Income, gains and losses, whether realized or not, from assets allocated to the VAA are, in accordance with the applicable annuity contracts, credited to or charged against the VAA. They are credited or charged without regard to any other income, gains or losses of Lincoln Life. We are the issuer of the contracts and the obligations set forth in the contract, other than those of the Contractowner, are ours. The VAA satisfies the definition of a separate account under the federal securities laws. We do not guarantee the investment performance of the VAA. Any investment gain or loss depends on the investment performance of the funds. You assume the full investment risk for all amounts allocated to the VAA.
Financial Statements
The December 31, 2019 financial statements of the VAA and the December 31, 2019 consolidated financial statements of Lincoln Life are located in the SAI. If you would like a free copy of the SAI, complete and mail the request on the last page of this prospectus, or call 1-800-341-0441.
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Investments of the VAA
The subaccount(s) available under the contract will be available for participant allocations. There is a separate subaccount which corresponds to each fund. Participant allocations may change without penalty or charges. Shares of the funds will be sold at net asset value with no initial sales charge to the VAA in order to fund the contracts. The funds are required to redeem fund shares at net asset value upon our request.
Investment Advisers
As compensation for its services to the funds, each investment adviser for each fund receives a fee from the funds which is accrued daily and paid monthly. This fee is based on the net assets of each fund, as defined in the prospectuses for the funds.
Certain Payments We Receive with Regard to the Funds
We (and/or our affiliates) incur expenses in promoting, marketing, and administering the contracts and the underlying funds. With respect to a fund, including affiliated funds, the adviser and/or distributor, or an affiliate thereof, may make payments to us (or an affiliate) for certain services we provide on behalf of the funds. Such services include, but are not limited to, recordkeeping; aggregating and processing purchase and redemption orders; providing Contractowners with statements showing their positions within the funds; processing dividend payments; providing subaccounting services for shares held by Contractowners; and forwarding shareholder communications, such as proxies, shareholder reports, dividend and tax notices, and printing and delivering prospectuses and updates to Contractowners. It is anticipated that such payments will be based on a percentage of assets of the particular fund attributable to the contracts along with certain other variable contracts issued or administered by us (or an affiliate). These percentages are negotiated and vary with each fund. Some advisers and/or distributors may pay us significantly more than other advisers and/or distributors and the amount we receive may be substantial. These percentages currently range up to 0.30%, and as of the date of this prospectus, we were receiving payments from most fund families. We (or our affiliates) may profit from these payments. These payments may be derived, in whole or in part, from the investment advisory fee deducted from fund assets. Contractowners, through their indirect investment in the funds, bear the costs of these investment advisory fees (see the funds' prospectuses for more information). Additionally, a fund's adviser and/or distributor or its affiliates may provide us with certain services that assist us in the distribution of the contracts and may pay us and/or certain affiliates amounts for marketing programs and sales support, as well as amounts to participate in training and sales meetings.
In addition to the payments described above, several of the funds offered as part of this contract make payments to us under their distribution plans (12b-1 plans) for the marketing and distribution of fund shares. The payment rates range up to 0.30% based on the amount of assets invested in those funds. Payments made out of the assets of the fund will reduce the amount of assets that otherwise would be available for investment, and will reduce the fund's investment return. The dollar amount of future asset-based fees is not predictable because these fees are a percentage of the fund's average net assets, which can fluctuate over time. If, however, the value of the fund goes up, then so would the payment to us (or our affiliates). Conversely, if the value of the funds goes down, payments to us or our affiliates would decrease.
Description of the Funds
Each of the Subaccounts of the VAA is invested solely in shares of one of the funds available under the contract. Each fund may be subject to certain investment policies and restrictions which may not be changed without a majority vote of shareholders of that fund.
We select the funds offered through the contract based on several factors, including, without limitation, asset class coverage, the strength of the manager’s reputation and tenure, brand recognition, performance, the capability and qualification of each sponsoring investment firm, and whether the fund is affiliated with us.
As noted above, a factor we may consider during the initial selection process is whether the fund (or an affiliate, investment adviser or distributor of the fund) being evaluated is an affiliate of ours and whether we are compensated for providing administrative, marketing, and/or support services that would otherwise be provided by the fund, its investment adviser or its distributor.
Some funds pay us significantly more than others and the amount we receive may be substantial. We often receive more revenue from an affiliated fund than one that is not affiliated with us. These factors give us an incentive to select a fund that yields more revenue, and this is often an affiliated fund.
We may also consider the ability of the fund to help manage volatility and our risks associated with the guarantees we provide under the contract and under optional riders, especially the Living Benefit Riders.
We review each fund periodically after it is selected. We reserve the right to remove a fund or restrict allocation of additional Purchase Payments to a fund if we determine the fund no longer meets one or more of the factors and/or if the fund has not attracted significant Contractowner assets.
Finally, when we develop a variable annuity product in cooperation with a fund family or distributor (e.g., a “private label” product), we generally will include funds based on recommendations made by the fund family or distributor, whose selection criteria may differ
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from our selection criteria. Certain funds offered as part of this contract have similar investment objectives and policies to other portfolios managed by the adviser. The investment results of the funds, however, may be higher or lower than the other portfolios that are managed by the adviser or sub-adviser. There can be no assurance, and no representation is made, that the investment results of any of the funds will be comparable to the investment results of any other portfolio managed by the adviser or sub-adviser, if applicable.
Certain funds invest their assets in other funds. As a result, you will pay fees and expenses at both fund levels. This will reduce your investment return. These arrangements are referred to as fund of funds or master-feeder funds, which may have higher expenses than funds that invest directly in debt or equity securities. An adviser affiliated with us manages some of the available funds of funds. Our affiliates may promote the benefits of such funds to Contractowners and/or suggest that Contractowners consider whether allocating some or all of their Contract Value to such portfolios is consistent with their desired investment objectives. In doing so, we may be subject to conflicts of interest insofar as we may derive greater revenues from the affiliated fund of funds than certain other funds available to you under your contract.
Certain funds may employ risk management strategies to provide for downside protection during sharp downward movements in equity markets. These funds usually, but not always, have “Managed Risk” or “Managed Volatility” in the name of the fund. These strategies could limit the upside participation of the fund in rising equity markets relative to other funds. The Death Benefits and Living Benefit Riders offered under the contract also provide protection in the event of a market downturn. Risk management strategies, in periods of high market volatility, could limit your participation in market gains; this may conflict with your investment objectives by limiting your ability to maximize potential growth of your Contract Value and, in turn, the value of any guaranteed benefit that is tied to investment performance. For more information on these funds and their risk management strategies, please see the Investment Requirements section of this prospectus. You should consult with your registered representative to determine which combination of investment choices are appropriate for you.
Following are brief summaries of the fund descriptions. More detailed information may be obtained from the current prospectus for each fund. You should read each fund prospectus carefully before investing. Prospectuses for each fund are available by contacting us. In addition, if you receive a summary prospectus for a fund, you may obtain a full statutory prospectus by referring to the contact information for the fund company on the cover page of the summary prospectus. Please be advised that there is no assurance that any of the funds will achieve their stated objectives.
AllianceBernstein Variable Products Series Fund, advised by AllianceBernstein L.P.
• AB VPS Global Thematic Growth Portfolio (Class B): Long-term growth of capital.
• AB VPS Large Cap Growth Portfolio (Class B): Long-term growth of capital.
American Century Variable Portfolios, Inc., advised by American Century Investment Management, Inc.
• American Century VP Balanced Fund (Class I): Long-term capital growth and current income by investing approximately 60% of its assets in equity securities and the remainder in bonds and other fixed-income securities.
American Funds Insurance Series®, advised by Capital Research and Management Company
• American Funds Global Growth Fund (Class 2): Long-term growth of capital.
• American Funds Growth Fund (Class 2): Growth of capital.
• American Funds Growth-Income Fund (Class 2): Long-term growth of capital and income.
• American Funds International Fund (Class 2): Long-term growth of capital.
BlackRock Variable Series Funds, Inc., advised by BlackRock Advisors, LLC
• BlackRock Global Allocation V.I. Fund (Class I): High total investment return.
Delaware VIP® Trust, advised by Delaware Management Company(1)
• Delaware VIP® Diversified Income Series (Standard Class): Maximum long-term total return consistent with reasonable risk.
• Delaware VIP® High Yield Series (Standard Class): Total return and, as a secondary objective, high current income.
• Delaware VIP® REIT Series (Service Class): Maximum long-term total return, with capital appreciation as a secondary objective.
• Delaware VIP® Small Cap Value Series (Service Class): Capital appreciation.
• Delaware VIP® Smid Cap Core Series (Service Class): Long-term capital appreciation.
Deutsche DWS Variable Series II, advised by Deutsche Investment Management Americas, Inc.
• DWS Alternative Asset Allocation VIP Portfolio (Class A): Capital appreciation; a fund of funds.
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Fidelity® Variable Insurance Products, advised by Fidelity Management and Research Company
• Fidelity® VIP Asset Manager Portfolio (Initial Class): To obtain high total return with reduced risk over the long term by allocating its assets among stocks, bonds, and short-term instruments long-term capital appreciation.
• Fidelity® VIP Contrafund® Portfolio (Service Class 2): Long-term capital appreciation.
• Fidelity® VIP Freedom 2020 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2025 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2030 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2035 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2040 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2045 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2050 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2055 PortfolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Freedom 2060 PortolioSM (Service Class 2): High total return with a secondary objective of principal preservation as the fund approaches its target date and beyond; a fund of funds.
• Fidelity® VIP Growth Portfolio (Initial Class): To achieve capital appreciation.
Janus Aspen Series, advised by Janus Capital Management LLC
• Janus Henderson Global Research Portfolio (Institutional Shares): Long-term growth of capital.
Lincoln Variable Insurance Products Trust, advised by Lincoln Investment Advisors
• LVIP Baron Growth Opportunities Fund (Service Class): Capital appreciation.
• LVIP BlackRock Advantage Allocation Fund (Standard Class): Total return.
• LVIP BlackRock Global Real Estate Fund (Standard Class): Total return through a combination of current income and long-term capital appreciation.
• LVIP BlackRock Inflation Protected Bond Fund (Standard Class): To maximize real return, consistent with preservation of real capital and prudent investment management.
• LVIP Blended Large Cap Growth Managed Volatility Fund (Standard Class): Long-term growth of capital in a manner consistent with the preservation of capital.
• LVIP Blended Mid Cap Managed Volatility Fund (Standard Class): Capital appreciation.
• LVIP Delaware Bond Fund (Standard Class)(1): Maximum current income (yield) consistent with a prudent investment strategy.
• LVIP Delaware Diversified Floating Rate Fund (Service Class)(1): Total return
• LVIP Delaware Social Awareness Fund (Standard Class)(1): To maximize long-term capital appreciation.
• LVIP Delaware Wealth Builder Fund (Standard Class)(1): To provide a responsible level of income and the potential for capital appreciation.
• LVIP Dimensional U.S. Core Equity 1 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP Franklin Templeton Global Equity Managed Volatility Fund (Standard Class): Long-term capital growth.
• LVIP Global Conservative Allocation Managed Risk Fund (Standard Class): A high level of current income with some consideration given to growth of capital; a fund of funds.
• LVIP Global Growth Allocation Managed Risk Fund (Standard Class): A balance between a high level of current income and growth of capital, with a greater emphasis on growth of capital; a fund of funds.
• LVIP Global Income Fund (Standard Class): Current income consistent with the preservation of capital.
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• LVIP Global Moderate Allocation Managed Risk Fund (Standard Class): A balance between a high level of current income and growth of capital, with an emphasis on growth of capital; a fund of funds.
• LVIP JPMorgan Retirement Income Fund (Standard Class): Current income and some capital appreciation.
• LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund (Standard Class): Long-term capital appreciation.
• LVIP Mondrian International Value Fund (Standard Class): Long-term capital appreciation as measured by the change in the value of fund shares over a period of three years or longer.
• LVIP SSGA Bond Index Fund (Standard Class): To match as closely as practicable, before fees and expenses, the performance of the Barclays Capital U.S. Aggregate Index.
• LVIP SSGA Emerging Markets 100 Fund (Standard Class): To maximize long-term capital appreciation.
• LVIP SSGA Global Tactical Allocation Managed Volatility Fund (Standard Class): Long-term growth of capital; a fund of funds.
• LVIP SSGA International Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of a broad market index of non-U.S. foreign securities.
• LVIP SSGA International Managed Volatility Fund (Standard Class): Capital appreciation; a fund of funds.
• LVIP SSGA S&P 500 Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the total rate of return of common stocks publicly traded in the United States, as represented by the S&P 500 Index.
• LVIP SSGA Small-Cap Index Fund (Standard Class): To approximate as closely as practicable, before fees and expenses, the performance of the Russell 2000® Index, which emphasizes stocks of small U.S. companies.
• LVIP T. Rowe Price 2010 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
• LVIP T. Rowe Price 2020 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
• LVIP T. Rowe Price 2030 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
• LVIP T. Rowe Price 2040 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
• LVIP T. Rowe Price 2050 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
• LVIP T. Rowe Price 2060 Fund (Standard Class): The highest total return over time with an increased emphasis on capital preservation as the target date approaches; a fund of funds.
This fund will be available on or about May 11, 2020. Consult your registered representative.
• LVIP T. Rowe Price Structured Mid-Cap Growth Fund (Standard Class): To maximize capital appreciation.
Neuberger Berman Advisers Management Trust, advised by Neuberger Berman Management Inc.
• Neuberger Berman AMT Sustainable Equity Portfolio (I Class): Long-term growth of capital by investing primary in securities of companies that meet the Fund’s environmental, social and governance (ESG) criteria.
T. Rowe Price International Series, Inc., advised by T. Rowe Price International, Inc.
• T. Rowe Price International Stock Portfolio: Long-term growth of capital through investments primarily in the common stocks of established, non-U.S. companies.
(1) Investments in Delaware VIP Series, Delaware Funds, LVIP Delaware Funds or Lincoln Life accounts managed by Macquarie Investment Management Advisers, a series of Macquarie Investments Management Business Trust, are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46008 583 542 and its holding companies, including their subsidiaries or related companies, and are subject to investment risk, including possible delays in prepayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the series or funds or accounts, the repayment of capital from the series or funds or account, or any particular rate of return.
Fund Shares
We will purchase shares of the funds at net asset value and direct them to the appropriate Subaccounts of the VAA. We will redeem sufficient shares of the appropriate funds to pay Annuity Payouts, Death Benefits, surrender/withdrawal proceeds or for other purposes described in the contract. If you want to transfer all or part of your investment from one Subaccount to another, we may redeem shares held in the first Subaccount and purchase shares of the other. Redeemed shares are retired, but they may be reissued later.
Shares of the funds are not sold directly to the general public. They are sold to us, and may be sold to other insurance companies, for investment of the assets of the Subaccounts established by those insurance companies to fund variable annuity and variable life insurance contracts.
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When a fund sells any of its shares both to variable annuity and to variable life insurance separate accounts, it is said to engage in mixed funding. When a fund sells any of its shares to separate accounts of unaffiliated life insurance companies, it is said to engage in shared funding.
The funds currently engage in mixed and shared funding. Therefore, due to differences in redemption rates or tax treatment, or other considerations, the interest of various Contractowners participating in a fund could conflict. Each of the fund’s Board of Directors will monitor for the existence of any material conflicts, and determine what action, if any, should be taken. The funds do not foresee any disadvantage to Contractowners arising out of mixed or shared funding. If such a conflict were to occur, one of the separate accounts might withdraw its investment in a fund. This might force a fund to sell portfolio securities at disadvantageous prices. See the prospectuses for the funds.
Reinvestment of Dividends and Capital Gain Distributions
All dividends and capital gain distributions of the funds are automatically reinvested in shares of the distributing funds at their net asset value on the date of distribution. Dividends are not paid out to Contractowners or participants as additional units, but are reflected as changes in unit values.
Addition, Deletion or Substitution of Investments
We reserve the right, within the law, to make certain changes to the structure and operation of the VAA at our discretion and without your consent. We may add, delete, or substitute funds for all Contractowners or only for certain classes of Contractowners. New or substitute funds may have different fees and expenses, and may only be offered to certain classes of Contractowners.
Substitutions may be made with respect to existing investments or the investment of future Purchase Payments, or both. In the event of a substitution, the Contract Value allocated to the existing fund will be allocated to the substitute fund. Any future allocations to the substitute fund will automatically be allocated according to the instructions we have on file for you unless otherwise instructed by you. If we don’t have instructions from you on file, your Purchase Payments will be allocated to the substitute fund.
We may close Subaccounts to allocations of Purchase Payments or Contract Value, or both, at any time in our sole discretion. The funds, which sell their shares to the Subaccounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the Subaccounts. In the event of a fund closure, any Contract Value you have invested in the closed fund will remain in that fund until you transfer it elsewhere. Any future allocation to the closed fund will be allocated in accordance with the instructions we have on file for you unless you instruct us otherwise.
In addition, a Subaccount may become unavailable due to the liquidation of its underlying fund portfolio. To the extent permitted by applicable law, upon notice to you and unless you otherwise instruct us, we will re-allocate any Contract Value in the liquidated fund to the money market subaccount or a subaccount investing in another underlying fund portfolio designated by us. Any future allocations to the liquidated fund will automatically be allocated according to the instructions we have on file for you unless you instruct us otherwise.
From time to time, certain of the underlying funds may merge with other funds. If a merger of an underlying fund occurs, the Contract Value allocated to the existing fund will be merged into the surviving underlying fund. Any future allocations to the merged fund will automatically be allocated according to the instructions we have on file for you unless you instruct us otherwise. If we don’t have instructions from you on file, your Purchase Payment will be allocated to the surviving underlying fund.
We may also:
• remove, combine, or add Subaccounts and make the new Subaccounts available to you at our discretion;
• transfer assets supporting the contracts from one Subaccount to another or from the VAA to another separate account;
• combine the VAA with other separate accounts and/or create new separate accounts;
• deregister the VAA under the 1940 Act; and
• operate the VAA as a management investment company under the 1940 Act or as any other form permitted by law.
We may modify the provisions of the contracts to reflect changes to the Subaccounts and the VAA and to comply with applicable law. We will not make any changes without any necessary approval by the SEC. We will also provide you written notice.
Charges and Other Deductions
We will deduct the charges described below to cover our costs and expenses, services provided and risks assumed under the contracts. We incur certain costs and expenses for the distribution and administration of the contracts and for providing the benefits payable thereunder.
Our administrative services include:
• processing applications for and issuing the contracts;
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• processing purchases and redemptions of fund shares as required (including dollar cost averaging, systematic transfer, account sweep and portfolio rebalancing services);
• maintaining records;
• administering Annuity Payouts;
• furnishing accounting and valuation services (including the calculation and monitoring of daily Subaccount values);
• reconciling and depositing cash receipts;
• providing contract confirmations;
• providing toll-free inquiry services and
• furnishing telephone and electronic fund transfer services.
The risks we assume include:
• the risk that Annuitants receiving Annuity Payouts under contracts live longer than we assumed when we calculated our guaranteed rates (these rates are incorporated in the contract and cannot be changed);
• the risk that Death Benefits paid will exceed the actual Contract Value;
• the risk that more owners than expected will qualify for waivers of the surrender charge;
• the risk that our costs in providing the services will exceed our revenues from contract charges (which we cannot change).
The amount of a charge may not necessarily correspond to the costs associated with providing the services or benefits indicated by the description of the charge. For example, the surrender charge collected may not fully cover all of the sales and distribution expenses actually incurred by us. Any remaining expenses will be paid from our general account which may consist, among other things, of proceeds derived from mortality and expense risk charges deducted from the account. We may profit from one or more of the fees and charges deducted under the contract. We may use these profits for any corporate purpose, including financing the distribution of the contracts.
Annual Contract Fee
During the accumulation period, we currently deduct $25 (or the balance of the Participant's account, if less) per year from each Participant's Account Value on the last business day of the month in which a Participant anniversary occurs, to compensate us for administrative services provided. We also deduct the charge from a Participant's account if the Participant's account is totally withdrawn. The charge may be increased or decreased.
Surrender Charge for GVA I and GVA II*
Under GVA I and GVA II, a surrender charge applies (except as described below) to total or partial withdrawals of a Participant's account balance during the accumulation period as follows:
During Participation Year   GVA I   GVA II
1-5
  5%   6%
6
  5%   3%
7
  4%   3%
8
  3%   3%
9
  2%   3%
10
  1%   3%
11-15
  0%   1%
16 and later
  0%   0%
* There is no surrender charge taken on withdrawals from GVA III.
The surrender charge is imposed on the gross withdrawal amount, and is deducted from the Subaccounts and the fixed account in proportion to the amount withdrawn from each. We do not impose a surrender charge on Death Benefits, or on account balances converted to an Annuity Payout option. For any Participant, the surrender charge will never exceed 8.5% of the cumulative contributions to the Participant's account.
Fixed Account Withdrawal/Transfer Limits for GVA III
GVA III has no surrender charges, but under GVA III, special limits apply to withdrawals and transfers from the fixed account. During any one calendar year a Participant may make one withdrawal from the fixed account, or one transfer to the VAA from the fixed account, of up to 20% of their fixed account balance.
Participants who want to liquidate their entire fixed account balance or transfer it to the VAA, however, may make one withdrawal or transfer request from their fixed account in each of five consecutive calendar years according to the following percentages:
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Year Request Received by Lincoln Life   Percentage of Fixed
Account Available
Under GVA III
1
  20%
2
  25%
3
  33.33%
4
  50%
5
  100%
Each consecutive withdrawal or transfer may not be made more frequently than twelve months apart. This liquidation schedule is also subject to the same conditions as other withdrawals and transfers. We reserve the right to prohibit any additional Contributions by a Participant that notifies us of their intention to liquidate their fixed account balance and stop Contributions to the contract. In addition, at contract termination certain 403(b) GVA III contracts offer lump sum payouts from the fixed account which may have a market value adjustment. Lump sum payouts will never be less than net contributions accumulated at the guaranteed minimum rate for the fixed account.
Waiver of Surrender Charges and Fixed Account Withdrawal/Transfer Limits
Under certain conditions, a Participant may withdraw part or all of his or her fixed account balance without incurring a surrender charge under GVA I or GVA II, or without being subject to the fixed account withdrawal/transfer limits under GVA III. We must receive reasonable proof of the condition with the withdrawal request. The chart below shows the standard conditions provided by GVA I, GVA II, and GVA III, as well as optional conditions the Contractowner may or may not make available under the contracts:
  Standard conditions   Optional conditions
GVA I the Participant has attained age 59½   the Participant has separated from service with their employer and is at least 55 years of age
  the Participant has died   the Participant is experiencing financial hardship
  the Participant has incurred a disability (as defined under the contract)    
  the Participant has separated from service with their employer    
GVA II the Participant has attained age 59½   the Participant has separated from service with their employer
  the Participant has died   the Participant is experiencing financial hardship
  the Participant has incurred a disability (as defined under the contract)    
  the Participant has separated from service with their employer and is at least 55 years of age    
GVA III the Participant has attained age 59½   the Participant has separated from service with their employer and is at least 55 years of age
  the Participant has died    
  the Participant has incurred a disability (as defined under the contract)    
  the Participant has separated from service with their employer    
  the Participant is experiencing financial hardship*    
  
* A GVA III Contractowner has the option not to include the financial hardship condition.
Under GVA I and GVA II, a Contractowner may also elect an optional contract provision that permits Participants to make a withdrawal once each Contract Year of up to 20% of the Participant's account balance without a surrender charge.
A Contractowner choosing one or more of the optional provisions may receive a different declared interest rate on the fixed account than will holders of contract without these provisions.
Deductions from the VAA for GVA I, II & III
For the base contract, we apply to the average daily net asset value of the Subaccounts, a charge which is equal to an annual rate of:
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“standard” mortality and expense risk charge
1.00%
“breakpoint” mortality and expense charge*
.75%
* Only certain contract or plans are eligible for a breakpoint charge. See—Charges and Other Deductions.
This maximum level of mortality and expense risk charge is guaranteed not to increase. It is assessed during the accumulation period and during the annuity period, even though during the annuity period, we bear no mortality risk on annuity options that do not have life contingencies.
If the mortality and expense risk charge proves insufficient to cover underwriting and administrative costs in excess of the charges made for the administrative expenses, we will absorb the loss. However, if the amount deducted proves more than sufficient, we will keep the profit.
Contracts eligible for the lower, or “breakpoint”, mortality and expense risk charge are those contracts which, either individually or in combination with other contracts under the same employer group or association, either at issue or after issue and at the end of a calendar quarter, satisfy eligibility criteria anticipated to result in lower issue and administrative costs for us over time. Such criteria include, for example, expected size of account value and contributions, administrative simplicity, and/or limited competition. For contracts not eligible for the lower mortality and risk expense charge at issue, the lower charge will be implemented no later than the calendar quarter-end Valuation Date following the end of the calendar quarter in which the contract becomes eligible for the lower charge. We periodically modify the criteria for eligibility. Modifications will not be unfairly discriminatory against any person. Contact your agent for our current eligibility criteria.
Special Arrangements
The surrender and account charges, described previously may be reduced or eliminated for any particular contract. In addition, the amount credited to and/or the interest rate declared on the fixed account may be enhanced for certain contracts. Such reductions, eliminations or enhancements may be available where Lincoln Life's administrative and/or distribution costs or expenses are anticipated to be lower due to, for example, the terms of the contract, the duration or stability of the plan or contract; economies due to the size of the plan, the number of certain characteristics of Participants, or the amount or frequency of contributions anticipated; or other support provided by the Contractowner or the plan. In addition, the group Contractowner or the plan may pay the annual administration charge on behalf of the Participants under a contract or by election impose this charge only on Particpants with account balances in the VAA. Lincoln Life will enhance the fixed interest crediting rate and reduce or eliminate fees, charges, or rates in accordance with Lincoln Life's eligibility criteria in effect at the time a contract is issued, or in certain cases, after a contract has been held for a period of time. Lincoln Life may, from time to time, modify both the amounts of reductions or enhancements and the criteria for qualification. Reductions, enhancements, or waivers will not be unfairly discriminatory against any person, including Participants under other contracts issued through the VAA.
Fees, charges and rates under the contracts, including charges for premium taxes; loan rates of interest; and the availability of certain free withdrawals, may be subject to variation based on state insurance regulation.
The Contractowner and Participant should read the contract carefully to determine whether any variations apply in the state in which the contract is issued. The exact amount for all fees, charges, and rates applicable to a particular contract will be stated in that contract.
Deductions for Premium Taxes
Any premium tax or other tax levied by any governmental entity as a result of the existence of the contracts or the VAA will be deducted from the Account Value, unless the governmental entity dictates otherwise, when incurred, or at another time of our choosing.
The applicable premium tax rates that states and other governmental entities impose on the purchase of an annuity are subject to change by legislation, by administrative interpretation or by judicial action. These premium tax rates generally depend upon the law of your state of residence. The tax rates range from zero to 5%.
Other Charges and Deductions
The mortality and expense risk charge of 1.00% of the contract value will be assessed on all variable annuity payouts, including options that may be offered that do not have a life contingency and therefore no mortality risk. This charge covers the expense risk and administrative services listed previously in this prospectus. The expense risk is the risk that our costs in providing the services will exceed our revenues from contract charges.
There are additional deductions from and expenses paid out of the assets of the underlying funds that are more fully described in the prospectuses for the funds. Among these deductions and expenses are 12b-1 fees which reimburse us or an affiliate for certain expenses incurred in connection with certain administrative and distribution support services provided to the funds.
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The Contracts
Purchase of the Contracts
A prospective Contractowner wishing to purchase a contract must apply for it through one of our authorized registered representatives. The completed application is sent to us and we decide whether we can accept it based on our underwriting guidelines. Once the application is accepted, a contract is prepared and executed by our legally authorized officers. The contract is then sent to the Contractowner either directly or through its registered representative. For plans that have allocated rights to the participant, we will issue to each Participant a separate active life certificate that describes the basic provisions of the contract.
Initial Contributions
When we receive a complete enrollment form and all other information necessary for processing a contribution, we will price the initial contribution for a Participant to his or her account no later than two business days after we receive the contribution. If we receive contribution amounts with incomplete or no allocation instructions, we will notify the Contractowner and direct contribution amounts to the pending allocation account. The pending allocation account invests in Fidelity® VIP Government Money Market Portfolio, which is not available as an investment option under the contract. We do not impose the mortality and expense risk charge or the annual administration charge on the pending allocation account. The Participant's participation date will be the date we deposited the Participant's Contribution into the pending allocation account.
We will transfer the Account Value from the pending allocation account in accordance with allocation percentages elected on properly completed allocation instructions within two Valuation Dates of receipt of such instructions, and allocate all future contributions in accordance with these percentages until we are notified of a change. If we do not receive properly completed instructions after we have sent three monthly notices, we will refund Account Value in the pending allocation account within 105 days of the initial contribution.
Participants may not allocate contributions to, make transfer to or from, take loans from, or make withdrawals from the pending allocation account, except as set forth in the contract.
Contributions
Contractowners generally forward Contributions to us for investment. Depending on the Plan, the Contributions may consist of salary reduction Contributions, employer Contributions or post-tax Contributions.
Contributions may accumulate on either a guaranteed or variable basis selected from those Subaccounts made available by the Contractowner.
Contributions made on behalf of Participants may be in any amount unless there is a minimum amount set by the Contractowner or Plan. A contract may require the Contractowner to contribute a minimum annual amount on behalf of all Participants. A Participant under the plan cannot make Contributions that exceed $1 million. Annual contributions under qualified plans may be subject to maximum limits imposed by the tax code. Annual Contributions under nonqualified plans may be limited by the terms of the contract.
Subject to any restrictions imposed by the plan or the tax code, we will accept transfers from other contracts and qualified rollover Contributions.
Section 830.205 of the Texas Education Code provides that employer or state Contributions (other than salary reduction Contributions) on behalf of Participants in the Texas Optional Retirement Program (ORP) vest after one year of participation in the program. We will return employer Contributions to the Contractowner for those employees who terminate employment in all Texas institutions of higher education before becoming vested. During this first Participation Year in the ORP, ORP Participants may only direct employer and state Contributions to the fixed account.
Contributions must be in U.S. funds, and all withdrawals and distributions under the contract will be in U.S. funds. If a bank or other financial institution does not honor the check or other payment method used for a Contribution, we will treat the Contribution as invalid. All allocation and subsequent transfers resulting from the invalid Contributions will be reversed and the party responsible for the invalid Contribution must reimburse us for any losses or expenses resulting from the invalid Contribution.
If your retirement plan is no longer submitting new, payroll deduction contributions to a Lincoln contract, no further purchase payments of any type can be made into your contract/certificate without the express permission of your Plan sponsor. In certain limited exceptions, combining contract values from existing Lincoln contracts may be allowed.
Replacement of Existing Insurance
Careful consideration should be given prior to surrendering or withdrawing money from an existing insurance contract to purchase a contract described in this prospectus. Participant Surrender charges may be imposed on your existing contract. The benefits offered under this contract may be less favorable or more favorable than the benefits offered under your current contract. It also may have
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different charges. You should also consult with your registered representative and/or your tax advisor prior to making an exchange. Cash surrenders from an existing contract may be subject to tax and tax penalties.
Valuation Date
Accumulation and Annuity Units will be valued once daily at the close of trading (normally, 4:00 p.m., New York time) on each day the New York Stock Exchange is open (Valuation Date). On any date other than a Valuation Date, the Accumulation Unit value and the Annuity Unit value will not change.
Allocation of Contributions
The Contractowner forwards Contributions to us, specifying the amount being contributed on behalf of each Participant and allocation information in accordance with our procedures. Contributions are placed into the VAA's Subaccounts, each of which invests in shares of a fund, and/or the fixed account, according to written Participant instructions and subject to the Plan. The Contribution allocation percentage to the Subaccount's or the fixed account must be in any whole percent.
If we receive your purchase payment from you or your broker-dealer in Good Order at our Home Office prior to 4:00 p.m., New York time, we will use the Accumulation Unit value computed on that Valuation Date when processing your purchase payment. If we receive your purchase payment at or after 4:00 p.m., New York time, we will use the Accumulation Unit value computed on the next Valuation Date. If you submit your purchase payment to your representative, we will generally not begin processing the purchase payment until we receive it from your representative’s broker-dealer. If your broker-dealer submits your purchase payment to us through the Depository Trust and Clearing Corporation (DTCC) or, pursuant to terms agreeable to us, uses a proprietary order placement system to submit your purchase payment to us, and your purchase payment was placed with your broker-dealer prior to 4:00 p.m., New York time, then we will use the Accumulation Unit value computed on that Valuation Date when processing your purchase payment. If your purchase payment was placed with your broker-dealer at or after 4:00 p.m. New York time, then we will use the Accumulation Unit value computed on the next Valuation Date.
If an underlying fund imposes restrictions with respect to the acceptance of Purchase Payments or allocations, we reserve the right to reject an allocation at any time the underlying fund notifies us of such a restriction. We will notify you if your allocation request is or becomes subject to such restrictions.
The number of Accumulation Units determined in this way is not impacted by any subsequent change in the value of an Accumulation Unit. However, the dollar value of an Accumulation Unit will vary depending not only upon how well the underlying fund’s investments perform, but also upon the expenses of the VAA and the underlying funds.
Subject to the terms of the plan, a participant may change the allocation of contributions by notifying us in writing or by telephone in accordance with our published procedures. The change is effective for all contributions received concurrently with the allocation change form and for all future contributions, unless the participant specifies a later date. Changes in the allocation of future contributions have no effect on amounts a participant may have already contributed. Such amounts, however, may be transferred between subaccount and the fixed account pursuant to the requirements described in Transfers on or before the Annuity Commencement Date. Allocation of employer contributions may be restricted by the applicable plan.
Valuation of Accumulation Units
Purchase Payments allocated to the VAA are converted into Accumulation Units. This is done by dividing the amount allocated by the value of an Accumulation Unit for the Valuation Period during which the Purchase Payments are allocated to the VAA. The Accumulation Unit value for each Subaccount was or will be established at the inception of the Subaccount. It may increase or decrease from Valuation Period to Valuation Period. Accumulation Unit values are affected by investment performance of the funds, fund expenses, and the contract charges. The Accumulation Unit value for a Subaccount for a later Valuation Period is determined as follows:
1. The total value of the fund shares held in the Subaccount is calculated by multiplying the number of fund shares owned by the Subaccount at the beginning of the Valuation Period by the net asset value per share of the fund at the end of the Valuation Period, and adding any dividend or other distribution of the fund if an ex-dividend date occurs during the Valuation Period; minus
2. The liabilities of the Subaccount at the end of the Valuation Period. These liabilities include daily charges imposed on the Subaccount, and may include a charge or credit with respect to any taxes paid or reserved for by us that we determine result from the operations of the VAA; and
3. The result is divided by the number of Subaccount units outstanding at the beginning of the Valuation Period.
The daily charges imposed on a Subaccount for any Valuation Period are equal to the daily mortality and expense risk charge and the daily administrative charge multiplied by the number of calendar days in the Valuation Period.
In certain circumstances, and when permitted by law, it may be prudent for us to use a different standard industry method for this calculation, called the Net Investment Factor method. We will achieve substantially the same result using either method.
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Transfers On or Before the Annuity Commencement Date
Subject to the terms of a Plan, a Participant may transfer all or a portion of the Participant's account balance from one Subaccount to another, and between the VAA and the fixed account. Under GVA III transfers from the fixed account are subject to special limits. See—Fixed account withdrawals/transfer limits for GVA III.
A transfer involves the surrender of Accumulation Units in one Subaccount and the purchase of Accumulation Units in the other Subaccount. A transfer will be done using the respective Accumulation Unit values determined at the end of the Valuation Date on which the transfer request is received. There is no charge for a transfer. We do not limit the number of transfers except as described under—Charges and other deductions-Fixed account withdrawal/transfer limits for GVA III.
A transfer request may be made to our Home Office in writing or by fax. A transfer request may also be made by telephone or other electronic means, provided the appropriate authorization is on file with us. Our address, telephone number, and internet address are on the first page of this prospectus. In order to prevent unauthorized or fraudulent transfers, we may require certain identifying information before we will act upon instructions. We may also assign the Participant a Personal Identification Number (PIN) to serve as identification. We will not be liable for following instructions we reasonably believe are genuine. Telephone requests will be recorded and written confirmation of all transfer requests will be mailed to the Participant on the next Valuation Date.
Please note that the telephone and/or electronic devices may not always be available. Any telephone or electronic device, whether it is yours, your service provider’s, or your agent’s, can experience outages or slowdowns for a variety of reasons. These outages or slowdowns may delay or prevent our processing of your request. Although we have taken precautions to limit these problems, we cannot promise complete reliability under all circumstances. If you are experiencing problems, you should make your transfer request by writing to our Servicing Office.
Requests for transfers will be processed on the Valuation Date that they are received in Good Order in our customer service center before the end of the Valuation Date (normally 4:00 p.m. New York time). If we receive a transfer request received in Good Order at or after 4:00 p.m., New York time, we will process the request using the Accumulation Unit value computed on the next Valuation Date.
We may defer or reject a transfer request that is subject to a restriction imposed by an underlying fund. When thinking about a transfer of Contract Value, you should consider the inherent risk involved. Frequent transfers based on short-term expectations may increase the risk that a transfer will be made at an inopportune time.
Market Timing
Frequent, large, or short-term transfers among Subaccounts and the fixed account, such as those associated with “market timing” transactions, can affect the funds and their investment returns. Such transfers may dilute the value of the fund shares, interfere with the efficient management of the fund's portfolio, and increase brokerage and administrative costs of the funds. As an effort to protect our participants and the funds from potentially harmful trading activity, we utilize certain market timing policies and procedures (the “Market Timing Procedures”). Our Market Timing Procedures are designed to detect and prevent such transfer activity among the Subaccounts and the fixed account that may affect other Participants or fund shareholders.
In addition, the funds may have adopted their own policies and procedures with respect to frequent purchases and redemptions of their respective shares. The prospectuses for the funds describe any such policies and procedures, which may be more or less restrictive than the frequent trading policies and procedures of other funds and the Market Timing Procedures we have adopted to discourage frequent transfers among Subaccounts. While we reserve the right to enforce these policies and procedures, Participants and other persons with interests under the contracts should be aware that we may not have the contractual authority or the operational capacity to apply the frequent trading policies and procedures of the funds. However, under SEC rules, we are required to: (1) enter into a written agreement with each fund or its principal underwriter that obligates us to provide to the fund promptly upon request certain information about the trading activity of individual Participants, and (2) execute instructions from the fund to restrict or prohibit further purchases or transfers by specific Participants who violate the excessive trading policies established by the fund.
You should be aware that the purchase and redemption orders received by the funds generally are “omnibus” orders from intermediaries such as retirement plans or separate accounts funding variable insurance contracts. The omnibus orders reflect the aggregation and netting of multiple orders from individual retirement plan Participants and/or individual owners of variable insurance contracts. The omnibus nature of these orders may limit the funds’ ability to apply their respective disruptive trading policies and procedures. We cannot guarantee that the funds (and thus our Participants) will not be harmed by transfer activity relating to the retirement plans and/or other insurance companies that may invest in the funds. In addition, if a fund believes that an omnibus order we submit may reflect one or more transfer requests from Participants engaged in disruptive trading activity, the fund may reject the entire omnibus order.
Our Market Timing Procedures detect potential “market timers” by examining the number of transfers made by Participants within given periods of time. In addition, managers of the funds might contact us if they believe or suspect that there is market timing. If requested by a fund company, we may vary our Market Timing Procedures from Subaccount to Subaccount to comply with specific fund policies and procedures.
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We may increase our monitoring of Participants who we have previously identified as market timers. When applying the parameters used to detect market timers, we will consider multiple contracts owned by the same Participant if that Participant has been identified as a market timer. For each Participant, we will investigate the transfer patterns that meet the parameters being used to detect potential market timers. We will also investigate any patterns of trading behavior identified by the funds that may not have been captured by our Market Timing Procedures.
Once a Participant has been identified as a “market timer” under our Market Timing Procedures, we will notify the Participant in writing that future transfers (among the Subaccounts and/or the fixed account) will be temporarily permitted to be made only by original signature sent to us by U.S. mail, first-class delivery for the remainder of the calendar year. Overnight delivery or electronic instructions (which may include telephone, facsimile, or Internet instructions) submitted during this period will not be accepted. If overnight delivery or electronic instructions are inadvertently accepted from a participant that has been identified as a market timer, upon discovery, we will reverse the transaction within 1 or 2 business days. We will impose this “original signature” restriction on that Participant even if we cannot identify, in the particular circumstances, any harmful effect from that Participant's particular transfers.
Participants seeking to engage in frequent, large, or short-term transfer activity may deploy a variety of strategies to avoid detection. Our ability to detect such transfer activity may be limited by operational systems and technological limitations. The identification of Participants determined to be engaged in such transfer activity that may adversely affect other Participants or fund shareholders involves judgments that are inherently subjective. We cannot guarantee that our Market Timing Procedures will detect every potential market timer. If we are unable to detect market timers, you may experience dilution in the value of your fund shares and increased brokerage and administrative costs in the funds. This may result in lower long-term returns for your investments.
Our Market Timing Procedures are applied consistently to all Participants. An exception for any Participant will be made only in the event we are required to do so by a court of law. In addition, certain funds available as investment options in your contract may also be available as investment options for owners of other, older life insurance policies issued by us. Some of these older life insurance policies do not provide a contractual basis for us to restrict or refuse transfers which are suspected to be market timing activity. In addition, because other insurance companies and/or retirement plans may invest in the funds, we cannot guarantee that the funds will not suffer harm from frequent, large, or short-term transfer activity among Subaccounts and the fixed accounts of variable contracts issued by other insurance companies or among investment options available to retirement plan Participants.
In our sole discretion, we may revise our Market Timing Procedures at any time without prior notice as necessary to better detect and deter frequent, large, or short-term transfer activity to comply with state or federal regulatory requirements, and/or to impose additional or alternate restrictions on market timers (such as dollar or percentage limits on transfers). If we modify our Market Timing Procedures, they will be applied uniformly to all Participants or as applicable to all Participants investing in underlying funds.
Some of the funds have reserved the right to temporarily or permanently refuse payments or transfer requests from us if, in the judgment of the fund’s investment adviser, the fund would be unable to invest effectively in accordance with its investment objective or policies, or would otherwise potentially be adversely affected. To the extent permitted by applicable law, we reserve the right to defer or reject a transfer request at any time that we are unable to purchase or redeem shares of any of the funds available through the VAA, including any refusal or restriction on purchases or redemptions of the fund shares as a result of the funds' own policies and procedures on market timing activities. If a fund refuses to accept a transfer request we have already processed, we will reverse the transaction within 1 or 2 business days. We will notify you in writing if we have reversed, restricted or refused any of your transfer requests. Some funds also may impose redemption fees on short-term trading (i.e., redemptions of mutual fund shares within a certain number of business days after purchase). We reserve the right to administer and collect any such redemption fees on behalf of the funds. You should read the prospectuses of the funds for more details on their redemption fees and their ability to refuse or restrict purchases or redemptions of their shares.
Transfers After the Annuity Commencement Date
We do not permit transfers of a Participant's account balance after the Annuity Commencement Date.
Additional Services
These additional services are available to you: dollar-cost averaging (DCA), systematic transfer (GVA III only), account sweep and portfolio rebalancing. In order to take advantage of one of these services, you will need to complete the applicable election form. These services will stop once we are notified of a pending death claim.
Dollar-Cost Averaging. Dollar-cost averaging allows you to transfer a designated amount from certain Subaccounts, or the fixed side of the contract, into one or more Subaccounts on a monthly basis for 1, 2 or 3 years. The minimum amount to be dollar cost averaged is $10,000 for 1 year, and $25,000 for 2 years or 3 years. We may offer different time periods for new Purchase Payments and for transfers of Contract Value. State variations may exist.
Systematic Transfer Service. The systematic transfer service allows you to fully liquidate your fixed account balance over four years and transfer the amounts into one or more of the Subaccounts. This service is only available for GVA III Participants.
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Account Sweep Service. The account sweep service allows you to keep a designated amount in one Subaccount or the fixed account, and automatically transfer the excess to other Subaccounts of your choice. Beginning May 1, 2010, this service will no longer be available unless the Contractowner has enrolled in this service prior to this date.
Portfolio Rebalancing. Portfolio rebalancing is an option that restores to a pre-determined level the percentage of Account Value allocated to each Subaccount or the fixed account. The rebalancing may take place quarterly, semi-annually or annually.
Death Benefit Before the Annuity Commencement Date
The payment of Death Benefits is governed by the applicable plan and the tax code. In addition, no payment of Death Benefits provided upon the death of the Participant will be allowed that does not satisfy the requirements of code section 72(s) or section 401(a)(9) of the tax code. The Participant may designate a Beneficiary during the Participant’s lifetime and change the Beneficiary by filing a written request with us. Each change of Beneficiary revokes any previous designation.
If the Participant dies before the Annuity Commencement Date, the Death Benefit paid to the Participant’s designated Beneficiary will be the greater of: (1) the net contributions; or (2) the Participant’s account balance less any outstanding loan (including principal due and accrued interest), provided that, if we are not notified of the Participant’s death within six months of such death, we pay the Beneficiary the amount in (2).
We determine the value of the Death Benefit as of the date on which the death claim is approved for payment. This payment will occur when we receive (1) proof, satisfactory to us, of the death of the Participant; (2) written authorization for payment; and (3) all required claim forms, fully completed.
If a Death Benefit is payable, the Beneficiary may elect to receive payment of the Death Benefit either in the form of a lump sum settlement or an Annuity Payout, or as a combination of these two. If a lump sum settlement is requested, the proceeds will be mailed within seven days of receipt of satisfactory claim documentation as discussed previously, subject to the laws and regulations governing payment of Death Benefits. If no election is made within 60 days after we receive satisfactory notice of the Participant’s death, we will pay a lump sum settlement to the Beneficiary at that time. This payment may be postponed as permitted by the 1940 Act.
Payment will be made in accordance with applicable laws and regulations governing payment of Death Benefits.
Under qualified contracts, if the Beneficiary is someone other than the spouse of the deceased Participant, the tax code provides that the Beneficiary may not elect an annuity which would commence later than December 31st of the calendar year following the calendar year of the Participant’s death. If a non-spousal Beneficiary elects to receive payment in a single lump sum, the tax code provides that such payment must be received no later than December 31st of the fourth calendar year following the calendar year of the Participant’s death.
If the Beneficiary is the surviving spouse of the deceased Participant, distributions generally are not required under the tax code to begin earlier than December 31st of the calendar year in which the Participant would have attained age 70. If the surviving spouse dies before the date distributions commence, then, for purposes of determining the date distributions to the Beneficiary must commence, the date of death of the surviving spouse is substituted for the date of death of the Participant.
If the Beneficiary is the spouse of the Participant, then the spouse may elect to continue the contract as the new Participant. Same-sex spouses should carefully consider whether to purchase annuity products that provide benefits based upon status as a spouse, and whether to exercise any spousal rights under the contract. You are strongly encouraged to consult a tax advisor before electing spousal rights under the contract.
Other rules apply to nonqualified annuities. See “Federal Tax Matters.”
If there is no living named Beneficiary on file with us at the time of a Participant’s death and unless the plan directs otherwise, we will pay the Death Benefit to the Participant’s estate in the form of a lump sum payment, upon receipt of satisfactory proof of the participant’s death, but only if we receive proof of death no later than the end of the fourth calendar year following the year of the Participant’s death. In such case, the value of the Death Benefit will be determined as of the end of the Valuation Period during which we receive due proof of death, and the lump sum Death Benefit generally will be paid within seven days of that date.
Withdrawals
Before the Annuity Commencement Date and subject to the terms of the Plan, withdrawals may be made from the Subaccounts or the fixed account of all or part of the Participant’s account balance remaining after deductions for any applicable (1) surrender charge; (2) annual administration charge (imposed on total withdrawals), (3) premium taxes, and (4) outstanding loan.
Converting all or part of the account balance or Death Benefit to an Annuity Payout is not considered a withdrawal.
Under GVA III, special limits apply to withdrawals from the fixed account. See “Charges and Other Deductions – Fixed Account Withdrawal/Transfer Limits for GVA III.”
The account balance available for withdrawal is determined at the end of the Valuation Period during which we receive the withdrawal request on an approved Lincoln distribution request form (available from the Home Office). If we receive a surrender or withdrawal
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request placed at or after 4:00 p.m., New York time, we will process the request using the Accumulation Unit value computed on the next Valuation Date. Unless a request for withdrawal specifies otherwise, withdrawals will be made from all Subaccounts within the VAA and from the fixed account in the same proportion that the amount of withdrawal bears to the total Participant account balance. Unless prohibited, withdrawal payments will be mailed within seven days after we receive a valid written request. The payment may be postponed as permitted by the 1940 Act.
There are charges associated with withdrawals of Account Value. See “Charges and Other Deductions.”
The tax consequences of a withdrawal are discussed later in this booklet. See “Federal Tax Matters.”
Total Withdrawals. Only Participants with no outstanding loans can make a total withdrawal. A total withdrawal of a Participant’s account will occur when (a) the Participant or Contractowner requests the liquidation of the Participant’s entire account balance, or (b) the amount requested plus any surrender charge results in a remaining Participant account balance of an amount less than or equal to the annual administration charge, in which case we treat the request as a request for liquidation of the participant’s entire account balance.
Any active life certificate must be surrendered to us when a total withdrawal occurs. If the Contractowner resumes Contributions on behalf of a Participant after a total withdrawal, the Participant will receive a new participation date and active life certificate.
Partial Withdrawals. A partial withdrawal of a Participant’s account balance will occur when less than a total withdrawal is made from a Participant’s account.
Systematic Withdrawal Option. Participants who are at least age 59½, are separated from service from their employer, or are disabled, and certain spousal Beneficiaries and alternate payees who are former spouses, may be eligible for a Systematic Withdrawal Option (“SWO”) under the contract. Payments are made only from the fixed account. Under the SWO a Participant may elect to withdraw either a monthly amount which is an approximation of the interest earned between each payment period based upon the interest rate in effect at the beginning of each respective payment period, or a flat dollar amount withdrawn on a periodic basis. A Participant must have a vested pre-tax account balance of at least $10,000 in the fixed account in order to select the SWO. A Participant may transfer amounts from the VAA to the fixed account in order to support SWO payments. These transfers, however, are subject to the transfer restrictions imposed by any applicable plan. A one-time fee of up to $30 will be charged to set up the SWO. This charge is waived for total vested pre-tax account balances of $25,000 or more. More information about SWO, including applicable fees and charges, is available in the contracts and active life certificates and from us.
Required Minimum Distribution Program. Under certain contracts Participants who are at least age 70½ may ask us to calculate and pay to them the minimum annual distribution required by Sections 401(a)(9), 403(b)(10) or 408 of the tax code. The Participant must complete the forms we require to elect this option. We will base our calculation solely on the Participant’s Account Value with us. Participants who select this option are responsible for determining the minimum distributions amount applicable to their non-Lincoln Life contracts.
Withdrawal Restrictions. Withdrawals under Section 403(b) contracts are subject to the limitations under Section 403(b)(11) of the tax code and regulations thereof and in any applicable plan document. That section provides that withdrawals of salary reduction Contributions deposited and earnings credited on any salary reduction Contributions after December 31, 1988, can only be made if the Participant has (1) died; (2) become disabled; (3) attained age 59½; (4) separated from service; or (5) incurred a hardship. If amounts accumulated in a Section 403(b)(7) custodial account are deposited in a contract, these amounts will be subject to the same withdrawal restrictions as are applicable to post-1988 salary reduction Contributions under the contracts. For more information on these provisions see “Federal Tax Matters.”
Withdrawal requests for a Participant under Section 401(a) plans and plans subject to Title I of ERISA must be authorized by the Contractowner on behalf of a Participant. All withdrawal requests will require the Contractowner’s written authorization and written documentation specifying the portion of the Participant’s account balance which is available for distribution to the Participant.
As required by Section 830.105 of the Texas Education Code, withdrawal requests by Participants in the Texas Optional Retirement Program (“ORP”) are only permitted in the event of (1) death; (2) retirement; (3) termination of employment in all Texas institutions of higher education; or (4) attainment of age 70½. A participant in an ORP contract is required to obtain a certificate of termination from the Participant’s employer before a withdrawal request can be granted.
For withdrawal requests (other than transfers to other investment vehicles) by Participants under plans not subject to Title I of ERISA and non-401(a) plans, the Participant must certify to us that one of the permitted distribution events listed in the tax code has occurred (and provide supporting information, if requested) and that we may rely on this representation in granting the withdrawal request. See “Federal Tax Matters.” A Participant should consult his or her tax adviser as well as review the provisions of their plan before requesting a withdrawal. A plan and applicable law may contain additional withdrawal or transfer restrictions. Withdrawals may have Federal tax consequences. In addition, early withdrawals, as defined under Section 72(q) and 72(t) of the tax code, may be subject to a 10% excise tax.
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Loans
If the Plan permits loans, then during the Participant's accumulation period, the Participant may apply for a loan by completing a loan application that we provide. The Participant's account balance in the fixed account secures the loan. Loans are subject to restrictions imposed by the IRC, Title I of the Employee Retirement Income Security Act of 1974 (ERISA), and the Participant's Plan. For plans subject to the IRC and Title I of ERISA, the initial amount of a Participant loan cannot exceed the lesser of 50% of the Participant's vested account balance in the fixed account or $50,000 and, pursuant to the terms of the contract, must be at least $1,000. For plans subject to the IRC, but not subject to Title I of ERISA, a Participant is subject to the same $50,000 maximum, but may borrow up to $10,000 of his or her vested account balance even if that would be greater than 50% of his or her vested account balance. A Participant who incurs a qualified disaster may borrow up to the lesser of $100,000 or 10% of his or her vested account balance. A Participant may have only one loan outstanding at a time and may not take more than one loan in any six-month period. Amounts serving as collateral for the loan are not subject to the minimum interest rate under the contract and will accrue interest at a rate below the loan interest rate provided in the contract. More information about loan and loan interest rates is provided in the contract, the active life certificates, and the annuity loan agreement, and is also available from us.
Delay of Payments
Contract proceeds from the VAA will be paid within seven days, except:
• when the NYSE is closed (other than weekends and holidays);
• times when market trading is restricted or the SEC declares an emergency, and we cannot value units or the funds cannot redeem shares; or
• when the SEC so orders to protect Contractowners.
We may delay payment from the fixed account for up to six months. During this period, we will continue to credit the current declared interest rate to a Participant's account in the fixed account.
Due to federal laws designed to counter terrorism and prevent money laundering by criminals, we may be required to reject a Purchase Payment and/or deny payment of a request for transfers, withdrawals, surrenders, or Death Benefits, until instructions are received from the appropriate regulator. We also may be required to provide additional information about a Contractowner's account to government regulators.
Abandoned Property. Every state has unclaimed property laws which generally declare annuity contracts to be abandoned after a period of inactivity of three to five years from the date a benefit is due and payable. For example, if the payment of a Death Benefit has been triggered, but, if after a thorough search, we are still unable to locate the Beneficiary of the Death Benefit, or the Beneficiary does not come forward to claim the Death Benefit in a timely manner, the Death Benefit will be “escheated”. This means that the Death Benefit will be paid to the abandoned property division or unclaimed property office of the state in which the Beneficiary or the Contractowner last resided, as shown on our books and records, or to our state of domicile. This escheatment is revocable and the state is obligated to pay the Death Benefit (without interest) if your Beneficiary steps forward to claim it with the proper documentation.
To prevent such escheatment, it is important that you update your Beneficiary designations, including addresses, if and as they change. You may update your Beneficiary designations by submitting a Beneficiary change form to our Home Office.
Amendment of Contract
We reserve the right to amend the contract to meet the requirements of the 1940 Act or other applicable federal or state laws or regulations. You will be notified in writing of any changes, modifications or waivers. Any changes are subject to prior approval of your state’s insurance department (if required).
Ownership
Contractowners have all rights under the contract. According to Indiana law, the assets of the VAA are held for the exclusive benefit of all Contractowners and their designated Beneficiaries; and the assets of the VAA are not chargeable with liabilities arising from any other business that we may conduct. Qualified contracts may not be assigned or transferred except as permitted by applicable law and upon written notification to us. Qualified contracts and active life certificates may not be assigned or transferred except as permitted by ERISA and on written notification to us. In addition, a Participant, Beneficiary, or Annuitant may not, unless permitted by law, assign or encumber any payment due under the contract.
Contractowner Questions
The obligations to purchasers under the contracts are those of Lincoln Life. This prospectus provides a general description of the material features of the contract. Questions about your contract should be directed to us at 1-800-341-0441.
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Annuity Payouts
As permitted by the plan, the Participant, or the Beneficiary of a deceased Participant, may elect to convert all or part of the Participant's account balance or the Death Benefit to any annuity payout. The contract provides optional forms of payouts of annuities (annuity options), each of which is payable on a variable basis, a fixed basis or a combination of both as you specify. The contract provides that all or part of the contract value may be used to purchase an annuity payout option. The rates used to purchase any of annuity options discussed below are shown in the contract.
You may elect annuity payouts in monthly, quarterly, semiannual or annual installments. If the Participant's account balance or the Beneficiary's Death Benefit is less than $2,000 or if the amount of the first payout is less than $20, we have the right to cancel the annuity and pay the Participant or Beneficiary the entire amount in a lump sum.
We may maintain variable annuity payouts in the VAA, or in another separate account of Lincoln Life (variable payout division). We do not impose a charge when the annuity conversion amount is applied to a variable payout division to provide an annuity payout option. The contract benefits and charges for an annuity payout option, whether maintained in the VAA or in a variable payout division, are as described in this prospectus. The selection of funds available through a variable payout division may be different from the funds available through the VAA. If we will maintain a participant's variable annuity payout in a variable payout division, we will provide a prospectus for the variable payout division before the Annuity Commencement Date.
Annuity Options
Life Annuity. This option offers a periodic payout during the lifetime of the Annuitant and ends with the last payout before the death of the Annuitant. This option offers the highest periodic payout since there is no guarantee of a minimum number of payouts or provision for a Death Benefit for Beneficiaries. However, there is the risk under this option that the recipient would receive no payouts if he or she dies before the date set for the first payout; only one payout if death occurs before the second scheduled payout, and so on.
Life Annuity with Guaranteed Period. This option guarantees periodic payouts during a designated period, usually 10 or 20 years, and then continues throughout the lifetime of the Annuitant. The designated period is selected by the Contractowner (or Participant in an allocated contract).
Joint Life Annuity. This option offers a periodic payout during the joint lifetime of the Annuitant and a designated joint Annuitant. The payouts continue during the lifetime of the survivor. However, under a joint life annuity, if both Annuitants die before the date set for the first payout, no payouts will be made. Only one payment would be made if both deaths occur before the second scheduled payout, and so on.
Non-Life Annuities. Annuity Payouts are guaranteed monthly for the selected number of years. While there is no right to make any total or partial withdrawals during the annuity period, an Annuitant or Beneficiary who has selected this annuity option as a variable annuity may request at any time during the payout period that the present value of any remaining installments be paid in one lump sum. This lump sum payout will be treated as a total withdrawal during the accumulation period and may be subject to a surrender charge. See – Charges and Other Deductions and Federal Tax Matters.
General Information
Under the options listed above, you may not make withdrawals. Other options may be made available by us. Annuity Payout options are only available if consistent with the contract, the Plan, the tax code, and ERISA. The mortality and expense risk charge will be assessed on all variable annuity payments, including options that do not have a life contingency and therefore no mortality risk.
Under any option providing for guaranteed payouts, the number of payouts which remain unpaid at the date of the Annuitant's death (or surviving Annuitant's death in the case of a joint life annuity) will be paid to the Beneficiary as payouts become due.
Annuity Payout Calculation
Fixed Annuity Payouts are determined by dividing the Participant's annuity conversion amount in the fixed account as of the initial Annuity Payout calculation date by the applicable annuity conversion factor (in the contract) for the Annuity Payout option selected.
Variable Annuity Payouts
Variable Annuity Payouts will be determined using:
• The Participant's annuity conversion amount in the VAA as of the initial Annuity Payout calculation date;
• The annuity conversion factor contained in the contract;
• The annuity option selected; and
• The investment performance of the fund(s) selected.
To determine the amount of payouts, we make this calculation:
1. Determine the dollar amount of the first periodic payout; then
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2. Credit the retired life certificate with a specific number of Annuity Units equal to the first periodic payout divided by the Annuity Unit value; and
3. Calculate the value of the Annuity Units each period thereafter.
We assume an investment return of a specified percentage per year, as applied to the applicable mortality table. The amount of each Annuity Payout after the initial pay-out will depend upon how the underlying fund(s) perform, relative to the assumed rate. If the actual net investment rate (annualized) exceeds the assumed rate, the payment will increase at a rate proportional to the amount of such excess. Conversely, if the actual rate is less than the assumed rate, Annuity Payouts will decrease. There is a more complete explanation of this calculation in the SAI.
Distribution of the Contracts
Lincoln Financial Distributors, Inc. (“LFD”) serves as Principal Underwriter of this contract. LFD is affiliated with Lincoln Life and is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934 and is a member of FINRA. The Principal Underwriter has entered into selling agreements with Lincoln Financial Advisors Corporation and/or Lincoln Financial Securities Corporation (collectively, “LFN”), also affiliates of ours. The Principal Underwriter has also entered into selling agreements with broker-dealers that are unaffiliated with us (“Selling Firms”). While the Principal Underwriter has the legal authority to make payments to broker-dealers which have entered into selling agreements, we will make such payments on behalf of the Principal Underwriter in compliance with appropriate regulations. We also pay on behalf of LFD certain of its operating expenses related to the distribution of this and other of our contracts. The Principal Underwriter may also offer “non-cash compensation”, as defined under FINRA’s rules, which includes among other things, merchandise, gifts, marketing support, sponsorships, seminars, entertainment and travel expenses. You may ask your registered representative how he/she will personally be compensated, in whole or in part, for the sale of the contract to you or for any alternative proposal that may have been presented to you. You may wish to take such compensation payments into account when considering and evaluating any recommendation made to you in connection with the purchase of a contract. The following paragraphs describe how payments are made by us and the Principal Underwriter to various parties.
Compensation Paid to LFN. The maximum commission the Principal Underwriter pays to LFN is 3.50% of Purchase Payments. LFN may elect to receive a lower commission when a Purchase Payment is made along with an earlier quarterly payment based on Contract Value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to LFN is 1.18% of annuitized value and/or ongoing annual compensation of up to 0.00% of annuity value or statutory reserves.
Lincoln Life also pays for the operating and other expenses of LFN, including the following sales expenses: registered representative training allowances; compensation and bonuses for LFN's management team; advertising expenses; and all other expenses of distributing the contracts. LFN pays its registered representatives a portion of the commissions received for their sales of contracts. LFN registered representatives and their managers are also eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements. In addition, LFN registered representatives who meet certain productivity, persistency and length of service standards and/or their managers may be eligible for additional compensation. Sales of the contracts may help LFN registered representatives and/or their managers qualify for such benefits. LFN registered representatives and their managers may receive other payments from us for services that do not directly involve the sale of the contracts, including payments made for the recruitment and training of personnel, production of promotional literature and similar services.
Compensation Paid to Unaffiliated Selling Firms. The Principal Underwriter pays commissions to all Selling Firms. The maximum commission the Principal Underwriter pays to Selling Firms, other than LFN, is 3.50% of Purchase Payments. Some Selling Firms may elect to receive a lower commission when a Purchase Payment is made along with an earlier quarterly payment based on Contract Value for so long as the contract remains in effect. Upon annuitization, the maximum commission the Principal Underwriter pays to Selling Firms is 1.18% of annuitized value and/or ongoing annual compensation of up to 0.00% of annuity value or statutory reserves. LFD also acts as wholesaler of the contracts and performs certain marketing and other functions in support of the distribution and servicing of the contracts.
LFD may pay certain Selling Firms or their affiliates additional amounts for, among other things: (1) “preferred product” treatment of the contracts in their marketing programs, which may include marketing services and increased access to registered representatives; (2) sales promotions relating to the contracts; (3) costs associated with sales conferences and educational seminars for their registered representatives; (4) other sales expenses incurred by them; and (5) inclusion in the financial products the Selling Firm offers.
Lincoln Life may provide loans to broker-dealers or their affiliates to help finance marketing and distribution of the contracts, and those loans may be forgiven if aggregate sales goals are met. In addition, we may provide staffing or other administrative support and services to broker-dealers who distribute the contracts. LFD, as wholesaler, may make bonus payments to certain Selling Firms based on aggregate sales of our variable insurance contracts (including the contracts) or persistency standards. These additional payments are not offered to all Selling Firms, and the terms of any particular agreement governing the payments may vary among Selling Firms.
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These additional types of compensation are not offered to all Selling Firms. The terms of any particular agreement governing compensation may vary among Selling Firms and the amounts may be significant. The prospect of receiving, or the receipt of, additional compensation may provide Selling Firms and/or their registered representatives with an incentive to favor sales of the contracts over other variable annuity contracts (or other investments) with respect to which a Selling Firm receives lower levels of or no additional compensation. You may wish to take such payment arrangements into account when considering and evaluating any recommendation relating to the contracts. Additional information relating to compensation paid in 2019 is contained in the SAI.
Compensation Paid to Other Parties. Depending on the particular selling arrangements, there may be others whom LFD compensates for the distribution activities. For example, LFD may compensate certain “wholesalers”, who control access to certain selling offices, for access to those offices or for referrals, and that compensation may be separate from the compensation paid for sales of the contracts. LFD may compensate marketing organizations, associations, brokers or consultants which provide marketing assistance and other services to broker-dealers who distribute the contracts, and which may be affiliated with those broker-dealers. Commissions and other incentives or payments described above are not charged directly to Contractowners or the VAA. All compensation is paid from our resources, which include fees and charges imposed on your contract.
Federal Tax Matters
Introduction
The Federal income tax treatment of the contract is complex and sometimes uncertain. The Federal income tax rules may vary with your particular circumstances. This discussion does not include all the Federal income tax rules that may affect you and your contract. This discussion also does not address other Federal tax consequences (including consequences of sales to foreign individuals or entities), or state or local tax consequences, associated with the contract. As a result, you should always consult a tax adviser about the application of tax rules found in the Internal Revenue Code (“Code”), Treasury Regulations and applicable IRS guidance to your individual situation.
Qualified Retirement Plans
We have designed the contracts for use in connection with certain types of retirement plans that receive favorable treatment under the tax code. Contracts issued to or in connection with a qualified retirement plan are called “qualified contracts.” We issue contracts for use with various types of qualified retirement plans. The Federal income tax rules applicable to those plans are complex and varied. As a result, this prospectus does not attempt to provide more than general information about the use of the contract with the various types of qualified retirement plans. Persons planning to use the contract in connection with a qualified retirement plan should obtain advice from a competent tax adviser.
Types of Qualified Contracts and Terms of Contracts
Qualified retirement plans may include the following:
• Individual Retirement Accounts and Annuities (“Traditional IRAs”)
• Roth IRAs
• Traditional IRA that is part of a Simplified Employee Pension Plan (“SEP”)
• SIMPLE 401(k) plans (Savings Incentive Matched Plan for Employees)
• 401(a) / (k) plans (qualified corporate employee pension and profit-sharing plans)
• 403(a) plans (qualified annuity plans)
• 403(b) plans (public school system and tax-exempt organization annuity plans)
• H.R. 10 or Keogh Plans (self-employed individual plans)
• 457(b) plans (deferred compensation plans for state and local governments and tax-exempt organizations)
We will amend contracts to be used with a qualified retirement plan as generally necessary to conform to the tax law requirements for the type of plan. However, the rights of a person to any qualified retirement plan benefits may be subject to the plan's terms and conditions. In addition, we are not bound by the terms and conditions of qualified retirement plans to the extent such terms and conditions contradict the contract, unless we consent.
If your contract was issued pursuant to a 403(b) plan, we now are generally required to confirm, with your 403(b) plan sponsor or otherwise, that contributions (purchase payments), as well as surrenders, loans or transfers you request, comply with applicable tax requirements and to decline purchase payments or requests that are not in compliance. We will defer crediting purchase payments we receive or processing payments you request until all information required under the tax law has been received. By directing purchase payments to the contract or requesting a surrender, loan or transfer, you consent to the sharing of confidential information about you, the contract, and transactions under the contract and any other 403(b) contracts or accounts you have under the 403(b) plan among us, your employer or plan sponsor, any plan administrator or recordkeeper, and other product providers.
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Also, for 403(b) contracts issued on or after January 1, 2009, amounts attributable to employer contributions are subject to restrictions on withdrawals specified in your employer's 403(b) plan, in order to comply with new tax regulations (previously, only amounts attributable to your salary-reduction contributions were subject to withdrawal restrictions). Amounts transferred to a 403(b) contract from other 403(b) contracts or accounts must generally be subject to the same restrictions on withdrawals applicable under the prior contract or account.
Tax Deferral on Earnings
The Federal income tax law generally does not tax any increase in your contract value until you receive a contract distribution. However, for this general rule to apply, certain requirements must be satisfied:
• An individual must own the contract (or the tax law must treat the contract as owned by an individual).
• The investments of the VAA must be “adequately diversified” in accordance with IRS regulations.
• Your right to choose particular investments for a contract must be limited.
• The Annuity Commencement Date must not occur near the end of the Annuitant’s life expectancy.
Investments in the VAA Must Be Diversified
For a contract to be treated as an annuity for Federal income tax purposes, the investments of the VAA must be “adequately diversified.” Treasury regulations define standards for determining whether the investments of the VAA are adequately diversified. If the VAA fails to comply with these diversification standards, you could be required to pay tax currently on the excess of the contract value over the contract purchase payments. Although we do not control the investments of the underlying investment options, we expect that the underlying investment options will comply with the IRS regulations so that the VAA will be considered “adequately diversified.”
Restrictions
Federal income tax law limits your right to choose particular investments for the contract. Because the IRS has issued little guidance specifying those limits, the limits are uncertain and your right to allocate contract values among the subaccounts may exceed those limits. If so, you would be treated as the owner of the assets of the VAA and thus subject to current taxation on the income, bonus credits, persistency credits and gains, if applicable, from those assets. We do not know what limits may be set by the IRS in any guidance that it may issue and whether any such limits will apply to existing contracts. We reserve the right to modify the contract without your consent to try to prevent the tax law from considering you as the owner of the assets of the VAA.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019
The Setting Every Community Up for Retirement Enhancement (SECURE) Act (the “SECURE Act”) was enacted on December 20, 2019. The SECURE Act made a number of significant changes to the rules that apply to qualified retirement plans and IRA’s, including the following:
• Increased the required beginning date measuring age from 70½ to 72 for any participant or IRA owner who did not attain age 70½ prior to January 1, 2020. As a result, required minimum distributions are generally required to begin by April 1 of the year following the year in which a participant or IRA owner reached age 72.
• Eliminated the age 70½ limit for making contributions to an IRA. Beginning in 2020, an IRA owner can make contributions to his or her IRA at any age.
• Changed the required minimum distribution rules that apply after the death of a participant or IRA owner.
• Created the “Qualified Birth or Adoption” exception to the 10% additional tax on early distributions.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020
The Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) was enacted on March 27, 2020. The CARES Act includes a number of provisions that affect distributions from qualified retirement plans and IRAs, including the following:
• Tax-favored Coronavirus Related Distributions
• Retirement plan loan relief
• Temporary waiver of required minimum distributions
Tax-favored Coronavirus Related Distributions
The CARES Act provides for tax-favored withdrawals, called Coronavirus Related Distributions (“CRDs”), from retirement plans and IRAs for any plan participant or IRA owner who meets certain requirements. For this purpose, an individual can receive a CRD if the participant or IRA owner can demonstrate that he or she:
• has been diagnosed with COVID-19,
• has a spouse or dependent who has been diagnosed with COVID-19,
• experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, or having reduced work hours.
Retirement plans that can provide CRDs are generally 401(a), 403(a) and (b), and 457(b) plans, as well as IRAs.
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CRDs are limited to $100,000 in the aggregate from all retirement plan accounts and IRAs per individual. CRDs are referred to as “tax-favored” because they are not subject to the 10% early withdrawal penalty or the 20% mandatory withholding for eligible rollover distributions, and are included in taxable income of the recipient ratably over a three-year period is so elected by the recipient. A plan participant or IRA owner may repay the CRD, up to the full amount distributed, within 3 years of the distribution. The repayment is treated as a direct trustee to trustee transfer made within 60 days to the plan or account that receives the repayment.
Any distribution taken between January 1, 2020 and December 31, 2020, will be treated as a CRD if it otherwise meets the requirements and the plan permits the distribution.
Retirement Plan Loan Relief
The CARES Act includes several provisions that affect retirement plan loans. First the maximum plan loan amounts are increased to $100,000 or 100% of the participant’s vested balance for any loan taken by an individual who meets the requirements for taking a CRD (described above) and who takes the loan within 180 days of the enactment of the CARES Act.
Second, any individual who meets the requirements for taking a CRD and who either (i) has a loan outstanding on the date the CARES Act was enacted or (ii) takes a loan after the CARES Act was enacted, can delay any loan repayment due in 2020 for 1 year.
Third, the time period in 2020 for which loan payments are suspended is not counted in the determination of the maximum 5 year period for the term of a non-residential retirement plan loan.
Temporary Waiver of Required Minimum Distributions
The CARES Act waives required minimum distributions from 401(a), 403(a) and (b), and 457(b) plans, as well as IRAs, for 2020. In addition, if a plan participant or IRA owner attained his or her required beginning date in 2019 but did not take his or her required minimum distribution prior to December 31, 2019, his or her required minimum distribution for 2019 is also waived.
As a part of this waiver, the year 2020 is not included in the calculation of any 5 or 10 year required distribution period under section 401(a)(9)(B)(ii).
Tax Treatment of Qualified Contracts
The Federal income tax rules applicable to qualified retirement plans and qualified contracts vary with the type of plan and contract. For example,
• Federal tax rules limit the amount of purchase payments that can be made, and the tax deduction or exclusion that may be allowed for the purchase payments. These limits vary depending on the type of qualified retirement plan and the plan Participant’s specific circumstances (e.g., the Participant’s compensation).
• Minimum annual distributions are required under some qualified retirement plans once you reach age 70 ½ or retire, if later as described below.
• Under most qualified plans, such as a traditional IRA, the owner must begin receiving payments from the contract in certain minimum amounts by a certain age, typically age 70 ½. Other qualified plans may allow the Participant to take required distributions upon the later of reaching age 70 ½ or retirement.
Please note that qualified retirement plans such as 403(b) plans, 401(k) plans and IRAs generally defer taxation of contributions and earnings until distribution. As such, an annuity does not provide any additional tax deferral benefit beyond the qualified retirement plan itself.
Tax Treatment of Payments
The Federal income tax rules generally include distributions from a qualified contract in the Participant's income as ordinary income. These taxable distributions will include purchase payments that were deductible or excludible from income. Thus, under many qualified contracts, the total amount received is included in income since a deduction or exclusion from income was taken for purchase payments. There are exceptions. For example, you do not include amounts received from a Roth IRA in income if certain conditions are satisfied.
Required Minimum Distributions (RMDs)
Under most qualified plans, you must begin receiving payments from the contract in certain minimum amounts by April 1 of the year following the year you attain age 70 ½ or retire, if later. You are required to take distributions from your traditional IRAs by April 1 of the year following the year you reach age 70 ½. If you own a Roth IRA, you are not required to receive minimum distributions from your Roth IRA during your life.
Failure to comply with the minimum distribution rules applicable to certain qualified plans, such as Traditional IRAs, will result in the imposition of an excise tax. This excise tax equals 50% of the amount by which a minimum required distribution exceeds the actual distribution from the qualified plan.
Treasury regulations applicable to required minimum distributions include a rule that may impact the distribution method you have chosen and the amount of your distributions. Under these regulations, the presence of an enhanced Death Benefit, Lincoln
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SmartSecurity® Advantage, or other benefit, if any, may require you to take additional distributions. An enhanced Death Benefit is any Death Benefit that has the potential to pay more than the contract value or a return of purchase payments. Please contact your tax adviser regarding any tax ramifications.
Additional Tax on Early Distributions from Qualified Retirement Plans
The tax code may impose a 10% additional tax on an early distribution from a qualified contract that must be included in income. The tax code does not impose the additional tax if one of several exceptions applies. The exceptions vary depending on the type of qualified contract you purchase. For example, in the case of an IRA, the 10% additional tax will not apply to any of the following withdrawals, surrenders, or Annuity Payouts:
• Distribution received on or after the Annuitant reaches 59½
• Distribution received on or after the Annuitant’s death or because of the Annuitant’s disability (as defined in the tax law)
• Distribution received as a series of substantially equal periodic payments based on the Annuitant’s life (or life expectancy), or
• Distribution received as reimbursement for certain amounts paid for medical care.
These exceptions, as well as certain others not described here, generally apply to taxable distributions from other qualified retirement plans. However, the specific requirements of the exception may vary.
Unearned Income Medicare Contribution
Congress enacted the “Unearned Income Medicare Contribution” as a part of the Health Care and Education Reconciliation Act of 2010. This new tax, which affects individuals whose modified adjusted gross income exceeds certain thresholds, is a 3.8% tax on the lesser of (i) the individual’s “unearned income,” or (ii) the dollar amount by which the individual’s modified adjusted gross income exceeds the applicable threshold. Distributions that you take from your contract are not included in the calculation of unearned income because your contract is a qualified plan contract. However, the amount of any such distribution is included in determining whether you exceed the modified adjusted gross income threshold. The tax is effective for tax years after December 31, 2012. Please consult your tax advisor to determine whether your annuity distributions are subject to this tax.
Taxation of Death Benefits
We may distribute amounts from your contract because of your death. Federal tax rules may limit the payment options available to your Beneficiaries. If your spouse is your Beneficiary, your surviving spouse will generally receive special treatment and will have more available payment options. Non-spouse Beneficiaries do not receive the same special treatment. Payment options may be further limited depending upon whether you reached the date upon which you were required to begin minimum distributions. The Pension Protection Act of 2006 (“PPA”) permits non-spouse Beneficiary rollovers to an “inherited IRA” (effective January 1, 2007).
Transfers and Direct Rollovers
As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”), you may be able to move funds between different types of qualified plans, such as 403(b) and 457(b) governmental plans, by means of a rollover or transfer. You may be able to rollover or transfer amounts between qualified plans and traditional IRAs. These rules do not apply to Roth IRAs and 457(b) non-governmental tax-exempt plans. The PPA permits direct conversions from certain qualified, 403(b) or 457(b) plans to Roth IRAs (effective for distribution after 2007). There are special rules that apply to rollovers, direct rollovers and transfers (including rollovers or transfers or after-tax amounts). If the applicable rules are not followed, you may incur adverse Federal income tax consequences, including paying taxes which you might not otherwise have had to pay. Before we send a rollover distribution, we will provide a notice explaining tax withholding requirements (see Federal Income Tax Withholding). We are not required to send you such notice for your IRA. You should always consult your tax adviser before you move or attempt to move any funds.
The IRS issued Announcement 2014-15 following the Tax Court’s decision in Bobrow v. Commissioner, T.C. Memo. 2014-21. In the Announcement, the IRS stated its intent to apply the one-rollover-per-year limitation of 408(d)(3)(B) on an aggregate basis to all IRAs that an individual owns. This means that an individual cannot make a tax-free IRA-to-IRA rollover if he or she has made such a rollover involving any of the individual’s IRAs in the current tax year. If an intended rollover does not qualify for tax-free rollover treatment, contributions to your IRA may constitute excess contributions that may exceed contribution limits. This one-rollover-per-year limitation does not apply to direct trustee-to-trustee transfers.
Federal Income Tax Withholding
We will withhold and remit to the IRS a part of the taxable portion of each distribution made under a contract unless you notify us prior to the distribution that tax is not to be withheld. In certain circumstances, Federal income tax rules may require us to withhold tax. At the time a withdrawal, surrender, or Annuity Payout is requested, we will give you an explanation of the withholding requirements.
Certain payments from your contract may be considered eligible rollover distributions (even if such payments are not being rolled over). Such distributions may be subject to special tax withholding requirements. The Federal income tax withholding rules require that we withhold 20% of the eligible rollover distribution from the payment amount, unless you elect to have the amount directly transferred to certain qualified plans or contracts. The IRS requires that tax be withheld, even if you have requested otherwise. Such
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tax withholding requirements are generally applicable to 401(a), 403(a) or (b), HR 10, and 457(b) governmental plans and contracts used in connection with these types of plans.
Special Considerations for Same-Sex Couples
The U.S. Supreme Court recently held same-sex spouses who have been married under state law will now be treated as spouses for purposes of federal law. You are strongly encouraged to consult a tax advisor before electing spousal rights under the contract.
Nonqualified Annuity Contracts
A nonqualified annuity is a contract not issued in connection with an IRA or a qualified retirement plan receiving special tax treatment under the tax code. These contracts are not intended for use with nonqualified annuity contracts. Different federal tax rules apply to nonqualified annuity contracts. Persons planning to use the contract in connection with a nonqualified annuity should obtain advice from a tax advisor.
Our Tax Status
Under existing Federal income tax laws, we do not pay tax on investment income and realized capital gains of the VAA. We do not expect that we will incur any Federal income tax liability on the income and gains earned by the VAA. However, the Company does expect, to the extent permitted under Federal tax law, to claim the benefit of the foreign tax credit as the owner of the assets of the VAA. Therefore, we do not impose a charge for Federal income taxes. If Federal income tax law changes and we must pay tax on some or all of the income and gains earned by the VAA, we may impose a charge against the VAA to pay the taxes.
Changes in the Law
The above discussion is based on the tax code, IRS regulations, and interpretations existing on the date of this prospectus. However, Congress, the IRS, and the courts may modify these authorities, sometimes retroactively.
Additional Information
Voting Rights
As required by law, we will vote the fund shares held in the VAA at meetings of the shareholders of the funds. The voting will be done according to the instructions of Contractowners who have interests in any Subaccounts which invest in classes of the funds. If the 1940 Act or any regulation under it should be amended or if present interpretations should change, and if as a result we determine that we are permitted to vote the fund shares in our own right, we may elect to do so.
The number of votes which you have the right to cast will be determined by applying your percentage interest in a Subaccount to the total number of votes attributable to the Subaccount. In determining the number of votes, fractional shares will be recognized.
Each underlying fund is subject to the laws of the state in which it is organized concerning, among other things, the matters which are subject to a shareholder vote, the number of shares which must be present in person or by proxy at a meeting of shareholders (a “quorum”), and the percentage of such shares present in person or by proxy which must vote in favor of matters presented. Because shares of the underlying fund held in the VAA are owned by us, and because under the 1940 Act we will vote all such shares in the same proportion as the voting instructions which we receive, it is important that each Contractowner provide their voting instructions to us. For funds un-affiliated with Lincoln, even though Contractowners may choose not to provide voting instruction, the shares of a fund to which such Contractowners would have been entitled to provide voting instruction will be voted by us in the same proportion as the voting instruction which we actually receive. For funds affiliated with Lincoln, shares of a fund to which such Contractowners would have been entitled to provide voting instruction will, once we receive a sufficient number of instructions we deem appropriate to ensure a fair representation of Contractowners eligible to vote, be voted by us in the same proportion as the voting instruction which we actually receive. As a result, the instruction of a small number of Contractowners could determine the outcome of matters subject to shareholder vote. All shares voted by us will be counted when the underlying fund determines whether any requirement for a minimum number of shares be present at such a meeting to satisfy a quorum requirement has been met. Voting instructions to abstain on any item to be voted on will be applied proportionately to reduce the number of votes eligible to be cast.
Whenever a shareholders meeting is called, we will provide or make available to each person having a voting interest in a Subaccount proxy voting material, reports and other materials relating to the funds. Since the funds engage in shared funding, other persons or entities besides Lincoln Life may vote fund shares. See Investments of the Variable Annuity Account – Fund Shares.
Return Privilege
Participants under Sections 403(b), 408 and certain nonqualified plans will receive an active life certificate. Within the free-look period (ten days) after the participant receives the active life certificate, the participant may cancel it for any reason by giving us written notice. The postmark date of the notice is the date of notice for these purposes. An active life certificate canceled under this provision will be void. With respect to the fixed side of the contract, we will return the participant's contributions less withdrawals made on
31

 

behalf of the participant. With respect to the VAA, we will return the greater of the participant's contributions less withdrawals made on behalf of the participant, or the participant's account balance in the VAA on the date we receive the written notice. No surrender charge applies.
State Regulation
As a life insurance company organized and operated under Indiana law, we are subject to provisions governing life insurers and to regulation by the Indiana Commissioner of Insurance. Our books and accounts are subject to review and examination by the Indiana Department of Insurance at all times. A full examination of our operations is conducted by that Department at least every five years.
Records and Reports
As presently required by the 1940 Act and applicable regulations, we are responsible for maintaining all records and accounts relating to the VAA. We have entered into an agreement with State Street Bank and Trust Company, 801 Pennsylvania Ave, Kansas City, MO 64105, to provide accounting services to the VAA. We will mail to you, at your last known address of record at the Home Office, at least semi-annually after the first Contract Year, reports containing information required by that Act or any other applicable law or regulation.
A written confirmation of each transaction will be mailed to you on the next Valuation Date, except for the following transactions, which are mailed quarterly:
• deduction of any account fee or rider charges;
• any rebalancing event under the portfolio rebalancing service; and
• any transfer or withdrawal under any applicable additional service: dollar cost averaging, systematic transfer service, or account sweep service.
Cyber Security and Business Interruption Risks
We rely heavily on interconnected computer systems and digital data to conduct our annuity products business. Because our business is highly dependent upon the effective operation of our computer systems and those of our business partners, our business is vulnerable to disruptions from utility outages, and susceptible to operational and information security risks resulting from information systems failure (e.g., hardware and software malfunctions), and cyber-attacks. These risks include, among other things, the theft, misuse, corruption and destruction of data maintained online or digitally, interference with or denial of service, attacks on websites and other operational disruption and unauthorized release of confidential customer information. Such systems failures and cyber-attacks affecting us, any third-party administrator, the underlying funds, intermediaries and other affiliated or third-party service providers may adversely affect us and your Contract Value. For instance, systems failures and cyber-attacks may interfere with our processing of contract transactions, including the processing of orders from our website or with the underlying funds, impact our ability to calculate Accumulation Unit value, cause the release and possible destruction of confidential customer or business information, impede order processing, subject us and/or our service providers and intermediaries to regulatory fines and financial losses and/or cause reputational damage. Cyber security risks may also impact the issuers of securities in which the underlying funds invest, which may cause the funds underlying your contract to lose value. There can be no assurance that we or the underlying funds or our service providers will avoid losses affecting your contract due to cyber-attacks or information security breaches in the future.
In addition to cyber security risks, we are exposed to risks related to natural and man-made disasters and catastrophes, such as (but not limited to) storms, fires, floods, earthquakes, public health crises, malicious acts, and terrorist acts, any of which could adversely affect our ability to conduct business. A natural or man-made disaster or catastrophe, including a pandemic (such as COVID-19), could affect the ability or willingness of our employees or the employees of our service providers to perform their job responsibilities. Even if our employees and the employees of our service providers are able to work remotely, those remote work arrangements could result in our business operations being less efficient than under normal circumstances and could lead to delays in our processing of contract-related transactions, including orders from contract owners. Catastrophic events may negatively affect the computer and other systems on which we rely, impact our ability to calculate accumulation unit values, or have other possible negative impacts. There can be no assurance that we or our service providers will be able to successfully avoid negative impacts associated with natural and man-made disasters and catastrophes.
Other Information
Contract Deactivation. Under certain contracts, we may deactivate a contract by prohibiting new contributions and/or new participants after the date of deactivation. We will give the contractowner and participants at least ninety (90) days notice of the deactivation date.
32

 

Legal Proceedings
In the ordinary course of its business and otherwise, the Company and its subsidiaries or its separate accounts and Principal Underwriter may become or are involved in various pending or threatened regulatory or legal proceedings, including purported class actions, arising from the conduct of its business. In some instances, the proceedings include claims for unspecified or substantial punitive damages and similar types of relief in addition to amounts for alleged contractual liability or requests for equitable relief.
After consultation with legal counsel and a review of available facts, it is management’s opinion that the proceedings, after consideration of any reserves and rights to indemnification, ultimately will be resolved without materially affecting the consolidated financial position of the Company and its subsidiaries, or the financial position of its separate accounts or Principal Underwriter. However, given the large and indeterminate amounts sought in certain of these proceedings and the inherent difficulty in predicting the outcome of such proceedings, it is reasonably possible that an adverse outcome in certain matters could be material to the Company's operating results for any particular reporting period. Please refer to the Statement of Additional Information for possible additional information regarding legal proceedings.
33

 

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34

 

Contents of the Statement of Additional Information (SAI)
for Lincoln National Variable Annuity Account L
Item  
Special Terms  
Services  
Principal Underwriter  
Purchase of Securities Being Offered  
Annuity Payouts  
Determination of Accumulation and Annuity Unit Value  
Capital Markets  
Advertising & Ratings  
Additional Services  
Other Information  
Financial Statements  
For a free copy of the SAI complete the form below.
Statement of Additional Information Request Card
Group Variable Annuity Account Contracts I, II, & III
Please send me a free copy of the current Statement of Additional Information for Lincoln National Variable Annuity Account L (Group Variable Annuity Contracts I, II & III).
(Please Print)
Name: 
Address: 
City 
State 
Zip 
Mail to: The Lincoln National Life Insurance Co., P.O. Box 2340, Fort Wayne, IN 46801-2340
35

 

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36

 

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37

 

Appendix A—Condensed Financial Information
Accumulation Unit Values
The following information relates to accumulation unit values and accumulation units for funds available in the periods ended December 31. It should be read along with the VAA’s financial statement and notes which are included in the SAI. The methodology of determining accumulation unit values may be found in the prospectus (see The Contracts - Valuation of Accumulation Units).
  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
AB VPS Global Thematic Growth Portfolio - Class B
2010
4.604 5.405 493   4.712 5.546 22
2011
5.405 4.099 435   5.546 4.216 19
2012
4.099 4.595 393   4.216 4.739 14
2013
4.595 5.593 344   4.739 5.781 12
2014
5.593 5.803 330   5.781 6.014 9
2015
5.803 5.898 304   6.014 6.127 10
2016
5.898 5.788 284   6.127 6.028 10
2017
5.788 7.810 267   6.028 8.155 8
2018
7.810 6.961 221   8.155 7.286 13
2019
6.961 8.944 214   7.286 9.385 12
AB VPS Growth and Income Portfolio - Class B(1)
2009
8.144 9.704 99   8.238 9.841 6
2010
9.704 10.837 78   9.841 11.017 5
2011
10.837 11.380 81   11.017 11.598 2
2012
11.380 13.210 90   11.598 13.497 2
2013
13.210 15.477 84   13.497 15.828 2
AB VPS Growth Portfolio - Class B
2010
6.396 7.269 152   6.545 7.457 10
2011
7.269 7.266 141   7.457 7.473 8
2012
7.266 8.171 137   7.473 8.425 9
2013
8.171 10.818 132   8.425 11.182 9
2014
10.818 12.099 113   11.182 12.537 10
2015
12.099 13.035 117   12.537 13.541 10
2016
13.035 13.015 95   13.541 13.554 10
2017
13.015 17.285 94   13.554 18.046 9
2018
17.285 17.758 104   18.046 18.587 9
2019
N/A N/A N/A   N/A N/A N/A
AB VPS Large Cap Growth Portfolio - Class B
2019
10.058 11.167 236   10.058 11.186 22
American Century VP Balanced Fund - Class I
2010
25.931 28.660 566   26.620 29.495 41
2011
28.660 29.888 492   29.495 30.835 38
2012
29.888 33.083 448   30.835 34.217 36
2013
33.083 38.461 401   34.217 39.880 34
2014
38.461 41.831 348   39.880 43.482 35
2015
41.831 40.349 297   43.482 42.046 30
2016
40.349 42.741 289   42.046 44.650 27
2017
42.741 48.202 262   44.650 50.481 27
2018
48.202 45.895 244   50.481 48.185 26
2019
45.895 54.458 221   48.185 57.320 20
American Century VP Inflation Protection Fund - Class I(2)
2009
10.063 10.611 42   10.487 10.626 1*
2010
10.611 11.069 71   10.626 11.113 1*
2011
11.069 12.285 92   11.113 12.365 1*
2012
12.285 13.080 122   12.365 13.199 2
A-1

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
American Funds Global Growth Fund - Class 2
2010
14.882 16.465 312   15.093 16.740 26
2011
16.465 14.852 274   16.740 15.139 29
2012
14.852 18.022 248   15.139 18.416 27
2013
18.022 23.049 232   18.416 23.611 27
2014
23.049 23.348 212   23.611 23.977 27
2015
23.348 24.719 205   23.977 25.449 25
2016
24.719 24.625 193   25.449 25.415 25
2017
24.625 32.052 202   25.415 33.164 18
2018
32.052 28.864 194   33.164 29.939 17
2019
28.864 38.658 175   29.939 40.198 15
American Funds Growth Fund - Class 2
2010
8.788 10.325 2,209   8.994 10.594 182
2011
10.325 9.785 2,030   10.594 10.065 174
2012
9.785 11.421 1,882   10.065 11.777 164
2013
11.421 14.712 1,697   11.777 15.208 149
2014
14.712 15.805 1540   15.208 16.379 149
2015
15.805 16.720 1421   16.379 17.371 146
2016
16.720 18.125 1324   17.371 18.877 134
2017
18.125 23.021 1241   18.877 24.037 127
2018
23.021 22.736 1137   24.037 23.799 111
2019
22.736 29.436 1014   23.799 30.890 101
American Funds Growth-Income Fund - Class 2
2010
10.908 12.034 642   11.062 12.234 36
2011
12.034 11.696 571   12.234 11.921 36
2012
11.696 13.604 548   11.921 13.900 35
2013
13.604 17.981 569   13.900 18.418 34
2014
17.981 19.695 570   18.418 20.224 32
2015
19.695 19.783 560   20.224 20.365 33
2016
19.783 21.843 537   20.365 22.542 31
2017
21.843 26.466 520   22.542 27.381 27
2018
26.466 25.734 512   27.381 26.691 33
2019
25.734 32.137 449   26.691 33.416 42
American Funds International Fund - Class 2
2010
12.370 13.132 1,245   12.659 13.473 39
2011
13.132 11.186 998   13.473 11.505 37
2012
11.186 13.058 834   11.505 13.464 34
2013
13.058 15.725 737   13.464 16.255 31
2014
15.725 15.155 683   16.255 15.705 27
2015
15.155 14.325 609   15.705 14.882 27
2016
14.325 14.684 569   14.882 15.293 26
2017
14.684 19.211 507   15.293 20.058 27
2018
19.211 16.522 466   20.058 17.293 28
2019
16.522 20.101 409   17.293 21.092 29
BlackRock Global Allocation V.I. Fund - Class I
2010
11.400 12.421 71   11.415 12.471 1*
2011
12.421 11.868 98   12.471 11.945 1*
2012
11.868 12.958 92   11.945 13.075 2
2013
12.958 14.723 104   13.075 14.892 2
2014
14.723 14.884 101   14.892 15.092 2
2015
14.884 14.631 103   15.092 14.873 2
2016
14.631 15.081 94   14.873 15.370 2
2017
15.081 17.000 100   15.370 17.369 3
2018
17.000 15.596 100   17.369 15.974 1*
2019
15.596 18.219 88   15.974 18.707 1*
A-2

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
Delaware VIP® Diversified Income Series - Standard Class
2010
14.577 15.595 452   14.781 15.853 20
2011
15.595 16.427 393   15.853 16.740 17
2012
16.427 17.434 395   16.740 17.811 10
2013
17.434 17.043 337   17.811 17.455 9
2014
17.043 17.770 313   17.455 18.245 10
2015
17.770 17.403 294   18.245 17.913 11
2016
17.403 17.837 254   17.913 18.406 10
2017
17.837 18.582 233   18.406 19.222 10
2018
18.582 18.006 227   19.222 18.673 9
2019
18.006 19.687 201   18.673 20.467 7
Delaware VIP® High Yield Series - Standard Class
2010
12.888 14.715 198   13.037 14.922 10
2011
14.715 14.915 180   14.922 15.163 10
2012
14.915 17.399 169   15.163 17.732 8
2013
17.399 18.813 145   17.732 19.222 7
2014
18.813 18.573 145   19.222 19.024 7
2015
18.573 17.175 125   19.024 17.636 6
2016
17.175 19.242 106   17.636 19.808 6
2017
19.242 20.477 99   19.808 21.132 5
2018
20.477 19.367 89   21.132 20.036 1*
2019
19.367 22.324 79   20.036 23.154 1*
Delaware VIP® REIT Series - Service Class
2010
18.589 23.301 445   19.023 23.904 20
2011
23.301 25.519 411   23.904 26.245 18
2012
25.519 29.461 378   26.245 30.375 14
2013
29.461 29.729 351   30.375 30.728 13
2014
29.729 38.004 341   30.728 39.380 14
2015
38.004 38.951 302   39.380 40.462 18
2016
38.951 40.729 290   40.462 42.415 15
2017
40.729 40.834 237   42.415 42.631 14
2018
40.834 37.389 205   42.631 39.132 8
2019
37.389 46.826 179   39.132 49.132 7
Delaware VIP® Small Cap Value Series - Service Class
2010
12.495 16.319 510   12.672 16.592 30
2011
16.319 15.900 452   16.592 16.206 28
2012
15.900 17.888 425   16.206 18.278 25
2013
17.888 23.585 421   18.278 24.159 24
2014
23.585 24.662 377   24.159 25.326 23
2015
24.662 22.839 321   25.326 23.512 22
2016
22.839 29.640 308   23.512 30.591 20
2017
29.640 32.796 280   30.591 33.932 20
2018
32.796 26.968 249   33.932 27.972 19
2019
26.968 34.100 213   27.972 35.459 20
Delaware VIP® Smid Cap Core Series - Service Class(3)
2010
8.929 10.115 241   9.155 10.376 26
2011
10.115 10.805 320   10.376 11.113 31
2012
10.805 11.843 344   11.113 12.211 20
2013
11.843 16.530 373   12.211 17.086 19
2014
16.530 16.836 297   17.086 17.445 13
2015
16.836 17.886 288   17.445 18.580 13
2016
17.886 19.128 264   18.580 19.919 12
2017
19.128 22.419 253   19.919 23.405 12
2018
22.419 19.443 245   23.405 20.349 12
2019
19.443 24.880 208   20.349 26.105 12
Deutsche Equity 500 Index VIP(1)
2009
8.534 10.673 226   8.632 10.823 7
2010
10.673 12.121 195   10.823 12.321 5
2011
12.121 12.220 186   12.321 12.453 7
2012
12.220 13.998 121   12.453 14.301 5
2013
13.998 16.423 125   14.301 16.795 5
A-3

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
Deutsche Small Cap Index VIP(4)
2009
8.966 11.236 147   9.070 11.394 15
2010
11.236 14.060 135   11.394 14.294 13
2011
14.060 13.306 119   14.294 13.561 14
2012
13.306 15.314 118   13.561 15.647 12
Dreyfus Opportunistic Small Cap(4)
2009
14.439 18.018 1,363   14.786 18.497 100
2010
18.018 23.395 1,217   18.497 24.077 84
2011
23.395 19.955 1,063   24.077 20.589 75
2012
19.955 23.819 949   20.589 24.637 68
Dreyfus Stock Index(1)
2009
29.036 36.317 1,433   29.734 37.283 120
2010
36.317 41.291 1,280   37.283 42.496 98
2011
41.291 41.648 1,041   42.496 42.970 96
2012
41.648 47.723 939   42.970 49.361 80
DWS Alternative Asset Allocation VIP Portfolio - Class A
2010
11.247 12.524 7   N/A N/A N/A
2011
12.524 12.043 8   12.958 12.118 1*
2012
12.043 13.083 10   12.118 13.197 1*
2013
13.083 13.074 14   13.197 13.221 1*
2014
13.074 13.396 17   13.221 13.582 1*
2015
13.396 12.428 16   13.582 12.632 1*
2016
12.428 12.957 18   12.632 13.202 1*
2017
12.957 13.779 14   13.202 14.074 1*
2018
13.779 12.395 16   14.074 12.692 1*
2019
12.395 14.074 14   12.692 14.448 1*
Fidelity VIP Equity-Income(1)
2009
19.585 25.248 1,543   20.056 25.919 157
2010
25.248 28.783 1,383   25.919 29.623 121
2011
28.783 28.774 1,167   29.623 29.687 116
2012
28.774 33.418 1,051   29.687 34.565 109
2013
33.418 39.194 996   34.565 40.577 106
Fidelity® VIP Asset Manager Portfolio - Initial Class
2010
28.981 32.785 1,282   29.751 33.741 62
2011
32.785 31.628 1,158   33.741 32.632 56
2012
31.628 35.222 1,067   32.632 36.430 50
2013
35.222 40.349 961   36.430 41.838 45
2014
40.349 42.277 882   41.838 43.947 42
2015
42.277 41.916 790   43.947 43.681 38
2016
41.916 42.773 706   43.681 44.686 37
2017
42.773 48.321 653   44.686 50.607 35
2018
46.852 45.280 597   50.607 47.542 30
2019
45.280 53.011 544   47.542 55.798 28
Fidelity® VIP Contrafund® Portfolio - Service Class 2
2010
11.894 13.769 1,335   12.174 14.128 68
2011
13.769 13.253 1,178   14.128 13.632 60
2012
13.253 15.239 1,147   13.632 15.714 58
2013
15.239 19.757 1,077   15.714 20.425 51
2014
19.757 21.840 1002   20.425 22.635 49
2015
21.840 21.713 948   22.635 22.559 43
2016
21.713 23.158 869   22.559 24.121 39
2017
23.158 27.878 794   24.121 29.109 37
2018
27.878 25.767 761   29.109 26.973 32
2019
25.767 33.490 692   26.973 35.144 27
Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2
2017
N/A N/A N/A   N/A N/A N/A
2018
10.433 9.494 5   N/A N/A N/A
2019
9.494 11.268 10   N/A 11.329 N/A
A-4

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2
2017
N/A N/A N/A   N/A N/A N/A
2018
10.433 9.444 11   N/A N/A N/A
2019
9.444 11.362 22   N/A 11.423 N/A
Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2
2017
N/A N/A N/A   N/A N/A N/A
2018
10.303 9.357 15   10.390 9.384 3
2019
9.357 11.498 24   9.384 11.560 3
Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2
2017
10.214 10.312 11   N/A N/A N/A
2018
10.312 9.240 63   N/A N/A N/A
2019
9.240 11.629 60   10.406 11.690 1*
Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2
2017
10.212 10.318 1*   N/A N/A N/A
2018
10.318 9.181 11   N/A N/A N/A
2019
9.181 11.656 16   N/A 11.719 N/A
Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2
2017
10.213 10.317 3   N/A N/A N/A
2018
10.317 9.180 5   N/A N/A N/A
2019
9.180 11.656 9   N/A 11.719 N/A
Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2
2017
10.124 10.319 2   N/A N/A N/A
2018
10.319 9.182 9   N/A N/A N/A
2019
9.182 11.656 23   N/A 11.718 N/A
Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2
2019
10.000 10.841 1*   N/A 10.856 N/A
Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2
2019
10.446 10.843 1*   N/A 10.857 N/A
Fidelity® VIP Government Money Market Portfolio - Initial Class (Pending Allocation Account)
2010
17.916 17.960 1*   17.946 17.991 1*
2011
17.960 17.979 2   17.991 18.008 1*
2012
17.979 18.004 1*   18.008 18.030 1*
2013
18.004 18.009 1*   18.030 18.036 1*
2014
18.009 18.010 1*   18.036 18.038 1*
2015
18.010 18.015 2   18.038 18.042 1*
2016
18.015 18.052 4   18.042 18.078 1*
2017
18.052 18.173 3   18.078 18.200 1*
2018
18.173 18.474 2   18.200 15.501 1*
2019
18.474 18.846 5   18.501 18.870 1*
Fidelity® VIP Growth Portfolio - Initial Class
2010
32.972 40.536 1,679   33.850 41.719 96
2011
40.536 40.213 1,444   41.719 41.491 87
2012
40.213 45.662 1,333   41.491 47.230 82
2013
45.662 61.634 1,191   47.230 63.910 73
2014
61.634 67.915 1096   63.910 70.599 71
2015
67.915 72.063 995   70.599 75.099 68
2016
72.063 71.917 903   75.099 75.135 63
2017
71.917 96.218 836   75.135 100.774 61
2018
96.218 95.100 773   100.774 99.852 54
2019
95.100 126.461 692   99.852 133.113 48
A-5

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
Janus Henderson Global Research Portfolio - Institutional Shares
2010
12.206 13.998 759   12.531 14.407 60
2011
13.998 11.954 625   14.407 12.334 58
2012
11.954 14.212 567   12.334 14.701 54
2013
14.212 18.071 502   14.701 18.738 47
2014
18.071 19.223 464   18.738 19.983 42
2015
19.223 18.596 434   19.983 19.380 40
2016
18.596 18.791 389   19.380 19.633 39
2017
18.791 23.633 348   19.633 24.752 38
2018
23.633 21.791 324   24.752 22.881 33
2019
21.791 27.840 284   22.881 29.305 30
LVIP Baron Growth Opportunities Fund - Service Class
2010
25.631 32.071 468   26.316 33.010 42
2011
32.071 33.029 385   33.010 34.082 35
2012
33.029 38.666 334   34.082 39.998 29
2013
38.666 53.619 325   39.998 55.605 26
2014
53.619 55.663 286   55.605 57.869 20
2015
55.663 52.480 260   57.869 54.696 18
2016
52.480 54.852 233   54.696 57.311 18
2017
54.852 69.097 218   57.311 72.377 16
2018
69.097 65.719 210   72.377 69.010 14
2019
65.719 88.738 192   69.010 93.415 14
LVIP BlackRock Advantage Allocation Fund - Standard Class
2010
11.800 12.970 12   N/A N/A N/A
2011
12.970 12.875 18   13.216 12.952 1*
2012
12.875 14.188 22   12.952 14.302 1*
2013
14.188 16.047 31   14.302 16.219 1*
2014
16.047 16.623 32   16.219 16.843 1*
2015
16.623 16.268 18   16.843 16.525 1*
2016
16.268 16.855 18   16.525 17.164 1*
2017
16.855 19.079 18   17.164 19.482 1*
2018
19.079 17.874 18   19.482 18.311 1*
2019
17.874 20.645 15   18.311 21.201 1*
LVIP BlackRock Emerging Markets Managed Volatility(5)
2014
10.140 9.300 3   N/A 9.314 N/A
2015
9.300 7.825 3   9.321 7.859 1*
2016
7.825 8.289 5   7.859 8.346 0
LVIP BlackRock Global Real Estate Fund - Standard Class
2010
6.472 7.560 80   6.515 7.628 4
2011
7.560 6.835 69   7.628 6.915 5
2012
6.835 8.438 68   6.915 8.557 6
2013
8.438 8.630 70   8.557 8.774 7
2014
8.630 9.731 54   8.774 9.918 7
2015
9.731 9.516 56   9.918 9.724 7
2016
9.516 9.533 63   9.724 9.765 10
2017
9.533 10.464 40   9.765 10.745 4
2018
10.464 9.495 39   10.745 9.776 2
2019
9.495 11.747 25   9.776 12.120 3
LVIP BlackRock Inflation Protected Bond Fund - Standard Class
2012
10.036 10.259 7   N/A N/A N/A
2013
10.259 9.310 102   10.000 9.348 1*
2014
9.310 9.505 84   9.348 9.568 4
2015
9.505 9.151 73   9.568 9.234 5
2016
9.151 9.385 76   9.234 9.494 5
2017
9.385 9.494 75   9.494 9.629 1*
2018
9.494 9.426 78   9.629 9.582 1*
2019
9.426 9.882 69   9.582 10.071 1*
A-6

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class
2010
6.416 7.073 209   6.566 7.257 16
2011
7.073 6.604 195   7.257 6.793 15
2012
6.604 7.610 181   6.793 7.847 18
2013
7.610 9.455 167   7.847 9.774 13
2014
9.455 9.862 161   9.774 10.220 13
2015
9.862 9.895 147   10.220 10.280 13
2016
9.895 9.668 117   10.280 10.069 13
2017
9.668 12.073 106   10.069 12.605 11
2018
12.073 11.437 105   12.605 11.971 12
2019
11.437 13.580 105   11.971 14.251 12
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class
2014
10.153 10.147 1*   N/A 10.163 N/A
2015
10.147 9.624 2   9.878 9.663 1*
2016
9.624 9.743 2   9.663 9.806 1*
2017
9.743 12.112 6   9.806 12.219 1*
2018
12.112 12.035 10   12.219 12.172 1*
2019
12.035 14.884 11   12.172 15.091 1*
LVIP Delaware Bond Fund - Standard Class
2010
13.129 14.101 542   13.313 14.336 28
2011
14.101 15.027 503   14.336 15.315 29
2012
15.027 15.861 471   15.315 16.205 28
2013
15.861 15.341 354   16.205 15.713 20
2014
15.341 16.096 304   15.713 16.528 11
2015
16.096 15.997 260   16.528 16.468 11
2016
15.997 16.269 227   16.468 16.790 12
2017
16.269 16.812 187   16.790 17.393 13
2018
16.812 16.506 170   17.393 17.119 7
2019
16.506 17.846 155   17.119 18.556 9
LVIP Delaware Diversified Floating Rate Fund - Service Class
2011
9.976 9.762 1*   N/A N/A N/A
2012
9.762 10.049 3   N/A N/A N/A
2013
10.049 9.999 13   N/A N/A N/A
2014
9.999 9.936 75   10.126 10.027 1*
2015
9.936 9.741 20   10.027 9.853 1*
2016
9.741 9.838 21   9.853 9.990 1*
2017
9.838 9.962 20   9.990 10.126 1*
2018
9.962 9.864 18   10.126 10.044 1*
2019
9.864 10.190 17   10.044 10.400 1*
LVIP Delaware Social Awareness Fund - Standard Class
2010
14.026 15.493 841   14.399 15.945 64
2011
15.493 15.437 702   15.945 15.927 59
2012
15.437 17.619 653   15.927 18.224 51
2013
17.619 23.669 600   18.224 24.543 47
2014
23.669 26.996 550   24.543 28.063 44
2015
26.996 26.550 527   28.063 27.669 39
2016
26.550 28.031 482   27.669 29.285 36
2017
28.031 33.356 441   29.285 34.936 34
2018
33.356 31.517 404   34.936 33.093 29
2019
31.517 41.182 378   33.093 43.348 28
LVIP Delaware Wealth Builder Fund - Standard Class
2010
11.988 13.350 5   12.004 13.401 1*
2011
13.350 12.950 8   13.401 13.031 1*
2012
12.950 14.525 11   13.031 14.653 1*
2013
14.525 17.290 13   14.653 17.487 1*
2014
17.290 17.862 16   17.487 18.110 1*
2015
17.862 17.448 19   18.110 17.735 1*
2016
17.448 18.246 22   17.735 18.592 1*
2017
18.246 20.284 12   18.592 20.721 1*
2018
20.284 19.034 16   20.721 19.493 1*
2019
19.034 21.842 21   19.493 22.424 1*
A-7

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class
2010
8.380 9.370 424   8.576 9.613 29
2011
9.370 9.388 362   9.613 9.656 28
2012
9.388 10.718 328   9.656 11.052 26
2013
10.718 14.140 323   11.052 14.617 26
2014
14.140 15.845 328   14.617 16.420 29
2015
15.845 15.372 311   16.420 15.971 27
2016
15.372 17.413 281   15.971 18.135 24
2017
17.413 20.838 268   18.135 21.758 20
2018
20.838 19.126 248   21.758 20.020 18
2019
19.126 24.638 210   20.020 25.853 18
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class
2014
10.187 9.497 3   N/A 9.512 N/A
2015
9.497 8.648 3   N/A 8.683 N/A
2016
8.648 8.769 5   8.683 8.827 1*
2017
8.769 10.540 8   8.827 10.636 1*
2018
10.540 9.481 9   10.636 9.592 1*
2019
9.481 10.588 6   N/A 10.738 N/A
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class
2010
11.880 12.997 283   12.016 13.179 3
2011
12.997 13.341 154   13.179 13.562 3
2012
13.341 14.500 154   13.562 14.776 3
2013
14.500 15.755 124   14.776 16.096 2
2014
15.755 16.488 111   16.096 16.886 2
2015
16.488 15.998 82   16.886 16.426 2
2016
15.998 16.634 73   16.426 17.122 2
2017
16.634 18.197 74   17.122 18.777 2
2018
18.197 17.214 67   18.777 17.807 2
2019
17.214 19.600 60   17.807 20.327 2
LVIP Global Growth Allocation Managed Risk Fund - Standard Class
2010
11.071 12.355 408   11.196 12.526 13
2011
12.355 12.231 405   12.526 12.432 13
2012
12.231 13.217 379   12.432 13.468 13
2013
13.217 14.858 382   13.468 15.178 12
2014
14.858 15.220 348   15.178 15.587 12
2015
15.220 14.513 307   15.587 14.899 12
2016
14.513 15.051 259   14.899 15.490 12
2017
15.051 17.231 245   15.490 17.778 12
2018
17.231 15.979 228   17.778 16.528 11
2019
15.979 18.329 208   16.528 19.006 11
LVIP Global Income Fund - Standard Class
2010
10.805 11.733 13   10.819 11.778 1*
2011
11.733 11.742 20   11.778 11.817 1*
2012
11.742 12.520 20   11.817 12.631 1*
2013
12.520 12.045 22   12.631 12.183 1*
2014
12.045 12.157 25   12.183 12.326 1*
2015
12.157 11.793 29   12.326 11.987 1*
2016
11.793 11.735 26   11.987 11.957 1*
2017
11.735 12.204 21   11.957 12.467 1*
2018
12.204 12.313 27   12.467 12.609 1*
2019
12.313 13.011 17   12.609 13.358 1*
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class
2010
11.631 12.892 356   11.765 13.074 22
2011
12.892 12.913 347   13.074 13.128 23
2012
12.913 14.010 337   13.128 14.279 21
2013
14.010 15.515 338   14.279 15.853 21
2014
15.515 15.998 300   15.853 16.387 22
2015
15.998 15.304 244   16.387 15.715 22
2016
15.304 15.810 234   15.715 16.275 16
2017
15.810 17.894 230   16.275 18.467 17
2018
17.894 16.754 220   18.467 17.333 18
2019
16.754 19.078 193   17.333 19.787 28
A-8

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
LVIP JPMorgan Retirement Income Fund - Standard Class(6)
2010
11.362 12.422 66   11.524 12.631 16
2011
12.422 12.573 62   12.631 12.817 17
2012
12.573 13.771 65   12.817 14.073 17
2013
13.771 14.907 66   14.073 15.272 17
2014
14.907 15.478 66   15.272 15.897 18
2015
15.478 15.180 62   15.897 15.630 17
2016
15.180 15.737 58   15.630 16.244 17
2017
15.737 17.288 43   16.244 17.890 22
2018
17.288 16.341 39   17.890 16.952 21
2019
16.341 18.433 29   16.952 19.170 46
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class
2014
10.037 10.517 16   N/A 10.534 N/A
2015
10.517 9.606 26   9.909 9.645 1*
2016
9.606 10.463 17   9.645 10.531 1*
2017
10.463 11.880 22   10.531 11.989 1*
2018
11.880 10.374 26   11.989 10.494 1*
2019
10.374 11.931 27   10.494 12.099 3
LVIP Mondrian International Value Fund - Standard Class
2010
14.603 14.814 308   14.809 15.061 34
2011
14.814 14.048 256   15.061 14.318 32
2012
14.048 15.246 217   14.318 15.578 30
2013
15.246 18.391 195   15.578 18.838 28
2014
18.391 17.746 178   18.838 18.223 28
2015
17.746 16.903 161   18.223 17.401 28
2016
16.903 17.406 133   17.401 17.964 30
2017
17.406 20.911 120   17.964 21.634 30
2018
20.911 18.327 114   21.634 19.008 35
2019
18.327 21.455 108   19.008 22.309 36
LVIP SSGA Bond Index Fund - Standard Class
2010
10.385 10.895 39   10.399 10.937 5
2011
10.895 11.584 49   10.937 11.658 1*
2012
11.584 11.911 54   11.658 12.016 5
2013
11.911 11.490 53   12.016 11.620 1*
2014
11.490 12.030 49   11.620 12.197 1*
2015
12.030 11.940 50   12.197 12.136 1*
2016
11.940 12.091 49   12.136 12.320 1*
2017
12.091 12.352 52   12.320 12.617 1*
2018
12.352 12.189 52   12.617 12.482 2
2019
12.189 13.063 64   12.482 13.410 2
LVIP SSGA Emerging Markets 100 Fund - Standard Class
2010
13.640 17.255 77   13.659 17.322 1*
2011
17.255 14.531 76   17.322 14.624 3
2012
14.531 16.207 76   14.624 16.351 2
2013
16.207 15.592 73   16.351 15.770 2
2014
15.592 14.916 73   15.770 15.125 4
2015
14.916 12.251 75   15.125 12.454 4
2016
12.251 14.002 67   12.454 14.268 5
2017
14.002 17.166 68   14.268 17.536 1*
2018
17.166 14.903 68   17.536 15.263 1*
2019
14.903 15.877 62   15.263 16.302 1*
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class
2010
10.590 11.400 162   10.712 11.560 8
2011
11.400 11.312 152   11.560 11.499 5
2012
11.312 12.448 144   11.499 12.686 5
2013
12.448 13.533 137   12.686 13.826 5
2014
13.533 13.931 131   13.826 14.268 6
2015
13.931 12.893 120   14.268 13.238 6
2016
12.893 13.482 110   13.238 13.878 6
2017
13.482 15.326 98   13.878 15.815 4
2018
15.326 13.933 94   15.815 14.414 4
2019
13.933 15.967 90   14.414 16.559 4
A-9

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
LVIP SSGA International Index Fund - Standard Class
2010
12.116 12.841 9   N/A N/A N/A
2011
12.841 11.139 6   13.266 11.211 1*
2012
11.139 13.028 8   11.211 13.145 1*
2013
13.028 15.605 10   13.145 15.785 1*
2014
15.605 14.547 12   15.785 14.757 1*
2015
14.547 14.227 14   14.757 14.467 1*
2016
14.227 14.225 14   14.467 14.502 1*
2017
14.225 17.561 18   14.502 17.948 1*
2018
17.561 15.004 26   17.948 15.373 1*
2019
15.004 18.061 31   15.373 18.551 1*
LVIP SSGA International Managed Volatility Fund - Standard Class
2016
10.191 10.147 4   10.193 10.151 1*
2017
10.147 12.483 5   10.151 12.516 1*
2018
12.483 10.851 8   12.516 10.902 1*
2019
10.851 12.761 10   10.902 12.853 1*
LVIP SSGA S&P 500 Index Fund - Standard Class
2012
9.836 10.727 2   N/A N/A N/A
2013
10.727 14.019 7,232   10.000 14.075 679
2014
14.019 15.743 6484   14.075 15.846 648
2015
15.743 15.769 5795   15.846 15.912 616
2016
15.769 17.447 5348   15.912 17.650 590
2017
17.447 21.001 4824   17.650 21.297 550
2018
21.001 19.826 4467   21.297 20.156 504
2019
19.826 25.753 4065   20.156 26.248 469
LVIP SSGA Small-Cap Index Fund - Standard Class
2012
10.096 10.921 1*   N/A N/A N/A
2013
10.921 14.911 2,065   10.000 14.972 151
2014
14.911 15.453 1838   14.972 15.555 142
2015
15.453 14.578 1635   15.555 14.711 127
2016
14.578 17.417 1478   14.711 17.620 116
2017
17.417 19.694 1324   17.620 19.973 107
2018
19.694 17.281 1225   19.973 17.570 96
2019
17.281 21.393 1113   17.570 21.805 95
LVIP T. Rowe Price 2010 Fund - Standard Class
2010
9.735 10.744 68   9.799 10.841 9
2011
10.744 10.770 56   10.841 10.895 10
2012
10.770 11.573 66   10.895 11.737 1*
2013
11.573 12.481 66   11.737 12.689 1*
2014
12.481 12.947 43   12.689 13.197 1*
2015
12.947 12.612 45   N/A 12.887 N/A
2016
12.612 13.041 34   N/A N/A N/A
2017
13.041 14.156 33   N/A N/A N/A
2018
14.156 13.423 33   N/A 13.819 N/A
2019
13.423 15.380 27   N/A 15.873 N/A
LVIP T. Rowe Price 2020 Fund - Standard Class
2010
9.309 10.325 212   9.369 10.418 4
2011
10.325 10.242 189   10.418 10.360 7
2012
10.242 10.990 186   10.360 11.144 8
2013
10.990 12.092 174   11.144 12.292 8
2014
12.092 12.497 172   12.292 12.736 8
2015
12.497 12.099 195   12.736 12.361 9
2016
12.099 12.512 152   12.361 12.815 7
2017
12.512 13.877 123   12.815 14.249 8
2018
13.877 12.973 96   14.249 13.354 7
2019
12.973 15.275 100   13.354 15.763 7
A-10

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
LVIP T. Rowe Price 2030 Fund - Standard Class
2010
9.067 10.103 224   9.127 10.195 2
2011
10.103 9.946 246   10.195 10.062 3
2012
9.946 10.624 275   10.062 10.775 3
2013
10.624 11.965 309   10.775 12.165 3
2014
11.965 12.338 353   12.165 12.576 8
2015
12.338 11.891 347   12.576 12.150 8
2016
11.891 12.210 366   12.150 12.507 8
2017
12.210 13.716 356   12.507 14.086 5
2018
13.716 12.549 327   14.086 12.920 8
2019
12.549 15.177 314   12.920 15.664 8
LVIP T. Rowe Price 2040 Fund - Standard Class
2010
8.496 9.560 81   8.551 9.647 2
2011
9.560 9.327 100   9.647 9.435 2
2012
9.327 9.892 123   9.435 10.032 2
2013
9.892 11.413 138   10.032 11.604 2
2014
11.413 11.693 148   11.604 11.918 1*
2015
11.693 11.203 143   11.918 11.447 1*
2016
11.203 11.514 147   11.447 11.795 1*
2017
11.514 13.067 136   11.795 13.421 1*
2018
13.067 11.809 145   13.421 12.159 6
2019
11.809 14.549 141   12.159 15.018 6
LVIP T. Rowe Price 2050 Fund - Standard Class
2011
9.925 9.213 29   N/A N/A N/A
2012
9.213 9.667 3   N/A N/A N/A
2013
9.667 11.393 13   N/A N/A N/A
2014
11.393 11.612 27   N/A 11.719 N/A
2015
11.612 11.066 39   N/A 11.196 N/A
2016
11.066 11.439 55   N/A N/A N/A
2017
11.439 13.263 73   N/A N/A N/A
2018
13.263 12.018 91   N/A 12.251 N/A
2019
12.018 14.892 120   N/A 15.218 N/A
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class
2010
12.385 15.741 1,087   12.715 16.200 81
2011
15.741 14.981 931   16.200 15.457 75
2012
14.981 17.250 846   15.457 17.843 58
2013
17.250 23.021 805   17.843 23.872 52
2014
23.021 25.433 722   23.872 26.439 52
2015
25.433 25.709 672   26.439 26.792 47
2016
25.709 27.377 591   26.792 28.602 45
2017
27.377 33.811 549   28.602 35.413 42
2018
33.811 32.445 527   35.413 34.067 43
2019
32.445 44.136 494   34.067 46.458 43
Neuberger Berman AMT Large Cap Value Portfolio - I Class
2010
14.651 16.777 336   15.041 17.267 24
2011
16.777 14.724 269   17.267 15.191 22
2012
14.724 16.997 234   15.191 17.581 19
2013
16.997 22.067 227   17.581 22.883 17
2014
22.067 24.000 213   22.883 24.949 15
2015
24.000 20.956 194   24.949 21.840 14
2016
20.956 26.426 195   21.840 27.609 13
2017
26.426 29.659 169   27.609 31.064 13
2018
29.659 29.058 143   31.064 30.511 13
2019
N/A N/A N/A   N/A N/A N/A
Neuberger Berman AMT Mid Cap Growth(1)
2009
5.085 6.626 905   5.192 6.781 70
2010
6.626 8.469 833   6.781 8.689 40
2011
8.469 8.424 720   8.689 8.664 38
2012
8.424 9.376 666   8.664 9.667 36
2013
9.376 10.731 620   9.667 11.075 36
Neuberger Berman AMT Sustainable Equity Portfolio - I Class
2019
10.049 10.933 407   10.050 10.952 37
A-11

 

  Standard  
Breakpoint
  Accumulation unit value Number of
accumulation
units 		  Accumulation unit value Number of
accumulation
units
  Beginning
of period 		End of
period 		Beginning
of period 		End of
period
               
  (Accumulation unit value in dollars and Number of accumulation units in thousands)
T. Rowe Price International Stock Portfolio
2010
16.219 18.379 747   16.650 18.915 41
2011
18.379 15.860 645   18.915 16.364 34
2012
15.860 18.598 596   16.364 19.236 31
2013
18.598 21.000 546   19.236 21.776 29
2014
21.000 20.534 489   21.776 21.345 31
2015
20.534 20.146 441   21.345 20.995 28
2016
20.146 20.370 390   20.995 21.281 23
2017
20.370 25.790 368   21.281 27.011 22
2018
25.790 21.907 328   27.011 23.002 21
2019
21.907 27.712 304   23.002 29.170 19
* The numbers of accumulation units less than 1000 were rounded up to one.
(1) On May 17, 2013, this Subaccount was closed and the values were transferred to the LVIP SSGA S&P 500 Index Fund Subaccount.
(2) On May 17, 2013, this Subaccount was closed and the values were transferred to the LVIP BlackRock Inflation Protected Bond Fund Subaccount.
(3) Effective October 9, 2010, the Delaware VIP Trend Series was reorganized into the Delaware VIP Smid Cap Core Series. The values in the table for periods prior to the date of the reorganization reflect investments in the Delaware VIP Trend Series.
(4) On May 17, 2013, this Subaccount was closed and the values were transferred to the LVIP SSGA Small-Cap Index Fund Subaccount.
(5) On December 9, 2016, this Subaccount was closed and the values were transferred to the LVIP SSGA International Managed Volatility Fund Subaccount.
(6) Effective June 15, 2009, the LVIP Delaware Managed Fund was reorganized into the LVIP Delaware Wealth Builder Fund. The values in the table for periods prior to the date of the reorganization reflect investments in the LVIP Delaware Managed Fund.
(7) Effective July 30, 2010, the LVIP Wilshire Aggressive Profile Fund was restructured into the LVIP SSGA Global Tactical Allocation Managed Volatility Fund. The values in the table for periods prior to the date of the restructuring reflect investments in the LVIP Wilshire Aggressive Profile Fund.
A-12
Group Variable Annuity Contracts I, II, & III  
Funded Through the SubAccounts of
Lincoln National Variable Annuity Account L of
The Lincoln National Life Insurance Company  
Statement of Additional Information (SAI)
This SAI should be read in conjunction with the prospectus of the Group Variable Annuity Contracts (the “Contracts”), dated May 1, 2020. You may obtain a copy of the prospectus to which this SAI relates without charge by writing to The Lincoln National Life Insurance Company, PO Box 2340, Fort Wayne, IN 46801-2340, by calling Lincoln Life at 1-800-341-0441, or by visiting www.LincolnFinancial.com.
Table of Contents
Item Page
Special Terms B-2
Services B-2
Principal Underwriter B-2
Purchase of Securities Being Offered B-2
Annuity Payouts B-2
Determination of Accumulation and Annuity Unit Value B-3
Capital Markets B-3
Item Page
Advertising & Ratings B-4
About the S&P 500 Index B-4
Unclaimed Property B-5
Additional Services B-5
Other Information B-6
Financial Statements B-6
 
This SAI is not a prospectus.
The date of this SAI is May 1, 2020.

 

Special Terms
The special terms used in this SAI are the ones defined in the prospectus.
Services
Independent Registered Public Accounting Firm
Ernst & Young LLP, independent registered public accounting firm, One Commerce Square, 2005 Market Street, Suite 700, Philadelphia, Pennsylvania, 19103, has audited a) the financial statements of each of the subaccounts listed in the appendix to the opinion that comprise Lincoln National Variable Annuity Account L, as of December 31, 2019, the related statements of operations and the statements of changes in net assets for each of the periods indicated in the appendix to the opinion; and b) the consolidated financial statements of The Lincoln National Life Insurance Company as of December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 as set forth in their reports, which are included in this SAI and Registration Statement. The aforementioned financial statements are included herein in reliance on Ernst & Young LLP's reports, given on their authority as experts in accounting and auditing.
Keeper of Records
All accounts, books, records and other documents which are required to be maintained for the VAA are maintained by us or by third parties responsible to Lincoln Life. We have entered into an agreement with State Street Bank and Trust Company, 801 Pennsylvania Ave, Kansas City, MO 64105, to provide accounting services to the VAA. No separate charge against the assets of the VAA is made by us for this service.
Principal Underwriter
Lincoln Financial Distributors, Inc. (“LFD”), an affiliate of Lincoln Life, serves as principal underwriter (the “Principal Underwriter”) for the contracts, as described in the prospectus. The Principal Underwriter offers the contracts to the public on a continuous basis and anticipates continuing to offer the contracts, but reserves the right to discontinue the offering. The Principal Underwriter offers the contracts through sales representatives, who are associated with Lincoln Financial Advisors Corporation and/or Lincoln Financial Securities Corporation (collectively, “LFN”), our affiliates. The Principal Underwriter also may enter into selling agreements with other broker-dealers (“Selling Firms”) for the sale of the contracts. Sales representatives of Selling Firms are appointed as our insurance agents. LFD, acting as Principal Underwriter, paid $1,413,794, $1,425,415 and $1,279,933 to LFN and Selling Firms in 2015, 2016 and 2017, respectively, as sales compensation with respect to the contracts. The Principal Underwriter retained no underwriting commissions for the sale of the contracts.
Purchase of Securities Being Offered
The variable annuity contracts are offered to the public through licensed insurance agents who specialize in selling our products; through independent insurance brokers; and through certain securities brokers/dealers selected by us whose personnel are legally authorized to sell annuity products. There are no special purchase plans for any class of prospective buyers. However, under certain limited circumstances described in the prospectus under the section Charges and Other Deductions, any applicable account fee and/or surrender charge may be reduced or waived.
Both before and after the Annuity Commencement Date, there are exchange privileges between Subaccounts, and from the VAA to the general account (if available) subject to restrictions set out in the prospectus. See The Contracts, in the prospectus. No exchanges are permitted between the VAA and other separate accounts.
The offering of the contracts is continuous.
Annuity Payouts
Variable Annuity Payouts
Variable Annuity Payouts will be determined on the basis of:
• the dollar value of the contract on the Annuity Commencement Date less any applicable premium tax;
• the annuity tables contained in the contract;
• the type of annuity option selected; and
B-2

 

• the investment results of the fund(s) selected.
In order to determine the amount of variable Annuity Payouts, we make the following calculation:
• first, we determine the dollar amount of the first payout;
• second, we credit the contract with a fixed number of Annuity Units based on the amount of the first payout; and
• third, we calculate the value of the Annuity Units each period thereafter.
These steps are explained below.
The dollar amount of the first periodic variable Annuity Payout is determined by applying the total value of the Accumulation Units credited under the contract valued as of the Annuity Commencement Date (less any premium taxes) to the annuity tables contained in the contract. The first variable Annuity Payout will be paid 14 days after the Annuity Commencement Date. This day of the month will become the day on which all future Annuity Payouts will be paid. Amounts shown in the tables are based on the 1983 Table “a” Individual Annuity Mortality Table modified, with an assumed investment return at the rate of 1%, 2%, 3%, 4%, 5%, or 6% per annum, depending on the terms of your contract. The first Annuity Payout is determined by multiplying the benefit per $1,000 of value shown in the contract tables by the number of thousands of dollars of value accumulated under the contract. These annuity tables vary according to the form of annuity selected and the age of the Annuitant at the Annuity Commencement Date. The assumed interest rate is the measuring point for subsequent Annuity Payouts. If the actual net investment rate (annualized) exceeds the assumed interest rate, the payout will increase at a rate equal to the amount of such excess.
Conversely, if the actual rate is less than the assumed interest rate, Annuity Payouts will decrease. If the assumed rate of interest were to be increased, Annuity Payouts would start at a higher level but would decrease more rapidly or increase more slowly.
We may use sex-distinct annuity tables in contracts that are not associated with employer sponsored plans and where not prohibited by law.
At an Annuity Commencement Date, the contract is credited with Annuity Units for each Subaccount on which variable Annuity Payouts are based. The number of Annuity Units to be credited is determined by dividing the amount of the first periodic payout by the value of an Annuity Unit in each Subaccount selected. Although the number of Annuity Units is fixed by this process, the value of such units will vary with the value of the underlying fund. The amount of the second and subsequent periodic payouts is determined by multiplying the Contractowner’s fixed number of Annuity Units in each Subaccount by the appropriate Annuity Unit value for the Valuation Date ending 14 days prior to the date that payout is due.
The value of each Subaccount’s Annuity Unit will be set initially at $1.00. The Annuity Unit value for each Subaccount at the end of any Valuation Date is determined by multiplying the Subaccount Annuity Unit value for the immediately preceding Valuation Date by the product of:
• The net investment factor of the Subaccount for the Valuation Period for which the Annuity Unit value is being determined, and
• A factor to neutralize the assumed investment return in the annuity table.
The value of the Annuity Units is determined as of a Valuation Date 14 days prior to the payment date in order to permit calculation of amounts of Annuity Payouts and mailing of checks in advance of their due dates. Such checks will normally be issued and mailed at least three days before the due date.
Determination of Accumulation and Annuity Unit Value
A description of the days on which Accumulation and Annuity Units will be valued is given in the prospectus. The New York Stock Exchange's (NYSE) most recent announcement (which is subject to change) states that it will be closed on weekends and on these holidays: New Year's Day, Martin Luther King Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. If any of these holidays occurs on a weekend day, the Exchange may also be closed on the business day occurring just before or just after the holiday. It may also be closed on other days.
Since the portfolios of some of the funds and series will consist of securities primarily listed on foreign exchanges or otherwise traded outside the United States, those securities may be traded (and the net asset value of those funds and series and of the variable account could therefore be significantly affected) on days when the investor has no access to those funds and series.
Capital Markets
In any particular year, our capital may increase or decrease depending on a variety of factors — the amount of our statutory income or losses (which is sensitive to equity market and credit market conditions), the amount of additional capital we must hold to support business growth, changes in reserving requirements, our inability to secure capital market solutions to provide reserve relief, such as issuing letters of credit to support captive reinsurance structures, changes in equity market levels, the value of certain fixed-income and equity securities in our investment portfolio and changes in interest rates.
B-3

 

Advertising & Ratings
We may include in certain advertisements, endorsements in the form of a list of organizations, individuals or other parties which recommend Lincoln Life or the policies. Furthermore, we may occasionally include in advertisements comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets, or discussions of alternative investment vehicles and general economic conditions.
Our financial strength is ranked and rated by nationally recognized independent rating agencies. The ratings do not imply approval of the product and do not refer to the performance of the product, or any separate account, including the underlying investment options. Ratings are not recommendations to buy our products. Each of the rating agencies reviews its ratings periodically. Accordingly, all ratings are subject to revision or withdrawal at any time by the rating agencies, and therefore, no assurance can be given that these ratings will be maintained. The current outlook for the insurance subsidiaries is stable for Moody’s, A.M. Best and Standard & Poor’s, and positive for Fitch. Our financial strength ratings, which are intended to measure our ability to meet contract holder obligations, are an important factor affecting public confidence in most of our products and, as a result, our competitiveness. A downgrade of our financial strength rating could affect our competitive position in the insurance industry by making it more difficult for us to market our products as potential customers may select companies with higher financial strength ratings and by leading to increased withdrawals by current customers seeking companies with higher financial strength ratings. For more information on ratings, including outlooks, see www.LincolnFinancial.com/investor.
About the S&P 500 Index
The S&P 500 Index (hereinafter “Index”) is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by Lincoln Variable Insurance Products Trust and its affiliates (hereinafter “Licensee”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). The fund(s) are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices do not make any representation or warranty, express or implied, to the owners of the funds or any member of the public regarding the advisability of investing in securities generally or in the funds particularly or the ability of the Index to track general market performance. S&P Dow Jones Indices only relationship to Licensee with respect to the Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Licensee or the funds. S&P Dow Jones Indices have no obligation to take the needs of Licensee or the owners of the funds into consideration in determining, composing or calculating the Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination of the prices, and amount of the funds or the timing of the issuance or sale of the funds or in the determination or calculation of the equation by which the funds are to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of the funds. There is no assurance that investment products based on the Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND LICENSEE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Compound Interest Illustrations—These will emphasize several advantages of the variable annuity contract. For example, but not by way of illustration, the literature may emphasize the potential tax savings through tax deferral; the potential advantage of the variable annuity account over the fixed account; and the compounding effect when a client makes regular deposits to his or her contract.
Internet—An electronic communications network which may be used to provide information regarding Lincoln Life, performance of the subaccounts and advertisement literature.
B-4

 

Annuity Payout Illustrations. These will provide an initial benefit payment based in part on the Annuitant, the Contract Value and the fixed and/or variable Annuity Payout option elected. In addition, variable Annuity Payout illustrations may show the historical results of a variable payout in a Subaccount of the VAA.
Dollar-Cost Averaging Illustrations. These illustrations will generally discuss the price-leveling effect of making regular purchases in the same subaccounts over a period of time, to take advantage of the trends in market prices of the portfolio securities purchased for those subaccounts.
Unclaimed Property
We have entered into a Global Resolution Agreement with a third party auditor representing multiple states and jurisdictions. Under the terms of the Global Resolution Agreement, the third party auditor has compared expanded matching criteria to the Social Security Master Death File (“SSMDF”) to identify deceased insureds and policy or contract holders where a valid claim has not been made. We have also entered into a Regulatory Settlement Agreement with multiple states and jurisdictions. The Regulatory Settlement Agreement applies prospectively and requires us to adopt and implement additional procedures comparing our records to the SSMDF to identify unclaimed death benefits and prescribes procedures for identifying and locating beneficiaries once deaths are identified. Other jurisdictions that are not signatories to the Regulatory Settlement Agreement are conducting examinations and audits of our compliance with unclaimed property laws. Any escheatable property identified as a result of the audits and inquiries could result in additional payments of previously unclaimed death benefits or the payment of abandoned funds to U.S. jurisdictions.
Additional Services
Dollar Cost Averaging (DCA)—You may systematically transfer, on a monthly basis, amounts from certain subaccounts, or the fixed side of the contract into the subaccounts over a period of 1, 2 or 3 years. The minimum amount to be dollar cost averaged is $10,000 for 1 year, and $25,000 for 2 years or 3 years. You may elect to participate in the DCA program at the time of application or at any time before the annuity commencement date by completing an election form available from us. We may offer different time periods for new Purchase Payments and for transfers of Contract Value. State variations may exist. You may not allocate any other Contract Value to the DCA fixed account. Once elected, the program will remain in effect until the earlier of:
• the annuity commencement date;
• the value of the amount being DCA'd is depleted; or
• you cancel the program by written request or by telephone if we have your telephone authorization on file.
We reserve the right to discontinue this program at any time. DCA does not assure a profit or protect against loss. GVA III fixed account restrictions may apply.
Systematic Transfer—The systematic transfer service is only available to GVA III participants. This service allows you to fully liquidate your fixed account balance over four years in five annual installments and transfer the amounts into one or more of the subaccounts. You may change the receiving subaccount allocation at any time. A distribution or a non-scheduled transfer from the fixed account may cancel the systematic transfer program prematurely. The program will also be canceled prematurely if the fixed account balance falls to $0.
Account Sweep—The account sweep service allows you to keep a designated amount (the baseline amount) in one subaccount or the fixed account, and automatically transfer the excess to other variable subaccount(s) of your choice. The transfers may take place monthly, quarterly, semi-annually or annually. A $10,000 minimum balance in the holding account is required in order to begin this service. For account sweep to occur, the holding account balance must exceed the designated baseline amount by at least $50. You may change the receiving subaccount allocation at any time. Deposits to or distributions from the holding account will not adjust your baseline amount, but may affect the amount of money available to be transferred. A new account sweep program is required to change the designated baseline amount. GVA III fixed account restrictions may apply.
Portfolio Rebalancing—Portfolio rebalancing is an option, which, if elected by the contractowner, restores to a pre-determined level the percentage of the contract value, allocated to each variable subaccount or the fixed account. This pre-determined level will be the allocation initially selected when the contract was purchased, unless subsequently changed. The portfolio rebalancing allocation may be changed at any time by submitting a written request to us. If portfolio rebalancing is elected, all purchase payments allocated to the variable subaccounts must be subject to portfolio rebalancing. Portfolio rebalancing may take place on either a quarterly, semi-annual or annual basis, as selected by the contractowner. You may choose to either rebalance within your designated investment accounts, or to rebalance your designated investment account based on your total account value within the group annuity contract. This second selection will move 100% of your balance based on your allocated percentages. For portfolio rebalancing to occur, the total transfer amount must be $50 or more. If this minimum transfer amount is not available, the transfer will not occur. You may change the designated investment accounts' allocations or percentages at any time. The portfolio rebalancing program will be cancelled prematurely if the selected rebalancing account balance falls to $0. GVA III fixed account restrictions may apply.
B-5

 

SecureLine® Account – SecureLine® is an interest bearing draft account established from the proceeds payable on a contract administered by us that helps you manage your surrender or death benefit proceeds. You are the owner of the account, and are the only one authorized to transfer proceeds from the account. You may choose to leave the proceeds in this account, or you may use the checkbook we previously provided and write checks against the account until the funds are depleted. The SecureLine® account is part of our general account. It is not a bank account and it is not insured by the FDIC or any other government agency. As part of our general account, it is subject to the claims of our creditors. We receive a benefit from all amounts left in the SecureLine® account.
Interest credited in the SecureLine® account is taxable as ordinary income in the year such interest is credited, and is not tax deferred. We recommend that you consult your tax advisor to determine the tax consequences associated with the payment of interest on amounts in the SecureLine® account. The balance in your SecureLine® account began earning interest the day your account was opened and will continue to earn interest until all funds are withdrawn. Interest is compounded daily and credited to your account on the last day of each month. The interest rate will be updated monthly and we may increase or decrease the rate at our discretion. The interest rate credited to your SecureLine® account may be more or less than the rate earned on funds held in our general account. The interest rate offered with a SecureLine® account is not necessarily that credited to the fixed account. There are no monthly fees. You may be charged a fee if you stop a payment or if you present a check for payment without sufficient funds.
Sales literature may reference the Group Variable Annuity newsletter which is a newsletter distributed quarterly to clients of the VAA. The contents of the newsletter will be a commentary on general economic conditions and, on some occasions, referencing matters in connection with the Group Variable Annuity.
Sales literature and advertisements may reference these and other similar reports from Best's or other similar publications which report on the insurance and financial services industries.
Other Information
Due to differences in redemption rates, tax treatment or other considerations, the interests of policyholders under the variable life accounts could conflict with those of Contractowners under the VAA. In those cases, where assets from variable life and variable annuity separate accounts are invested in the same fund(s) (i.e., where mixed funding occurs), the Boards of Directors of the fund involved will monitor for any material conflicts and determine what action, if any, should be taken. If it becomes necessary for any separate account to replace shares of any fund with another investment, that fund may have to liquidate securities on a disadvantageous basis. Refer to the prospectus for each fund for more information about mixed funding.
Financial Statements
The December 31, 2019 financial statements of the VAA and the December 31, 2019 consolidated financial statements of Lincoln Life appear on the following pages.
B-6























The Lincoln National Life Insurance Company



Consolidated Financial Statements



December 31, 2019 and 2018

 

 

 

 

 









Report of Independent Registered Public Accounting Firm



To the Stockholder and the Board of Directors of The Lincoln National Life Insurance Company



Opinion on the Financial Statements



We have audited the accompanying consolidated balance sheets of The Lincoln National Life Insurance Company (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), stockholder’s equity and cash flows for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.



Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. 



Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1966.

Philadelphia, Pennsylvania

March 13, 2020





 

 

1

 

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

 







 

 

 

 

 

 

 

 



 

As of December 31,

 



 

2019

 

 

2018

 

ASSETS

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Fixed maturity available-for-sale securities, at fair value

 

 

 

 

 

 

 

 

(amortized cost:  2019 – $93,307; 2018 – $91,219)

 

$

 103,773 

 

 

$

 92,787 

 

Trading securities

 

 

 4,602 

 

 

 

 1,869 

 

Equity securities

 

 

 103 

 

 

 

 99 

 

Mortgage loans on real estate

 

 

 16,244 

 

 

 

 13,190 

 

Policy loans

 

 

 2,460 

 

 

 

 2,491 

 

Derivative investments

 

 

 1,911 

 

 

 

 1,081 

 

Other investments

 

 

 2,565 

 

 

 

 1,962 

 

Total investments

 

 

 131,658 

 

 

 

 113,479 

 

Cash and invested cash

 

 

 1,879 

 

 

 

 1,848 

 

Deferred acquisition costs and value of business acquired

 

 

 7,745 

 

 

 

 10,308 

 

Premiums and fees receivable

 

 

 464 

 

 

 

 568 

 

Accrued investment income

 

 

 1,109 

 

 

 

 1,087 

 

Reinsurance recoverables

 

 

 19,164 

 

 

 

 19,826 

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 

 188 

 

Funds withheld reinsurance assets

 

 

 542 

 

 

 

 563 

 

Goodwill

 

 

 1,778 

 

 

 

 1,782 

 

Other assets

 

 

 18,106 

 

 

 

 16,663 

 

Separate account assets

 

 

 153,571 

 

 

 

 132,833 

 

Total assets

 

$

 336,016 

 

 

$

 299,145 

 



 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDER’S EQUITY

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Future contract benefits

 

$

 35,717 

 

 

$

 33,884 

 

Other contract holder funds

 

 

 97,422 

 

 

 

 90,573 

 

Short-term debt

 

 

 609 

 

 

 

 288 

 

Long-term debt

 

 

 2,414 

 

 

 

 2,401 

 

Reinsurance related embedded derivatives

 

 

 375 

 

 

 

 -

 

Funds withheld reinsurance liabilities

 

 

 5,566 

 

 

 

 4,860 

 

Payables for collateral on investments

 

 

 5,077 

 

 

 

 4,786 

 

Other liabilities

 

 

 13,680 

 

 

 

 13,201 

 

Separate account liabilities

 

 

 153,571 

 

 

 

 132,833 

 

Total liabilities

 

 

 314,431 

 

 

 

 282,826 

 



 

 

 

 

 

 

 

 

Contingencies and Commitments (See Note 14)

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

Stockholder’s Equity

 

 

 

 

 

 

 

 

Common stock – 10,000,000 shares authorized, issued and outstanding

 

 

 11,312 

 

 

 

 11,237 

 

Retained earnings

 

 

 4,437 

 

 

 

 4,423 

 

Accumulated other comprehensive income (loss)

 

 

 5,836 

 

 

 

 659 

 

Total stockholder’s equity

 

 

 21,585 

 

 

 

 16,319 

 

Total liabilities and stockholder’s equity

 

$

 336,016 

 

 

$

 299,145 

 



See accompanying Notes to Consolidated Financial Statements

 

2

 

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 

2019

 

2018

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

Insurance premiums

$

 5,277

 

$

 4,362

 

$

 3,018

 

Fee income

 

 6,247

 

 

 5,733

 

 

 5,369

 

Net investment income

 

 4,962

 

 

 4,844

 

 

 4,760

 

Realized gain (loss):

 

 

 

 

 

 

 

 

 

Total other-than-temporary impairment losses on securities

 

 (28

)

 

 (7

)

 

 (18

)

Portion of loss recognized in other comprehensive income

 

 13

 

 

 -

 

 

 -

 

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

 

 (15

)

 

 (7

)

 

 (18

)

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

 

 (813

)

 

 (85

)

 

 (438

)

Total realized gain (loss)

 

 (828

)

 

 (92

)

 

 (456

)

Amortization of deferred gain on business sold through reinsurance

 

 27

 

 

 4

 

 

 18

 

Other revenues

 

 507

 

 

 507

 

 

 439

 

Total revenues

 

 16,192

 

 

 15,358

 

 

 13,148

 

Expenses

 

 

 

 

 

 

 

 

 

Interest credited

 

 2,754

 

 

 2,589

 

 

 2,558

 

Benefits

 

 7,585

 

 

 6,144

 

 

 4,818

 

Commissions and other expenses

 

 5,065

 

 

 4,583

 

 

 3,967

 

Interest and debt expense

 

 145

 

 

 136

 

 

 126

 

Strategic digitization expense

 

 66

 

 

 76

 

 

 43

 

Impairment of intangibles

 

 -

 

 

 -

 

 

 905

 

Total expenses

 

 15,615

 

 

 13,528

 

 

 12,417

 

Income (loss) before taxes

 

 577

 

 

 1,830

 

 

 731

 

Federal income tax expense (benefit)

 

 (37

)

 

 257

 

 

 (1,287

)

Net income (loss)

 

 614

 

 

 1,573

 

 

 2,018

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized investment gains (losses)

 

 5,173

 

 

 (3,314

)

 

 1,547

 

Funded status of employee benefit plans

 

 4

 

 

 2

 

 

 (2

)

Total other comprehensive income (loss), net of tax

 

 5,177

 

 

 (3,312

)

 

 1,545

 

Comprehensive income (loss)

$

 5,791

 

$

 (1,739

)

$

 3,563

 



 

 

 

 

 

 

 

 

 



See accompanying Notes to Consolidated Financial Statements

 

3

 

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(in millions)











 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Common Stock

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 11,237

 

$

 10,713

 

$

 10,696

 

Capital contributions from Lincoln National Corporation

 

 50

 

 

 500

 

 

 -

 

Stock compensation/issued for benefit plans

 

 25

 

 

 24

 

 

 17

 

Balance as of end-of-year

 

 11,312

 

 

 11,237

 

 

 10,713

 



 

 

 

 

 

 

 

 

 

Retained Earnings

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

 

 4,423

 

 

 4,405

 

 

 3,342

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 (644

)

 

 -

 

Net income (loss)

 

 614

 

 

 1,573

 

 

 2,018

 

Dividends paid to Lincoln National Corporation

 

 (600

)

 

 (911

)

 

 (955

)

Balance as of end-of-year

 

 4,437

 

 

 4,423

 

 

 4,405

 



 

 

 

 

 

 

 

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

 

 659

 

 

 3,327

 

 

 1,782

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 644

 

 

 -

 

Other comprehensive income (loss), net of tax

 

 5,177

 

 

 (3,312

)

 

 1,545

 

Balance as of end-of-year

 

 5,836

 

 

 659

 

 

 3,327

 

Total stockholder’s equity as of end-of-year

$

 21,585

 

$

 16,319

 

$

 18,445

 



See accompanying Notes to Consolidated Financial Statements

 

4

 

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)







 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

 

Net income (loss)

$

 614

 

$

 1,573

 

$

 2,018

 

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

 

 

 

 

 

 

 

 

 

activities:

 

 

 

 

 

 

 

 

 

Trading securities purchases, sales and maturities, net

 

 (2,522

)

 

 (120

)

 

 120

 

Change in:

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

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

 

 (448

)

 

 (108

)

 

 (17

)

Premiums and fees receivable

 

 104

 

 

 (87

)

 

 34

 

Accrued investment income

 

 (22

)

 

 (6

)

 

 19

 

Future contract benefits and other contract holder funds

 

 (918

)

 

 1,105

 

 

 (2,062

)

Reinsurance related assets and liabilities

 

 (277

)

 

 (1,233

)

 

 1,001

 

Accrued expenses

 

 89

 

 

 (99

)

 

 86

 

Federal income tax accruals

 

 (282

)

 

 65

 

 

 (1,502

)

Cash management agreement

 

 (1,115

)

 

 329

 

 

 (277

)

Realized (gain) loss

 

 828

 

 

 92

 

 

 456

 

Amortization of deferred gain on business sold through reinsurance

 

 (27

)

 

 (4

)

 

 (18

)

Impairment of intangibles

 

 -

 

 

 -

 

 

 905

 

Other

 

 343

 

 

 88

 

 

 91

 

Net cash provided by (used in) operating activities

 

 (3,633

)

 

 1,595

 

 

 854

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities and equity securities

 

 (14,927

)

 

 (12,406

)

 

 (9,887

)

Sales of available-for-sale securities and equity securities

 

 6,771

 

 

 3,191

 

 

 1,773

 

Maturities of available-for-sale securities

 

 6,426

 

 

 6,348

 

 

 5,790

 

Purchase of common stock in acquisition, net of cash acquired

 

 -

 

 

 (1,410

)

 

 -

 

Sale of business, net

 

 -

 

 

 (12

)

 

 -

 

Purchases of alternative investments

 

 (433

)

 

 (314

)

 

 (357

)

Sales and repayments of alternative investments

 

 131

 

 

 178

 

 

 184

 

Proceeds from affiliate transfer of alternative investments

 

 -

 

 

 -

 

 

 66

 

Issuance of mortgage loans on real estate

 

 (4,218

)

 

 (2,920

)

 

 (2,047

)

Repayment and maturities of mortgage loans on real estate

 

 1,144

 

 

 1,048

 

 

 1,145

 

Issuance and repayment of policy loans, net

 

 32

 

 

 20

 

 

 49

 

Net change in collateral on investments, derivatives and related settlements

 

 349

 

 

 654

 

 

 (374

)

Other

 

 (259

)

 

 (191

)

 

 (123

)

Net cash provided by (used in) investing activities

 

 (4,984

)

 

 (5,814

)

 

 (3,781

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

 

Capital contribution from Lincoln National Corporation

 

 50

 

 

 500

 

 

 -

 

Payment of long-term debt, including current maturities

 

 (28

)

 

 (13

)

 

 (290

)

Issuance of long-term debt, net of issuance costs

 

 28

 

 

 13

 

 

 75

 

Issuance (payment) of short-term debt

 

 321

 

 

 278

 

 

 (270

)

Proceeds from sale-leaseback transactions

 

 -

 

 

 88

 

 

 62

 

Payment related to sale-leaseback transactions

 

 (83

)

 

 -

 

 

 -

 

Proceeds from certain financing arrangements

 

 107

 

 

 -

 

 

 -

 

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

 

 16,049

 

 

 13,616

 

 

 10,775

 

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

 

 (5,800

)

 

 (5,957

)

 

 (5,764

)

Transfers to and from separate accounts, net

 

 (1,362

)

 

 (2,469

)

 

 (1,787

)

Common stock issued for benefit plans

 

 (34

)

 

 (25

)

 

 (29

)

Dividends paid to Lincoln National Corporation

 

 (600

)

 

 (911

)

 

 (955

)

Net cash provided by (used in) financing activities

 

 8,648

 

 

 5,120

 

 

 1,817

 

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

 

 31

 

 

 901

 

 

 (1,110

)

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

 

 1,848

 

 

 947

 

 

 2,057

 

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

$

 1,879

 

$

 1,848

 

$

 947

 



 

See accompanying Notes to Consolidated Financial Statements

 

5

 

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 







1.  Nature of Operations, Basis of Presentation and Summary of Significant Accounting Policies



Nature of Operations 



The Lincoln National Life Insurance Company (“LNL” or the “Company,” which also may be referred to as “we,” “our” or “us”), a wholly-owned subsidiary of Lincoln National Corporation (“LNC” or the “Parent Company”), is domiciled in the state of Indiana.  We own 100% of the outstanding common stock of two insurance company subsidiaries, Lincoln Life & Annuity Company of New York (“LLANY”) and Lincoln Life Assurance Company of Boston (“LLACB”).  We also own several non-insurance companies, including Lincoln Financial Distributors, our wholesale distributor, and Lincoln Financial Advisors Corporation, part of LNC’s retail distributor, Lincoln Financial Network.  LNL’s principal businesses consist of underwriting annuities, deposit-type contracts and life insurance through multiple distribution channels.  LNL is licensed and sells its products throughout the U.S. and several U.S. territories.  See Note 21 for additional information.



Basis of Presentation



The accompanying consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”).  Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized below.



Summary of Significant Accounting Policies 



Principles of Consolidation



The accompanying consolidated financial statements include the accounts of LNL and all other entities in which we have a controlling financial interest and any variable interest entities (“VIEs”) in which we are the primary beneficiary.  As discussed in Note 3, on May 1, 2018, LNC and LNL completed the acquisition of Liberty Life Assurance Company of Boston (“Liberty Life”), which effective September 1, 2019, was renamed Lincoln Life Assurance Company of Boston.  We use the equity method of accounting to recognize all of our investments in limited liability partnerships.  All material inter-company accounts and transactions have been eliminated in consolidation. 



Our involvement with VIEs is primarily to invest in assets that allow us to gain exposure to a broadly diversified portfolio of asset classes.  A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support or where investors lack certain characteristics of a controlling financial interest.  We assess our contractual, ownership or other interests in a VIE to determine if our interest participates in the variability the VIE was designed to absorb and pass onto variable interest holders.  We perform an ongoing qualitative assessment of our variable interests in VIEs to determine whether we have a controlling financial interest and would therefore be considered the primary beneficiary of the VIE.  If we determine we are the primary beneficiary of a VIE, we consolidate the assets and liabilities of the VIE in our consolidated financial statements.



Accounting Estimates and Assumptions



The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period.  Those estimates are inherently subject to change and actual results could differ from those estimates.  Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are:  fair value of certain investments and derivatives, other-than-temporary impairment (“OTTI”) and asset valuation allowances, deferred acquisition costs (“DAC”),  value of business acquired (“VOBA”), deferred sales inducements (“DSI”), goodwill, future contract benefits, other contract holder funds including deferred front-end loads (“DFEL”), pension plans, stock-based incentive compensation, income taxes and the potential effects of resolving litigated matters.



Business Combinations



We use the acquisition method of accounting for all business combination transactions, and accordingly, recognize the fair values of assets acquired, liabilities assumed and any noncontrolling interests in our consolidated financial statements.  The allocation of fair values may be subject to adjustment after the initial allocation for up to a one-year period as more information becomes available relative to the fair values as of the acquisition date.  The consolidated financial statements include the results of operations of any acquired company since the acquisition date.



6

 

 

Fair Value Measurement



Our measurement of fair value is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale or use of an asset or non-performance risk (“NPR”), which would include our own credit risk.  Our estimate of an exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (“exit price”) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability, as opposed to the price that would be paid to acquire the asset or receive a liability (“entry price”).  Pursuant to the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards CodificationTM (“ASC”), we categorize our financial instruments carried at fair value into a three-level fair value hierarchy, based on the priority of inputs to the respective valuation technique.  The three-level hierarchy for fair value measurement is defined as follows:



·

Level 1 – inputs to the valuation methodology are quoted prices available in active markets for identical investments as of the reporting date, except for large holdings subject to “blockage discounts” that are excluded;

·

Level 2 – inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value can be determined through the use of models or other valuation methodologies; and

·

Level 3 – inputs to the valuation methodology are unobservable inputs in situations where there is little or no market activity for the asset or liability, and we make estimates and assumptions related to the pricing of the asset or liability, including assumptions regarding risk.



In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the investment. 



When a determination is made to classify an asset or liability within Level 3 of the fair value hierarchy, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement.  Because certain securities trade in less liquid or illiquid markets with limited or no pricing information, the determination of fair value for these securities is inherently more difficult.  However, Level 3 fair value investments may include, in addition to the unobservable or Level 3 inputs, observable components, which are components that are actively quoted or can be validated to market-based sources.



Fixed Maturity Available-For-Sale Securities – Fair Valuation Methodologies and Associated Inputs



Securities classified as available-for-sale (“AFS”) consist of fixed maturity securities and are stated at fair value with unrealized gains and losses included within accumulated other comprehensive income (loss) (“AOCI”), net of associated DAC, VOBA, DSI, future contract benefits, other contract holder funds and deferred income taxes. 



We measure the fair value of our securities classified as fixed maturity AFS based on assumptions used by market participants in pricing the security.  The most appropriate valuation methodology is selected based on the specific characteristics of the fixed maturity security, and we consistently apply the valuation methodology to measure the security’s fair value.  Our fair value measurement is based on a market approach that utilizes prices and other relevant information generated by market transactions involving identical or comparable securities.  Sources of inputs to the market approach primarily include third-party pricing services, independent broker quotations or pricing matrices.  We do not adjust prices received from third parties; however, we do analyze the third-party pricing services’ valuation methodologies and related inputs and perform additional evaluation to determine the appropriate level within the fair value hierarchy.



The observable and unobservable inputs to our valuation methodologies are based on a set of standard inputs that we generally use to evaluate all of our fixed maturity AFS securities.  Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data.  In addition, market indicators, industry and economic events are monitored, and further market data is acquired if certain triggers are met.  For certain security types, additional inputs may be used, or some of the inputs described above may not be applicable.  For private placement securities, we use pricing matrices that utilize observable pricing inputs of similar public securities and Treasury yields as inputs to the fair value measurement.  Depending on the type of security or the daily market activity, standard inputs may be prioritized differently or may not be available for all fixed maturity AFS securities on any given day.  For broker-quoted only securities, non-binding quotes from market makers or broker-dealers are obtained from sources recognized as market participants.  For securities trading in less liquid or illiquid markets with limited or no pricing information, we use unobservable inputs to measure fair value. 



7

 

 

The following summarizes our fair valuation methodologies and associated inputs, which are particular to the specified security type and are in addition to the defined standard inputs to our valuation methodologies for all of our fixed maturity AFS securities discussed above:



·

Corporate bonds and U.S. government bonds – We also use Trade Reporting and Compliance EngineTM reported tables for our corporate bonds and vendor trading platform data for our U.S. government bonds. 

·

Mortgage- and asset-backed securities (“ABS”) – We also utilize additional inputs, which include new issues data, monthly payment information and monthly collateral performance, including prepayments, severity, delinquencies, step-down features and over collateralization features for each of our mortgage-backed securities (“MBS”), which include collateralized mortgage obligations and mortgage pass through securities backed by residential mortgages (“RMBS”), commercial mortgage-backed securities (“CMBS”), collateralized loan obligations (“CLOs”) and collateralized debt obligations (“CDOs”).

·

State and municipal bonds – We also use additional inputs that include information from the Municipal Securities Rule Making Board, as well as material event notices, new issue data, issuer financial statements and Municipal Market Data benchmark yields for our state and municipal bonds.

·

Hybrid and redeemable preferred securities – We also utilize additional inputs of exchange prices (underlying and common stock of the same issuer) for our hybrid and redeemable preferred securities.



In order to validate the pricing information and broker-dealer quotes, we employ, where possible, procedures that include comparisons with similar observable positions, comparisons with subsequent sales and observations of general market movements for those security classes.  We have policies and procedures in place to review the process that is utilized by our third-party pricing service and the output that is provided to us by the pricing service.  On a periodic basis, we test the pricing for a sample of securities to evaluate the inputs and assumptions used by the pricing service, and we perform a comparison of the pricing service output to an alternative pricing source.  We also evaluate prices provided by our primary pricing service to ensure that they are not stale or unreasonable by reviewing the prices for unusual changes from period to period based on certain parameters or for lack of change from one period to the next. 



Fixed Maturity AFS Securities – Evaluation for Recovery of Amortized Cost



We regularly review our fixed maturity AFS securities (also referred to as “debt securities”) for declines in fair value that we determine to be other-than-temporary. 



For our debt securities, we generally consider the following to determine whether our debt securities with unrealized losses are other-than-temporarily impaired:



·

The estimated range and average period until recovery;

·

The estimated range and average holding period to maturity;

·

Remaining payment terms of the security;

·

Current delinquencies and nonperforming assets of underlying collateral;

·

Expected future default rates;

·

Collateral value by vintage, geographic region, industry concentration or property type;

·

Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and

·

Contractual and regulatory cash obligations.



For a debt security, if we intend to sell a security, or it is more likely than not we will be required to sell a debt security before recovery of its amortized cost basis and the fair value of the debt security is below amortized cost, we conclude that an OTTI has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).  If we do not intend to sell a debt security, or it is not more likely than not we will be required to sell a debt security before recovery of its amortized cost basis but the present value of the cash flows expected to be collected is less than the amortized cost of the debt security (referred to as the credit loss), we conclude that an OTTI has occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge to realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss), as this amount is deemed the credit portion of the OTTI.  The remainder of the decline to fair value is recorded in other comprehensive income (“OCI”) to unrealized OTTI on fixed maturity AFS securities on our Consolidated Statements of Stockholder’s Equity, as this amount is considered a noncredit (i.e., recoverable) impairment.



8

 

 

When assessing our intent to sell a debt security, or if it is more likely than not we will be required to sell a debt security before recovery of its cost basis, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio, sales of securities to meet cash flow needs and sales of securities to capitalize on favorable pricing.  Management considers the following as part of the evaluation:



·

The current economic environment and market conditions;

·

Our business strategy and current business plans;

·

The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;

·

Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies;

·

The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts;

·

The capital risk limits approved by management; and

·

Our current financial condition and liquidity demands.



In order to determine the amount of the credit loss for a debt security, we calculate the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover.  The discount rate is the effective interest rate implicit in the underlying debt security.  The effective interest rate is the original yield, or the coupon if the debt security was previously impaired.  See the discussion below for additional information on the methodology and significant inputs, by security type, that we use to determine the amount of a credit loss.



To determine the recovery period of a debt security, we consider the facts and circumstances surrounding the underlying issuer including, but not limited to, the following:



·

Historical and implied volatility of the security;

·

Length of time and extent to which the fair value has been less than amortized cost;

·

Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;

·

Failure, if any, of the issuer of the security to make scheduled payments; and

·

Recoveries or additional declines in fair value subsequent to the balance sheet date. 



In periods subsequent to the recognition of an OTTI, the fixed maturity AFS security is accounted for as if it had been purchased on the measurement date of the OTTI.  Therefore, for the fixed maturity AFS security, the original discount or reduced premium is reflected in net investment income over the contractual term of the investment in a manner that produces a constant effective yield.



To determine recovery value of a corporate bond, CLO or CDO, we perform additional analysis related to the underlying issuer including, but not limited to, the following:



·

Fundamentals of the issuer to determine what we would recover if they were to file bankruptcy versus the price at which the market is trading;

·

Fundamentals of the industry in which the issuer operates;

·

Earnings multiples for the given industry or sector of an industry that the underlying issuer operates within, divided by the outstanding debt to determine an expected recovery value of the security in the case of a liquidation;

·

Expected cash flows of the issuer (e.g., whether the issuer has cash flows in excess of what is required to fund its operations);

·

Expectations regarding defaults and recovery rates;

·

Changes to the rating of the security by a rating agency; and

·

Additional market information (e.g., if there has been a replacement of the corporate debt security).



Each quarter, we review the cash flows for the MBS to determine whether or not they are sufficient to provide for the recovery of our amortized cost.  We revise our cash flow projections only for those securities that are at most risk for impairment based on current credit enhancement and trends in the underlying collateral performance.  To determine recovery value of a MBS, we perform additional analysis related to the underlying issuer including, but not limited to, the following:



·

Discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover;

·

Level of creditworthiness of the home equity loans or residential mortgages that back an RMBS or commercial mortgages that back a CMBS;

·

Susceptibility to fair value fluctuations for changes in the interest rate environment;

·

Susceptibility to reinvestment risks, in cases where market yields are lower than the securities’ book yield earned;

·

Susceptibility to reinvestment risks, in cases where market yields are higher than the book yields earned on a security;

·

Expectations of sale of such a security where market yields are higher than the book yields earned on a security; and

·

Susceptibility to variability of prepayments.



9

 

 

When evaluating MBS and mortgage-related ABS, we consider a number of pool-specific factors as well as market level factors when determining whether or not the impairment on the security is temporary or other-than-temporary.  The most important factor is the performance of the underlying collateral in the security and the trends of that performance in the prior periods.  We use this information about the collateral to forecast the timing and rate of mortgage loan defaults, including making projections for loans that are already delinquent and for those loans that are currently performing but may become delinquent in the future.  Other factors used in this analysis include the credit characteristics of borrowers, geographic distribution of underlying loans and timing of liquidations by state.  Once default rates and timing assumptions are determined, we then make assumptions regarding the severity of a default if it were to occur.  Factors that impact the severity assumption include expectations for future home price appreciation or depreciation, loan size, first lien versus second lien, existence of loan level private mortgage insurance, type of occupancy and geographic distribution of loans.  Once default and severity assumptions are determined for the security in question, cash flows for the underlying collateral are projected including expected defaults and prepayments.  These cash flows on the collateral are then translated to cash flows on our tranche based on the cash flow waterfall of the entire capital security structure.  If this analysis indicates the entire principal on a particular security will not be returned, the security is reviewed for OTTI by comparing the expected cash flows to amortized cost.  To the extent that the security has already been impaired or was purchased at a discount, such that the amortized cost of the security is less than or equal to the present value of cash flows expected to be collected, no impairment is required.  Otherwise, if the amortized cost of the security is greater than the present value of the cash flows expected to be collected, and the security was not purchased at a discount greater than the expected principal loss, then impairment is recognized.



We further monitor the cash flows of all of our fixed maturity AFS securities backed by mortgages on an ongoing basis.  We also perform detailed analysis on all of our subprime, Alt-A, non-agency residential MBS and on a significant percentage of our fixed maturity AFS securities backed by pools of commercial mortgages.  The detailed analysis includes revising projected cash flows by updating the cash flows for actual cash received and applying assumptions with respect to expected defaults, foreclosures and recoveries in the future.  These revised projected cash flows are then compared to the amount of credit enhancement (subordination) in the structure to determine whether the amortized cost of the security is recoverable.  If it is not recoverable, we record an impairment of the security. 



Trading Securities



Trading securities consist of fixed maturity securities in designated portfolios, some of which support modified coinsurance (“Modco”) and coinsurance with funds withheld (“CFW”) reinsurance agreements.  Investment results for the portfolios that support Modco and CFW reinsurance agreements, including gains and losses from sales, are passed directly to the reinsurers pursuant to contractual terms of the reinsurance agreements.  Trading securities are carried at fair value, and changes in fair value and changes in the fair value of embedded derivative liabilities associated with the underlying reinsurance agreements are recorded in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss) as they occur. 



Equity Securities



Equity securities are carried at fair value, and changes in fair value are recorded in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss) as they occur.  Equity securities consist primarily of common stock of publicly-traded companies, privately placed securities and mutual fund shares.  We measure the fair value of our equity securities based on assumptions used by market participants in pricing the security.  The most appropriate valuation methodology is selected based on the specific characteristics of the equity security.  Fair values of publicly-traded equity securities are determined using quoted prices in active markets for identical or comparable securities.  When quoted prices are not available, we use valuation methodologies most appropriate for the specific asset.  Fair values for private placement securities are determined using discounted cash flow, earnings multiple and other valuation models.  The fair values of mutual fund shares that transact regularly are based on transaction prices of identical fund shares.



Alternative Investments



Alternative investments, which consist primarily of investments in limited partnerships (“LPs”), are included in other investments on our Consolidated Balance Sheets.  We account for our investments in LPs using the equity method to determine the carrying value.  Recognition of alternative investment income is delayed due to the availability of the related financial statements, which are generally obtained from the partnerships’ general partners.  As a result, our private equity investments are generally on a three-month delay and our hedge funds are on a one-month delay.  In addition, the impact of audit adjustments related to completion of calendar-year financial statement audits of the investees are typically received during the second quarter of each calendar year.  Accordingly, our investment income from alternative investments for any calendar-year period may not include the complete impact of the change in the underlying net assets for the partnership for that calendar-year period. 



Payables for Collateral on Investments



When we enter into collateralized financing transactions on our investments, a liability is recorded equal to the cash or non-cash collateral received.  This liability is included within payables for collateral on investments on our Consolidated Balance Sheets.  Income and expenses associated with these transactions are recorded as investment income and investment expenses within net investment income on our Consolidated Statements of Comprehensive Income (Loss).  Changes in payables for collateral on investments are reflected within cash flows from investing activities on our Consolidated Statements of Cash Flows.

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Mortgage Loans on Real Estate



Mortgage loans on real estate consist of commercial and residential mortgage loans and are carried at unpaid principal balances adjusted for amortization of premiums and accretion of discounts and are net of valuation allowances.  Interest income is accrued on the principal balance of the loan based on the loan’s contractual interest rate.  Premiums and discounts are amortized using the effective yield method over the life of the loan.  Interest income and amortization of premiums and discounts are reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss) along with mortgage loan fees, which are recorded as they are incurred.



Our policy for commercial mortgage loans is to report loans that are 60 or more days past due, which equates to two or more payments missed, as delinquent.  Our policy for residential mortgage loans is to report loans that are 90 or more days past due, which equates to three or more payments missed, as delinquent.  We do not accrue interest on loans 90 days past due, and any interest received on these loans is either applied to the principal or recorded in net investment income on our Consolidated Statements of Comprehensive Income (Loss) when received, depending on the assessment of the collectability of the loan.  We resume accruing interest once a loan complies with all of its original terms or restructured terms.  Mortgage loans deemed uncollectible are charged against the valuation allowance, and subsequent recoveries, if any, are credited to the valuation allowance.  



We establish a valuation allowance to provide for the risk of credit losses inherent in our portfolio.  The valuation allowance includes specific valuation allowances for loans that are deemed to be impaired as well as general valuation allowances for pools of loans with similar risk characteristics where a property risk or market specific risk has not been identified but for which we anticipate a loss may occur. Loans are considered impaired when it is probable that, based upon current information and events, we will be unable to collect all amounts due under the contractual terms of the loan agreement.  When we determine that a loan is impaired, a specific valuation allowance is established for the excess carrying value of the loan over its estimated value.  The loan’s estimated value is based on:  the present value of expected future cash flows discounted at the loan’s effective interest rate; the loan’s observable market price; or the fair value of the loan’s collateral.  Changes in valuation allowances are reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).  General valuation allowances are primarily based on loss history adjusted for current conditions.



Valuation allowances are maintained at a level we believe is adequate to absorb estimated probable credit losses.  Our periodic evaluation of the adequacy of the valuation allowances is based on historical loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payments), the estimated value of the underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. 



Our commercial loan portfolio is primarily comprised of long-term loans secured by existing commercial real estate.  We believe all of the commercial loans in our portfolio share three primary risks:  borrower credit worthiness; sustainability of the cash flow of the property; and market risk; therefore, our methods of monitoring and assessing credit risk are consistent for our entire portfolio.



For our commercial mortgage loan portfolio, trends in market vacancy and rental rates are incorporated into the analysis that we perform for monitored loans and may contribute to the establishment of (or an increase or decrease in) a valuation allowance.  In addition, we review each loan individually in our commercial mortgage loan portfolio on an annual basis to identify emerging risks.  We focus on properties that experienced a reduction in debt-service coverage or that have significant exposure to tenants with deteriorating credit profiles.  Where warranted, we establish or increase a valuation allowance for a specific loan based upon this analysis. 



We measure and assess the credit quality of our commercial mortgage loans by using loan-to-value and debt-service coverage ratios.  The loan-to-value ratio compares the principal amount of the loan to the fair value at origination of the underlying property collateralizing the loan and is commonly expressed as a percentage.  Loan-to-value ratios greater than 100% indicate that the principal amount is greater than the collateral value.  Therefore, all else being equal, a lower loan-to-value ratio generally indicates a higher quality loan.  The debt-service coverage ratio compares a property’s net operating income to its debt-service payments.  Debt-service coverage ratios of less than 1.0 indicate that property operations do not generate enough income to cover its current debt payments.  Therefore, all else being equal, a higher debt-service coverage ratio generally indicates a higher quality loan.



Our residential loan portfolio is primarily comprised of first lien mortgages secured by existing residential real estate.  In contrast to the commercial mortgage loan portfolio, residential mortgage loans are primarily smaller-balance homogenous loans that share similar risk characteristics.  Therefore, these pools of loans are collectively evaluated for inherent credit losses.  Such evaluations consider numerous factors, including, but not limited to borrower credit scores, collateral values, loss forecasts, geographic location, delinquency rates and economic trends.  These evaluations and assessments are revised as conditions change and new information becomes available, which can cause the valuation allowances to increase or decrease over time as such evaluations are revised.  Residential mortgage loan pools exclude loans that have been impaired as those loans are evaluated individually using the evaluation framework for specific valuation allowances described above.



For residential mortgage loans, our primary credit quality indicator is whether the loan is performing or nonperforming.  We generally define nonperforming residential mortgage loans as those that are 90 or more days past due and/or in nonaccrual status.  There is generally a higher risk of experiencing credit losses when a residential mortgage loan is nonperforming.



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Policy Loans



Policy loans represent loans we issue to contract holders that use the cash surrender value of their life insurance policy as collateral.  Policy loans are carried at unpaid principal balances. 



Real Estate



Real estate includes both real estate held for the production of income and real estate held-for-sale.  Real estate held for the production of income is carried at cost less accumulated depreciation.  Depreciation is calculated on a straight-line basis over the estimated useful life of the asset.  We periodically review properties held for the production of income for impairment.  Properties whose carrying values are greater than their projected undiscounted cash flows are written down to estimated fair value, with impairment losses reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).  The estimated fair value of real estate is generally computed using the present value of expected future cash flows from the real estate discounted at a rate commensurate with the underlying risks.  Real estate classified as held-for-sale is stated at the lower of depreciated cost or fair value less expected disposition costs at the time classified as held-for-sale.  Real estate is not depreciated while it is classified as held-for-sale.  Also, valuation allowances are established, as appropriate, for real estate held-for-sale and any changes to the valuation allowances are reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).  Real estate acquired through foreclosure proceedings is recorded at fair value at the settlement date. 



Derivative Instruments



We hedge certain portions of our exposure to interest rate risk, foreign currency exchange risk, equity market risk and credit risk by entering into derivative transactions.  All of our derivative instruments are recognized as either assets or liabilities on our Consolidated Balance Sheets at estimated fair value.  We categorized derivatives into a three-level hierarchy, based on the priority of the inputs to the respective valuation technique as discussed above in “Fair Value Measurement.”  The accounting for changes in the estimated fair value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship, and further, on the type of hedging relationship.  For those derivative instruments that are designated and qualify as hedging instruments, we designate the hedging instrument based upon the exposure being hedged:  as a cash flow hedge or a fair value hedge.



For derivative instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of AOCI and reclassified into net income in the same period or periods during which the hedged transaction affects net income.  The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of designated future cash flows of the hedged item (hedge ineffectiveness), if any, is recognized in net income during the period of change.  For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in net income during the period of change in estimated fair values.  For derivative instruments not designated as hedging instruments, but that are economic hedges, the gain or loss is recognized in net income.



We purchase and issue financial instruments and products that contain embedded derivative instruments.  When it is determined that the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes.  The embedded derivative is carried at fair value with changes in fair value recognized in net income during the period of change. 



We employ several different methods for determining the fair value of our derivative instruments.  The fair value of our derivative contracts are measured based on current settlement values, which are based on quoted market prices, industry standard models that are commercially available and broker quotes.  These techniques project cash flows of the derivatives using current and implied future market conditions.  We calculate the present value of the cash flows to measure the current fair market value of the derivative. 



Cash and Invested Cash



Cash and invested cash is carried at cost and includes all highly liquid debt instruments purchased with an original maturity of three months or less.



DAC, VOBA, DSI and DFEL



Acquisition costs directly related to successful contract acquisitions or renewals of universal life insurance (“UL”), variable universal life insurance (“VUL”), traditional life insurance, annuities and other investment contracts have been deferred (i.e., DAC) to the extent recoverable.  VOBA is an intangible asset that reflects the estimated fair value of in-force contracts in a life insurance company acquisition and represents the portion of the purchase price that is allocated to the value of the right to receive future cash flows from the business in force at the acquisition date.  Bonus credits and excess interest for dollar cost averaging contracts are considered DSI.  Contract sales charges that are collected in the early years of an insurance contract are deferred (i.e., DFEL), and the unamortized balance is reported in other contract holder funds on our Consolidated Balance Sheets. 



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Both DAC and VOBA amortization, excluding amounts reported in realized gain (loss), is reported within commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).  DSI amortization, excluding amounts reported in realized gain (loss), is reported in interest credited on our Consolidated Statements of Comprehensive Income (Loss).  The amortization of DFEL, excluding amounts reported in realized gain (loss), is reported within fee income on our Consolidated Statements of Comprehensive Income (Loss).  The methodology for determining the amortization of DAC, VOBA, DSI and DFEL varies by product type.  For all insurance contracts, amortization is based on assumptions consistent with those used in the development of the underlying contract adjusted for emerging experience and expected trends. 



Acquisition costs for UL and VUL insurance and investment-type products, which include fixed and variable deferred annuities, are generally amortized over the lives of the policies in relation to the incidence of estimated gross profits (“EGPs”) from surrender charges, investment, mortality net of reinsurance ceded and expense margins and actual realized gain (loss) on investments.  Contract lives for UL and VUL policies are estimated to be 40 years based on the expected lives of the contracts.  Contract lives for fixed and variable deferred annuities are generally between 15 and 30 years, while some of our fixed multi-year guarantee products have amortization periods equal to the guarantee period.  The front-end load annuity product has an assumed life of 25 years.  Longer lives are assigned to those blocks that have demonstrated lower lapse experience. 



Acquisition costs for all traditional contracts, including traditional life insurance contracts, such as individual whole life, group business and term life insurance, are amortized over the expected premium-paying period that generally results in amortization less than 30 years.  Acquisition costs are either amortized on a straight-line basis or as a level percent of premium of the related policies depending on the block of business.  There is currently no DAC, VOBA, DSI or DFEL balance or related amortization for fixed and variable payout annuities.



We account for modifications of insurance contracts that result in a substantially unchanged contract as a continuation of the replaced contract.  We account for modifications of insurance contracts that result in a substantially changed contract as an extinguishment of the replaced contract.



The carrying amounts of DAC, VOBA, DSI and DFEL are adjusted for the effects of realized and unrealized gains and losses on securities classified as fixed maturity AFS and certain derivatives and embedded derivatives.  Amortization expense of DAC, VOBA, DSI and DFEL reflects an assumption for an expected level of credit-related investment losses.  When actual credit-related investment losses are realized, we recognize a true-up to our DAC, VOBA, DSI and DFEL amortization within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss) reflecting the incremental effect of actual versus expected credit-related investment losses.  These actual to expected amortization adjustments can create volatility from period to period in realized gain (loss). 



During the third quarter of each year, we conduct our annual comprehensive review of the assumptions and the projection models used for our estimates of future gross profits underlying the amortization of DAC, VOBA, DSI and DFEL and the calculations of the embedded derivatives and reserves for life insurance and annuity products.  These assumptions include, but are not limited to, capital markets, investment margins, mortality, retention, rider utilization and maintenance expenses (costs associated with maintaining records relating to insurance and individual and group annuity contracts, and with the processing of premium collections, deposits, withdrawals and commissions).  Based on our review, the cumulative balances of DAC, VOBA, DSI and DFEL included on our Consolidated Balance Sheets are adjusted with an offsetting benefit or charge to revenue or amortization expense to reflect such change related to our expectations of future EGPs (“unlocking”).  We may have unlocking in other quarters as we become aware of information that warrants updating assumptions outside of our annual comprehensive review.  We may also identify and implement actuarial modeling refinements that result in increases or decreases to the carrying values of DAC, VOBA, DSI, DFEL, embedded derivatives and reserves for life insurance and annuity products with living benefit and death benefit guarantees. 

 

DAC, VOBA, DSI and DFEL are reviewed to ensure that the unamortized portion does not exceed the expected recoverable amounts. 



Reinsurance



We and our insurance subsidiaries enter into reinsurance agreements in the normal course of business to limit our exposure to the risk of loss and to enhance our capital management.



In order for a reinsurance agreement to qualify for reinsurance accounting, the agreement must satisfy certain risk transfer conditions that include, among other items, a reasonable possibility of a significant loss for the assuming entity.  When we apply reinsurance accounting, premiums, benefits and DAC amortization are reported net of insurance ceded on our Consolidated Statements of Comprehensive Income (Loss).  Amounts currently recoverable, such as ceded reserves, are reported in reinsurance recoverables and amounts currently payable to the reinsurers, such as premiums, are included in other liabilities on our Consolidated Balance Sheets.  Assets and liabilities and premiums and benefits from certain reinsurance contracts that grant statutory surplus relief to our insurance companies are netted on our Consolidated Balance Sheets and Consolidated Statements of Comprehensive Income (Loss), respectively, if there is a contractual right of offset.   



We use deposit accounting to recognize reinsurance agreements that do not transfer significant insurance risk.  This accounting treatment results in amounts paid or received by our insurance subsidiaries to be considered on deposit with the reinsurer and such amounts are reported in other assets and other liabilities, respectively, on our Consolidated Balance Sheets.  As amounts are paid or received, consistent with the underlying contracts, deposit assets or liabilities are adjusted.

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Goodwill



We recognize the excess of the purchase price, plus the fair value of any noncontrolling interest in the acquiree, over the fair value of identifiable net assets acquired as goodwill.  Goodwill is not amortized, but is reviewed for impairment annually as of October 1 and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. 



We perform a quantitative goodwill impairment test where the fair value of the reporting unit is determined and compared to the carrying value of the reporting unit.  If the carrying value of the reporting unit is greater than the reporting unit’s fair value, goodwill is impaired and written down to the reporting unit’s fair value; and a charge is reported in impairment of intangibles on our Consolidated Statements of Comprehensive Income (Loss).  The results of one goodwill impairment test on one reporting unit cannot subsidize the results of another reporting unit.



Other Assets and Other Liabilities



Other assets consist primarily of DSI, specifically identifiable intangible assets, property and equipment owned by the Company, balances associated with corporate-owned and bank-owned life insurance, certain reinsurance assets, receivables resulting from sales of securities that had not yet settled as of the balance sheet date, debt issuance costs associated with line-of-credit arrangements, operating lease right-of-use (“ROU”) assets, finance lease assets, certain financing arrangements and other prepaid expenses.  Other liabilities consist primarily of current and deferred taxes, pension and other employee benefit liabilities, derivative instrument liabilities, certain reinsurance payables, payables resulting from purchases of securities that had not yet settled as of the balance sheet date, interest on borrowed funds, long-term operating lease liabilities, finance lease liabilities, certain financing arrangements, deferred gain on business sold through reinsurance and other accrued expenses. 



Other assets and other liabilities on our Consolidated Balance Sheets include guaranteed living benefit (“GLB”) features and remaining guaranteed interest and similar contracts that are carried at fair value, which may be reported in either other assets or other liabilities.  The fair value of these items represents approximate exit price including an estimate for our NPR.  Certain of these features have elements of both insurance benefits and embedded derivatives.  Through our hybrid accounting approach, for reserve calculation purposes we assign product cash flows to the embedded derivative or insurance portion of the reserves based on the life-contingent nature of the benefits.  We classify these GLB reserves embedded derivatives in Level 3 within the hierarchy levels described above in “Fair Value Measurement.”  We report the insurance portion of the reserves in future contract benefits. 



The carrying values of specifically identifiable intangible assets are reviewed at least annually for indicators of impairment in value that are other-than-temporary, including unexpected or adverse changes in the following:  the economic or competitive environments in which the company operates; profitability analyses; cash flow analyses; and the fair value of the relevant business operation.  If there was an indication of impairment, then the discounted cash flow method would be used to measure the impairment, and the carrying value would be adjusted as necessary and reported in impairment of intangibles on our Consolidated Statements of Comprehensive Income (Loss).  Sales force intangibles are attributable to the value of the new business distribution system acquired through business combinations.  These assets are amortized on a straight-line basis over their useful life of 25 years.  Specifically identifiable intangible assets also includes the value of customer relationships acquired (“VOCRA”) and value of distribution agreements (“VODA”) that were acquired through our business combination during 2018.  The carrying values of VOCRA and VODA are amortized using a straight line basis over their weighted average life of 20 years and 13 years, respectively.  See Note 10 for more information regarding specifically identifiable intangible assets acquired.



Property and equipment owned for company use is carried at cost less allowances for depreciation.  Provisions for depreciation of investment real estate and property and equipment owned for company use are computed principally on the straight-line method over the estimated useful lives of the assets, which include buildings, computer hardware and software and other property and equipment.  Certain assets on our Consolidated Balance Sheets are related to finance leases and certain financing arrangements and are depreciated in a manner consistent with our current depreciation policy for owned assets.  We periodically review the carrying value of our long-lived assets, including property and equipment, for impairment whenever events or circumstances indicate that the carrying amount of such assets may not be fully recoverable.  For long-lived assets to be held and used, impairments are recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.  The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  An impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value.



Long-lived assets to be disposed of by abandonment or in an exchange for a similar productive long-lived asset are classified as held-for-use until they are disposed.  Long-lived assets to be sold are classified as held-for-sale and are no longer depreciated.  Certain criteria have to be met in order for the long-lived asset to be classified as held-for-sale, including that a sale is probable and expected to occur within one year.  Long-lived assets classified as held-for-sale are recorded at the lower of their carrying amount or fair value less cost to sell.



Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) 2016-02, which resulted in a new measurement and recognition of our long-term operating leases on our Consolidated Balance Sheets.  We lease office space and certain equipment under various long-term lease agreements.  We determine if an arrangement is a lease at inception.  Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the

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commencement date.  Our leases do not provide an implicit rate; therefore, we use our incremental borrowing rate at the commencement date in determining the present value of future payments.  The ROU asset is calculated using the lease liability carrying amount, plus or minus prepaid/accrued lease payments, minus the unamortized balance of lease incentives received, plus unamortized initial direct costs.  Lease terms used to calculate our lease obligation include options when we are reasonably certain that we will exercise such options.  Our lease agreements may contain both lease and non-lease components, which are accounted for separately.  Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.  See Notes 2 and 14 for additional information.



Other assets includes deferred losses on business sold through reinsurance attributable to our 2012 and 2014 reinsurance transactions where we ceded closed blocks of UL contracts with secondary guarantees to Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”), a wholly-owned subsidiary of LNC.  We are recognizing the losses related to these transactions over a period of 30 years.



Other liabilities includes deferred gains on business sold through reinsurance.  During 2009, we completed a reinsurance transaction whereby we assumed a closed block of term contracts from First Penn-Pacific Life Insurance Company, a wholly-owned subsidiary of LNC.  We are recognizing the gain related to this transaction over a period of 15 years.  During 2012, we completed a reinsurance transaction whereby we ceded a closed block of UL contracts with secondary guarantees to LNBAR.  We are recognizing the gain related to the transaction over a period of 30 years.  During 2013, we completed a reinsurance transaction whereby we ceded a closed block of UL contracts with secondary guarantees to LNBAR.  During 2019, we amended the 2013 reinsurance transaction by recapturing the underlying base policy from LNBAR while continuing to cede the associated riders.  We are recognizing the gain related to this transaction over the expected life of the underlying business, or 20 years.  Effective October 1, 2018, we entered into an annuity reinsurance agreement with Athene Holding Ltd. (“Athene”).  We are recognizing the gain related to this transaction over the period over which the majority of account values are expected to run off, or 20 years. 



Separate Account Assets and Liabilities



We maintain separate account assets, which are reported at fair value.  The related liabilities are reported at an amount equivalent to the separate account assets.  Investment risks associated with market value changes are borne by the contract holders, except to the extent of minimum guarantees made by the Company with respect to certain accounts.



We issue variable annuity contracts through our separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities).  We also issue variable annuity and life contracts through separate accounts that may include various types of guaranteed death benefit (“GDB”), guaranteed withdrawal benefit (“GWB”) and guaranteed income benefit (“GIB”) features.  The GDB features include those where we contractually guarantee to the contract holder either:  return of no less than total deposits made to the contract less any partial withdrawals (“return of net deposits”); total deposits made to the contract less any partial withdrawals plus a minimum return (“minimum return”); or the highest contract value on any contract anniversary date through age 80.  The highest contract value is increased by purchase payments and is decreased by withdrawals subsequent to that anniversary date in the same proportion that withdrawals reduce the contract value.



As discussed in Note 6, certain features of these guarantees are accounted for as embedded derivative reserves, whereas other guarantees are accounted for as benefit reserves.  Other guarantees contain characteristics of both and are accounted for under an approach that calculates the value of the embedded derivative reserve and the benefit reserve based on the specific characteristics of each GLB feature.  We use derivative instruments to hedge our exposure to the risks and earnings volatility that result from the embedded derivatives for living benefits in certain of our variable annuity products.  The change in fair value of these instruments tends to move in the opposite direction of the change in the value of the associated reserves.  The net impact of these changes is reported as a component of realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).



The “market consistent scenarios” used in the determination of the fair value of the GLB liability are similar to those used by an investment bank to value derivatives for which the pricing is not transparent and the aftermarket is nonexistent or illiquid.  We use risk-neutral Monte Carlo simulations in our calculation to value the entire block of guarantees, which involve 100 unique scenarios per policy or approximately 49 million scenarios.  The market consistent scenario assumptions, as of each valuation date, are those we view to be appropriate for a hypothetical market participant.  The market consistent inputs include, but are not limited to, assumptions for capital markets (e.g., implied volatilities, correlation among indices, risk-free swap curve, etc.), policyholder behavior (e.g., policy lapse, rider utilization, etc.), mortality, risk margins, maintenance expenses and a margin for profit.  We believe these assumptions are consistent with those that would be used by a market participant; however, as the related markets develop we will continue to reassess our assumptions.  It is possible that different valuation techniques and assumptions could produce a materially different estimate of fair value.



Future Contract Benefits and Other Contract Holder Funds



Future contract benefits represent liability reserves that we have established and carry based on estimates of how much we will need to pay for future benefits and claims.  Other contract holder funds represent liabilities for fixed account values, including the fixed portion of variable, dividends payable, premium deposit funds, undistributed earnings on participating business and other contract holder funds as well as the carrying value of DFEL discussed above.



The liabilities for future contract benefits and claim reserves for UL and VUL insurance policies consist of contract account balances that are equal to deposits net of withdrawals, excluding surrender charges and fees, plus interest credited, and if applicable an additional reserve for other insurance benefit guarantees.  The liabilities for future insurance contract benefits and claim reserves for traditional life

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policies are computed using assumptions for investment yields, mortality and withdrawals based principally on generally accepted actuarial methods and assumptions at the time of contract issue.  Investment yield assumptions for traditional direct individual life reserves for all contracts range from 2.25% to 7.75% depending on the time of contract issue.  The investment yield assumptions for immediate and deferred paid-up annuities range from 1.25% to 12.75%.  These investment yield assumptions are intended to represent an estimation of the interest rate experience for the period that these contract benefits are payable.

 

The liabilities for future claim reserves for variable annuity products containing GDB features are calculated by estimating the present value of total expected benefit payments over the life of the contract from inception divided by the present value of total expected assessments over the life of the contract (“benefit ratio”) multiplied by the cumulative assessments recorded from the contract inception through the balance sheet date less the cumulative GDB payments plus interest on the liability.  The change in the liability for a period is the benefit ratio multiplied by the assessments recorded for the period less GDB claims paid in the period plus interest.  As experience or assumption changes result in a change in expected benefit payments or assessments, the benefit ratio is unlocked, that is, recalculated using the updated expected benefit payments and assessments over the life of the contract since inception.  The revised benefit ratio is then applied to the liability calculation described above, with the resulting change in liability reported in benefits on our Consolidated Statements of Comprehensive Income (Loss).



The liability for future claim reserves for long-term disability contracts for incurred and reported claims are calculated based on assumptions as to interest, claim resolution rates and offsets for other insurance including social security.  Claim resolution rate assumptions and social security offsets are based on our actual experience.  The interest rate assumptions used for discounting claim reserves are based on projected portfolio yield rates, after consideration for defaults and investment expenses, for assets supporting the liabilities.  The incurred but not reported claim reserves are based on our experiences as to the reporting lags and ultimate loss experience.  Claim reserves are subject to revision as current claim experience and projections of future factors affecting claim experience change.  Claim reserves do not include a provision for adverse deviation.



With respect to our future contract benefits and other contract holder funds, we continually review overall reserve position, reserving techniques and reinsurance arrangements.  As experience develops and new information becomes known, liabilities are adjusted as deemed necessary.  The effects of changes in estimates are included in the operating results for the period in which such changes occur.



The business written or assumed by us includes participating life insurance contracts, under which the contract holder is entitled to share in the earnings of such contracts via receipt of dividends.  The dividend scale for participating policies is reviewed annually and may be adjusted to reflect recent experience and future expectations.  As of December 31, 2019 and 2018, participating policies comprised less than 1% of the face amount of business in force, and dividend expenses were $51 million, $56 million and $57 million for the years ended December 31, 2019, 2018 and 2017, respectively.



Liabilities for the secondary guarantees on UL-type products are calculated by multiplying the benefit ratio by the cumulative assessments recorded from contract inception through the balance sheet date less the cumulative secondary guarantee benefit payments plus interest.  If experience or assumption changes result in a new benefit ratio, the reserves are adjusted to reflect the changes in a manner similar to the unlocking of DAC, VOBA, DFEL and DSI.  The accounting for secondary guarantee benefits impacts, and is impacted by, EGPs used to calculate amortization of DAC, VOBA, DFEL and DSI.



Certain of our variable annuity contracts reported within future contract benefits contain GLB reserves embedded derivatives, a portion of which may be reported in either other assets or other liabilities, and include guaranteed interest and similar contracts, that are carried at fair value on our Consolidated Balance Sheets, which represents approximate exit price including an estimate for our NPR.  Certain of these features have elements of both insurance benefits and embedded derivatives.  Through our hybrid accounting approach, for reserve calculation purposes we assign product cash flows to the embedded derivative or insurance portion of the reserves based on the life-contingent nature of the benefits.  We classify these GLB reserves embedded derivatives items in Level 3 within the hierarchy levels described above in “Fair Value Measurement.”  We report the insurance portion of the reserves in future contract benefits. 



The fair value of our indexed annuity contracts is based on their approximate surrender values.



Borrowed Funds



Our short-term borrowings are defined as borrowings with contractual or expected maturities of one year or less.  Long-term borrowings have contractual or expected maturities greater than one year.



Contingencies and Commitments



Contingencies arising from environmental remediation costs, regulatory judgments, claims, assessments, guarantees, litigation, recourse reserves, fines, penalties and other sources are recorded when deemed probable and reasonably estimable.



16

 

 

Fee Income



Fee income for investment and interest-sensitive life insurance contracts consists of asset-based fees, percent of premium charges, contract administration charges and surrender charges that are assessed against contract holder account balances.  Investment products consist primarily of individual and group variable and fixed deferred annuities.  Interest-sensitive life insurance products include UL insurance, VUL insurance and other interest-sensitive life insurance policies.  These products include life insurance sold to individuals, corporate-owned life insurance and bank-owned life insurance. 



In bifurcating the embedded derivative of our GLB features on our variable annuity products, we attribute to the embedded derivative the portion of total fees collected from the contract holder that relate to the GLB riders (the “attributed fees”), which are not reported within fee income on our Consolidated Statements of Comprehensive Income (Loss).  These attributed fees represent the present value of future claims expected to be paid for the GLB at the inception of the contract plus a margin that a theoretical market participant would include for risk/profit and are reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).



The timing of revenue recognition as it relates to fees assessed on investment contracts is determined based on the nature of such fees.  Asset-based fees, cost of insurance and contract administration charges are assessed on a daily or monthly basis and recognized as revenue as performance obligations are met, over the period underlying customer assets are owned or advisory services are provided.  Wholesaling-related 12b-1 fees received from separate account fund sponsors as compensation for servicing the underlying mutual funds are recorded as revenues based on a contractual percentage of the market value of mutual fund assets over the period shares are owned by customers.  Net investment advisory fees related to asset management of certain separate account funds are recorded as revenues based on a contractual percentage of the customer’s managed assets over the period advisory services are provided.  Percent of premium charges are assessed at the time of premium payment and recognized as revenue when assessed and earned.  Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited.  Surrender charges are recognized upon surrender of a contract by the contract holder in accordance with contractual terms.



For investment and interest-sensitive life insurance contracts, the amounts collected from contract holders are considered deposits and are not included in revenue.



Insurance Premiums



Our insurance premiums for traditional life insurance and group insurance products are recognized as revenue when due from the contract holder.  Our traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies.  Our group insurance products consist primarily of term life, disability and dental.



Net Investment Income



We earn investment income on the underlying general account investments supporting our fixed products less related expenses.  Dividends and interest income, recorded in net investment income, are recognized when earned.  Amortization of premiums and accretion of discounts on investments in debt securities are reflected in net investment income over the contractual terms of the investments in a manner that produces a constant effective yield. 



For CLOs and MBS, included in the trading and fixed maturity AFS securities portfolios, we recognize income using a constant effective yield based on anticipated prepayments and the estimated economic life of the securities.  When actual prepayments differ significantly from originally anticipated prepayments, the retrospective effective yield is recalculated to reflect actual payments to date and a catch up adjustment is recorded in the current period.  In addition, the new effective yield, which reflects anticipated future payments, is used prospectively.  Any adjustments resulting from changes in effective yield are reflected in net investment income on our Consolidated Statements of Comprehensive Income (Loss).



Realized Gain (Loss)



Realized gain (loss) includes realized gains and losses from the sale of investments, write-downs for other-than-temporary impairments of investments, changes in fair value of equity securities, certain derivative and embedded derivative gains and losses, gains and losses on the sale of subsidiaries and businesses and net gains and losses on reinsurance embedded derivatives and trading securities.  Realized gains and losses on the sale of investments are determined using the specific identification method.  Realized gain (loss) is recognized in net income, net of associated amortization of DAC, VOBA, DSI and DFEL.  Realized gain (loss) is also net of allocations of investment gains and losses to certain contract holders and certain funds withheld on reinsurance arrangements for which we have a contractual obligation.

   

Other Revenues



Other revenues consists primarily of fees attributable to broker-dealer services recorded as performance obligations are met, either at the time of sale or over time based on a contractual percentage of customer account values, changes in the market value of our seed capital investments, and proceeds from reinsurance recaptures.  The broker-dealer services primarily relate to our retail sales network and consist

17

 

 

of commission revenue for the sale of non-affiliated securities recorded on a trade date basis and advisory fee income.  Advisory fee income is asset-based revenues recorded as earned based on a contractual percentage of customer account values.  Other revenues earned by our Group Protection segment consist of fees from administrative services performed, which are recognized as performance obligations are met over the terms of the underlying agreements.



Interest Credited



We credit interest to our contract holder account balances based on the contractual terms supporting our products. 



Benefits



Benefits for UL and other interest-sensitive life insurance products include benefit claims incurred during the period in excess of contract account balances.  Benefits also include the change in reserves for life insurance products with secondary guarantee benefits, annuity products with guaranteed death and living benefits and certain annuities with life contingencies.  For traditional life, group health and disability income products, benefits are recognized when incurred in a manner consistent with the related premium recognition policies. 



Strategic Digitization Expense



Strategic digitization expense consists primarily of costs related to our enterprise-wide digitization initiative.

 

Pension and Other Postretirement Benefit Plans



Pursuant to the accounting rules for our obligations to employees and agents under our various pension and other postretirement benefit plans, we are required to make a number of assumptions to estimate related liabilities and expenses.  The mortality assumption is based on actual and anticipated plan experience, determined using acceptable actuarial methods.  We use assumptions for the weighted-average discount rate and expected return on plan assets to estimate pension expense.  The discount rate assumptions are determined using an analysis of current market information and the projected benefit flows associated with these plans.  The expected long-term rate of return on plan assets is based on historical and projected future rates of return on the funds invested in the plan.  The calculation of our accumulated postretirement benefit obligation also uses an assumption of weighted-average annual rate of increase in the per capita cost of covered benefits, which reflects a health care cost trend rate. 



Stock-Based Compensation



In general, we expense the fair value of stock awards included in our incentive compensation plans.  As of the date LNC’s Board of Directors approves stock awards, the fair value of stock options is determined using a Black-Scholes options valuation methodology, and the fair value of other stock awards is based upon the market value of the stock.  The fair value of the awards is expensed over the performance or service period, which generally corresponds to the vesting period, and is recognized as an increase to common stock in stockholder’s equity.  We apply an estimated forfeiture rate to our accrual of compensation cost. We classify certain stock awards as liabilities.  For these awards, the settlement value is classified as a liability on our Consolidated Balance Sheets, and the liability is marked-to-market through net income at the end of each reporting period.  Stock-based compensation expense is reflected in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss). 



Interest and Debt Expense



Interest expense on our short-term and long-term debt is recognized as due and any associated premiums, discounts and costs are amortized (accreted) over the term of the related borrowing utilizing the effective interest method.  In addition, gains or losses related to certain derivative instruments associated with debt are recognized in interest and debt expense during the period of the change.



Income Taxes



LNC files a U.S. consolidated income tax return that includes us and LNC’s other eligible subsidiaries.  Ineligible subsidiaries file separate individual corporate tax returns.  Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes.  A valuation allowance is recorded to the extent required.  Considerable judgment and the use of estimates are required in determining whether a valuation allowance is necessary and, if so, the amount of such valuation allowance.  In evaluating the need for a valuation allowance, we consider many factors, including:  the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of temporary differences; the length of time carryovers can be utilized; and any tax planning strategies we would employ to avoid a tax benefit from expiring unused. 

18

 

 

2.  New Accounting Standards



Adoption of New Accounting Standards



The following table provides a description of our adoption of new ASUs issued by the FASB and the impact of the adoption on our financial statements. ASUs not listed below were assessed and determined to be either not applicable or insignificant in presentation or amount. 



 

 

 

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 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 $171 million in ROU assets and $176 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 1.

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.



19

 

 

Future Adoption of New Accounting Standards



The following table provides a description of future adoptions of new accounting standards that may have an impact on our financial statements when adopted:



 

 

 

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

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

These amendments adopt a new model in ASC Topic 326 to measure and recognize credit losses for most financial assets.  The ASU requires a financial asset measured at amortized cost to be presented at the net amount expected to be collected over the life of the asset using an allowance for credit losses. Changes in the allowance are charged to earnings.  The measurement of expected credit losses is based on relevant information about past events, including historical experience, as well as current economic conditions and reasonable and supportable forecasts that affect the collectability of the financial asset.  The method used to measure estimated credit losses for fixed maturity AFS 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 securities.  The amendments will permit entities to recognize improvements in credit loss estimates on fixed maturity AFS 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

The adoption of this standard and related amendments will result in the recognition of a cumulative effect adjustment that is not expected to be material to our retained earnings, to record allowances for credit losses as of the date of adoption, primarily related to commercial and residential mortgage loans, as well as reinsurance recoverables. 

ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging and Topic 825, Financial Instruments

These amendments clarify the measurement, recognition and presentation of the allowance for credit losses on accrued interest receivable balances; the inclusion of recoveries when estimating the allowance for credit losses; the inclusion of all ASC Topic 944 – Financial Services – Insurance reinsurance recoverables within the scope of ASC 326-20; and provide additional targeted clarifications on the calculation of the allowance for credit losses.

These amendments also make targeted clarifications to ASC Topics 815 and 825.  Early adoption is permitted.

January 1, 2020

Our adoption of ASU 2016-13 and related amendments is discussed above.  The adoption of the remainder of this guidance will not have a material impact on our consolidated financial condition and results of operations.

ASU 2019-05, Financial Instruments – Credit Losses (Topic 326): Targeted Transition Relief

The amendments provide entities that have certain instruments within the scope of Subtopic 326-20, Financial Instruments – Credit Losses – Measured at Amortized Cost, with an option to irrevocably elect the fair value option in Subtopic 825-10, Financial Instruments – Overall, applied on an instrument-by-instrument basis for eligible instruments, upon adoption of ASC Topic 326.

January 1, 2020

We will recognize a cumulative effect increase to retained earnings of approximately $14 million, after-tax, to elect the fair value option for certain mortgage loans in connection with our adoption of ASC Topic 326. 



 

 

 

20

 

 

Standard

Description

Projected Date of Adoption

Effect on Financial Statements or Other Significant Matters

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

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 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.  The ASU is currently effective January 1, 2022, and early adoption is permitted.    

January 1, 2022

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

 

3.  Acquisition



On May 1, 2018, LNC and LNL completed the acquisition from Liberty Mutual Insurance Company of 100% of the capital stock of Liberty Life, an operator of a group benefits business (the “Liberty Group Business”) and an individual life and individual and group annuity business (the “Liberty Life Business”).  The acquisition expanded the scale and capabilities of the Group Protection business while further diversifying the Company’s sources of earnings.



In connection with the acquisition and pursuant to the Master Transaction Agreement (“MTA”), dated January 18, 2018, which is attached as Exhibit 10.3 to this Form 10-K, Liberty Life sold the Liberty Life Business on May 1, 2018, by entering into reinsurance agreements and related ancillary documents (including administrative services agreements and transition services agreements) with Protective Life Insurance Company and its wholly-owned subsidiary, Protective Life and Annuity Insurance Company (together with Protective Life Insurance Company, “Protective”), providing for the reinsurance and administration of the Liberty Life Business.



We recognized $85 million of acquisition-related costs, pre-tax, for the year ended December 31, 2018.  These costs were included in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).



21

 

 

In the year following the May 1, 2018 acquisition date, we adjusted assets acquired by $(5) million and liabilities acquired by $23 million for an increase in goodwill of $28 million.  Under the terms of the MTA, a final balance sheet will be agreed upon at a later date.  The following table presents the adjusted fair values (in millions) of the net assets acquired related to the Liberty Group Business:





 

 

 



 

 

 



Adjusted

 



Fair Value

 

Assets

 

 

 

Investments

$

 2,493 

 

Mortgage loans on real estate

 

 658 

 

Cash and invested cash

 

 107 

 

Reinsurance recoverables

 

 76 

 

Premiums and fees receivable

 

 83 

 

Accrued investment income

 

 24 

 

Other intangible assets acquired

 

 640 

 

Other assets acquired

 

 142 

 

Separate account assets

 

 99 

 

Total assets acquired

$

 4,322 

 



 

 

 

Liabilities

 

 

 

Future contract benefits

$

 2,930 

 

Other contract holder funds

 

 46 

 

Other liabilities acquired

 

 140 

 

Separate account liabilities

 

 99 

 

Total liabilities assumed

$

 3,215 

 



 

 

 

Net identifiable assets acquired

$

 1,107 

 

Goodwill

 

 410 

 

Net assets acquired

$

 1,517 

 



Financial Information



Since the acquisition date of May 1, 2018, the revenues and net income of the business acquired have been included in our Consolidated Statements of Comprehensive Income (Loss) in the Group Protection segment and were $1.5 billion and $36 million, respectively, for the period ended December 31, 2018.



The following unaudited pro forma condensed consolidated results of operations of the Company assume that the acquisition of Liberty Life was completed on January 1, 2017 (in millions):





 

 

 

 

 

 

 



 

 



 

For the Years Ended

 



 

December 31,

 



 

2018

 

2017

 

Revenue

 

$

 16,097 

 

$

 15,080 

 

Net income

 

 

 1,642 

 

 

 2,034 

 



 

 

 

 

 

 

 



Pro forma adjustments include the revenue and net income of the acquired business for each period as well as amortization of identifiable intangible assets acquired and the fair value adjustment to acquired insurance reserves and investments.  Other pro forma adjustments include the impact of reflecting acquisition and integration costs and investment expenses directly attributable to the business combination in 2017 instead of in 2018.  Pro forma adjustments do not include retrospective adjustments to defer and amortize acquisition costs as would be recorded under our accounting policy.

22

 

 

4.  Variable Interest Entities



Unconsolidated VIEs



Reinsurance Related Notes



Effective October 1, 2017, our captive reinsurance subsidiary, the Lincoln Reinsurance Company of Vermont VI, restructured the $275 million, long-term surplus note which was originally issued to a non-affiliated VIE in October 2015 in exchange for two corporate bond AFS securities of like principal and duration.  The activities of the VIE are primarily to acquire, hold and issue notes and loans and to pay and collect interest on the notes and loans.  The outstanding principal balance of the long-term surplus note is variable in nature; moving concurrently with any variability in the face amount of the corporate bond AFS securities.  We have concluded that we are not the primary beneficiary of the non-affiliated VIE because we do not have power over the activities that most significantly affect its economic performance.  As of December 31, 2019, the principal balance of the long-term surplus note was zero and we do not currently have any exposure to this VIE. 



Structured Securities



Through our investment activities, we make passive investments in structured securities issued by VIEs for which we are not the manager.  These structured securities include our RMBS, CMBS, CLOs and CDOs.  We have not provided financial or other support with respect to these VIEs other than our original investment.  We have determined that we are not the primary beneficiary of these VIEs due to the relative size of our investment in comparison to the principal amount of the structured securities issued by the VIEs and the level of credit subordination that reduces our obligation to absorb losses or right to receive benefits.  Our maximum exposure to loss on these structured securities is limited to the amortized cost for these investments.  We recognize our variable interest in these VIEs at fair value on our Consolidated Balance Sheets.  For information about these structured securities, see Note 5.



Limited Partnerships and Limited Liability Companies



We invest in certain LPs and limited liability companies (“LLCs”), including qualified affordable housing projects, that we have concluded are VIEs.  We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs.  Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs.



The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $1.9 billion and $1.7 billion as of December 31, 2019 and 2018, respectively.  Included in these carrying amounts are our investments in qualified affordable housing projects, which were $13 million and $20 million as of December 31, 2019 and 2018, respectively.  We do not have any contingent commitments to provide additional capital funding to these qualified affordable housing projects.  We receive returns from these qualified affordable housing projects in the form of income tax credits and other tax benefits, which are recognized in federal income tax expense (benefit) on our Consolidated Statements of Comprehensive Income (Loss) and were $2 million and $1 million for the years ended December 31, 2019 and 2018, respectively. 



Our exposure to loss is limited to the capital we invest in the LPs and LLCs, and there have been no indicators of impairment that would require us to recognize an impairment loss related to the LPs and LLCs as of December 31, 2019.



23

 

 

5.  Investments



Fixed Maturity AFS Securities



The amortized cost, gross unrealized gains, losses and OTTI and fair value of fixed maturity AFS securities (in millions) were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 



Amortized

 

Gross Unrealized

 

 

 

 

Fair

 



Cost

 

Gains

 

Losses

 

OTTI (1)

 

Value

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 78,875

 

$

 9,071

 

$

 172

 

$

 (5

)

$

 87,779

 

U.S. government bonds

 

 355

 

 

 48

 

 

 -

 

 

 -

 

 

 403

 

State and municipal bonds

 

 4,605

 

 

 1,087

 

 

 7

 

 

 -

 

 

 5,685

 

Foreign government bonds

 

 326

 

 

 62

 

 

 -

 

 

 -

 

 

 388

 

RMBS

 

 2,820

 

 

 179

 

 

 9

 

 

 (18

)

 

 3,008

 

CMBS

 

 1,038

 

 

 45

 

 

 1

 

 

 (1

)

 

 1,083

 

ABS

 

 4,803

 

 

 62

 

 

 17

 

 

 (35

)

 

 4,883

 

Hybrid and redeemable preferred securities

 

 485

 

 

 79

 

 

 20

 

 

 -

 

 

 544

 

Total fixed maturity AFS securities

$

 93,307

 

$

 10,633

 

$

 226

 

$

 (59

)

$

 103,773

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 



Amortized

 

Gross Unrealized

 

 

 

 

Fair

 



Cost

 

Gains

 

Losses

 

OTTI (1)

 

Value

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 78,837

 

$

 2,871

 

$

 2,167

 

$

 (8

)

$

 79,549

 

U.S. government bonds

 

 361

 

 

 27

 

 

 2

 

 

 -

 

 

 386

 

State and municipal bonds

 

 4,498

 

 

 703

 

 

 17

 

 

 -

 

 

 5,184

 

Foreign government bonds

 

 402

 

 

 42

 

 

 -

 

 

 -

 

 

 444

 

RMBS

 

 3,099

 

 

 113

 

 

 61

 

 

 (13

)

 

 3,164

 

CMBS

 

 810

 

 

 6

 

 

 16

 

 

 (3

)

 

 803

 

ABS

 

 2,644

 

 

 45

 

 

 30

 

 

 (19

)

 

 2,678

 

Hybrid and redeemable preferred securities

 

 568

 

 

 44

 

 

 33

 

 

 -

 

 

 579

 

Total fixed maturity AFS securities

$

 91,219

 

$

 3,851

 

$

 2,326

 

$

 (43

)

$

 92,787

 



(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.



The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of December 31, 2019, were as follows:





 

 

 

 

 

 



 

 

 

 

 

 



Amortized

 

Fair

 



Cost

 

Value

 

Due in one year or less

$

 2,714 

 

$

 2,699 

 

Due after one year through five years

 

 15,022 

 

 

 15,578 

 

Due after five years through ten years

 

 17,440 

 

 

 18,854 

 

Due after ten years

 

 49,470 

 

 

 57,668 

 

Subtotal

 

 84,646 

 

 

 94,799 

 

Structured securities (RMBS, CMBS, ABS)

 

 8,661 

 

 

 8,974 

 

Total fixed maturity AFS securities

$

 93,307 

 

$

 103,773 

 



Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.



24

 

 

The fair value and gross unrealized losses, including the portion of OTTI recognized in OCI, of fixed maturity AFS securities (dollars in millions), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 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

$

 2,827 

 

$

 44 

 

$

 1,381 

 

$

 131 

 

$

 4,208 

 

 

$

 175 

 

State and municipal bonds

 

 316 

 

 

 7 

 

 

 18 

 

 

 -

 

 

 334 

 

 

 

 7 

 

RMBS

 

 471 

 

 

 9 

 

 

 15 

 

 

 -

 

 

 486 

 

 

 

 9 

 

CMBS

 

 48 

 

 

 1 

 

 

 4 

 

 

 -

 

 

 52 

 

 

 

 1 

 

ABS

 

 1,791 

 

 

 8 

 

 

 300 

 

 

 9 

 

 

 2,091 

 

 

 

 17 

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 29 

 

 

 1 

 

 

 102 

 

 

 19 

 

 

 131 

 

 

 

 20 

 

Total fixed maturity AFS securities

$

 5,482 

 

$

 70 

 

$

 1,820 

 

$

 159 

 

$

 7,302 

 

 

$

 229 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 882 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



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

 

OTTI

 

Value

 

 

OTTI

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 30,947 

 

$

 1,464 

 

$

 7,023 

 

$

 704 

 

$

 37,970 

 

 

$

 2,168 

 

U.S. government bonds

 

 70 

 

 

 1 

 

 

 23 

 

 

 1 

 

 

 93 

 

 

 

 2 

 

State and municipal bonds

 

 376 

 

 

 7 

 

 

 92 

 

 

 10 

 

 

 468 

 

 

 

 17 

 

RMBS

 

 436 

 

 

 9 

 

 

 796 

 

 

 55 

 

 

 1,232 

 

 

 

 64 

 

CMBS

 

 470 

 

 

 11 

 

 

 82 

 

 

 5 

 

 

 552 

 

 

 

 16 

 

ABS

 

 1,237 

 

 

 23 

 

 

 239 

 

 

 16 

 

 

 1,476 

 

 

 

 39 

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 94 

 

 

 6 

 

 

 131 

 

 

 27 

 

 

 225 

 

 

 

 33 

 

Total fixed maturity AFS securities

$

 33,630 

 

$

 1,521 

 

$

 8,386 

 

$

 818 

 

$

 42,016 

 

 

$

 2,339 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 3,360 

 



25

 

 

The fair value, gross unrealized losses, the portion of OTTI recognized in OCI (in millions) and number of fixed maturity AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 



 

 

 

 

 

 

 

 

 

 

Number

 



Fair

 

Gross Unrealized

 

 

of

 



Value

 

Losses

 

OTTI

 

Securities (1)

Less than six months

$

 15 

 

$

 5 

 

$

 -

 

 

 

 7 

 

Six months or greater, but less than nine months

 

 10 

 

 

 3 

 

 

 -

 

 

 

 4 

 

Twelve months or greater

 

 130 

 

 

 74 

 

 

 -

 

 

 

 31 

 

Total

$

 155 

 

$

 82 

 

$

 -

 

 

 

 42 

 







 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 



 

 

 

 

 

 

 

 

 

 

Number

 



Fair

 

Gross Unrealized

 

 

of

 



Value

 

Losses

 

OTTI

 

Securities (1)

Less than six months

$

 389 

 

$

 122 

 

$

 1 

 

 

 

 44 

 

Six months or greater, but less than nine months

 

 96 

 

 

 49 

 

 

 -

 

 

 

 11 

 

Nine months or greater, but less than twelve months

 

 11 

 

 

 8 

 

 

 -

 

 

 

 2 

 

Twelve months or greater

 

 138 

 

 

 70 

 

 

 8 

 

 

 

 32 

 

Total

$

 634 

 

$

 249 

 

$

 9 

 

 

 

 89 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



(1)

We may reflect a security in more than one aging category based on various purchase dates. 



We regularly review our investment holdings for OTTI.  Our gross unrealized losses, including the portion of OTTI recognized in OCI, on fixed maturity AFS securities decreased by $2.1 billion for the year ended December 31, 2019.  As discussed further below, we believe the unrealized loss position as of December 31, 2019, did not represent OTTI as (i) we did not intend to sell these fixed maturity AFS securities; (ii) it is not more likely than not that we will be required to sell the fixed maturity AFS securities before recovery of their amortized cost basis; and (iii) the estimated future cash flows were equal to or greater than the amortized cost basis of the debt securities.



Based upon this evaluation as of December 31, 2019, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums, fee income and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our temporarily-impaired securities. 



As of December 31, 2019, the unrealized losses associated with our corporate bond securities were attributable primarily to widening credit spreads and rising interest rates since purchase.  We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost for each temporarily-impaired security. 



As of December 31, 2019, the unrealized losses associated with our MBS and ABS were attributable primarily to widening credit spreads and rising interest rates since purchase.  We assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities and prepayment rates.  We estimated losses for a security by forecasting the underlying loans in each transaction.  The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable.  Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts and other independent market data.  Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost of each temporarily-impaired security. 



As of December 31, 2019, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of underlying issuers.  For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each temporarily-impaired security. 



26

 

 

Changes in the amount of credit loss of OTTI recognized in net income (loss) where the portion related to other factors was recognized in OCI (in millions) on fixed maturity AFS securities were as follows





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 337

 

$

 358

 

$

 411

 

Increases attributable to:

 

 

 

 

 

 

 

 

 

Credit losses on securities for which an

 

 

 

 

 

 

 

 

 

OTTI was not previously recognized

 

 13

 

 

 5

 

 

 13

 

Credit losses on securities for which an

 

 

 

 

 

 

 

 

 

OTTI was previously recognized

 

 2

 

 

 2

 

 

 7

 

Decreases attributable to:

 

 

 

 

 

 

 

 

 

Securities sold, paid down or matured

 

 (148

)

 

 (28

)

 

 (73

)

Balance as of end-of-year

$

 204

 

$

 337

 

$

 358

 



During 2019, 2018 and 2017, we recorded credit losses on securities for which an OTTI was not previously recognized as we determined the cash flows expected to be collected would not be sufficient to recover the entire amortized cost basis of the debt security.  The credit losses we recorded on securities for which an OTTI was not previously recognized were attributable primarily to one or a combination of the following reasons:



·

Failure of the issuer of the security to make scheduled payments;

·

Deterioration of creditworthiness of the issuer;

·

Deterioration of conditions specifically related to the security;

·

Deterioration of fundamentals of the industry in which the issuer operates; and

·

Deterioration of the rating of the security by a rating agency.



We recognize the OTTI attributed to the noncredit portion as a separate component in OCI referred to as unrealized OTTI on fixed maturity AFS securities. 









Determination of Credit Losses on Corporate Bonds



As of December 31, 2019 and 2018, we reviewed our corporate bond portfolio for potential shortfalls in contractual principal and interest based on numerous subjective and objective inputs.  The factors used to determine the amount of credit loss for each individual security, include, but are not limited to, near-term risk, substantial discrepancy between book and market value, sector or company-specific volatility, negative operating trends and trading levels wider than peers. 



Credit ratings express opinions about the credit quality of a security.  Securities rated investment grade, that is those rated BBB- or higher by Standard & Poor’s (“S&P”) Rating Services or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are generally considered by the rating agencies and market participants to be low credit risk.  As of December 31, 2019 and 2018, 96% of the fair value of our corporate bond portfolio was rated investment grade.  As of December 31, 2019 and 2018, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.1 billion and a fair value of $3.1 billion and $2.9 billion, respectively.  Based upon the analysis discussed above, we believed as of December 31, 2019 and 2018, that we would recover the amortized cost of each corporate bond.



Determination of Credit Losses on MBS and ABS



As of December 31, 2019 and 2018, default rates were projected by considering underlying MBS and ABS loan performance and collateral type.  Projected default rates on existing delinquencies vary depending on loan type and severity of delinquency status.  In addition, we estimate the potential contributions of currently performing loans that may become delinquent in the future based on the change in delinquencies and loan liquidations experienced in the recent history.  Finally, we develop a default rate timing curve by aggregating the defaults for all loans in the pool (delinquent loans, foreclosure and real estate owned and new delinquencies from currently performing loans) and the associated loan-level loss severities. 



We use certain available loan characteristics such as lien status, loan sizes and occupancy to estimate the loss severity of loans.  Second lien loans are assigned 100% severity, if defaulted.  For first lien loans, we assume a minimum of 30% severity, with higher severity assumed for investor properties and further adjusted by housing price assumptions.  With the default rate timing curve and loan-level loss severity, we derive the future expected credit losses.

27

 

 

Trading Securities



Trading securities at fair value (in millions) consisted of the following:







 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Fixed maturity securities:

 

 

 

 

 

 

Corporate bonds

$

 2,877 

 

$

 1,559 

 

U.S. government bonds

 

 45 

 

 

 43 

 

State and municipal bonds

 

 16 

 

 

 16 

 

Foreign government bonds

 

 45 

 

 

 23 

 

RMBS

 

 169 

 

 

 78 

 

CMBS

 

 163 

 

 

 7 

 

ABS

 

 1,238 

 

 

 121 

 

Hybrid and redeemable preferred securities

 

 49 

 

 

 22 

 

Total trading securities

$

 4,602 

 

$

 1,869 

 



The portion of the market adjustment for trading gains and losses recognized in realized gain (loss) that relate to trading securities still held as of December 31, 2019, 2018 and 2017, was $(225) million, $(55) million and $8 million, respectively.



Mortgage Loans on Real Estate



The following provides the current and past due composition of our mortgage loans on real estate (in millions):





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Commercial

 

Residential

 

Total

 

Commercial

 

Residential

 

Total

 

Current

$

 15,525

 

$

 659

 

$

 16,184

 

$

 12,959

 

$

 230

 

$

 13,189

 

30 to 59 days past due

 

 3

 

 

 27

 

 

 30

 

 

 -

 

 

 9

 

 

 9

 

60 to 89 days past due

 

 -

 

 

 10

 

 

 10

 

 

 -

 

 

 1

 

 

 1

 

90 or more days past due

 

 -

 

 

 16

 

 

 16

 

 

 -

 

 

 -

 

 

 -

 

Valuation allowance

 

 -

 

 

 (2

)

 

 (2

)

 

 -

 

 

 -

 

 

 -

 

Unamortized premium (discount)

 

 (17

)

 

 23

 

 

 6

 

 

 (17

)

 

 8

 

 

 (9

)

Total carrying value

$

 15,511

 

$

 733

 

$

 16,244

 

$

 12,942

 

$

 248

 

$

 13,190

 



As of December 31, 2019, we had 38 residential mortgage loans that were either delinquent or in foreclosure.  As of December 31, 2018, we had no loans that were either delinquent or in foreclosure.



For our commercial mortgage loans, there was one specifically identified impaired loan with a carrying value of less than $1 million as of December 31, 2019. There were no specifically identified impaired commercial mortgage loans as of December 31, 2018.    



For our residential mortgage loans, there were four specifically identified impaired loans with an aggregate carrying value of $1 million as of December 31, 2019.  There were no specifically identified impaired residential mortgage loans as of December 31, 2018.  The general allowance established on residential mortgage loans was $2 million and less than $1 million as of December 31, 2019 and 2018, respectively.



We establish a valuation allowance to provide for the risk of credit losses inherent in our portfolio.  The valuation allowance includes specific valuation allowances for loans that are deemed to be impaired as well as general valuation allowances for pools of loans with similar risk characteristics where a property risk or market specific risk has not been identified but for which we anticipate a loss has occurred.



The changes in the valuation allowance associated with impaired commercial mortgage loans on real estate (in millions) were as follows:









 

 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 



2019

 

2018

 

2017

 

 

Valuation Allowance

 

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 -

 

$

 3

 

$

 2

 

 

Additions

 

 -

 

 

 -

 

 

 1

 

 

Charge-offs, net of recoveries

 

 -

 

 

 (3

)

 

 -

 

 

Balance as of end-of-year

$

 -

 

$

 -

 

$

 3

 

 



28

 

 

Additional information related to impaired commercial mortgage loans on real estate (in millions) was as follows:









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Average carrying value for impaired commercial

 

 

 

 

 

 

 

 

 

mortgage loans on real estate

$

 -

 

$

 5 

 

$

 6 

 

Interest income recognized on impaired commercial

 

 

 

 

 

 

 

 

 

mortgage loans on real estate

 

 -

 

 

 1 

 

 

 -

 

Interest income collected on impaired commercial

 

 

 

 

 

 

 

 

 

mortgage loans on real estate

 

 -

 

 

 1 

 

 

 -

 



As described in Note 1, we use loan-to-value and debt-service coverage ratios as credit quality indicators for our commercial mortgage loans on real estate (dollars in millions) as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



 

 

 

 

 

Debt-

 

 

 

 

 

 

Debt-

 



 

 

 

 

 

Service

 

 

 

 

 

 

Service

 



Carrying

 

% of

 

Coverage

 

Carrying

 

% of

 

Coverage

 

Loan-to-Value Ratio

Value

 

Total

 

Ratio

 

Value

 

Total

 

Ratio

 

Less than 65%

$

 14,121 

 

 91.0% 

 

2.35

 

$

 11,656 

 

 90.1% 

 

2.30

 

65% to 74%

 

 1,389 

 

 9.0% 

 

1.88

 

 

 1,234 

 

 9.5% 

 

1.76

 

75% to 100%

 

 1 

 

 0.0% 

 

1.09

 

 

 52 

 

 0.4% 

 

1.03

 

Total

$

 15,511 

 

 100.0% 

 

 

 

$

 12,942 

 

 100.0% 

 

 

 



As described in Note 1, we use loan performance status as the primary credit quality indicator for our residential mortgage loans on real estate (dollars in millions) as follows:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Carrying

 

% of

 

Carrying

 

% of

 

Performance Indicator

Value

 

Total

 

Value

 

Total

 

Performing

$

 716 

 

 97.7% 

 

$

 247 

 

 99.6% 

 

Nonperforming

 

 17 

 

 2.3% 

 

 

 1 

 

 0.4% 

 

Total

$

 733 

 

 100.0% 

 

$

 248 

 

 100.0% 

 



 

 

 

 

 

 

 

 

 

 



Our commercial mortgage loan portfolio is geographically diversified with the largest concentrations in California, which accounted for 24% and 23% of commercial mortgage loans on real estate as of December 31, 2019 and 2018, respectively, and Texas, which accounted for 11% and 12% of commercial mortgage loans on real estate as of December 31, 2019 and 2018, respectively.



Our residential mortgage loan portfolio is geographically diversified with the largest concentrations in California, which accounted for 34% of residential mortgage loans on real estate as of December 31, 2019 and 2018, and Florida, which accounted for 20% and 19% of residential mortgage loans on real estate as of December 31, 2019 and 2018, respectively.

 

Alternative Investments 



As of December 31, 2019 and 2018, alternative investments included investments in 256 and 234 different partnerships, respectively, and the portfolios represented approximately 1% of our total investments.

29

 

 

Net Investment Income



The major categories of net investment income (in millions) on our Consolidated Statements of Comprehensive Income (Loss) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Fixed maturity AFS securities

$

 4,214

 

$

 4,129

 

$

 4,048

 

Equity AFS securities

 

 -

 

 

 -

 

 

 12

 

Trading securities

 

 187

 

 

 79

 

 

 88

 

Equity securities

 

 4

 

 

 4

 

 

 -

 

Mortgage loans on real estate

 

 626

 

 

 492

 

 

 433

 

Real estate

 

 1

 

 

 1

 

 

 1

 

Policy loans

 

 128

 

 

 122

 

 

 134

 

Invested cash

 

 33

 

 

 23

 

 

 11

 

Commercial mortgage loan prepayment

 

 

 

 

 

 

 

 

 

and bond make-whole premiums

 

 115

 

 

 78

 

 

 138

 

Alternative investments

 

 24

 

 

 222

 

 

 165

 

Consent fees

 

 7

 

 

 4

 

 

 6

 

Other investments

 

 27

 

 

 24

 

 

 5

 

Investment income

 

 5,366

 

 

 5,178

 

 

 5,041

 

Investment expense

 

 (404

)

 

 (334

)

 

 (281

)

Net investment income

$

 4,962

 

$

 4,844

 

$

 4,760

 



30

 

 

Realized Gain (Loss)



Details underlying realized gain (loss) (in millions) reported on our Consolidated Statements of Comprehensive Income (Loss) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Gross gains

$

 44

 

$

 36

 

$

 17

 

Gross losses

 

 (70

)

 

 (80

)

 

 (43

)

Gross OTTI

 

 (15

)

 

 (7

)

 

 (20

)

Equity AFS securities:

 

 

 

 

 

 

 

 

 

Gross gains

 

 -

 

 

 -

 

 

 6

 

Gain (loss) on other investments (1)

 

 (15

)

 

 (15

)

 

 (10

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 

 

 

 

 

 

 

 

and changes in other contract holder funds

 

 (13

)

 

 (22

)

 

 (21

)

Total realized gain (loss) related to certain investments

 

 (69

)

 

 (88

)

 

 (71

)

Realized gain (loss) on the mark-to-market on certain

 

 

 

 

 

 

 

 

 

instruments (2)

 

 (426

)

 

 251

 

 

 (155

)

Indexed annuity and IUL contracts net derivatives results: (3)

 

 

 

 

 

 

 

 

 

Gross gain (loss)

 

 (80

)

 

 (51

)

 

 (22

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 2

 

 

 12

 

 

 (2

)

GLB fees ceded to LNBAR and attributed fees:

 

 

 

 

 

 

 

 

 

Gross gain (loss)

 

 (223

)

 

 (184

)

 

 (174

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 (32

)

 

 (32

)

 

 (32

)

Total realized gain (loss)

$

 (828

)

$

 (92

)

$

 (456

)



(1)

Includes market adjustments on equity securities still held of $(4) million and $(17) million for the years ended December 31, 2019 and 2018, respectively.

(2)

Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and indexed variable universal life insurance (“IUL”) contracts net derivatives results), reinsurance related embedded derivatives and trading securities.  See Notes 1 and 9 for information regarding Modco.

(3)

Represents the net difference between the change in fair value of the index options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity and IUL contracts along with changes in the fair value of embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.



Details underlying write-downs taken as a result of OTTI that were recognized in net income (loss) and included in realized gain (loss) on fixed maturity AFS securities above and the portion of OTTI recognized in OCI (in millions) were as follows:







 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

OTTI Recognized in Net Income (Loss)

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 (13

)

$

 (5

)

$

 (13

)

State and municipal bonds

 

 -

 

 

 -

 

 

 (1

)

RMBS

 

 (1

)

 

 (1

)

 

 (2

)

CMBS

 

 -

 

 

 -

 

 

 (2

)

ABS

 

 (1

)

 

 (1

)

 

 (2

)

Gross OTTI recognized in net income (loss)

 

 (15

)

 

 (7

)

 

 (20

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 -

 

 

 -

 

 

 2

 

Net OTTI recognized in net income (loss)

$

 (15

)

$

 (7

)

$

 (18

)



 

 

 

 

 

 

 

 

 

OTTI Recognized in OCI

 

 

 

 

 

 

 

 

 

Gross OTTI recognized in OCI

$

 14

 

$

 -

 

$

 -

 

Change in DAC, VOBA, DSI and DFEL

 

 (1

)

 

 -

 

 

 -

 

Net OTTI recognized in OCI

$

 13

 

$

 -

 

$

 -

 



31

 

 

Payables for Collateral on Investments



The carrying value of the payables for collateral on investments included on our Consolidated Balance Sheets and the fair value of the related investments or collateral (in millions) consisted of the following:





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Carrying

 

Fair

 

Carrying

 

Fair

 



Value

 

Value

 

Value

 

Value

 

Collateral payable for derivative investments (1)

$

 1,383 

 

$

 1,383 

 

$

 616 

 

$

 616 

 

Securities pledged under securities lending agreements (2)

 

 114 

 

 

 110 

 

 

 88 

 

 

 85 

 

Securities pledged under repurchase agreements (3)

 

 -

 

 

 -

 

 

 152 

 

 

 157 

 

Investments pledged for Federal Home Loan Bank of

 

 

 

 

 

 

 

 

 

 

 

 

Indianapolis (“FHLBI”) (4)

 

 3,580 

 

 

 5,480 

 

 

 3,930 

 

 

 5,923 

 

Total payables for collateral on investments

$

 5,077 

 

$

 6,973 

 

$

 4,786 

 

$

 6,781 

 



(1)

We obtain collateral based upon contractual provisions with our counterparties.  These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash.  See Note 6 for additional information. 

(2)

Our pledged securities under securities lending agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets.  We generally obtain collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively.  We value collateral daily and obtain additional collateral when deemed appropriate.  The cash received in our securities lending program is typically invested in cash and invested cash or fixed maturity AFS securities.

(3)

Our pledged securities under repurchase agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets.  The collateral requirements are generally 80% to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary.  The cash received in our repurchase program is typically invested in fixed maturity AFS securities.  As of December 31, 2019, we were not participating in any open repurchase agreements.

(4)

Our pledged investments for FHLBI are included in fixed maturity AFS securities and mortgage loans on real estate on our Consolidated Balance Sheets.  The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate.  The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities.



Increase (decrease) in payables for collateral on investments (in millions) consisted of the following:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Collateral payable for derivative investments

$

 767

 

$

 (85

)

$

 (112

)

Securities pledged under securities lending agreements

 

 26

 

 

 (134

)

 

 5

 

Securities pledged under repurchase agreements

 

 (152

)

 

 (379

)

 

 1

 

Investments pledged for FHLBI

 

 (350

)

 

 1,030

 

 

 (450

)

Total increase (decrease) in payables for collateral on investments

$

 291

 

$

 432

 

$

 (556

)



32

 

 

We have elected not to offset our securities lending and repurchase agreements transactions in our financial statements.  The remaining contractual maturities of securities lending and repurchase agreements transactions accounted for as secured borrowings (in millions) were as follows:



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 



As of December 31, 2019

 



Overnight and Continuous

 

Up to 30 Days

 

30 -  90 Days

 

Greater Than 90 Days

 

Total

 

Securities Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 114 

 

$

 -

 

$

 -

 

$

 -

 

$

 114 

 

Total gross secured borrowings

$

 114 

 

$

 -

 

$

 -

 

$

 -

 

$

 114 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2018

 



Overnight and Continuous

 

Up to 30 Days

 

30 - 90 Days

 

Greater Than 90 Days

 

Total

 

Securities Lending

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 88 

 

$

 -

 

$

 -

 

$

 -

 

$

 88 

 

Repurchase Agreements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

 -

 

 

 -

 

 

 -

 

 

 152 

 

 

 152 

 

Total gross secured borrowings

$

 88 

 

$

 -

 

$

 -

 

$

 152 

 

$

 240 

 



We accept collateral in the form of securities in connection with repurchase agreements.  In instances where we are permitted to sell or re-pledge the securities received, we report the fair value of the collateral received and a related obligation to return the collateral in the financial statements.  In addition, we receive securities in connection with securities borrowing agreements which we are permitted to sell or re-pledge.  As of December 31, 2019, the fair value of all collateral received that we are permitted to sell or re-pledge was $25 million.  As of December 31, 2019, we have re-pledged $25 million of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative investments.



Investment Commitments



As of December 31, 2019, our investment commitments were $2.0 billion, which included $1.0 billion of LPs, $544 million of mortgage loans on real estate and $407 million of private placement securities.



Concentrations of Financial Instruments



As of December 31, 2019 and 2018, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $1.3 billion and $1.4 billion, respectively, or 1% of total investments, and our investments in securities issued by the Federal National Mortgage Association with a fair value of $1.0 billion and $1.2 billion, respectively, or 1% of total investments.  These concentrations include fixed maturity AFS, trading and equity securities.



As of December 31, 2019 and 2018, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of $18.2 billion and $16.0 billion, respectively, or 14% of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of $15.4 billion and $14.3 billion, respectively, or 12% and 13%, respectively, of total investments.  These concentrations include fixed maturity AFS, trading and equity securities.



6.  Derivative Instruments

 

We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk, equity market risk, basis risk and credit risk.  We assess these risks by continually identifying and monitoring changes in our exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities. 



Derivative activities are monitored by various management committees.  The committees are responsible for overseeing the implementation of various hedging strategies that are developed through the analysis of financial simulation models and other internal and industry sources.  The resulting hedging strategies are incorporated into our overall risk management strategies.    



See Note 1 for a detailed discussion of the accounting treatment for derivative instruments.  See Note 20 for additional disclosures related to the fair value of our derivative instruments and Note 4 for derivative instruments related to our consolidated VIEs.



We adopted ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, in 2019.  See Note 2 for additional information.

33

 

 

Interest Rate Contracts



We use derivative instruments as part of our interest rate risk management strategy.  These instruments are economic hedges unless otherwise noted and include:



Forward-Starting Interest Rate Swaps



We use forward-starting interest rate swaps designated and qualifying as cash flow hedges to hedge our exposure to interest rate fluctuations related to the forecasted purchases of certain assets.



We also use forward-starting interest rate swaps to hedge the interest rate exposure within our life products related to the forecasted purchases of certain assets.



Interest Rate Cap Corridors



We use interest rate cap corridors to provide a level of protection from the effect of rising interest rates for certain life insurance products and annuity contracts.  Interest rate cap corridors involve purchasing an interest rate cap at a specific cap rate and selling an interest rate cap with a higher cap rate.  For each corridor, the amount of quarterly payments, if any, is determined by the rate at which the underlying index rate resets above the original capped rate.  The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the higher capped rate.  There is no additional liability to us other than the purchase price associated with the interest rate cap corridor. 



Interest Rate Futures



We use interest rate futures contracts to hedge the liability exposure on certain options in variable annuity products.  These futures contracts require payment between our counterparty and us on a daily basis for changes in the futures index price.



Interest Rate Swap Agreements



We use interest rate swap agreements to hedge the liability exposure on certain options in variable annuity products.

 

We also use interest rate swap agreements designated and qualifying as cash flow hedges to hedge the interest rate risk of floating-rate bond coupon payments by replicating a fixed-rate bond. 



Finally, we use interest rate swap agreements designated and qualifying as fair value hedges to hedge against changes in the fair value of certain fixed maturity securities due to interest rate risks. 



Reverse Treasury Locks



We use reverse treasury locks designated and qualifying as cash flow hedges to hedge the interest rate exposure related to the anticipated purchase of fixed-rate securities or the anticipated future cash flows of floating-rate fixed maturity securities due to changes in interest rates.  These derivatives are primarily structured to hedge interest rate risk inherent in the assumptions used to price certain liabilities.



Foreign Currency Contracts



We use derivative instruments as part of our foreign currency risk management strategy.  These instruments are economic hedges unless otherwise noted and include: 



Currency Futures



We use currency futures to hedge foreign exchange risk associated with certain options in variable annuity products.  Currency futures exchange one currency for another at a specified date in the future at a specified exchange rate. 



Foreign Currency Swaps



We use foreign currency swaps to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange one currency for another at specified dates in the future at a specified exchange rate.



We also use foreign currency swaps designated and qualifying as cash flow hedges to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies.



34

 

 

Foreign Currency Forwards



We use foreign currency forwards to hedge foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency forward is a contractual agreement to exchange one currency for another at specified dates in the future at a specified current exchange rate.



Equity Market Contracts



We use derivative instruments as part of our equity market risk management strategy that are economic hedges and include: 



Call Options Based on the S&P 500 and Other Indices



We use call options to hedge the liability exposure on certain options in variable annuity products.



Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the Standard & Poor's 500 Index (“S&P 500”) and other indices. Contract holders may elect to rebalance index options at renewal dates. At the end of each indexed term, which can be up to 6 years, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees. We use call options that are highly correlated to the portfolio allocation decisions of our contract holders, such that we are economically hedged with respect to equity returns for the current reset period.    



Consumer Price Index Swaps



We use consumer price index swaps to hedge the liability exposure on certain options in fixed annuity products.  Consumer price index swaps are contracts entered into at no cost and whose payoff is the difference between the consumer price index inflation rate and the fixed-rate determined as of inception.



Equity Futures



We use equity futures contracts to hedge the liability exposure on certain options in variable annuity products.  These futures contracts require payment between our counterparty and us on a daily basis for changes in the futures index price.



Put Options



We use put options to hedge the liability exposure on certain options in variable annuity products.  Put options are contracts that require the seller to pay the buyer at a specified future date the amount, if any, by which a specified equity index is less than the strike rate stated in the agreement, applied to a notional amount. 



Total Return Swaps



We use total return swaps to hedge the liability exposure on certain options in variable annuity products. 



In addition, we use total return swaps to hedge a portion of the liability related to our deferred compensation plans.  We receive the total return on a portfolio of indexes and pay a floating-rate of interest. 



Credit Contracts



We use derivative instruments as part of our credit risk management strategy that are economic hedges and include: 



Credit Default Swaps – Buying Protection



We use credit default swaps to hedge the liability exposure on certain options in variable annuity products. 



We buy credit default swaps to hedge against a drop in bond prices due to credit concerns of certain bond issuers.  A credit default swap allows us to put the bond back to the counterparty at par upon a default event by the bond issuer.  A default event is defined as bankruptcy, failure to pay, obligation acceleration or restructuring. 



Credit Default Swaps – Selling Protection



We use credit default swaps to hedge the liability exposure on certain options in variable annuity products. 



We sell credit default swaps to offer credit protection to contract holders and investors.  The credit default swaps hedge the contract holders and investors against a drop in bond prices due to credit concerns of certain bond issuers.  A credit default swap allows the investor to put the bond back to us at par upon a default event by the bond issuer.  A default event is defined as bankruptcy, failure to pay, obligation acceleration or restructuring. 

35

 

 



Embedded Derivatives



We have embedded derivatives that include:



GLB Reserves Embedded Derivatives



We are exposed to risk and income statement volatility caused by changes in the equity markets, interest rates and volatility associated with GLBs offered in our variable annuity products, including products with GWB and GIB features.  These GLB features are reinsured among various reinsurance counterparties on either a Modco or coinsurance basis.  We cede a portion of the GLB features to LNBAR on a funds withheld Modco basis.  The funds withheld arrangement includes a dynamic hedging strategy designed to mitigate selected risks. Changes in the value of the hedge contracts due to changes in equity markets, interest rates and implied volatilities hedge the changes in embedded derivative GLB reserves assumed by LNBAR caused by those same factors.  The hedge positions are rebalanced based upon changes in these factors as needed.  While we actively manage the hedge positions, these hedge positions may not be totally effective in offsetting changes in the embedded derivative reserve assumed by LNBAR due to, among other things, differences in timing between when a market exposure changes and corresponding changes to the hedge positions, extreme swings in the equity markets and interest rates, market volatility, contract holder behavior, divergence between the performance of the underlying funds and the hedging indices, divergence between the actual and expected performance of the hedge instruments and our ability to purchase hedging instruments at prices consistent with the desired risk and return trade-off.  However, the hedging results do not impact LNL due to a funds withheld agreement with LNBAR, which causes the financial impact of the derivatives, as well as the cash flow activity, to be reflected on LNBAR.



Certain features of these guarantees have elements of both insurance benefits accounted for under the Financial Services – Insurance – Claim Costs and Liabilities for Future Policy Benefits Subtopic of the FASB ASC (“benefit reserves”) and embedded derivatives accounted for under the Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC (“embedded derivative reserves”).  We calculate the value of the benefit reserves and the embedded derivative reserves based on the specific characteristics of each GLB feature.



Indexed Annuity and IUL Contracts Embedded Derivatives



Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the S&P 500 or other indices.  Contract holders may elect to rebalance index options at renewal dates.  At the end of each indexed term, which can be up to 6 years, we have the opportunity to re-price the indexed component by establishing participation rates, caps, spreads and specified rates, subject to contractual guarantees.  We use options that are highly correlated to the portfolio allocation decisions of our contract holders, such that we are economically hedged with respect to equity returns for the current reset period. 



Reinsurance Related Embedded Derivatives



We have certain Modco and coinsurance with funds withheld reinsurance agreements with embedded derivatives related to the withheld assets of the related funds.  These derivatives are considered total return swaps with contractual returns that are attributable to various assets and liabilities associated with these reinsurance agreements. 

36

 

 

We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure.  Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Notional

 

Fair Value

 

Notional

 

Fair Value

 



Amounts

 

Asset

 

Liability

 

Amounts

 

Asset

 

Liability

 

Qualifying Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

$

 1,174 

 

$

 108 

 

$

 12 

 

$

 1,528 

 

$

 33 

 

$

 9 

 

Foreign currency contracts (1)

 

 2,874 

 

 

 191 

 

 

 51 

 

 

 2,326 

 

 

 167 

 

 

 39 

 

Total cash flow hedges

 

 4,048 

 

 

 299 

 

 

 63 

 

 

 3,854 

 

 

 200 

 

 

 48 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

 546 

 

 

 -

 

 

 202 

 

 

 553 

 

 

 -

 

 

 137 

 

Non-Qualifying Hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

 112,921 

 

 

 1,082 

 

 

 219 

 

 

 100,628 

 

 

 464 

 

 

 138 

 

Foreign currency contracts (1)

 

 262 

 

 

 1 

 

 

 3 

 

 

 47 

 

 

 -

 

 

 -

 

Equity market contracts (1)

 

 43,283 

 

 

 1,442 

 

 

 664 

 

 

 30,273 

 

 

 676 

 

 

 162 

 

Credit contracts (1)

 

 55 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct (2)

 

 -

 

 

 450 

 

 

 -

 

 

 -

 

 

 123 

 

 

 -

 

GLB ceded (2) (3)

 

 -

 

 

 60 

 

 

 510 

 

 

 -

 

 

 72 

 

 

 196 

 

Reinsurance related (4)

 

 -

 

 

 -

 

 

 375 

 

 

 -

 

 

 188 

 

 

 -

 

Indexed annuity and IUL contracts (2) (5)

 

 -

 

 

 927 

 

 

 2,585 

 

 

 -

 

 

 902 

 

 

 1,305 

 

Total derivative instruments

$

 161,115 

 

$

 4,261 

 

$

 4,621 

 

$

 135,355 

 

$

 2,625 

 

$

 1,986 

 



(1)

Reported in derivative investments and other liabilities on our Consolidated Balance Sheets.

(2)

Reported in other assets on our Consolidated Balance Sheets.

(3)

Reported in other liabilities on our Consolidated Balance Sheets.

(4)

Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.

(5)

Reported in future contract benefits on our Consolidated Balance Sheets.



The maturity of the notional amounts of derivative instruments (in millions) was as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Remaining Life as of December 31, 2019

 



Less Than

 

1 – 5

 

6 – 10

 

11 – 30

 

Over 30

 

 

 



1 Year

 

Years

 

Years

 

Years

 

Years

 

Total

 

Interest rate contracts (1)

$

 11,341 

 

$

 53,011 

 

$

 20,948 

 

$

 28,841 

 

$

 500 

 

$

 114,641 

 

Foreign currency contracts (2)

 

 218 

 

 

 383 

 

 

 961 

 

 

 1,473 

 

 

 101 

 

 

 3,136 

 

Equity market contracts

 

 27,594 

 

 

 7,720 

 

 

 3,762 

 

 

 13 

 

 

 4,194 

 

 

 43,283 

 

Credit contracts

 

 -

 

 

 55 

 

 

 -

 

 

 -

 

 

 -

 

 

 55 

 

Total derivative instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

with notional amounts

$

 39,153 

 

$

 61,169 

 

$

 25,671 

 

$

 30,327 

 

$

 4,795 

 

$

 161,115 

 



(1)

As of December 31, 2019, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was November 24, 2021.

(2)

As of December 31, 2019, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was February 26, 2050.

37

 

 

The following amounts (in millions) were recorded on the Consolidated Balance Sheets related to cumulative basis adjustments for fair value hedges:







 

 

 

 

 

 

 

 



As of December 31, 2019

 



 

 

 

 

 

 

 

 



 

 

 

 

Cumulative

 



 

 

 

 

Fair Value Hedging

 



 

 

 

 

Adjustment Included

 



Amortized Cost

 

in the Amortized

 



of the Hedged

 

Cost of the Hedged

 



Assets (Liabilities)

 

Assets (Liabilities)

 

Line Items in which the Hedged Items are Recorded

 

 

 

 

 

 

 

 

Fixed maturity AFS securities, at fair value

$

 

 776 

 

$

 

 202 

 





The change in our unrealized gain (loss) on derivative instruments within accumulated other comprehensive income (loss) (“AOCI”) (in millions) was as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Unrealized Gain (Loss) on Derivative Instruments

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 119

 

$

 27

 

$

 93

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period:

 

 

 

 

 

 

 

 

 

Cumulative effect from adoption of

 

 

 

 

 

 

 

 

 

new accounting standard

 

 -

 

 

 6

 

 

 -

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 73

 

 

 (4

)

 

 43

 

Foreign currency contracts

 

 108

 

 

 44

 

 

 20

 

Change in foreign currency exchange rate adjustment

 

 (52

)

 

 111

 

 

 (137

)

Change in DAC, VOBA, DSI and DFEL

 

 (5

)

 

 (14

)

 

 1

 

Income tax benefit (expense)

 

 (26

)

 

 (29

)

 

 26

 

Less:

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains (losses)

 

 

 

 

 

 

 

 

 

included in net income (loss):

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

 3

 

 

 4

 

 

 4

 

Foreign currency contracts (1)

 

 35

 

 

 27

 

 

 18

 

Foreign currency contracts (2)

 

 9

 

 

 -

 

 

 9

 

Associated amortization of DAC, VOBA, DSI and DFEL

 

 (2

)

 

 (3

)

 

 (2

)

Income tax benefit (expense)

 

 (9

)

 

 (6

)

 

 (10

)

Balance as of end-of-year

$

 181

 

$

 119

 

$

 27

 



(1)

The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss).

(2)

The OCI offset is reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).



38

 

 

The effects of qualifying and non-qualifying hedges (in millions) on the Consolidated Statements of Comprehensive Income (Loss) were as follows:









 

 

 

 

 

 

 

 

 



Gain (Loss)

 

 

 



Recognized in Income

 

 

 



For the Year Ended

 

 

 



December 31, 2019

 

 

 



Realized

 

Net

 

 

 



Gain

 

Investment

 

 

 



(Loss)

 

Income

 

 

 

Total Line Items in which the Effects of Fair Value

 

 

 

 

 

 

 

 

 

or Cash Flow Hedges are Recorded

 

$

 (828

)

$

 4,962

 

 

 



 

 

 

 

 

 

 

 

 

Qualifying Hedges

 

 

 

 

 

 

 

 

 

Gain or (loss) on fair value hedging relationships:

 

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Hedged items

 

 

 -

 

 

 63

 

 

 

Derivatives designated as hedging instruments

 

 

 -

 

 

 (63

)

 

 

Gain or (loss) on cash flow hedging relationships:

 

 

 

 

 

 

 

 

 

Interest rate contracts:

 

 

 

 

 

 

 

 

 

Amount of gain or (loss) reclassified from AOCI into income

 

 

 -

 

 

 3

 

 

 

Foreign currency contracts:

 

 

 

 

 

 

 

 

 

Amount of gain or (loss) reclassified from AOCI into income

 

 

 9

 

 

 35

 

 

 



 

 

 

 

 

 

 

 

 

Non-Qualifying Hedges

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

 

 982

 

 

 -

 

 

 

Foreign currency contracts

 

 

 (1

)

 

 -

 

 

 

Equity market contracts

 

 

 (137

)

 

 -

 

 

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

GLB

 

 

 1

 

 

 -

 

 

 

Reinsurance related

 

 

 (626

)

 

 -

 

 

 

Indexed annuity and IUL contracts

 

 

 (742

)

 

 -

 

 

 



39

 

 

The gains (losses) on derivative instruments (in millions) recorded within income (loss) from continuing operations on our Consolidated Statements of Comprehensive Income (Loss) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the Years Ended

 

 

 



 

December 31,

 

 

 



 

2018

 

2017

 

 

 

Qualifying Hedges

 

 

 

 

 

 

 

 

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

$

 4

 

$

 4

 

 

 

Foreign currency contracts (1)

 

 

 27

 

 

 18

 

 

 

Foreign currency contracts (2)

 

 

 -

 

 

 9

 

 

 

Total cash flow hedges

 

 

 31

 

 

 31

 

 

 

Fair value hedges:

 

 

 

 

 

 

 

 

 

Interest rate contracts (1)

 

 

 (14

)

 

 (23

)

 

 

Interest rate contracts (2)

 

 

 37

 

 

 7

 

 

 

Total fair value hedges

 

 

 23

 

 

 (16

)

 

 

Non-Qualifying Hedges

 

 

 

 

 

 

 

 

 

Interest rate contracts (2)

 

 

 (149

)

 

 103

 

 

 

Foreign currency contracts (2)

 

 

 5

 

 

 -

 

 

 

Equity market contracts (2)

 

 

 445

 

 

 (1,427

)

 

 

Equity market contracts (3)

 

 

 (17

)

 

 28

 

 

 

Credit contracts (3)

 

 

 -

 

 

 1

 

 

 

Embedded derivatives:

 

 

 

 

 

 

 

 

 

GLB(2)

 

 

 (1

)

 

 -

 

 

 

Reinsurance related (2)

 

 

 292

 

 

 (141

)

 

 

Indexed annuity and IUL contracts (2)

 

 

 81

 

 

 (400

)

 

 

Total derivative instruments

 

$

 710

 

$

 (1,821

)

 

 



(1)

Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss).

(2)

Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

(3)

Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).



Gains (losses) recognized as a component of OCI (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows:











 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

For the Years Ended

 

 

 



 

December 31,

 

 

 



 

2018

 

2017

 

 

 

Offset to net investment income

 

 

 4 

 

 

 22 

 

 

 

Offset to realized gain (loss)

 

 

 27 

 

 

 9 

 

 

 



 

 

 

 

 

 

 

 

 



As of December 31, 2019, $45 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months.  This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements.



For the years ended December 31, 2019 and 2018, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.



40

 

 

As of December 31, 2019, information related to our credit default swaps for which we are the seller (dollars in millions) was as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Credit

 

 

 

 

 

 

 

 

 



 

 

 

Reason

 

Nature

 

Rating of

 

Number

 

 

 

 

Maximum

 



 

 

 

for

 

of

Underlying

of

 

Fair

 

Potential

 

Credit Contract Type

 

Maturity

 

Entering

 

Recourse

Obligation (1)

Instruments

 

Value (2)

 

Payout

 

Basket credit default swaps

 

12/20/2024

 

(3)

 

(4)

 

BBB+

 

 1 

 

$

 1 

 

$

 55 

 







(1)

Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings.

(2)

Broker quotes are used to determine the market value of our credit default swaps.

(3)

Credit default swaps were entered into in order to hedge the liability exposure on certain variable annuity products.

(4)

Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.



As of December 31, 2018, we did not have any exposure related to credit default swaps for which we are the seller. 



Details underlying the associated collateral of our credit default swaps for which we are the seller if credit risk-related contingent features were triggered (in millions) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



 

As of

 

 

As of

 

 



December 31,

December 31,

 



 

2019

 

 

2018

 

 

Maximum potential payout

 

$

 55 

 

 

$

 -

 

 

Less:  Counterparty thresholds

 

 

 -

 

 

 

 -

 

 

Maximum collateral potentially required to post

 

$

 55 

 

 

$

 -

 

 



Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding.  If these netting agreements were not in place, we would have been required to post collateral if the market value was less than zero.



Credit Risk



We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or NPR.  The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure, less collateral held.  As of December 31, 2019, the NPR adjustment was zero.  The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records.  Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement.  We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements.  Under some ISDA agreements, we and LLANY have agreed to maintain certain financial strength or claims-paying ratings.  A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts.  In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds.  These thresholds vary by counterparty and credit rating.  The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor.  We did not have any exposure as of December 31, 2019 or 2018. 



41

 

 

The amounts recognized (in millions) by S&P credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

 

As of December 31, 2018

 



 

Collateral

 

Collateral

 

Collateral

 

Collateral

 



 

Posted by

 

Posted by

 

Posted by

 

Posted by

 

S&P

 

Counter-

 

LNL

 

Counter-

 

LNL

 

Credit

 

Party

 

(Held by

 

Party

 

(Held by

 

Rating of

 

(Held by

 

Counter-

 

(Held by

 

Counter-

 

Counterparty

 

LNL)

 

Party)

 

LNL)

 

Party)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

AA-

 

$

 441

 

$

 (22

)

$

 33

 

$

 (4

)

A+

 

 

 549

 

 

 (168

)

 

 296

 

 

 (26

)

A

 

 

 36

 

 

 -

 

 

 106

 

 

 (36

)

A-

 

 

 355

 

 

 -

 

 

 4

 

 

 -

 

BBB+

 

 

 -

 

 

 -

 

 

 177

 

 

 -

 



 

$

 1,381

 

$

 (190

)

$

 616

 

$

 (66

)

 

 



Balance Sheet Offsetting



Information related to the effects of offsetting on our Consolidated Balance Sheets (in millions) was as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

 



 

 

 

 

Embedded

 

 

 

 



Derivative

Derivative

 

 

 

 



Instruments

Instruments

 

Total

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized assets

 

$

 2,619

 

 

$

 1,437

 

 

$

 4,056

 

Gross amounts offset

 

 

 (708

)

 

 

 -

 

 

 

 (708

)

Net amount of assets

 

 

 1,911

 

 

 

 1,437

 

 

 

 3,348

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 (1,381

)

 

 

 -

 

 

 

 (1,381

)

Non-cash collateral

 

 

 (242

)

 

 

 -

 

 

 

 (242

)

Net amount

 

$

 288

 

 

$

 1,437

 

 

$

 1,725

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized liabilities

 

$

 771

 

 

$

 3,470

 

 

$

 4,241

 

Gross amounts offset

 

 

 (15

)

 

 

 -

 

 

 

 (15

)

Net amount of liabilities

 

 

 756

 

 

 

 3,470

 

 

 

 4,226

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 (190

)

 

 

 -

 

 

 

 (190

)

Non-cash collateral

 

 

 -

 

 

 

 -

 

 

 

 -

 

Net amount

 

$

 566

 

 

$

 3,470

 

 

$

 4,036

 

42

 

 





 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2018

 



 

 

 

 

Embedded

 

 

 

 



Derivative

Derivative

 

 

 

 



Instruments

Instruments

 

Total

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Assets

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized assets

 

$

 1,282

 

 

$

 1,285

 

 

$

 2,567

 

Gross amounts offset

 

 

 (201

)

 

 

 -

 

 

 

 (201

)

Net amount of assets

 

 

 1,081

 

 

 

 1,285

 

 

 

 2,366

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 (616

)

 

 

 -

 

 

 

 (616

)

Non-cash collateral

 

 

 (58

)

 

 

 -

 

 

 

 (58

)

Net amount

 

$

 407

 

 

$

 1,285

 

 

$

 1,692

 



 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Gross amount of recognized liabilities

 

$

 806

 

 

$

 1,501

 

 

$

 2,307

 

Gross amounts offset

 

 

 (59

)

 

 

 -

 

 

 

 (59

)

Net amount of liabilities

 

 

 747

 

 

 

 1,501

 

 

 

 2,248

 

Gross amounts not offset:

 

 

 

 

 

 

 

 

 

 

 

 

Cash collateral

 

 

 (66

)

 

 

 -

 

 

 

 (66

)

Non-cash collateral

 

 

 (190

)

 

 

 -

 

 

 

 (190

)

Net amount

 

$

 491

 

 

$

 1,501

 

 

$

 1,992

 





7.  Federal Income Taxes



The federal income tax expense (benefit) on continuing operations (in millions) was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Current

$

 175

 

$

 179

 

$

 118

 

Deferred

 

 (212

)

 

 78

 

 

 (1,405

)

Federal income tax expense (benefit)

$

 (37

)

$

 257

 

$

 (1,287

)



43

 

 

A reconciliation of the effective tax rate differences (in millions) was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Income (loss) before taxes

$

 577

 

$

 1,830

 

$

 731

 

Federal statutory rate

 

 21%

 

 

 21%

 

 

 35%

 

Federal income tax expense (benefit) at federal statutory rate

 

 121

 

 

 384

 

 

 256

 

Effect of:

 

 

 

 

 

 

 

 

 

Tax-preferred investment income (1)

 

 (99

)

 

 (87

)

 

 (280

)

Tax credits

 

 (40

)

 

 (39

)

 

 (29

)

Excess tax benefits from stock-based compensation

 

 (6

)

 

 (3

)

 

 (8

)

Goodwill impairment

 

 -

 

 

 -

 

 

 316

 

Tax impact associated with the Tax Cuts and Jobs Act (2)

 

 (16

)

 

 3

 

 

 (1,526

)

Other items

 

 3

 

 

 (1

)

 

 (16

)

Federal income tax expense (benefit)

$

 (37

)

$

 257

 

$

 (1,287

)

Effective tax rate

 

-6%

 

 

 14%

 

 

-176%

 



(1)

Relates primarily to separate account dividends eligible for the dividends-received deduction. As a result of the Tax Cuts and Jobs Act (the “Tax Act”), the recorded tax benefit for the separate account dividends-received deduction was substantially less in 2019 and 2018 as compared to 2017. 

(2)

As a result of the enactment of the Tax Act in 2017, we remeasured our existing deferred tax balances at the prevailing corporate federal income tax rate of 21% and recognized a $1.5 billion tax benefit.  In 2018, we recognized a $3 million net tax benefit from the impact of the reduced federal statutory rate under the Tax Act on our adoption of an Internal Revenue Service pronouncement related to variable annuity contracts.  In 2019, we recognized a $16 million net tax benefit from the impact of the reduced corporate tax rate under the Tax Act on our election to revalue policyholder tax reserves.



The federal income tax asset (liability) (in millions) was as follows:







 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Current

$

 255

 

$

 205

 

Deferred

 

 (2,605

)

 

 (1,421

)

Total federal income tax asset (liability)

$

 (2,350

)

$

 (1,216

)



Significant components of our deferred tax assets and liabilities (in millions) were as follows:







 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Deferred Tax Assets

 

 

 

 

 

 

Future contract benefits and other contract holder funds

$

 527

 

$

 549

 

Reinsurance related embedded derivative liability

 

 79

 

 

 -

 

Compensation and benefit plans

 

 135

 

 

 120

 

Intangibles

 

 26

 

 

 40

 

Net operating losses

 

 216

 

 

 264

 

Other

 

 14

 

 

 59

 

Total deferred tax assets

$

 997

 

$

 1,032

 

Deferred Tax Liabilities

 

 

 

 

 

 

DAC

$

 854

 

$

 1,380

 

VOBA

 

 191

 

 

 302

 

Net unrealized gain on fixed maturity AFS securities

 

 2,216

 

 

 333

 

Net unrealized gain on trading securities

 

 70

 

 

 25

 

Investment activity

 

 154

 

 

 334

 

Reinsurance related embedded derivative asset

 

-

 

 

 39

 

Deferred gain on business sold through reinsurance

 

 4

 

 

 34

 

Other

 

 113

 

 

 6

 

Total deferred tax liabilities

$

 3,602

 

$

 2,453

 

Net deferred tax asset (liability)

$

 (2,605

)

$

 (1,421

)



As of December 31, 2019, we have $1.0 billion of net operating losses to carry forward to future years.  The net operating losses arose in tax year 2018, and under the Tax Act changes, have an unlimited carryforward period.  As a result, management believes that it is more

44

 

 

likely than not that the deferred tax asset associated with the loss carryforwards will be realized.  Inclusive of the tax attribute for the net operating losses, although realization is not assured, management believes that it is more likely than not that we will realize the benefits of all of our deferred tax assets, and, accordingly, no valuation allowance has been recorded.



As of December 31, 2019, and 2018, $41 million and $12 million, respectively, of our unrecognized tax benefits presented below, if recognized, would have affected our federal income tax expense (benefit) and our effective tax rate.  We are not aware of any events for which it is likely that unrecognized tax benefits will significantly increase or decrease within the next year.  A reconciliation of the unrecognized tax benefits (in millions) was as follows:







 

 

 

 

 

 



 

 

 

 

 

 



For the Years Ended

 



December 31,

 



2019

 

2018

 

Balance as of beginning-of-year

$

 12 

 

$

 11 

 

Increases for prior year tax positions

 

 29 

 

 

 -

 

Increases for current year tax positions

 

-

 

 

 1 

 

Balance as of end-of-year

$

 41 

 

$

 12 

 

We recognize interest and penalties accrued, if any, related to unrecognized tax benefits as a component of tax expense.  For the years ended December 31, 2019, 2018 and 2017, we recognized no interest and penalty expense (benefit), and there was no accrued interest and penalty expense related to the unrecognized tax benefits as of December 31, 2019 and 2018. 



We are subject to examination by U.S. federal, state, local and non-U.S. income authorities.  We are currently not under examination by the Internal Revenue Service; however, tax years 2016 and forward remain open under the applicable statute of limitations.  We are currently under examination by several state and local taxing jurisdictions; however, we do not expect these examinations will materially impact us.



8.  DAC, VOBA, DSI and DFEL



Changes in DAC (in millions) were as follows:









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 9,509

 

$

 7,909

 

$

 8,269

 

Business acquired (sold) through reinsurance

 

 -

 

 

 (246

)

 

 -

 

Business recaptured through reinsurance

 

 59

 

 

 -

 

 

 -

 

Deferrals

 

 1,900

 

 

 1,596

 

 

 1,345

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (922

)

 

 (913

)

 

 (922

)

Unlocking

 

 (471

)

 

 (115

)

 

 61

 

Adjustment related to realized (gains) losses

 

 (43

)

 

 (42

)

 

 (55

)

Adjustment related to unrealized (gains) losses

 

 (2,614

)

 

 1,320

 

 

 (789

)

Balance as of end-of-year

$

 7,418

 

$

 9,509

 

$

 7,909

 



45

 

 

Changes in VOBA (in millions) were as follows:









 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 799

 

$

 499

 

$

 874

 

Business acquired (sold) through reinsurance

 

 -

 

 

 (11

)

 

 -

 

Business acquired

 

 -

 

 

 30

 

 

 -

 

Deferrals

 

 6

 

 

 7

 

 

 7

 

Amortization:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking

 

 (115

)

 

 (127

)

 

 (105

)

Unlocking

 

 143

 

 

 (60

)

 

 (48

)

Accretion of interest (1)

 

 45

 

 

 48

 

 

 52

 

Adjustment related to realized (gains) losses

 

 (1

)

 

 (2

)

 

 (1

)

Adjustment related to unrealized (gains) losses

 

 (550

)

 

 415

 

 

 (280

)

Balance as of end-of-year

$

 327

 

$

 799

 

$

 499

 



(1)

The interest accrual rates utilized to calculate the accretion of interest ranged from 4.2% to 6.9%.



Estimated future amortization of VOBA, net of interest (in millions), as of December 31, 2019, was as follows:













 

 

 



 

 

 

2020

$

 72 

 

2021

 

 66 

 

2022

 

 67 

 

2023

 

 65 

 

2024

 

 61 

 



Changes in DSI (in millions) were as follows:













 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 298

 

$

 287

 

$

 293

 

Business acquired (sold) through reinsurance

 

 -

 

 

 (21

)

 

 -

 

Deferrals

 

 26

 

 

 48

 

 

 29

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (28

)

 

 (28

)

 

 (30

)

Unlocking

 

 (3

)

 

 -

 

 

 (4

)

Adjustment related to realized (gains) losses

 

 (2

)

 

 (1

)

 

 (2

)

Adjustment related to unrealized (gains) losses

 

 (10

)

 

 13

 

 

 1

 

Balance as of end-of-year

$

 281

 

$

 298

 

$

 287

 



Changes in DFEL (in millions) were as follows:













 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 2,763

 

$

 1,429

 

$

 1,855

 

Business recaptured through reinsurance

 

 5

 

 

 -

 

 

 -

 

Deferrals

 

 1,092

 

 

 874

 

 

 753

 

Amortization, net of interest:

 

 

 

 

 

 

 

 

 

Amortization, excluding unlocking, net of interest

 

 (533

)

 

 (474

)

 

 (383

)

Unlocking

 

 (426

)

 

 (52

)

 

 (3

)

Adjustment related to realized (gains) losses

 

 (11

)

 

 (19

)

 

 (18

)

Adjustment related to unrealized (gains) losses

 

 (2,244

)

 

 1,005

 

 

 (775

)

Balance as of end-of-year

$

 646

 

$

 2,763

 

$

 1,429

 





46

 

 

9.  Reinsurance



The following summarizes reinsurance amounts (in millions) recorded on our Consolidated Statements of Comprehensive Income (Loss), excluding amounts attributable to the indemnity reinsurance agreements with Protective and Swiss Re Life & Health America, Inc. (“Swiss Re”):



 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



 

For the Years Ended December 31,

 



 

2019

 

2018

 

2017

 

Direct insurance premiums and fee income

 

$

 13,347

 

$

 11,882

 

$

 10,103

 

Reinsurance assumed

 

 

 97

 

 

 96

 

 

 101

 

Reinsurance ceded

 

 

 (1,920

)

 

 (1,883

)

 

 (1,817

)

Total insurance premiums and fee income

 

$

 11,524

 

$

 10,095

 

$

 8,387

 



 

 

 

 

 

 

 

 

 

 

Direct insurance benefits

 

$

 9,482

 

$

 8,513

 

$

 6,669

 

Reinsurance recoveries netted against benefits

 

 

 (1,897

)

 

 (2,369

)

 

 (1,851

)

Total benefits

 

$

 7,585

 

$

 6,144

 

$

 4,818

 



We and our insurance subsidiaries cede insurance to other companies.  The portion of our life insurance and annuity risks exceeding our retention limit is reinsured with other insurers.  We seek reinsurance coverage to limit our exposure to mortality losses and to enhance our capital management.  Reinsurance does not discharge us from our primary obligation to contract holders for losses insured under the policies we issue.  As discussed in Note 24, a portion of this reinsurance activity is with affiliated companies.



As of December 31, 2019, the policy for our reinsurance program was to retain up to $20 million on a single insured life.  As the amount we retain varies by policy, we reinsured approximately 25% of the mortality risk on newly issued life insurance contracts in 2019. 



We focus on obtaining reinsurance from a diverse group of reinsurers, and we monitor concentration as well as financial strength ratings of our reinsurers.  Our amounts recoverable from reinsurers represent receivables from and reserves ceded to reinsurers and LNBAR.  The amounts recoverable from reinsurers were $19.2 billion and $19.8 billion as of December 31, 2019 and 2018, respectively.



Protective represents our largest reinsurance exposure following the sale of the Liberty Life Business as discussed in Note 3, which resulted in amounts recoverable from Protective of $11.8 billion and $12.1 billion as of December 31, 2019 and 2018, respectively.  Protective has funded trusts, of which the balance in the trusts changes as a result of ongoing reinsurance activity, to support the business ceded, which totaled $14.7 billion and $13.7 billion as of December 31, 2019 and 2018, respectively.



Our reinsurance operations were acquired by Swiss Re in December 2001 through a series of indemnity reinsurance transactions.  As such, Swiss Re reinsured certain liabilities and obligations under the indemnity reinsurance agreements.  As we are not relieved of our liability to the ceding companies for this business, the liabilities and obligations associated with the reinsured policies remain on our Consolidated Balance Sheets with a corresponding reinsurance receivable from Swiss Re, which totaled $1.3 billion and $1.5 billion as of December 31, 2019 and 2018, respectively.  Swiss Re has funded a trust, with a balance of $2.7 billion as of December 31, 2019, to support this business.  In addition to various remedies that we would have in the event of a default by Swiss Re, we continue to hold assets in support of certain of the transferred reserves.  These assets consist of those reported as trading securities and certain mortgage loans.  Our liabilities for funds withheld and embedded derivatives as of December 31, 2019, included $164 million and $31 million, respectively, related to the business sold to Swiss Re.  In addition, the amounts recoverable from LNBAR were $2.4 billion and $2.5 billion as of December 31, 2019 and 2018, respectively.  LNBAR has funded trusts to support the business ceded of which the balance in the trusts changes as a result of ongoing reinsurance activity and totaled $2.3 billion as of December 31, 2019. 



Some portions of our annuity business have been reinsured on a Modco basis with other companies.  In a Modco agreement, we as the ceding company retain the reserves, as well as the assets backing those reserves, and the reinsurer shares proportionally in all financial terms of the reinsured policies based on their respective percentage of the risk.  Effective October 1, 2018, we entered into one such Modco agreement with Athene to reinsure fixed and fixed indexed annuity products, which resulted in a deposit asset of $6.6 billion and $7.5 billion as of December 31, 2019 and 2018, respectively, within other assets on our Consolidated Balance Sheets.  We held investments of $6.9 billion as of December 31, 2019, in support of reserves associated with the transaction in a Modco investment portfolio.  As of December 31, 2019, the portfolio included trading securities, fixed maturity AFS securities, commercial mortgage loans, derivative investments, other investments, cash, accrued investment income and equity securities that had carrying values of $3.5 billion, $2.3 billion, $698 million, $130 million, $94 million, $62 million, $57 million and $14 million, respectively.   In addition, the portfolio was supported by $201 million of over-collateralization and a $200 million letter of credit as of December 31, 2019. As described in Note 1, we recorded a deferred gain on business sold through reinsurance related to the transaction with Athene and amortized $30 million and $8 million of the gain during 2019 and 2018, respectively.



In repositioning the Modco investment portfolio, purchases of securities classified as trading during 2019 primarily resulted in negative cash flows from operating activities that were largely offset by sales of securities classified as fixed maturity AFS within investing activities in our Consolidated Statements of Cash Flows.



See Note 6 for information on reinsurance related embedded derivatives.

47

 

 



10.  Goodwill and Specifically Identifiable Intangible Assets



The changes in the carrying amount of goodwill (in millions) by reportable segment were as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Year Ended December 31, 2019

 

 



Gross

Accumulated

 

 

 

 

 

 

 

 

 

 



Goodwill

Impairment

 

 

 

 

 

 

 

 

 

Net

 

 



as of

as of

 

Acquisition

 

 

 

 

 

Goodwill

 

 



Beginning-

Beginning-

 

Accounting

 

 

 

 

 

as of End-

 

 



 

of-Year

 

 

of-Year

 

 

Adjustments

 

 

Impairment

 

 

of-Year

 

 

Annuities

 

$

 1,040

 

 

$

 (600

)

 

$

 -

 

 

$

 -

 

 

$

 440

 

 

Retirement Plan Services

 

 

 20

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 20

 

 

Life Insurance

 

 

 2,186

 

 

 

 (1,552

)

 

 

 -

 

 

 

 -

 

 

 

 634

 

 

Group Protection

 

 

 688

 

 

 

 -

 

 

 

 (4)

 

 

 

 -

 

 

 

 684

 

 

Total goodwill

 

$

 3,934

 

 

$

 (2,152

)

 

$

 (4)

 

 

$

 -

 

 

$

 1,778

 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

For the Year Ended December 31, 2018

 

 



Gross

Accumulated

 

 

 

 

 

 

 

 

 

 



Goodwill

Impairment

 

 

 

 

 

 

 

 

 

Net

 

 



as of

as of

 

Acquisition

 

 

 

 

 

Goodwill

 

 



Beginning-

Beginning-

 

Accounting

 

 

 

 

 

as of End-

 

 



 

of-Year

 

 

of-Year

 

 

Adjustments

 

 

Impairment

 

 

of-Year

 

 

Annuities

 

$

 1,040

 

 

$

 (600

)

 

$

 -

 

 

$

 -

 

 

$

 440

 

 

Retirement Plan Services

 

 

 20

 

 

 

 -

 

 

 

 -

 

 

 

 -

 

 

 

 20

 

 

Life Insurance

 

 

 2,186

 

 

 

 (1,552

)

 

 

 -

 

 

 

 -

 

 

 

 634

 

 

Group Protection

 

 

 274

 

 

 

 -

 

 

 

 414

 

 

 

 -

 

 

 

 688

 

 

Total goodwill

 

$

 3,520

 

 

$

 (2,152

)

 

$

 414

 

 

$

 -

 

 

$

 1,782

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair values of our reporting units (Level 3 fair value estimates) are comprised of the value of in-force (i.e., existing) business and the value of new business.  Specifically, new business is representative of cash flows and profitability associated with policies or contracts we expect to issue in the future, reflecting our forecasts of future sales volume and product mix over a 10-year period.  To determine the values of in-force and new business, we use a discounted cash flows technique that applies a discount rate reflecting the market expected, weighted-average rate of return adjusted for the risk factors associated with operations to the projected future cash flows for each reporting unit.



As of October 1, 2019 and 2018, we performed our annual quantitative goodwill impairment test for our reporting units, and, as of each such date, the fair value was in excess of each reporting unit’s carrying value for Annuities, Retirement Plan Services, Life Insurance and Group Protection.



As of October 1, 2017, the date of our annual quantitative assessment of goodwill, our Annuities, Retirement Plan Services and Group Protection reporting units had fair values that exceeded the carrying value of each reporting unit. Our early adoption of ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” resulted in impairment of the Life Insurance reporting unit goodwill of $905 million during the fourth quarter of 2017 driven primarily from the impact of the December 22, 2017, enactment of the Tax Act that increased the carrying value of the Life Insurance reporting unit in excess of its fair value.



48

 

 

The gross carrying amounts and accumulated amortization (in millions) for each major specifically identifiable intangible asset class by reportable segment were as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 



As of December 31, 2019

 

 

As of December 31, 2018

 

 



Gross

 

 

 

 

 

 

Gross

 

 

 

 

 



Carrying

 

Accumulated

 

Carrying

 

Accumulated

 



Amount

 

Amortization

 

Amount

 

Amortization

 

Retirement Plan Services:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual fund contract rights (1)

$

 5 

 

 

$

 -

 

 

$

 5 

 

 

$

 -

 

 

Life Insurance:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales force

 

 100 

 

 

 

 55 

 

 

 

 100 

 

 

 

 51 

 

 

Group Protection:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

VOCRA

 

 576 

 

 

 

 25 

 

 

 

 576 

 

 

 

 5 

 

 

VODA

 

 31 

 

 

 

 2 

 

 

 

 31 

 

 

 

 -

 

 

Insurance licenses (1)

 

 3 

 

 

 

 -

 

 

 

 3 

 

 

 

 -

 

 

Total

$

 715 

 

 

$

 82 

 

 

$

 715 

 

 

$

 56 

 

 



(1)

No amortization recorded as the intangible asset has indefinite life. 



Future estimated amortization of specifically identifiable intangible assets (in millions) as of December 31, 2019, was as follows:







 

 

 



 

 

 

2020

$

 37 

 

2021

 

 37 

 

2022

 

 37 

 

2023

 

 37 

 

2024

 

 37 

 

Thereafter

 

 440 

 





49

 

 

11.  Guaranteed Benefit Features



Information on the GDB features outstanding (dollars in millions) was as follows:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



As of December 31,

 

 



2019 (1)

 

 

2018 (1)

 

 

Return of Net Deposits

 

 

 

 

 

 

 

 

Total account value

$

 101,601 

 

 

$

 89,783 

 

 

Net amount at risk (2)

 

 71 

 

 

 

 1,002 

 

 

Average attained age of contract holders

 

65 years

 

 

 

65 years

 

 



 

 

 

 

 

 

 

 

Minimum Return

 

 

 

 

 

 

 

 

Total account value

$

 92 

 

 

$

 88 

 

 

Net amount at risk (2)

 

 13 

 

 

 

 18 

 

 

Average attained age of contract holders

 

77 years

 

 

 

77 years

 

 

Guaranteed minimum return

 

 5% 

 

 

 

 5% 

 

 



 

 

 

 

 

 

 

 

Anniversary Contract Value

 

 

 

 

 

 

 

 

Total account value

$

 25,763 

 

 

$

 23,365 

 

 

Net amount at risk (2)

 

 384 

 

 

 

 2,007 

 

 

Average attained age of contract holders

 

71 years

 

 

 

71 years

 

 



(1)

Our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive.

(2)

Represents the amount of death benefit in excess of the account balance that is subject to market fluctuations.



The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience.  The following summarizes the balances of and changes in the liabilities for GDBs (in millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:





 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 



2019

 

2018

 

2017

 

 

Balance as of beginning-of-year

$

 161

 

$

 100

 

$

 110

 

 

Changes in reserves

 

 (24

)

 

 77

 

 

 8

 

 

Benefits paid

 

 (20

)

 

 (16

)

 

 (18

)

 

Balance as of end-of-year

$

 117

 

$

 161

 

$

 100

 

 



 

 

 

 

 

 

 

 

 

 

Variable Annuity Contracts



Account balances of variable annuity contracts, including those with guarantees, (in millions) were invested in separate account investment options as follows:





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



As of December 31,

 

 



2019

 

 

2018

 

 

Asset Type

 

 

 

 

 

 

 

 

Domestic equity

$

 64,093 

 

 

$

 54,060 

 

 

International equity

 

 19,852 

 

 

 

 18,359 

 

 

Fixed income

 

 41,405 

 

 

 

 37,942 

 

 

Total

$

 125,350 

 

 

$

 110,361 

 

 



 

 

 

 

 

 

 

 

Percent of total variable annuity separate account values

 

 98% 

 

 

 

 99% 

 

 



Secondary Guarantee Products



Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment.  Reserves on UL and VUL products with secondary guarantees represented 35% and 33% of total life insurance in-force reserves as of December 31, 2019 and 2018, respectively.  UL and VUL products with secondary guarantees represented 27%, 36% and 27% of total life insurance sales for the years ended December 31, 2019, 2018 and 2017, respectively.

50

 

 

12.  Liability for Unpaid Claims



The liability for unpaid claims consists primarily of long-term disability claims and is reported in future contract benefits on our Consolidated Balance Sheets.  Changes in the liability for unpaid claims (in millions) were as follows:



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Balance as of beginning-of-year

$

 5,335

 

$

 2,222

 

$

 2,242

 

Reinsurance recoverable

 

 143

 

 

 57

 

 

 69

 

Net balance as of beginning-of-year

 

 5,192

 

 

 2,165

 

 

 2,173

 

Business acquired (1)

 

 -

 

 

 2,842

 

 

 -

 

Incurred related to:

 

 

 

 

 

 

 

 

 

Current year

 

 3,193

 

 

 2,531

 

 

 1,346

 

Prior years:

 

 

 

 

 

 

 

 

 

Interest

 

 151

 

 

 120

 

 

 69

 

All other incurred (2)

 

 (308

)

 

 (208

)

 

 (76

)

Total incurred

 

 3,036

 

 

 2,443

 

 

 1,339

 

Paid related to:

 

 

 

 

 

 

 

 

 

Current year

 

 (1,518

)

 

 (1,197

)

 

 (798

)

Prior years

 

 (1,310

)

 

 (1,061

)

 

 (549

)

Total paid

 

 (2,828

)

 

 (2,258

)

 

 (1,347

)

Net balance as of end-of-year

 

 5,400

 

 

 5,192

 

 

 2,165

 

Reinsurance recoverable

 

 152

 

 

 143

 

 

 57

 

Balance as of end-of-year

$

 5,552

 

$

 5,335

 

$

 2,222

 



(1)

Represents acquired group life and disability reserves, net, as of May 1, 2018. See Note 3 for additional information.

(2)

All other incurred is primarily impacted by the level of claim resolutions in the period compared to that which is expected by the reserve assumption. A negative number implies a favorable result where claim resolutions were more favorable than assumed. Our claim resolution rate assumption used in determining reserves is our expectation of the resolution rate we will experience over the long-term life of the block of claims. It will vary from actual experience in any one period, both favorably and unfavorably.



The interest rate assumption used for discounting long-term claim reserves is an important part of the reserving process due to the long benefit period for these claims.  Interest accrued on prior years’ reserves has been calculated on the opening reserve balance less one-half of the prior years’ incurred claim payments at our average reserve discount rate.



Long-term disability benefits may extend for many years, and claim development schedules do not reflect these longer benefit periods.  As a result, we use longer term retrospective runoff studies, experience studies and prospective studies to develop our liability estimates.  Long-term disability reserves are discounted using rates ranging from 3.25% to 5%. The discount rates vary by year of claim incurral.

51

 

 

13.  Short-Term and Long-Term Debt



Details underlying short-term and long-term debt (in millions) were as follows:









 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Short-Term Debt

 

 

 

 

 

 

Short-term debt (1)

$

 609 

 

$

 288 

 



 

 

 

 

 

 

Long-Term Debt, Excluding Current Portion

 

 

 

 

 

 

9.76% surplus note, due 2024

$

 50 

 

$

 50 

 

6.56% surplus note, due 2028

 

 500 

 

 

 500 

 

LIBOR + 111 bps surplus note, due 2028

 

 71 

 

 

 71 

 

LIBOR + 226 bps surplus note, due 2028

 

 613 

 

 

 600 

 

6.03% surplus note, due 2028

 

 750 

 

 

 750 

 

LIBOR + 200 bps surplus note, due 2035

 

 30 

 

 

 30 

 

LIBOR + 155 bps surplus note, due 2037

 

 25 

 

 

 25 

 

4.20% surplus note, due 2037

 

 50 

 

 

 50 

 

LIBOR + 100 bps surplus note, due 2037

 

 284 

 

 

 312 

 

4.225% surplus note, due 2037

 

 28 

 

 

 -

 

4.50% surplus note, due 2038

 

 13 

 

 

 13 

 

Total long-term debt

$

 2,414 

 

$

 2,401 

 



(1)

The short-term debt represents short-term notes payable to LNC.



Future principal payments due on long-term debt (in millions) as of December 31, 2019, were as follows:









 

 

 



 

 

 

2020

$

 -

 

2021

 

 -

 

2022

 

 -

 

2023

 

 -

 

2024

 

 50 

 

Thereafter

 

 2,364 

 

Total

$

 2,414 

 



We issued a surplus note of $50 million to LNC in 1994.  The note calls for us to pay the principal amount of the note on or before September 30, 2024, and interest to be paid semiannually at an annual rate of 9.76%.  Subject to approval by the Commissioner, we have the right to repay the note on any March 31 or September 30.



We issued a surplus note of $500 million to LNC in 1998.  The note calls for us to pay the principal amount of the note on or before March 31, 2028, and interest to be paid quarterly at an annual rate of 6.56%.  Subject to approval by the Commissioner, LNC has the right to redeem the note for immediate repayment in total or in part once per year on the anniversary date of the note.  Any payment of interest or repayment of principal may be paid only out of our statutory earnings, only if our statutory capital surplus exceeds our statutory capital as of the date of note issuance of $2.3 billion, and subject to approval by the Commissioner.



On October 1, 2013, we issued a surplus note of $71 million to LNC.  The note calls for us to pay the principal amount of the note on or before September 24, 2028, and interest to be paid quarterly at an annual rate of LIBOR + 111 bps.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest.



On December 17, 2013, we issued a variable surplus note to a wholly-owned subsidiary of LNC with an initial outstanding principal amount of $287 million.  The outstanding principal amount as of December 31, 2019, was $613 million.  The note calls for us to pay the principal amount of the note on or before October 1, 2028, and interest to be paid quarterly at an annual rate of LIBOR + 226 bps.



We issued a surplus note of $750 million to LNC in 1998.  The note calls for us to pay the principal amount of the note on or before December 31, 2028, and interest to be paid quarterly at an annual rate of 6.03%.  Subject to approval by the Commissioner, LNC has the right to redeem the note for immediate repayment in total or in part once per year on the anniversary date of the note.  Any payment of interest or repayment of principal may be paid only out of our statutory earnings, only if our statutory capital surplus exceeds our statutory capital surplus as of the date of note issuance of $2.4 billion, and subject to approval by the Commissioner.



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On October 1, 2015, we issued a surplus note of $30 million to LNC.  The note calls for us to pay the principal amount of the note on or before September 28, 2035, and interest to be paid quarterly at an annual rate of LIBOR + 200 bps.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest. 



On July 1, 2017, we issued a surplus note of $25 million to LNC.  The note calls for us to pay the principal amount of the note on or before June 30, 2037, and interest to be paid quarterly at an annual rate of LIBOR + 155 bps.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest. 



On October 1, 2017, we issued a surplus note of $50 million to LNC.  The note calls for us to pay the principal amount of the note on or before July 1, 2037, and interest to be paid quarterly at an annual rate of 4.20%.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest. 



On October 9, 2007, we issued a surplus note of $375 million that LNC has held effective December 31, 2008.  The note calls for us to pay the principal amount of the note on or before October 9, 2037, and interest to be paid quarterly at an annual rate of LIBOR + 100 bps.  On June 15, 2017, the surplus note was amended to include repayment terms stating subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest.  The outstanding principal amount as of December 31, 2019, was $284 million due to executing our right to repay the surplus note in part to LNC.



On July 1, 2018, we issued a surplus note of $13 million to LNC.  The note calls for us to pay the principal amount of the note on or before June 30, 2038, and interest to be paid quarterly at an annual rate of 4.50%.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest. 



On July 1, 2019, we issued a surplus note of $28 million to LNC.  The note calls for us to pay the principal amount of the note on or before October 9, 2037, and interest to be paid quarterly at an annual rate of 4.225%.  Subject to approval by the Commissioner, we have the right to repay the note in whole or in part prior to the maturity date, if our statutory capital surplus exceeds the sum of our surplus at closing plus any accrued but unpaid interest. 



Credit Facilities and Letters of Credit



Credit facilities, which allow for borrowing or issuances of letters of credit (“LOCs”), and LOCs (in millions) were as follows:









 

 

 

 

 

 

 

 





 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 



 

 

As of December 31, 2019

 



Expiration

 

Maximum

 

LOCs

 



Date

 

Available

 

Issued

 

Credit Facilities

 

 

 

 

 

 

 

 

Five-year revolving credit facility

July 31, 2024

 

$

 2,250 

 

$

 340 

 

LOC facility (1)

August 26, 2031

 

 

 990 

 

 

 965 

 

LOC facility (1)

October 1, 2031

 

 

 982 

 

 

 982 

 

Total

 

 

$

 4,222 

 

$

 2,287 

 



(1)

Our wholly-owned subsidiaries entered into irrevocable LOC facility agreements with third-party lenders supporting inter-company reinsurance agreements. 



On July 31, 2019, LNC refinanced its existing credit facility with a syndicate of banks.  This facility (the “credit facility”) allows for the issuance of LOCs and borrowing of up to $2.25 billion.  The credit facility is unsecured and has a commitment termination date of July 31, 2024.  The LOCs under the credit facility are used primarily to satisfy reserve credit requirements of (i) LNL and LNC’s other domestic insurance companies for which reserve credit is provided by our captive reinsurance subsidiaries and LNBAR and (ii) certain ceding companies of our legacy reinsurance business.



53

 

 

The credit agreement governing the credit facility contains or includes:



·

Customary terms and conditions, including covenants restricting the ability of LNC and its subsidiaries to incur liens and the ability of LNC to merge or consolidate with another entity where it is not the surviving entity and dispose of all or substantially all of its assets;

·

Financial covenants including maintenance by LNC of a minimum consolidated net worth (as defined in the credit agreement) equal to the sum of $10.6 billion plus 50% of the aggregate net proceeds of equity issuances received by LNC or any of its subsidiaries as set forth in the credit agreement; and a debt-to-capital ratio as defined in accordance with the credit facility not to exceed 0.35 to 1.00;

·

A cap on LNC’s secured non-operating indebtedness and non-operating indebtedness of LNC’s subsidiaries equal to 7.5% of total capitalization, as defined in accordance with the credit agreement; and

·

Customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default.



Upon an event of default, the credit agreement provides that, among other things, the commitments may be terminated and the loans then outstanding may be declared due and payable.  As of December 31, 2019, LNC was in compliance with all such covenants.



Our LOC facility agreements each contain customary terms and conditions, including early termination fees, covenants restricting the ability of the subsidiaries to incur liens, merge or consolidate with another entity and dispose of all or substantially all of their assets.  Upon an event of early termination, the agreements require the immediate payment of all or a portion of the present value of the future LOC fees that would have otherwise been paid.  Further, the agreements contain customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default.  The events of default include payment defaults, covenant defaults, material inaccuracies in representations and warranties, bankruptcy and liquidation proceedings and other customary defaults.  Upon an event of default, the agreements provide that, among other things, obligations to issue, amend or increase the amount of any LOC shall be terminated and any obligations shall become immediately due and payable.  As of December 31, 2019, we were in compliance with all such covenants.



14.  Contingencies and Commitments



Contingencies



Regulatory and Litigation Matters



Regulatory bodies, such as state insurance departments, the SEC, Financial Industry Regulatory Authority and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers, registered investment advisers and unclaimed property laws. 



LNL and its affiliates are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise.  In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought.  Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief.  Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court.  In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding verdicts obtained in the jurisdiction for similar matters.  This variability in pleadings, together with the actual experiences of LNL in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value. 



Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain.  Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal.  Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.



We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated.  It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of December 31, 2019.  While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LNL’s financial condition. 



For some matters, the Company is able to estimate a reasonably possible range of loss.  For such matters in which a loss is probable, an accrual has been made.  For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made.  Accordingly, the estimate contained in this paragraph reflects two types of matters.  For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued.  In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount.  For other matters included within this estimation,

54

 

 

no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable.  In these cases, the estimate reflects the reasonably possible loss or range of loss.  As of December 31, 2019, we estimate the aggregate range of reasonably possible losses, including amounts in excess of amounts accrued for these matters as of such date, to be up to approximately $90 million.  Any estimate is not an indication of expected loss, if any, or of the Company’s maximum possible loss exposure on such matters.



For other matters, we are not currently able to estimate the reasonably possible loss or range of loss.  We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts and the progress of settlement negotiations.  On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.



Certain reinsurers have sought rate increases on certain yearly renewable term treaties.  We are disputing the requested rate increases under these treaties.  We have initiated and will initiate arbitration proceedings, as necessary, under these treaties in order to protect our contractual rights.  Additionally, reinsurers may initiate arbitration proceedings against us.  We believe it is unlikely the outcome of these disputes will have a material adverse effect on our financial condition.  For more information about reinsurance, see Note 9.



Cost of Insurance Litigation



Glover v. Connecticut General Life Insurance Company and The Lincoln National Life Insurance Company, filed in the U.S. District Court for the District of Connecticut, No. 3:16-cv-00827, is a putative class action that was served on LNL on June 8, 2016.  Plaintiff is the owner of a universal life insurance policy who alleges that LNL charged more for non-guaranteed cost of insurance than permitted by the policy.  Plaintiff seeks to represent all universal life and variable universal life policyholders who owned policies containing non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policy and seeks damages on behalf of all such policyholders.  On January 11, 2019, the court dismissed Plaintiff’s complaint in its entirety.  In response, Plaintiff filed a motion for leave to amend the complaint, which we have opposed.



Hanks v. The Lincoln Life and Annuity Company of New York (“LLANY”) and Voya Retirement Insurance and Annuity Company (“Voya”), filed in the U.S. District Court for the Southern District of New York, No. 1:16-cv-6399, is a putative class action that was served on LLANY on August 12, 2016.  Plaintiff owns a universal life policy originally issued by Aetna (now Voya) and alleges that (i) Voya breached the terms of the policy when it increased non-guaranteed cost of insurance rates on Plaintiff’s policy; and (ii) LLANY, as reinsurer and administrator of Plaintiff’s policy, engaged in wrongful conduct related to the cost of insurance increase and was unjustly enriched as a result.  Plaintiff seeks to represent all owners of Aetna life insurance policies that were subject to non-guaranteed cost of insurance rate increases in 2016 and seeks damages on their behalf.  On March 13, 2019, the court issued an order granting plaintiff’s motion for class certification for the breach of contract claim and denying such motion with respect to the unjust enrichment claim against LLANY, and, on September 12, 2019, the court issued an order approving the parties’ joint stipulation of dismissal with respect to the unjust enrichment claim and dismissed LLANY as a defendant in the case.  In light of LLANY’s role as reinsurer and administrator under the 1998 coinsurance agreement with Aetna (now Voya), and of the parties’ rights and obligations thereunder, LLANY continues to be actively engaged in the vigorous defense of this action.



EFG Bank AG, Cayman Branch, et al. v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:17-cv-02592, is a civil action filed on February 1, 2017.  Plaintiffs own Legend Series universal life insurance policies originally issued by Jefferson-Pilot (now LNL).  Plaintiffs allege that LNL breached the terms of policyholders’ contracts when it increased non-guaranteed cost of insurance rates beginning in 2016.  We are vigorously defending this matter.



In re: Lincoln National COI Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Master File No. 2:16-cv-06605-GJP, is a consolidated litigation matter related to multiple putative class action filings that were consolidated by an order dated March 20, 2017.  In addition to consolidating a number of existing matters, the order also covers any future cases filed in the same district related to the same subject matter.  Plaintiffs own universal life insurance policies originally issued by Jefferson-Pilot (now LNL).  Plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2016.  Plaintiffs seek to represent classes of policyowners and seek damages on their behalf.  We are vigorously defending this matter.



In re: Lincoln National 2017 COI Rate Litigation, Master File No. 2:17-cv-04150 is a consolidated litigation matter related to multiple putative class action filings that were consolidated by an order of the court in March 2018.  Plaintiffs own universal life insurance policies originally issued by former Jefferson-Pilot (now LNL).  Plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2017.  Plaintiffs seek to represent classes of policyholders and seek damages on their behalf.  We are vigorously defending this matter.



TVPX ARS INC., as Securities Intermediary for Consolidated Wealth Management, LTD. v. The Lincoln National Life Insurance Company, filed in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:18-cv-02989, is a putative class action that was filed on July 17, 2018.  Plaintiff alleges that LNL charged more for non-guaranteed cost of insurance than permitted by the policy.  Plaintiff seeks to represent all universal life and variable universal life policyholders who own policies issued by LNL or its predecessors containing non-guaranteed cost

55

 

 

of insurance provisions that are similar to those of Plaintiff’s policy and seeks damages on behalf of all such policyholders.  We are vigorously defending this matter.



LSH Co. and Wells Fargo Bank, National Association, as securities intermediary for LSH Co. v. Lincoln National Corporation and The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:18-cv-05529, is a civil action filed on December 21, 2018.  Plaintiffs own universal life insurance policies originally issued by Jefferson-Pilot (now LNL).  Plaintiffs allege that LNL breached the terms of policyholders’ contracts when it increased non-guaranteed cost of insurance rates in 2016 and 2017.  We are vigorously defending this matter.



Vida Longevity Fund, LP v. Lincoln Life & Annuity Company of New York, pending in the U.S. District Court for the Southern District of New York, No. 1:19-cv-06004, is a putative class action that was filed on June 27, 2019.  Plaintiff alleges that LLANY charged more for non-guaranteed cost of insurance than was permitted by the policies.  Plaintiff seeks to represent all current and former owners of universal life (including variable universal life) policies who own or owned policies issued by LLANY and its predecessors in interest that were in force at any time on or after June 27, 2013, and which contain non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policies.  Plaintiff also seeks to represent a sub-class of such policyholders who own or owned “life insurance policies issued in the State of New York.”  Plaintiff seeks damages on behalf of the policyholder class and sub-class.  We are vigorously defending this matter.



Commitments



Leases



We recognized operating lease ROU assets of $202 million and associated lease liabilities of $208 million as of December 31, 2019.   We classified the operating lease ROU assets within other assets and the lease liabilities within other liabilities on our Consolidated Balance Sheets.  The weighted-average discount rate and remaining lease term were 3.2% and 6 years, respectively, as of December 31, 2019.  Operating lease expense for the years ended December 31, 2019, 2018 and 2017, was $46 million,  $43 million and $36 million, respectively, and reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).  



As of December 31, 2019, the net book value of assets recorded as finance leases was $128 million, and the associated accumulated amortization was $345 million.  These transactions have been classified as other assets on our Consolidated Balance Sheets.  These assets will continue to be amortized on a straight-line basis over the assets’ remaining lives.  The weighted-average discount rate and remaining lease term were 2.2% and 2 years, respectively, as of December 31, 2019.



Finance lease expense (in millions) was as follows:











 

 

 

 

 



 

For the Year Ended

 

 



 

December 31,

 

 



 

2019

 

 



 

 

 

 

 

Amortization of ROU assets (1)

 

$

 67 

 

 

Interest on lease liabilities (2)

 

 

 13 

 

 

Total

 

$

 80 

 

 

 

 

 



(1)

Amortization of ROU assets is reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).  

(2)

Interest on lease liabilities is reported in interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).

56

 

 



The table below presents cash flow information (in millions) related to leases: 



 

 

 

 

 



 

 



 

For the Year

Ended

 

 



 

December 31,

 

 



 

2019

 

 

Supplemental Cash Flow Information

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

Operating cash flows from operating leases

 

$

 47 

 

 

Financing cash flows from finance leases

 

 

 96 

 

 



 

 

 

 

 

Supplemental Non-cash Information

 

 

 

 

 

ROU assets obtained in exchange for new lease obligations:

 

 

 

 

 

Operating leases

 

$

 78 

 

 





Our future minimum lease payments (in millions) under non-cancellable leases as of December 31, 2019, were as follows:







 

 

 

 

 

 



Operating

 

Finance

 



Leases

 

Leases

 

2020

$

 44 

 

$

 56 

 

2021

 

 40 

 

 

 66 

 

2022

 

 35 

 

 

 66 

 

2023

 

 32 

 

 

 90 

 

2024

 

 26 

 

 

 17 

 

Thereafter

 

 65 

 

 

 12 

 

Total future minimum lease payments

 

 242 

 

 

 307 

 

Less: Amount representing interest

 

 34 

 

 

 26 

 

Present value of minimum lease payments

$

 208 

 

$

 281 

 

 

As of December 31, 2019, we had no leases that had not yet commenced.



Vulnerability from Concentrations



As of December 31, 2019, we did not have a concentration of:  business transactions with a particular customer or lender; sources of supply of labor or services used in the business; or a market or geographic area in which business is conducted that makes us vulnerable to an event that is at least reasonably possible to occur in the near term and which could cause a severe impact to our financial condition.  For information on our investment and reinsurance concentrations, see Notes 5 and 9, respectively.   



Other Contingency Matters

 

State guaranty funds assess insurance companies to cover losses to contract holders of insolvent or rehabilitated companies.  Mandatory assessments may be partially recovered through a reduction in future premium taxes in some states.  We have accrued for expected assessments and the related reductions in future state premium taxes, which net to assessments (recoveries) of $(13) million and $(18) million as of December 31, 2019 and 2018, respectively.



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15.  Shares and Stockholder’s Equity



All authorized and issued shares of LNL are owned by LNC.



AOCI



The following summarizes the components and changes in AOCI (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Unrealized Gain (Loss) on AFS Securities

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 536

 

$

 3,283

 

$

 1,687

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 634

 

 

 -

 

Unrealized holding gains (losses) arising during the year

 

 8,856

 

 

 (5,995

)

 

 2,872

 

Change in foreign currency exchange rate adjustment

 

 46

 

 

 (107

)

 

 134

 

Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds

 

 (2,460

)

 

 1,748

 

 

 (703

)

Income tax benefit (expense)

 

 (1,370

)

 

 923

 

 

 (745

)

Less:

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains (losses) included in net income (loss)

 

 (26

)

 

 (44

)

 

 (40

)

Associated amortization of DAC, VOBA, DSI and DFEL

 

 (11

)

 

 (19

)

 

 (19

)

Income tax benefit (expense)

 

 8

 

 

 13

 

 

 21

 

Balance as of end-of-year

$

 5,637

 

$

 536

 

$

 3,283

 

Unrealized OTTI on AFS Securities

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 29

 

$

 39

 

$

 22

 

(Increases) attributable to:

 

 

 

 

 

 

 

 

 

Cumulative effect from adoption of new accounting standards

 

 -

 

 

 9

 

 

 -

 

Gross OTTI recognized in OCI during the year

 

 (14

)

 

 -

 

 

 -

 

Change in DAC, VOBA, DSI and DFEL

 

 1

 

 

 -

 

 

 -

 

Income tax benefit (expense)

 

 3

 

 

 -

 

 

 -

 

Decreases attributable to:

 

 

 

 

 

 

 

 

 

Changes in fair value, sales, maturities or other settlements of AFS securities

 

 30

 

 

 (18

)

 

 34

 

Change in DAC, VOBA, DSI and DFEL

 

 (2

)

 

 (5

)

 

 (7

)

Income tax benefit (expense)

 

 (7

)

 

 4

 

 

 (10

)

Balance as of end-of-year

$

 40

 

$

 29

 

$

 39

 

Unrealized Gain (Loss) on Derivative Instruments

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 119

 

$

 27

 

$

 93

 

Cumulative effect from adoption of new accounting standard

 

 -

 

 

 6

 

 

 -

 

Unrealized holding gains (losses) arising during the year

 

 181

 

 

 40

 

 

 63

 

Change in foreign currency exchange rate adjustment

 

 (52

)

 

 111

 

 

 (137

)

Change in DAC, VOBA, DSI and DFEL

 

 (5

)

 

 (14

)

 

 1

 

Income tax benefit (expense)

 

 (26

)

 

 (29

)

 

 26

 

Less:

 

 

 

 

 

 

 

 

 

Reclassification adjustment for gains (losses) included in net income (loss)

 

 47

 

 

 31

 

 

 31

 

Associated amortization of DAC, VOBA, DSI and DFEL

 

 (2

)

 

 (3

)

 

 (2

)

Income tax benefit (expense)

 

 (9

)

 

 (6

)

 

 (10

)

Balance as of end-of-year

$

 181

 

$

 119

 

$

 27

 

Funded Status of Employee Benefit Plans

 

 

 

 

 

 

 

 

 

Balance as of beginning-of-year

$

 (25

)

$

 (22

)

$

 (20

)

Cumulative effect from adoption of new accounting standard

 

 -

 

 

 (5

)

 

 -

 

Adjustment arising during the year

 

 4

 

 

 3

 

 

 (4

)

Income tax benefit (expense)

 

 (1

)

 

 (1

)

 

 2

 

Balance as of end-of-year

$

 (22

)

$

 (25

)

$

 (22

)



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The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 

 



2019

 

 

2018

 

 

2017

 

 

Unrealized Gain (Loss) on AFS Securities

 

 

 

 

 

 

 

 

 

 

 

 

Gross reclassification

$

 (26

)

 

$

 (44

)

 

$

 (40

)

Total realized gain (loss)

Associated amortization of DAC, 

 

 

 

 

 

 

 

 

 

 

 

 

VOBA, DSI and DFEL

 

 (11

)

 

 

 (19

)

 

 

 (19

)

Total realized gain (loss)

Reclassification before income

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing

tax benefit (expense)

 

 (37

)

 

 

 (63

)

 

 

 (59

)

operations before taxes

Income tax benefit (expense)

 

 8

 

 

 

 13

 

 

 

 21

 

Federal income tax expense (benefit)

Reclassification, net of income tax

$

 (29

)

 

$

 (50

)

 

$

 (38

)

Net income (loss)



 

 

 

 

 

 

 

 

 

 

 

 

Unrealized OTTI on AFS Securities

 

 

 

 

 

 

 

 

 

 

 

 

Gross reclassification

$

 4

 

 

$

 7

 

 

$

 5

 

Total realized gain (loss)

Change in DAC, VOBA, DSI and DFEL

 

 -

 

 

 

 -

 

 

 

 (1

)

Total realized gain (loss)

Reclassification before income

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing

tax benefit (expense)

 

 4

 

 

 

 7

 

 

 

 4

 

operations before taxes

Income tax benefit (expense)

 

 (1

)

 

 

 (1

)

 

 

 (1

)

Federal income tax expense (benefit)

Reclassification, net of income tax

$

 3

 

 

$

 6

 

 

$

 3

 

Net income (loss)



 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gain (Loss) on Derivative Instruments

 

 

 

 

 

 

 

 

 

 

Gross reclassifications:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

$

 3

 

 

$

 4

 

 

$

 4

 

Net investment income

Foreign currency contracts

 

 35

 

 

 

 27

 

 

 

 18

 

Net investment income

Foreign currency contracts

 

 9

 

 

 

 -

 

 

 

 9

 

Total realized gain (loss)

Total gross reclassifications

 

 47

 

 

 

 31

 

 

 

 31

 

 

Associated amortization of DAC,

 

 

 

 

 

 

 

 

 

 

 

 

VOBA, DSI and DFEL

 

 (2

)

 

 

 (3

)

 

 

 (2

)

Commissions and other expenses

Reclassifications before income

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing

tax benefit (expense)

 

 45

 

 

 

 28

 

 

 

 29

 

operations before taxes

Income tax benefit (expense)

 

 (9

)

 

 

 (6

)

 

 

 (10

)

Federal income tax expense (benefit)

Reclassifications, net of income tax

$

 36

 

 

$

 22

 

 

$

 19

 

Net income (loss)



 

16.  Commissions and Other Expenses



Details underlying commissions and other expenses (in millions) were as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Commissions

$

 2,566

 

$

 2,271

 

$

 1,998

 

General and administrative expenses

 

 2,152

 

 

 1,910

 

 

 1,715

 

Expenses associated with reserve financing and unrelated LOCs

 

 52

 

 

 64

 

 

 57

 

DAC and VOBA deferrals and interest, net of amortization

 

 (586

)

 

 (436

)

 

 (390

)

Broker-dealer expenses

 

 372

 

 

 358

 

 

 329

 

Specifically identifiable intangible asset amortization

 

 26

 

 

 9

 

 

 4

 

Taxes, licenses and fees

 

 353

 

 

 322

 

 

 254

 

Acquisition and integration costs related to mergers and acquisitions

 

 130

 

 

 85

 

 

 -

 

Total

$

 5,065

 

$

 4,583

 

$

 3,967

 



 

 

 

 

 

 

 

 

 



59

 

 

17.  Retirement and Deferred Compensation Plans



Defined Benefit Pension and Other Postretirement Benefit Plans



We maintain defined benefit pension plans in which certain agents are participants.  These defined benefit pension plans are closed to new entrants and existing participants do not accrue any additional benefits.  We comply with applicable minimum funding requirements. In accordance with such practice, we were not required to make contributions but elected to contribute zero and $8 million for the years ended December 31, 2019 and 2018, respectively.  We do not expect to be required to make any contributions to these pension plans in 2020.  We sponsor other postretirement benefit plans that provide health care and life insurance to certain retired agents.  Total net periodic cost (recovery) for these plans was $6  million, $6 million and $5 million during 2019, 2018 and 2017, respectively.  In 2020, we expect the plans to make benefit payments of approximately $10 million. 



Information (in millions) with respect to these plans was as follows:











 

 

 

 

 

 

 

 

 

 

 

 

 



As of or For the Years Ended December 31,

 

 



2019

 

2018

 

2019

 

2018

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

Other Postretirement

 

 



Pension Plans

 

Benefit Plans

 

 

Fair value of plan assets

$

 109

 

$

 107

 

$

 9

 

$

 8

 

 

Projected benefit obligation

 

 115

 

 

 112

 

 

 10

 

 

 10

 

 

Funded status

$

 (6

)

$

 (5

)

$

 (1

)

$

 (2

)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts Recognized on the

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

Other assets

$

 -

 

$

 -

 

$

 -

 

$

 -

 

 

Other liabilities

 

 (6

)

 

 (5

)

 

 (1

)

 

 (2

)

 

Net amount recognized

$

 (6

)

$

 (5

)

$

 (1

)

$

 (2

)

 



 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average Assumptions

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 3.50%

 

 

 4.50%

 

 

 3.50%

 

 

 4.50%

 

 

Net periodic benefit cost:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average discount rate

 

 4.50%

 

 

 4.00%

 

 

 4.50%

 

 

 4.00%

 

 

Expected return on plan assets

 

 4.50%

 

 

 4.50%

 

 

 6.50%

 

 

 6.50%

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

The weighted average discount rate was determined based on a corporate yield curve as of December 31, 2019, and projected benefit obligation cash flows.  The expected return on plan assets was determined based on historical and expected future returns of the various asset categories, using the plans’ target plan allocation.  We reevaluate these assumptions each plan year. 



The following summarizes our fair value measurements of our benefit plans’ assets (in millions) on a recurring basis by asset category:









 

 

 

 

 

 

 



As of December 31,

 

 



2019

 

2018

 

 



 

 

 

 

 

 

 

Fixed maturity securities:

 

 

 

 

 

 

 

Corporate bonds

$

 -

 

$

 1 

 

 

U.S. government bonds

 

 83 

 

 

 87 

 

 

Cash and invested cash

 

 26 

 

 

 19 

 

 

Other investments

 

 9 

 

 

 8 

 

 

Total

$

 118 

 

$

 115 

 

 



 

 

 

 

 

 

 

See “Fair Value Measurement” in Note 1 for discussion on how we categorize our pension plans’ assets into the three-level fair value hierarchy.  See “Financial Instruments Carried at Fair Value” in Note 20 for a summary of our fair value measurement of our pension plans’ assets by the three-level fair value hierarchy. 



Participation in Defined Benefit Pension and Other Postretirement Benefit Plans



We participate in defined benefit pension plans that are sponsored by LNC for certain employees and non-employee directors.  These defined benefit pension plans are closed to new entrants, and existing participants do not accrue any additional benefits.  We also participate in other postretirement benefit plans sponsored by LNC that provide health care and life insurance to certain retired employees.  Our expense (benefit) for these plans was  $10 million, $(4) million and $7 million for the years ended December 31, 2019, 2018 and 2017, respectively.

60

 

 

Defined Contribution Plans



We sponsor tax-qualified defined contribution plans for eligible agents that are administered in accordance with the plan documents and various limitations under section 401(a) of the Internal Revenue Code of 1986.  We also participate in defined contribution plans sponsored by LNC for eligible employees.  Our expense for these plans was $101  million, $90 million and $85 million, for the years ended December 31, 2019, 2018 and 2017, respectively. 



Deferred Compensation Plans



We sponsor non-qualified, unfunded, deferred compensation plans for certain current and former agents.  Certain current employees participate in non-qualified, unfunded, deferred compensation plans sponsored by LNC.  The results of certain notional investment options within some of the plans are hedged by total return swaps.  Our expenses increase or decrease in direct proportion to the change in market value of the participants’ investment options.  Participants of certain plans are able to select LNC stock as a notional investment option; however, it is not hedged by the total return swaps and is a primary source of expense volatility related to these plans.  Our expense for these plans was $22 million, $12 million and $27 million for the years ended December 31, 2019, 2018 and 2017, respectively.  For further discussion of total return swaps related to our deferred compensation plans, see Note 6. 



Information (in millions) with respect to these plans was as follows:





 

 

 

 

 

 

 

 

 



As of December 31,

 

 

 

 



2019

 

2018

 

 

 

 

Total liabilities (1)

$

 579 

 

$

 487 

 

 

 

 

Investments dedicated to fund liabilities (2)

 

 202 

 

 

 170 

 

 

 

 



 

 

 

 

 

 

 

 

 

(1)

Reported in other liabilities on our Consolidated Balance Sheets.

(2)

Reported in other assets on our Consolidated Balance Sheets.   





18.  Stock-Based Incentive Compensation Plans



Our employees and agents are included in LNC’s various stock-based incentive compensation plans that provide for the issuance of stock options, performance shares, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”).  LNC issues new shares to satisfy option exercises and vested performance shares and RSUs.



Total compensation expense (in millions) by award type for stock-based incentive compensation plans was as follows:







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Stock options

$

 8

 

$

 5

 

$

 9

 

Performance shares

 

 16

 

 

 14

 

 

 12

 

SARs

 

 -

 

 

 (1

)

 

 2

 

RSUs

 

 35

 

 

 30

 

 

 24

 

Total

$

 59

 

$

 48

 

$

 47

 



 

 

 

 

 

 

 

 

 

Recognized tax benefit

$

 12

 

$

 10

 

$

 16

 







19.  Statutory Information and Restrictions

 

We prepare financial statements in accordance with statutory accounting principles (“SAP”) prescribed or permitted by the insurance departments of our respective states of domicile, which may vary materially from GAAP.



Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (“NAIC”) as well as state laws, regulations and administrative rules.  Permitted SAP encompasses all accounting practices not so prescribed.  The principal differences between statutory financial statements and financial statements prepared in accordance with GAAP are that statutory financial statements do not reflect DAC, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contract holder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted.



We are subject to the applicable laws and regulations of our respective states of domicile.  Changes in these laws and regulations could change capital levels or capital requirements for the Company.



61

 

 

Statutory capital and surplus, net gain (loss) from operations, after-tax, net income (loss) and dividends to the LNC holding company amounts (in millions) below consist of all or a combination of the following entities:  LNL, LLANY, LLACB, Lincoln Reinsurance Company of South Carolina, Lincoln Reinsurance Company of Vermont I, Lincoln Reinsurance Company of Vermont III, Lincoln Reinsurance Company of Vermont IV, Lincoln Reinsurance Company of Vermont V, Lincoln Reinsurance Company of Vermont VI and Lincoln Reinsurance Company of Vermont VII.

















 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

U.S. capital and surplus

$

 8,425 

 

$

 8,330 

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

U.S. net gain (loss) from operations, after-tax

$

 379 

 

$

 686 

 

$

 1,312 

 

U.S. net income (loss)

 

 359 

 

 

 1,013 

 

 

 1,452 

 

U.S. dividends to LNC holding company

 

 600 

 

 

 910 

 

 

 954 

 



Comparison of 2019 to 2018



Statutory net income (loss) decreased due primarily to lower dividends from affiliates, unfavorable reserve strain on certain products, and integration costs incurred as part of the acquisition of Liberty Life.  See Note 3 for information regarding the acquisition.



Comparison of 2018 to 2017



Statutory net income (loss) decreased due primarily to lower dividends from affiliates, acquisition and integration costs incurred as part of the acquisition of Liberty Life and unfavorable reserve strain on certain products. 



State Prescribed and Permitted Practices



The states of domicile for LNL and LLANY, Indiana and New York, respectively, have adopted certain prescribed accounting practices that differ from those found in NAIC SAP.  These prescribed practices are the use of continuous Commissioners’ Annuity Reserve Valuation Method in the calculation of reserves as prescribed by the state of New York, the calculation of reserves on universal life policies based on the Indiana universal life method as prescribed by the state of Indiana for policies issued before January 1, 2006, and the use of a more conservative valuation interest rate on certain annuities prescribed by the states of Indiana and New York.  The Vermont reinsurance subsidiaries also have certain accounting practices permitted by the state of Vermont that differ from those found in NAIC SAP.  One permitted practice involves accounting for the lesser of the face amount of all amounts outstanding under an LOC and the value of the Valuation of Life Insurance Policies Model Regulation (“XXX”) additional statutory reserves as an admitted asset and a form of surplus as of December 31, 2019 and 2018.  Another permitted practice involves the acquisition of an LLC note in exchange for a variable value surplus note that is recognized as an admitted asset and a form of surplus as of December 31, 2019.  Lastly, the state of Vermont has permitted a practice to account for certain excess of loss reinsurance treaties with unaffiliated reinsurers as an asset and form of surplus as of December 31, 2019.  These permitted practices are related to structures that continue to be allowed in accordance with the grandfathered structures under the provisions of Actuarial Guideline 48 (“AG48”) or are compliant under AG48 requirements. 



The favorable (unfavorable) effects on statutory surplus compared to NAIC statutory surplus from the use of these prescribed and permitted practices (in millions) were as follows:



 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

State Prescribed Practices

 

 

 

 

 

 

Calculation of reserves using the Indiana universal life method

$

 24

 

$

 36

 

Conservative valuation rate on certain annuities

 

 (49

)

 

 (55

)

Vermont Subsidiaries Permitted Practices (1)

 

 

 

 

 

 

Lesser of LOC and XXX additional reserve as surplus

 

 1,947

 

 

 1,959

 

LLC notes and variable value surplus notes

 

 1,648

 

 

 1,634

 

Excess of loss reinsurance treaties

 

 419

 

 

 330

 



 

 

 

 

 

 

(1)

These permitted practices are related to structures that continue to be allowed in accordance with the grandfathered structures under the provisions of AG48 or are compliant under AG48 requirements.



The NAIC has adopted RBC requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks.  The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile.  Under RBC

62

 

 

requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the NAIC, to its company action level of RBC (known as the “RBC ratio”), also as defined by the NAIC.  The company action level may be triggered if the RBC ratio is between 75% and 100%, which would require the insurer to submit a plan to the regulator detailing corrective action it proposes to undertake.  As of December 31, 2019, the Company’s RBC ratio was in excess of four times the aforementioned company action level.



We are subject to certain insurance department regulatory restrictions as to the transfer of funds and payment of dividends to the holding company.  Under Indiana laws and regulations, LNL may pay dividends to LNC without prior approval of the Indiana Insurance Commissioner (the “Commissioner”), only from unassigned surplus and must receive prior approval of the Commissioner to pay a dividend if such dividend, along with all other dividends paid within the preceding 12 consecutive months, would exceed the statutory limitation.  The current statutory limitation is the greater of 10% of the insurer’s contract holders’ surplus, as shown on its last annual statement on file with the Commissioner or the insurer’s statutory net gain from operations for the previous 12 months, but in no event to exceed statutory unassigned surplus.  Indiana law gives the Commissioner broad discretion to disapprove requests for dividends in excess of these limits.  LNL’s subsidiaries, LLANY, a New York-domiciled insurance company, and LLACB, a New Hampshire-domiciled company, are bound by similar restrictions, under the laws of New York and New Hampshire, respectively.  Under both New York and New Hampshire law, the applicable statutory limitation on dividends is equal to the lesser of 10% of surplus to contract holders as of the immediately preceding calendar year or net gain from operations for the immediately preceding calendar year, not including realized capital gains.  We expect that we could pay dividends to LNC of approximately $815 million in 2020 without prior approval from the Commissioner of Insurance.



All payments of principal and interest on surplus notes must be approved by the respective Commissioner of Insurance.







63

 

 

20.    Fair Value of Financial Instruments



The carrying values and estimated fair values of our financial instruments (in millions) were as follows:









 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



As of December 31, 2019

 

As of December 31, 2018

 



Carrying

 

Fair

 

Carrying

 

Fair

 



Value

 

Value

 

Value

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities

$

 103,773

 

$

 103,773

 

$

 92,787

 

$

 92,787

 

Trading securities

 

 4,602

 

 

 4,602

 

 

 1,869

 

 

 1,869

 

Equity securities

 

 103

 

 

 103

 

 

 99

 

 

 99

 

Mortgage loans on real estate

 

 16,244

 

 

 16,774

 

 

 13,190

 

 

 13,020

 

Derivative investments (1)

 

 1,911

 

 

 1,911

 

 

 1,081

 

 

 1,081

 

Other investments

 

 2,554

 

 

 2,554

 

 

 1,951

 

 

 1,951

 

Cash and invested cash

 

 1,879

 

 

 1,879

 

 

 1,848

 

 

 1,848

 

Reinsurance related embedded derivatives

 

 -

 

 

 -

 

 

 188

 

 

 188

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 450

 

 

 450

 

 

 123

 

 

 123

 

GLB ceded embedded derivatives

 

 60

 

 

 60

 

 

 72

 

 

 72

 

Indexed annuity ceded embedded derivatives

 

 927

 

 

 927

 

 

 902

 

 

 902

 

Separate account assets

 

 153,571

 

 

 153,571

 

 

 132,833

 

 

 132,833

 



 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 (2,585

)

 

 (2,585

)

 

 (1,305

)

 

 (1,305

)

Other contract holder funds:

 

 

 

 

 

 

 

 

 

 

 

 

Remaining guaranteed interest and similar contracts

 

 (1,900

)

 

 (1,900

)

 

 (542

)

 

 (542

)

Account values of certain investment contracts

 

 (38,606

)

 

 (46,781

)

 

 (34,500

)

 

 (36,321

)

Short-term debt

 

 (609

)

 

 (609

)

 

 (288

)

 

 (288

)

Long-term debt

 

 (2,414

)

 

 (2,714

)

 

 (2,401

)

 

 (2,519

)

Reinsurance related embedded derivatives

 

 (375

)

 

 (375

)

 

 -

 

 

 -

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

 (238

)

 

 (238

)

 

 (226

)

 

 (226

)

GLB ceded embedded derivatives

 

 (510

)

 

 (510

)

 

 (196

)

 

 (196

)

Benefit Plans’ Assets (2)

 

 118

 

 

 118

 

 

 115

 

 

 115

 



(1)

We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty.

(2)

Included in the funded statuses of the benefit plans, which is reported in other liabilities on our Consolidated Balance Sheets.  Refer to Note 17 for information regarding our benefit plans.



Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value



The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets.  Considerable judgment is required to develop these assumptions used to measure fair value.  Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments. 



Mortgage Loans on Real Estate



The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income.  The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record.  The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent.  The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy. 



64

 

 

Other Investments



The carrying value of our assets classified as other investments approximates fair value.  Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs.  Other investments also includes Federal Home Loan Bank (“FHLB”) stock carried at cost and periodically evaluated for impairment based on ultimate recovery of par value.  The inputs used to measure the fair value of our LPs, other privately held investments and FHLB stock are classified as Level 3 within the fair value hierarchy.  The remaining assets in other investments include cash collateral receivables and securities that are not LPs or other privately held investments.  The inputs used to measure the fair value of these assets are classified as Level 1 within the fair value hierarchy.



Separate Account Assets



Separate account assets are primarily carried at fair value.  A portion of our separate account assets includes LPs, which are accounted for using the equity method of accounting.  The carrying value is based on our proportional share of the net assets of the LPs and approximates fair value.  The inputs used to measure the fair value of the separate account asset LPs are classified as Level 3 within the fair value hierarchy.



Other Contract Holder Funds



Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts.  The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date.  These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued.  As of December 31, 2019 and 2018, the remaining guaranteed interest and similar contracts carrying value approximated fair value.  The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date.  The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.



Short-Term and Long-Term Debt    



The fair value of short-term and long-term debt is based on quoted market prices.  The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy.   



Financial Instruments Carried at Fair Value



We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of December 31, 2019 or 2018, and we noted no changes in our valuation methodologies between these periods. 



65

 

 

The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described above:









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2019

 



 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Prices

 

 

 

 

 

 

 

 

 

 

 

 

 



 

in Active

 

 

 

 

 

 

 

 

 

 

 

 

 



Markets for

Significant

Significant

 

 

 

 



 

Identical

 

Observable

Unobservable

 

Total

 



 

Assets

 

 

Inputs

 

 

Inputs

 

 

Fair

 



 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 -

 

 

$

 80,801

 

 

$

 6,978

 

 

$

 87,779

 

U.S. government bonds

 

 

 391

 

 

 

 7

 

 

 

 5

 

 

 

 403

 

State and municipal bonds

 

 

 -

 

 

 

 5,685

 

 

 

 -

 

 

 

 5,685

 

Foreign government bonds

 

 

 -

 

 

 

 298

 

 

 

 90

 

 

 

 388

 

RMBS

 

 

 -

 

 

 

 2,997

 

 

 

 11

 

 

 

 3,008

 

CMBS

 

 

 -

 

 

 

 1,082

 

 

 

 1

 

 

 

 1,083

 

ABS

 

 

 -

 

 

 

 4,615

 

 

 

 268

 

 

 

 4,883

 

Hybrid and redeemable preferred securities

 

 

 77

 

 

 

 389

 

 

 

 78

 

 

 

 544

 

Trading securities

 

 

 50

 

 

 

 3,886

 

 

 

 666

 

 

 

 4,602

 

Equity securities

 

 

 25

 

 

 

 48

 

 

 

 30

 

 

 

 103

 

Derivative investments (1)

 

 

 -

 

 

 

 1,089

 

 

 

 1,735

 

 

 

 2,824

 

Cash and invested cash

 

 

 -

 

 

 

 1,879

 

 

 

 -

 

 

 

 1,879

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 450

 

 

 

 450

 

GLB ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 60

 

 

 

 60

 

Indexed annuity ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 927

 

 

 

 927

 

Separate account assets

 

 

 644

 

 

 

 152,916

 

 

 

 -

 

 

 

 153,560

 

Total assets

 

$

 1,187

 

 

$

 255,692

 

 

$

 11,299

 

 

$

 268,178

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

$

 -

 

 

$

 -

 

 

$

 (2,585

)

 

$

 (2,585

)

Reinsurance related embedded derivatives

 

 

 -

 

 

 

 (375

)

 

 

 -

 

 

 

 (375

)

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

 

 -

 

 

 

 (284

)

 

 

 (867

)

 

 

 (1,151

)

GLB ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 (510

)

 

 

 (510

)

Total liabilities

 

$

 -

 

 

$

 (659

)

 

$

 (3,962

)

 

$

 (4,621

)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit Plans’ Assets

 

$

 -

 

 

$

 118

 

 

$

 -

 

 

$

 118

 







 



66

 

 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of December 31, 2018

 



 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Prices

 

 

 

 

 

 

 

 

 

 

 

 

 



 

in Active

 

 

 

 

 

 

 

 

 

 

 

 

 



Markets for

Significant

Significant

 

 

 

 



 

Identical

 

Observable

Unobservable

 

Total

 



 

Assets

 

 

Inputs

 

 

Inputs

 

 

Fair

 



 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

 -

 

 

$

 73,897

 

 

$

 5,652

 

 

$

 79,549

 

U.S. government bonds

 

 

 368

 

 

 

 18

 

 

 

 -

 

 

 

 386

 

State and municipal bonds

 

 

 -

 

 

 

 5,184

 

 

 

 -

 

 

 

 5,184

 

Foreign government bonds

 

 

 -

 

 

 

 335

 

 

 

 109

 

 

 

 444

 

RMBS

 

 

 -

 

 

 

 3,157

 

 

 

 7

 

 

 

 3,164

 

CMBS

 

 

 -

 

 

 

 801

 

 

 

 2

 

 

 

 803

 

ABS

 

 

 -

 

 

 

 2,544

 

 

 

 134

 

 

 

 2,678

 

Hybrid and redeemable preferred securities

 

 

 66

 

 

 

 438

 

 

 

 75

 

 

 

 579

 

Trading securities

 

 

 43

 

 

 

 1,759

 

 

 

 67

 

 

 

 1,869

 

Equity securities

 

 

 16

 

 

 

 58

 

 

 

 25

 

 

 

 99

 

Derivative investments (1)

 

 

 -

 

 

 

 636

 

 

 

 704

 

 

 

 1,340

 

Cash and invested cash

 

 

 -

 

 

 

 1,848

 

 

 

 -

 

 

 

 1,848

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 

 188

 

 

 

 -

 

 

 

 188

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 123

 

 

 

 123

 

GLB ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 72

 

 

 

 72

 

Indexed annuity ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 902

 

 

 

 902

 

Separate account assets

 

 

 665

 

 

 

 132,135

 

 

 

 -

 

 

 

 132,800

 

Total assets

 

$

 1,158

 

 

$

 222,998

 

 

$

 7,872

 

 

$

 232,028

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

$

 -

 

 

$

 -

 

 

$

 (1,305

)

 

$

 (1,305

)

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities (1)

 

 

 -

 

 

 

 (314

)

 

 

 (171

)

 

 

 (485

)

GLB ceded embedded derivatives

 

 

 -

 

 

 

 -

 

 

 

 (196

)

 

 

 (196

)

Total liabilities

 

$

 -

 

 

$

 (314

)

 

$

 (1,672

)

 

$

 (1,986

)



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Benefit Plans’ Assets

 

$

 -

 

 

$

 115

 

 

$

 -

 

 

$

 115

 



(1)

Derivative investment assets and liabilities are presented within the fair value hierarchy on a gross basis by derivative type and not on a master netting basis by counterparty. 

67

 

 

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy.  This summary excludes any effect of amortization of DAC, VOBA, DSI and DFEL.  The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2019

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into or

 

 

 

 



 

 

 

Included

 

in

Maturities,

Out

 

 

 

 



Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 



Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 



Value

 

Income

 

Other (1)

 

Net

 

Net (3)

 

Value

 

Investments: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 5,652

 

$

 3

 

$

 177

 

$

 1,195

 

$

 (49

)

$

 6,978

 

U.S. government bonds

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 5

 

 

 5

 

Foreign government bonds

 

 109

 

 

 -

 

 

 6

 

 

 (25

)

 

 -

 

 

 90

 

RMBS

 

 7

 

 

 -

 

 

 -

 

 

 21

 

 

 (17

)

 

 11

 

CMBS

 

 2

 

 

 1

 

 

 -

 

 

 5

 

 

 (7

)

 

 1

 

ABS

 

 134

 

 

 -

 

 

 1

 

 

 619

 

 

 (486

)

 

 268

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 75

 

 

 -

 

 

 3

 

 

 -

 

 

 -

 

 

 78

 

Trading securities

 

 67

 

 

 17

 

 

 -

 

 

 850

 

 

 (268

)

 

 666

 

Equity securities

 

 25

 

 

 (12

)

 

 -

 

 

 17

 

 

 -

 

 

 30

 

Derivative investments

 

 533

 

 

 9

 

 

 164

 

 

 162

 

 

 -

 

 

 868

 

Other assets: (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 123

 

 

 327

 

 

 -

 

 

 -

 

 

 -

 

 

 450

 

GLB ceded embedded derivatives

 

 72

 

 

 (12

)

 

 -

 

 

 -

 

 

 -

 

 

 60

 

Indexed annuity ceded embedded derivatives

 

 902

 

 

 158

 

 

 -

 

 

 (133

)

 

 -

 

 

 927

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (6)

 

 (1,305

)

 

 (900

)

 

 -

 

 

 (380

)

 

 -

 

 

 (2,585

)

Other liabilities – GLB ceded embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives (6)

 

 (196

)

 

 (314

)

 

 -

 

 

 -

 

 

 -

 

 

 (510

)

Total, net

$

 6,200

 

$

 (723

)

$

 351

 

$

 2,331

 

$

 (822

)

$

 7,337

 



68

 

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2018

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into or

 

 

 

 



 

 

 

Included

 

in

Maturities,

Out

 

 

 

 



Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 



Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 



Value

 

Income

 

Other (1)

 

Net (2)

 

Net (3)(4)

 

Value

 

Investments: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 5,350

 

$

 10

 

$

 (198

)

$

 542

 

$

 (52

)

$

 5,652

 

U.S. government bonds

 

 5

 

 

 -

 

 

 -

 

 

 (5

)

 

 -

 

 

 -

 

Foreign government bonds

 

 110

 

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 109

 

RMBS

 

 12

 

 

 -

 

 

 -

 

 

 7

 

 

 (12

)

 

 7

 

CMBS

 

 6

 

 

 -

 

 

 -

 

 

 35

 

 

 (39

)

 

 2

 

ABS

 

 117

 

 

 -

 

 

 -

 

 

 223

 

 

 (206

)

 

 134

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 76

 

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 75

 

Equity AFS securities

 

 161

 

 

 -

 

 

 -

 

 

 -

 

 

 (161

)

 

 -

 

Trading securities

 

 49

 

 

 (5

)

 

 -

 

 

 30

 

 

 (7

)

 

 67

 

Equity securities

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 26

 

 

 25

 

Derivative investments

 

 30

 

 

 168

 

 

 (74

)

 

 409

 

 

 -

 

 

 533

 

Other assets: (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 903

 

 

 (780

)

 

 -

 

 

 -

 

 

 -

 

 

 123

 

GLB ceded embedded derivatives

 

 51

 

 

 21

 

 

 -

 

 

 -

 

 

 -

 

 

 72

 

Indexed annuity ceded embedded derivatives

 

 11

 

 

 (117

)

 

 -

 

 

 1,008

 

 

 -

 

 

 902

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (6)

 

 (1,418

)

 

 198

 

 

 -

 

 

 (85

)

 

 -

 

 

 (1,305

)

Other liabilities – GLB ceded embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives (6)

 

 (954

)

 

 758

 

 

 -

 

 

 -

 

 

 -

 

 

 (196

)

Total, net

$

 4,509

 

$

 252

 

$

 (274

)

$

 2,164

 

$

 (451

)

$

 6,200

 



69

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 



 

 

 

Items

 

(Losses)

Sales,

Into or

 

 

 

 



 

 

 

Included

 

in

Maturities,

Out

 

 

 

 



Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 



Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 



Value

 

Income

 

Other (1)

 

Net

 

Net (3)

 

Value

 

Investments: (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 4,809

 

$

 17

 

$

 199

 

$

 (45

)

$

 370

 

$

 5,350

 

U.S. government bonds

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 5

 

 

 5

 

Foreign government bonds

 

 111

 

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 110

 

RMBS

 

 3

 

 

 -

 

 

 -

 

 

 19

 

 

 (10

)

 

 12

 

CMBS

 

 7

 

 

 -

 

 

 1

 

 

 54

 

 

 (56

)

 

 6

 

ABS

 

 101

 

 

 -

 

 

 -

 

 

 124

 

 

 (108

)

 

 117

 

State and municipal bonds

 

 -

 

 

 (1

)

 

 -

 

 

 -

 

 

 1

 

 

 -

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 76

 

 

 -

 

 

 14

 

 

 -

 

 

 (14

)

 

 76

 

Equity AFS securities

 

 177

 

 

 1

 

 

 (3

)

 

 (13

)

 

 (1

)

 

 161

 

Trading securities

 

 65

 

 

 3

 

 

 8

 

 

 (26

)

 

 (1

)

 

 49

 

Derivative investments

 

 (93

)

 

 (27

)

 

 127

 

 

 23

 

 

 -

 

 

 30

 

Other assets: (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 -

 

 

 903

 

 

 -

 

 

 -

 

 

 -

 

 

 903

 

GLB ceded embedded derivatives

 

 371

 

 

 (320

)

 

 -

 

 

 -

 

 

 -

 

 

 51

 

Indexed annuity ceded embedded derivatives

 

 -

 

 

 -

 

 

 -

 

 

 11

 

 

 -

 

 

 11

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives (6)

 

 (1,139

)

 

 (400

)

 

 -

 

 

 121

 

 

 -

 

 

 (1,418

)

Other liabilities: (6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct embedded derivatives

 

 (371

)

 

 371

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

GLB ceded embedded derivatives

 

 -

 

 

 (954

)

 

 -

 

 

 -

 

 

 -

 

 

 (954

)

Total, net

$

 4,117

 

$

 (407

)

$

 345

 

$

 268

 

$

 186

 

$

 4,509

 



(1)

The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).

(2)

Issuances, sales, maturities, settlements, calls, net, includes financial instruments acquired in the Liberty Life transaction as follows:  corporate bonds of $67 million and ABS of $17 million.

(3)

Transfers into or out of Level 3 for fixed maturity AFS and trading securities are reported at amortized cost as of the beginning-of-year.  For fixed maturity AFS and trading securities, the difference between beginning-of-year amortized cost and beginning-of-year fair value was included in OCI and earnings, respectively, in the prior years.

(4)

Transfers into or out of Level 3 for FHLB stock between equity securities and other investments are reported at cost on our Consolidated Balance Sheets.

(5)

Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).  Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

(6)

Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

70

 

 

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above: 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2019

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 1,502

 

$

 (45

)

$

 (78

)

$

 (154

)

$

 (30

)

$

 1,195

 

Foreign government bonds

 

 -

 

 

 -

 

 

 (25

)

 

 -

 

 

 -

 

 

 (25

)

RMBS

 

 21

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 21

 

CMBS

 

 7

 

 

 -

 

 

 -

 

 

 (2

)

 

 -

 

 

 5

 

ABS

 

 646

 

 

 (8

)

 

 -

 

 

 (19

)

 

 -

 

 

 619

 

Trading securities

 

 872

 

 

 -

 

 

 -

 

 

 (22

)

 

 -

 

 

 850

 

Equity securities

 

 50

 

 

 (33

)

 

 -

 

 

 -

 

 

 -

 

 

 17

 

Derivative investments

 

 555

 

 

 (61

)

 

 (332

)

 

 -

 

 

 -

 

 

 162

 

Other assets – indexed annuity ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 56

 

 

 -

 

 

 -

 

 

 (189

)

 

 -

 

 

 (133

)

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 (591

)

 

 -

 

 

 -

 

 

 211

 

 

 -

 

 

 (380

)

Total, net

$

 3,118

 

$

 (147

)

$

 (435

)

$

 (175

)

$

 (30

)

$

 2,331

 











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2018

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 1,068

 

$

 (171

)

$

 (3

)

$

 (275

)

$

 (77

)

$

 542

 

U.S. government bonds

 

 -

 

 

 (5

)

 

 -

 

 

 -

 

 

 -

 

 

 (5

)

RMBS

 

 7

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 7

 

CMBS

 

 39

 

 

 -

 

 

 -

 

 

 (4

)

 

 -

 

 

 35

 

ABS

 

 240

 

 

 (17

)

 

 -

 

 

 -

 

 

 -

 

 

 223

 

Trading securities

 

 54

 

 

 (24

)

 

 -

 

 

 -

 

 

 -

 

 

 30

 

Equity securities

 

 1

 

 

 (1

)

 

 -

 

 

 -

 

 

 -

 

 

 -

 

Derivative investments

 

 365

 

 

 465

 

 

 (421

)

 

 -

 

 

 -

 

 

 409

 

Other assets – indexed annuity ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 1,030

 

 

 -

 

 

 -

 

 

 (22

)

 

 -

 

 

 1,008

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 (284

)

 

 -

 

 

 -

 

 

 199

 

 

 -

 

 

 (85

)

Total, net

$

 2,520

 

$

 247

 

$

 (424

)

$

 (102

)

$

 (77

)

$

 2,164

 









71

 

 





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 850

 

$

 (448

)

$

 (98

)

$

 (205

)

$

 (144

)

$

 (45

)

RMBS

 

 19

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 19

 

CMBS

 

 55

 

 

 -

 

 

 -

 

 

 (1

)

 

 -

 

 

 54

 

ABS

 

 124

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 124

 

Equity AFS securities

 

 18

 

 

 (31

)

 

 -

 

 

 -

 

 

 -

 

 

 (13

)

Trading securities

 

 2

 

 

 (27

)

 

 -

 

 

 (1

)

 

 -

 

 

 (26

)

Derivative investments

 

 197

 

 

 233

 

 

 (407

)

 

 -

 

 

 -

 

 

 23

 

Other assets – indexed annuity ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 11

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 

 11

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and IUL contracts embedded derivatives

 

 (71

)

 

 -

 

 

 -

 

 

 192

 

 

 -

 

 

 121

 

Total, net

$

 1,205

 

$

 (273

)

$

 (505

)

$

 (15

)

$

 (144

)

$

 268

 



The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Derivative investments

$

 168

 

$

 90

 

$

 (266

)

Embedded derivatives:

 

 

 

 

 

 

 

 

 

Indexed annuity and IUL contracts

 

 (97

)

 

 (38

)

 

 (14

)

Other assets – GLB direct and ceded

 

 1,015

 

 

 (75

)

 

 1,904

 

Other liabilities – GLB direct and ceded

 

 (1,015

)

 

 75

 

 

 (1,904

)

Total, net (1)

$

 71

 

$

 52

 

$

 (280

)



(1)

Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). 



The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2019

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 173

 

$

 (222

)

$

 (49

)

U.S. government bonds

 

 5

 

 

 -

 

 

 5

 

RMBS

 

 -

 

 

 (17

)

 

 (17

)

CMBS

 

 -

 

 

 (7

)

 

 (7

)

ABS

 

 9

 

 

 (495

)

 

 (486

)

Trading securities

 

 5

 

 

 (273

)

 

 (268

)

Total, net

$

 192

 

$

 (1,014

)

$

 (822

)





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

72

 

 



For the Year Ended December 31, 2018

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 78

 

$

 (130

)

$

 (52

)

RMBS

 

 -

 

 

 (12

)

 

 (12

)

CMBS

 

 1

 

 

 (40

)

 

 (39

)

ABS

 

 -

 

 

 (206

)

 

 (206

)

Equity AFS securities

 

 -

 

 

 (161

)

 

 (161

)

Trading securities

 

 -

 

 

 (7

)

 

 (7

)

Equity securities

 

 26

 

 

 -

 

 

 26

 

Total, net

$

 105

 

$

 (556

)

$

 (451

)









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Year Ended December 31, 2017

 



Transfers

 

Transfers

 

 

 

 



Into

 

Out of

 

 

 

 



Level 3

 

Level 3

 

Total

 

Investments:

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 458

 

$

 (88

)

$

 370

 

U.S. government bonds

 

 5

 

 

 -

 

 

 5

 

RMBS

 

 -

 

 

 (10

)

 

 (10

)

CMBS

 

 3

 

 

 (59

)

 

 (56

)

ABS

 

 44

 

 

 (152

)

 

 (108

)

State and municipal bonds

 

 2

 

 

 (1

)

 

 1

 

Hybrid and redeemable preferred securities

 

 -

 

 

 (14

)

 

 (14

)

Equity AFS securities

 

 -

 

 

 (1

)

 

 (1

)

Trading securities

 

 4

 

 

 (5

)

 

 (1

)

Total, net

$

 516

 

$

 (330

)

$

 186

 



Transfers into and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors.  For the years ended December 31, 2019, 2018 and 2017, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available.  In 2018, transfers into or out of Level 3 also included FHLB stock between equity securities and other investments at cost on our Consolidated Balance Sheets. 

73

 

 

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of December 31, 2019:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Fair

 

Valuation

 

Significant

 

Assumption or

 



Value

 

Technique

 

Unobservable Inputs

 

Input Ranges

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS and trading

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

 2,996

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 0.1

%

 

-

 6.4

%

 

Foreign government bonds

 

 52

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 2.1

%

 

-

 2.5

%

 

ABS

 

 22

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 3.0

%

 

-

 3.0

%

 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 4

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 1.4

%

 

-

 1.4

%

 

Equity securities

 

 21

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 

 4.5

%

 

-

 5.2

%

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GLB direct and ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 510

 

Discounted cash flow

 

Long-term lapse rate (2)

 

 1

%

 

-

 30

%

 



 

 

 

 

 

 

Utilization of guaranteed withdrawals (3)

 85

%

 

-

 100

%

 



 

 

 

 

 

 

Claims utilization factor (4)

 

 60

%

 

-

 100

%

 



 

 

 

 

 

 

Premiums utilization factor (4)

 

 80

%

 

-

 115

%

 



 

 

 

 

 

 

NPR (5)

 

 0.01

%

 

-

 0.27

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 



 

 

 

 

 

 

Volatility (7)

 

 1

%

 

-

 28

%

 

Indexed annuity ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 927

 

Discounted cash flow

 

Lapse rate (2)

 

 1

%

 

-

 9

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

annuity and IUL contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

$

 (2,585

)

Discounted cash flow

 

Lapse rate (2)

 

 1

%

 

-

 9

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 

Other liabilities – GLB ceded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 (510

)

Discounted cash flow

 

Long-term lapse rate (2)

 

 1

%

 

-

 30

%

 



 

 

 

 

 

 

Utilization of guaranteed withdrawals (3)

 85

%

 

-

 100

%

 



 

 

 

 

 

 

Claims utilization factor (4)

 

 60

%

 

-

 100

%

 



 

 

 

 

 

 

Premiums utilization factor (4)

 

 80

%

 

-

 115

%

 



 

 

 

 

 

 

NPR (5)

 

 0.01

%

 

-

 0.27

%

 



 

 

 

 

 

 

Mortality rate (6)

 

 

 

 

 

(8)

 

 



 

 

 

 

 

 

Volatility (7)

 

 1

%

 

-

 28

%

 

(1)

The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.

(2)

The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits.  The range for indexed annuity and IUL contracts represents the lapse rates during the surrender charge period.

(3)

The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

(4)

The utilization factors are applied to the present value of claims or premiums, as appropriate, in the GLB reserve calculation to estimate the impact of inefficient withdrawal behavior, including taking less than or more than the maximum guaranteed withdrawal.

(5)

The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.

(6)

The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die. 

(7)

The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets.  Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation.

(8)

The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.

74

 

 

From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources.  We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us.  Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants.  The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability.  Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement. 



Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:



·

Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement.

·

Indexed annuity and IUL contracts embedded derivatives – For direct embedded derivatives, an increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement. 

·

GLB embedded derivatives – Assuming our GLB direct embedded derivatives are in a liability position:  an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs would result in an increase in the fair value measurement.



For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs. 



As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary.  For more information, see “Summary of Significant Accounting Policies” above.



21.  Segment Information



We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments.  As discussed in Note 3, we completed the acquisition of Liberty Life during the second quarter of 2018.  Related results are included within the Group Protection segment.  We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments.  Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business.  The following is a brief description of these segments and Other Operations.



The Annuities segment provides tax-deferred investment growth and lifetime income opportunities for its clients by offering fixed (including indexed) and variable annuities.



The Retirement Plan Services segment provides employer-sponsored defined benefit and individual retirement accounts, as well as individual and group variable annuities, group fixed annuities and mutual-fund based programs in the retirement plan marketplace. 



The Life Insurance segment focuses in the creation and protection of wealth through life insurance products, including term insurance, a linked-benefit product (which is a UL policy linked with riders that provide for long-term care costs), IUL and both single and survivorship versions of UL and VUL, including corporate-owned UL and VUL insurance and bank-owned UL and VUL insurance products.



The Group Protection segment offers group non-medical insurance products, including short and long-term disability, absence management services, term life, dental, vision and accident and critical illness benefits and services to the employer marketplace through various forms of employee-paid and employer-paid plans. 



Other Operations includes investments related to our excess capital; benefit plan net liability; the unamortized deferred gain on indemnity reinsurance related to the sale of reinsurance; the results of certain disability income business; our run-off institutional pension business, the majority of which was sold on a group annuity basis; debt costs; strategic digitization expense; and other corporate investments.



Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments.  Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable:



·

Realized gains and losses associated with the following (“excluded realized gain (loss)”):

§

Sales or disposals and impairments of securities;

§

Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities (“gain (loss) on the mark-to-market on certain instruments”);

§

GLB rider fees ceded to LNBAR;

§

The net valuation premium of the GLB attributed rider fees;

75

 

 

§

Changes in the fair value of the embedded derivative liabilities related to index options we may purchase or sell in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value (“indexed annuity forward-starting option”); and

§

Changes in the fair value of equity securities;

·

Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;

·

Gains (losses) on early extinguishment of debt;

·

Losses from the impairment of intangible assets;

·

Income (loss) from discontinued operations;

·

Acquisition and integration costs related to mergers and acquisitions; and

·

Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act.



Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:



·

Excluded realized gain (loss);

·

Revenue adjustments from the initial adoption of new accounting standards;

·

Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and

·

Amortization of deferred gains arising from reserve changes on business sold through reinsurance.



We use our prevailing corporate federal income tax rates of 21% and 35%, where applicable, while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our segment measures of performance to the GAAP measures presented in our consolidated results of operations.  Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our consolidated results of operations.



The tables below reconcile our segment measures of performance to the GAAP measures presented in our Consolidated Statements of Comprehensive Income (Loss) (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

Operating revenues:

 

 

 

 

 

 

 

 

 

Annuities

$

 4,240

 

$

 4,025

 

$

 4,034

 

Retirement Plan Services

 

 1,186

 

 

 1,164

 

 

 1,152

 

Life Insurance

 

 6,999

 

 

 6,489

 

 

 6,128

 

Group Protection

 

 4,587

 

 

 3,756

 

 

 2,200

 

Other Operations

 

 199

 

 

 209

 

 

 263

 

Excluded realized gain (loss), pre-tax

 

 (1,019

)

 

 (285

)

 

 (630

)

Amortization of deferred gain arising from reserve changes

 

 

 

 

 

 

 

 

 

on business sold through reinsurance, pre-tax

 

 -

 

 

 -

 

 

 1

 

Total revenues

$

 16,192

 

$

 15,358

 

$

 13,148

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



 

2019

 

 

2018

 

 

2017

 

Net Income (Loss)

 

 

 

 

 

 

 

 

 

Income (loss) from operations:

 

 

 

 

 

 

 

 

 

Annuities

$

 987

 

$

 1,122

 

$

 1,072

 

Retirement Plan Services

 

 162

 

 

 160

 

 

 142

 

Life Insurance

 

 267

 

 

 530

 

 

 522

 

Group Protection

 

 237

 

 

 186

 

 

 103

 

Other Operations

 

 (148

)

 

 (130

)

 

 (30

)

Excluded realized gain (loss), after-tax

 

 (804

)

 

 (225

)

 

 (409

)

Gain (loss) on early extinguishment of debt, after-tax

 

 -

 

 

 -

 

 

 (3

)

Net impact from the Tax Cuts and Jobs Act

 

 16

 

 

 (3

)

 

 1,526

 

Impairment of intangibles, after-tax

 

 -

 

 

 -

 

 

 (905

)

Acquisition and integration costs related to mergers and acquisitions, after-tax

 

 (103

)

 

 (67

)

 

 -

 

Net income (loss)

$

 614

 

$

 1,573

 

$

 2,018

 





76

 

 

Other segment information (in millions) was as follows: 



 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Net Investment Income

 

 

 

 

 

 

 

 

 

Annuities

$

 1,070 

 

$

 947 

 

$

 982 

 

Retirement Plan Services

 

 917 

 

 

 892 

 

 

 893 

 

Life Insurance

 

 2,494 

 

 

 2,546 

 

 

 2,496 

 

Group Protection

 

 306 

 

 

 259 

 

 

 167 

 

Other Operations

 

 175 

 

 

 200 

 

 

 222 

 

Total net investment income

$

 4,962 

 

$

 4,844 

 

$

 4,760 

 





 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Amortization of DAC and VOBA, Net of Interest

 

 

 

 

 

 

 

 

 

Annuities

$

 427 

 

$

 347 

 

$

 402 

 

Retirement Plan Services

 

 25 

 

 

 27 

 

 

 26 

 

Life Insurance

 

 757 

 

 

 701 

 

 

 455 

 

Group Protection

 

 111 

 

 

 92 

 

 

 79 

 

Total amortization of DAC and VOBA, net of interest

$

 1,320 

 

$

 1,167 

 

$

 962 

 









 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Federal Income Tax Expense (Benefit)

 

 

 

 

 

 

 

 

 

Annuities

$

 148

 

$

 187

 

$

 198

 

Retirement Plan Services

 

 21

 

 

 28

 

 

 50

 

Life Insurance

 

 50

 

 

 116

 

 

 236

 

Group Protection

 

 63

 

 

 50

 

 

 55

 

Other Operations

 

 (61

)

 

 (48

)

 

 (78

)

Excluded realized gain (loss)

 

 (215

)

 

 (61

)

 

 (220

)

Gain (loss) on early extinguishment of debt

 

 -

 

 

 -

 

 

 (2

)

Net impact from the Tax Cuts and Jobs Act

 

 (16

)

 

 3

 

 

 (1,526

)

Acquisition and integration costs related to

 

 

 

 

 

 

 

 

 

mergers and acquisitions

 

 (27

)

 

 (18

)

 

 -

 

Total federal income tax expense (benefit)

$

 (37

)

$

 257

 

$

 (1,287

)









 

 

 

 

 

 



 

 

 

 

 

 



As of December 31,

 



2019

 

2018

 

Assets

 

 

 

 

 

 

Annuities

$

 166,639 

 

$

 145,462 

 

Retirement Plan Services

 

 40,190 

 

 

 35,742 

 

Life Insurance

 

 93,327 

 

 

 82,153 

 

Group Protection

 

 9,468 

 

 

 8,495 

 

Other Operations

 

 26,392 

 

 

 27,293 

 

Total assets

$

 336,016 

 

$

 299,145 

 



77

 

 



22.  Supplemental Disclosures of Cash Flow Data



The following summarizes our supplemental cash flow data (in millions):







 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 



For the Years Ended December 31,

 



2019

 

2018

 

2017

 

Interest paid

$

 152

 

$

 154

 

$

 123

 

Income taxes paid (received)

 

 245

 

 

 192

 

 

 215

 

Significant non-cash investing and financing transactions:

 

 

 

 

 

 

 

 

 

Reduction of other assets in connection with

 

 

 

 

 

 

 

 

 

the expiration of an affiliate repurchase agreement

 

 (150

)

 

 -

 

 

 -

 

Acquisition of note receivable from affiliate

 

 392

 

 

 31

 

 

 74

 

Investments received in financing transactions

 

 -

 

 

 263

 

 

 -

 

Exchange of surplus note for promissory note with affiliate:

 

 

 

 

 

 

 

 

 

Carrying value of asset

 

 40

 

 

 58

 

 

 109

 

Carrying value of liability

 

 (40

)

 

 (58

)

 

 (109

)

Net asset (liability) from exchange

$

 -

 

$

 -

 

$

 -

 







23.  Quarterly Results of Operations (Unaudited)



The unaudited quarterly results of operations (in millions) were as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Three Months Ended

 

 



March 31,

 

June 30,

 

September 30,

December 31,

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

 3,764

 

$

 3,928

 

 

$

 4,227

 

 

$

 4,273

 

 

Total expenses

 

 3,646

 

 

 3,686

 

 

 

 4,526

 

 

 

 3,757

 

 

Net income (loss)

 

 133

 

 

 222

 

 

 

 (201

)

 

 

 460

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

$

 3,404

 

$

 3,852

 

 

$

 4,039

 

 

$

 4,063

 

 

Total expenses

 

 2,921

 

 

 3,357

 

 

 

 3,619

 

 

 

 3,631

 

 

Net income (loss)

 

 407

 

 

 420

 

 

 

 378

 

 

 

 368

 

 



78

 

 

 

24.  Transactions with Affiliates

 

The following summarizes transactions with affiliates (in millions) and the associated line item on our Consolidated Balance Sheets:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

As of December 31,

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

2019

 

 

2018

 

 

 

 

 

 

 

Assets with affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inter-company notes

 

$

 1,557

 

 

$

 1,512

 

 

 

Fixed maturity AFS securities

Ceded reinsurance contracts

 

 

 (115

)

 

 

 (188

)

 

 

Deferred acquisition costs and value of



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

business acquired

Accrued inter-company interest receivable

 

 

 6

 

 

 

 11

 

 

 

Accrued investment income

Ceded reinsurance contracts

 

 

 2,473

 

 

 

 2,574

 

 

 

Reinsurance recoverables

Ceded reinsurance contracts

 

 

 -

 

 

 

 191

 

 

 

Reinsurance related embedded derivatives

Ceded reinsurance contracts

 

 

 228

 

 

 

 235

 

 

 

Other assets

Cash management agreement

 

 

 1,227

 

 

 

 112

 

 

 

Other assets

Service agreement receivable 

 

 

 6

 

 

 

 5

 

 

 

Other assets



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities with affiliates:

 

 

 

 

 

 

 

 

 

 

 

Assumed reinsurance contracts

 

 

 26

 

 

 

 29

 

 

 

Future contract benefits

Assumed reinsurance contracts

 

 

 390

 

 

 

 400

 

 

 

Other contract holder funds

Ceded reinsurance contracts

 

 

 (38

)

 

 

 (46

)

 

 

Other contract holder funds

Inter-company short-term debt

 

 

 609

 

 

 

 288

 

 

 

Short-term debt

Inter-company long-term debt    

 

 

 2,414

 

 

 

 2,401

 

 

 

Long-term debt

Ceded reinsurance contracts

 

 

 46

 

 

 

 -

 

 

 

Reinsurance related embedded derivatives

Ceded reinsurance contracts

 

 

 3,757

 

 

 

 3,120

 

 

 

Funds withheld reinsurance liabilities

Ceded reinsurance contracts

 

 

 497

 

 

 

 325

 

 

 

Other liabilities

Accrued inter-company interest payable

 

 

 5

 

 

 

 13

 

 

 

Other liabilities

Service agreement payable

 

 

 22

 

 

 

 56

 

 

 

Other liabilities



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following summarizes transactions with affiliates (in millions) and the associated line item on our Consolidated Statements of Comprehensive Income (Loss):









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

For the Years Ended December 31,

 

 

 



 

 

 

 

 

 

 

 

2019

 

2018

 

2017

 

 

 

Revenues with affiliates:

 

 

 

 

 

 

 

 

 

 

 

Premiums received on assumed (paid on ceded)

$

 

 

 

 

 

 

 

 

 

 

reinsurance contracts

 

 (407

)

$

 (404

)

$

 (393

)

 

Insurance premiums

Fees for management of general account

 

 (133

)

 

 (106

)

 

 (100

)

 

Net investment income

Net investment income on ceded funds withheld treaties

 

 (139

)

 

 (123

)

 

 (84

)

 

Net investment income

Net investment income on inter-company notes

 

 53

 

 

 49

 

 

 42

 

 

Net investment income

Realized gains (losses) on ceded reinsurance contracts:

 

 

 

 

 

 

 

 

 

 

 

GLB reserves embedded derivatives

 

 (305

)

 

 709

 

 

 (1,055

)

 

Realized gain (loss)

Other gains (losses)

 

 (301

)

 

 237

 

 

 (150

)

 

Realized gain (loss)

Reinsurance related settlements

 

 472

 

 

 (1,189

)

 

 951

 

 

Realized gain (loss)

Amortization of deferred gain (loss) on reinsurance

 

 

 

 

 

 

 

 

 

 

 

contracts

 

 (4

)

 

 (5

)

 

 (5

)

 

Amortization of deferred gain



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

on business sold through



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reinsurance

Benefits and expenses with affiliates:

 

 

 

 

 

 

 

 

 

 

 

Interest credited on assumed reinsurance contracts

 

 60

 

 

 57

 

 

 67

 

 

Interest credited

Reinsurance (recoveries) benefits on ceded reinsurance

 

 (254

)

 

 (610

)

 

 (299

)

 

Benefits

Ceded reinsurance contracts

 

 (19

)

 

 (8

)

 

 (12

)

 

Commissions and other



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

expenses

Service agreement payments

 

 15

 

 

 3

 

 

 3

 

 

Commissions and other



 

 

 

 

 

 

 

 

 

 

 

expenses

Interest expense on inter-company debt    

 

 130

 

 

 126

 

 

 120

 

 

Interest and debt expense

79

 

 

Inter-Company Notes



LNC issues inter-company notes to us for a predetermined face value to be repaid by LNC at a predetermined maturity with a specified interest rate.



Cash Management Agreement



In order to manage our capital more efficiently, we participate in an inter-company cash management program where LNC can lend to or borrow from us to meet short-term borrowing needs.  The cash management program is essentially a series of demand loans, which are permitted under applicable insurance laws, among LNC and its affiliates that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs.  The borrowing and lending limit is currently 3% of our admitted assets as of December 31, 2019.



Service Agreement



In accordance with service agreements with LNC and other subsidiaries of LNC for personnel and facilities usage, general management services and investment management services, we receive services from and provide services to affiliated companies and receive an allocation of corporate overhead.  Corporate overhead expenses are allocated based on specific methodologies for each function.  The majority of the expenses are allocated based on the following methodologies:  headcount, capital, investments by product, assets under management, weighted policies in force and sales.



Ceded Reinsurance Contracts



As discussed in Note 9, we cede insurance contracts to LNBAR.  We cede certain guaranteed benefit risks (including certain GDB and GWB benefits) to LNBAR.  As discussed in Note 6, we cede the GLB reserves embedded derivatives and the related hedge results to LNBAR. 



Substantially all reinsurance ceded to affiliated companies is with unauthorized companies.  To take reserve credit for such reinsurance, we hold assets from the reinsurer, including funds held under reinsurance treaties, and are the beneficiary of LOCs aggregating to $115 million and $1.2 billion as of December 31, 2019 and 2018, respectively.  The LOCs are obtained by the affiliate reinsurer and issued by banks in order for the Company to recognize the reserve credit.







80

 

Lincoln National Variable Annuity Account L


L-1


Lincoln National Variable Annuity Account L

Statements of assets and liabilities

December 31, 2019

Subaccount

  

Investments

  

Total Assets

  

Net Assets

  

AB VPS Global Thematic Growth Portfolio - Class B

  

$

2,029,831

    

$

2,029,831

    

$

2,029,831

    

AB VPS Large Cap Growth Portfolio - Class B

    

2,882,013

      

2,882,013

      

2,882,013

    

American Century VP Balanced Fund - Class I

    

13,192,668

      

13,192,668

      

13,192,668

    

American Funds Global Growth Fund - Class 2

    

7,360,327

      

7,360,327

      

7,360,327

    

American Funds Growth Fund - Class 2

    

32,985,214

      

32,985,214

      

32,985,214

    

American Funds Growth-Income Fund - Class 2

    

15,844,128

      

15,844,128

      

15,844,128

    

American Funds International Fund - Class 2

    

8,820,850

      

8,820,850

      

8,820,850

    

BlackRock Global Allocation V.I. Fund - Class I

    

1,629,501

      

1,629,501

      

1,629,501

    

Delaware VIP® Diversified Income Series - Standard Class

    

4,113,303

      

4,113,303

      

4,113,303

    

Delaware VIP® High Yield Series - Standard Class

    

1,794,403

      

1,794,403

      

1,794,403

    

Delaware VIP® REIT Series - Service Class

    

8,717,062

      

8,717,062

      

8,717,062

    

Delaware VIP® Small Cap Value Series - Service Class

    

7,968,017

      

7,968,017

      

7,968,017

    

Delaware VIP® Smid Cap Core Series - Service Class

    

5,502,290

      

5,502,290

      

5,502,290

    

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

200,030

      

200,030

      

200,030

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

30,363,400

      

30,363,400

      

30,363,400

    

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

24,129,405

      

24,129,405

      

24,129,405

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

111,844

      

111,844

      

111,844

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

247,708

      

247,708

      

247,708

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

314,033

      

314,033

      

314,033

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

700,075

      

700,075

      

700,075

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

188,206

      

188,206

      

188,206

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

99,884

      

99,884

      

99,884

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

266,837

      

266,837

      

266,837

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

1,660

      

1,660

      

1,660

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

190

      

190

      

190

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

94,105

      

94,105

      

94,105

    

Fidelity® VIP Growth Portfolio - Initial Class

    

93,845,360

      

93,845,360

      

93,845,360

    

Janus Henderson Global Research Portfolio - Institutional Shares

    

8,796,357

      

8,796,357

      

8,796,357

    

LVIP Baron Growth Opportunities Fund - Service Class

    

18,321,342

      

18,321,342

      

18,321,342

    

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

315,197

      

315,197

      

315,197

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

332,443

      

332,443

      

332,443

    

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

690,046

      

690,046

      

690,046

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

1,595,087

      

1,595,087

      

1,595,087

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

171,008

      

171,008

      

171,008

    

LVIP Delaware Bond Fund - Standard Class

    

2,937,405

      

2,937,405

      

2,937,405

    

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

175,518

      

175,518

      

175,518

    

LVIP Delaware Social Awareness Fund - Standard Class

    

16,740,886

      

16,740,886

      

16,740,886

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

453,187

      

453,187

      

453,187

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

5,642,089

      

5,642,089

      

5,642,089

    

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

63,689

      

63,689

      

63,689

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

1,218,599

      

1,218,599

      

1,218,599

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

4,025,873

      

4,025,873

      

4,025,873

    

LVIP Global Income Fund - Standard Class

    

223,341

      

223,341

      

223,341

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

22,282,932

      

22,282,932

      

22,282,932

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

1,418,476

      

1,418,476

      

1,418,476

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

363,034

      

363,034

      

363,034

    

LVIP Mondrian International Value Fund - Standard Class

    

3,118,399

      

3,118,399

      

3,118,399

    

LVIP SSGA Bond Index Fund - Standard Class

    

862,934

      

862,934

      

862,934

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

988,430

      

988,430

      

988,430

    

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

1,515,834

      

1,515,834

      

1,515,834

    

LVIP SSGA International Index Fund - Standard Class

    

552,975

      

552,975

      

552,975

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

125,390

      

125,390

      

125,390

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

117,002,612

      

117,002,612

      

117,002,612

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

25,873,093

      

25,873,093

      

25,873,093

    

LVIP T. Rowe Price 2010 Fund - Standard Class

    

408,207

      

408,207

      

408,207

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

1,631,311

      

1,631,311

      

1,631,311

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

4,897,286

      

4,897,286

      

4,897,286

    

LVIP T. Rowe Price 2040 Fund - Standard Class

    

2,134,848

      

2,134,848

      

2,134,848

    

LVIP T. Rowe Price 2050 Fund - Standard Class

    

1,781,890

      

1,781,890

      

1,781,890

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

23,785,568

      

23,785,568

      

23,785,568

    

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

4,860,849

      

4,860,849

      

4,860,849

    

T. Rowe Price International Stock Portfolio

    

8,974,514

      

8,974,514

      

8,974,514

    

See accompanying notes.
L-2


[THIS PAGE INTENTIONALLY LEFT BLANK]


Lincoln National Variable Annuity Account L

Statements of operations

Year Ended December 31, 2019

Subaccount

   Dividends
from
Investment
Income		   Mortality and
Expense
Guarantee Charges		   Net
Investment
Income (Loss)		   Net Realized
Gain (Loss)
on Investments		   Dividends
from
Net Realized
Gain on
Investments		  

AB VPS Global Thematic Growth Portfolio - Class B

  

$

3,123

    

$

(18,597

)

  

$

(15,474

)

  

$

55,891

    

$

109,402

    

AB VPS Growth Portfolio - Class B

    

—

      

(7,287

)

    

(7,287

)

    

124,999

      

534,191

    

AB VPS Large Cap Growth Portfolio - Class B

    

—

      

(17,846

)

    

(17,846

)

    

(30,282

)

    

346,529

    

American Century VP Balanced Fund - Class I

    

202,400

      

(128,376

)

    

74,024

      

184,746

      

295,635

    

American Funds Global Growth Fund - Class 2

    

75,157

      

(67,526

)

    

7,631

      

181,156

      

385,629

    

American Funds Growth Fund - Class 2

    

229,320

      

(303,286

)

    

(73,966

)

    

707,074

      

3,279,631

    

American Funds Growth-Income Fund - Class 2

    

250,416

      

(151,590

)

    

98,826

      

216,759

      

1,596,602

    

American Funds International Fund - Class 2

    

121,117

      

(84,953

)

    

36,164

      

69,330

      

222,630

    

BlackRock Global Allocation V.I. Fund - Class I

    

20,020

      

(15,914

)

    

4,106

      

2,759

      

53,152

    

Delaware VIP® Diversified Income Series - Standard Class

    

125,990

      

(42,085

)

    

83,905

      

12,563

      

—

    

Delaware VIP® High Yield Series - Standard Class

    

118,342

      

(18,229

)

    

100,113

      

(51,811

)

    

—

    

Delaware VIP® REIT Series - Service Class

    

165,400

      

(86,612

)

    

78,788

      

67,681

      

—

    

Delaware VIP® Small Cap Value Series - Service Class

    

61,348

      

(76,706

)

    

(15,358

)

    

84,191

      

632,588

    

Delaware VIP® Smid Cap Core Series - Service Class

    

16,545

      

(54,436

)

    

(37,891

)

    

(172,085

)

    

328,422

    

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

8,342

      

(2,065

)

    

6,277

      

(1,854

)

    

—

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

519,180

      

(295,324

)

    

223,856

      

16,125

      

1,263,644

    

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

48,920

      

(226,278

)

    

(177,358

)

    

325,930

      

2,642,382

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

1,798

      

(800

)

    

998

      

6

      

3,176

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

4,172

      

(1,429

)

    

2,743

      

617

      

3,408

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

5,102

      

(2,710

)

    

2,392

      

4,765

      

6,991

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

11,935

      

(6,864

)

    

5,071

      

7,002

      

21,004

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

2,684

      

(1,434

)

    

1,250

      

2

      

4,322

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

1,340

      

(673

)

    

667

      

30

      

1,983

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

3,705

      

(1,654

)

    

2,051

      

331

      

4,360

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

17

      

(2

)

    

15

      

—

      

7

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

2

      

—

      

2

      

—

      

1

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

725

      

—

      

725

      

—

      

—

    

Fidelity® VIP Growth Portfolio - Initial Class

    

229,687

      

(876,550

)

    

(646,863

)

    

3,897,897

      

5,506,817

    

Janus Henderson Global Research Portfolio - Institutional Shares

    

83,508

      

(82,230

)

    

1,278

      

335,815

      

509,407

    

LVIP Baron Growth Opportunities Fund - Service Class

    

—

      

(169,696

)

    

(169,696

)

    

973,147

      

482,598

    

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

7,841

      

(3,228

)

    

4,613

      

(11,787

)

    

15,529

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

11,603

      

(4,086

)

    

7,517

      

21,483

      

13,067

    

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

16,535

      

(7,587

)

    

8,948

      

(11,661

)

    

—

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

10,212

      

(14,270

)

    

(4,058

)

    

31,497

      

62,180

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

—

      

(1,431

)

    

(1,431

)

    

2,248

      

13,731

    

LVIP Delaware Bond Fund - Standard Class

    

88,532

      

(29,178

)

    

59,354

      

14,746

      

26,035

    

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

4,392

      

(1,950

)

    

2,442

      

368

      

—

    

LVIP Delaware Social Awareness Fund - Standard Class

    

318,189

      

(152,204

)

    

165,985

      

109,976

      

761,060

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

12,597

      

(3,310

)

    

9,287

      

(10,509

)

    

18,110

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

97,262

      

(54,163

)

    

43,099

      

57,011

      

274,030

    

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

1,132

      

(717

)

    

415

      

709

      

349

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

30,726

      

(11,925

)

    

18,801

      

15,719

      

46,193

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

89,320

      

(38,445

)

    

50,875

      

72,369

      

179,137

    

LVIP Global Income Fund - Standard Class

    

5,775

      

(2,536

)

    

3,239

      

512

      

—

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

507,982

      

(57,342

)

    

450,640

      

202,901

      

933,179

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

43,089

      

(11,783

)

    

31,306

      

(38,403

)

    

—

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

4,306

      

(3,225

)

    

1,081

      

3,051

      

3,529

    

LVIP Mondrian International Value Fund - Standard Class

    

112,893

      

(27,059

)

    

85,834

      

(47,319

)

    

61,401

    

LVIP SSGA Bond Index Fund - Standard Class

    

26,440

      

(8,181

)

    

18,259

      

6,278

      

—

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

36,612

      

(10,034

)

    

26,578

      

(30,105

)

    

—

    

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

37,371

      

(14,119

)

    

23,252

      

6,663

      

20,791

    

See accompanying notes.
L-4


Subaccount

   Net Realized
Gain on
Investments		   Total
Net Realized
Gain (Loss)
on Investments		   Net Change
in Unrealized
Appreciation or
Depreciation
on Investments		   Net Increase
in Net Assets
Resulting from
Operations		  

AB VPS Global Thematic Growth Portfolio - Class B

  

$

—

    

$

165,293

    

$

309,250

    

$

459,069

    

AB VPS Growth Portfolio - Class B

    

—

      

659,190

      

(209,033

)

    

442,870

    

AB VPS Large Cap Growth Portfolio - Class B

    

—

      

316,247

      

(10,531

)

    

287,870

    

American Century VP Balanced Fund - Class I

    

—

      

480,381

      

1,684,785

      

2,239,190

    

American Funds Global Growth Fund - Class 2

    

—

      

566,785

      

1,404,692

      

1,979,108

    

American Funds Growth Fund - Class 2

    

—

      

3,986,705

      

4,061,538

      

7,974,277

    

American Funds Growth-Income Fund - Class 2

    

—

      

1,813,361

      

1,473,252

      

3,385,439

    

American Funds International Fund - Class 2

    

—

      

291,960

      

1,357,539

      

1,685,663

    

BlackRock Global Allocation V.I. Fund - Class I

    

—

      

55,911

      

188,919

      

248,936

    

Delaware VIP® Diversified Income Series - Standard Class

    

2

      

12,565

      

287,522

      

383,992

    

Delaware VIP® High Yield Series - Standard Class

    

—

      

(51,811

)

    

206,747

      

255,049

    

Delaware VIP® REIT Series - Service Class

    

—

      

67,681

      

1,784,942

      

1,931,411

    

Delaware VIP® Small Cap Value Series - Service Class

    

1

      

716,780

      

1,120,669

      

1,822,091

    

Delaware VIP® Smid Cap Core Series - Service Class

    

—

      

156,337

      

1,209,506

      

1,327,952

    

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

—

      

(1,854

)

    

21,739

      

26,162

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

—

      

1,279,769

      

3,179,852

      

4,683,477

    

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

—

      

2,968,312

      

3,103,289

      

5,894,243

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

—

      

3,182

      

7,972

      

12,152

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

—

      

4,025

      

19,338

      

26,106

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

—

      

11,756

      

35,667

      

49,815

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

—

      

28,006

      

120,729

      

153,806

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

—

      

4,324

      

26,973

      

32,547

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

—

      

2,013

      

13,080

      

15,760

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

—

      

4,691

      

30,130

      

36,872

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

—

      

7

      

61

      

83

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

—

      

1

      

3

      

6

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

—

      

—

      

(1

)

    

724

    

Fidelity® VIP Growth Portfolio - Initial Class

    

—

      

9,404,714

      

16,178,471

      

24,936,322

    

Janus Henderson Global Research Portfolio - Institutional Shares

    

—

      

845,222

      

1,205,446

      

2,051,946

    

LVIP Baron Growth Opportunities Fund - Service Class

    

—

      

1,455,745

      

3,690,853

      

4,976,902

    

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

—

      

3,742

      

39,444

      

47,799

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

—

      

34,550

      

47,281

      

89,348

    

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

—

      

(11,661

)

    

39,041

      

36,328

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

2

      

93,679

      

157,899

      

247,520

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

—

      

15,979

      

13,577

      

28,125

    

LVIP Delaware Bond Fund - Standard Class

    

1

      

40,782

      

130,832

      

230,968

    

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

1

      

369

      

3,315

      

6,126

    

LVIP Delaware Social Awareness Fund - Standard Class

    

—

      

871,036

      

3,044,510

      

4,081,531

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

1

      

7,602

      

28,494

      

45,383

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

—

      

331,041

      

1,007,451

      

1,381,591

    

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

—

      

1,058

      

6,236

      

7,709

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

—

      

61,912

      

75,797

      

156,510

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

—

      

251,506

      

235,344

      

537,725

    

LVIP Global Income Fund - Standard Class

    

—

      

512

      

11,000

      

14,751

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

—

      

1,136,080

      

1,330,732

      

2,917,452

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

—

      

(38,403

)

    

169,209

      

162,112

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

—

      

6,580

      

37,721

      

45,382

    

LVIP Mondrian International Value Fund - Standard Class

    

1

      

14,083

      

358,231

      

458,148

    

LVIP SSGA Bond Index Fund - Standard Class

    

—

      

6,278

      

30,808

      

55,345

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

—

      

(30,105

)

    

67,472

      

63,945

    

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

—

      

27,454

      

145,330

      

196,036

    


L-5


Lincoln National Variable Annuity Account L

Statements of operations (continued)

Year Ended December 31, 2019

Subaccount

   Dividends
from
Investment
Income		   Mortality and
Expense
Guarantee Charges		   Net
Investment
Income (Loss)		   Net Realized
Gain (Loss)
on Investments		   Dividends
from
Net Realized
Gain on
Investments		  

LVIP SSGA International Index Fund - Standard Class

  

$

13,817

    

$

(4,811

)

  

$

9,006

    

$

959

    

$

—

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

2,798

      

(977

)

    

1,821

      

3,809

      

196

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

1,836,299

      

(1,073,395

)

    

762,904

      

4,110,038

      

4,270,698

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

237,887

      

(245,782

)

    

(7,895

)

    

534,803

      

1,212,808

    

LVIP T. Rowe Price 2010 Fund - Standard Class

    

11,702

      

(3,987

)

    

7,715

      

(747

)

    

67,734

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

44,000

      

(14,732

)

    

29,268

      

(5,031

)

    

260,179

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

115,314

      

(46,466

)

    

68,848

      

21,396

      

637,350

    

LVIP T. Rowe Price 2040 Fund - Standard Class

    

45,358

      

(20,142

)

    

25,216

      

12,173

      

286,770

    

LVIP T. Rowe Price 2050 Fund - Standard Class

    

34,903

      

(15,128

)

    

19,775

      

6,688

      

147,350

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

36,853

      

(217,021

)

    

(180,168

)

    

902,658

      

1,582,595

    

Neuberger Berman AMT Large Cap Value Portfolio - I Class

    

95,166

      

(15,353

)

    

79,813

      

(821,721

)

    

1,020,631

    

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

18,807

      

(30,476

)

    

(11,669

)

    

(1,091

)

    

249,174

    

T. Rowe Price International Stock Portfolio

    

199,997

      

(82,616

)

    

117,381

      

67,818

      

356,752

    

See accompanying notes.
L-6


Subaccount

   Net Realized
Gain on
Investments		   Total
Net Realized
Gain (Loss)
on Investments		   Net Change
in Unrealized
Appreciation or
Depreciation
on Investments		   Net Increase
in Net Assets
Resulting from
Operations		  

LVIP SSGA International Index Fund - Standard Class

  

$

—

    

$

959

    

$

77,116

    

$

87,081

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

—

      

4,005

      

10,885

      

16,711

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

—

      

8,380,736

      

19,307,591

      

28,451,231

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

—

      

1,747,611

      

3,528,142

      

5,267,858

    

LVIP T. Rowe Price 2010 Fund - Standard Class

    

—

      

66,987

      

(18,048

)

    

56,654

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

—

      

255,148

      

(48,306

)

    

236,110

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

—

      

658,746

      

146,728

      

874,322

    

LVIP T. Rowe Price 2040 Fund - Standard Class

    

—

      

298,943

      

87,622

      

411,781

    

LVIP T. Rowe Price 2050 Fund - Standard Class

    

—

      

154,038

      

123,600

      

297,413

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

—

      

2,485,253

      

4,233,234

      

6,538,319

    

Neuberger Berman AMT Large Cap Value Portfolio - I Class

    

—

      

198,910

      

246,523

      

525,246

    

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

—

      

248,083

      

156,589

      

393,003

    

T. Rowe Price International Stock Portfolio

    

—

      

424,570

      

1,418,271

      

1,960,222

    


L-7


Lincoln National Variable Annuity Account L

Statements of changes in net assets

Years Ended December 31, 2018 and 2019

    AB VPS
Global
Thematic
Growth
Portfolio -
Class B
Subaccount 		  AB VPS
Growth
Portfolio -
Class B
Subaccount 		  AB VPS
Large Cap
Growth
Portfolio -
Class B
Subaccount 		  American
Century
VP Balanced
Fund - Class I
Subaccount 		  American
Funds
Global Growth
Fund - Class 2
Subaccount 		  American
Funds
Growth
Fund - Class 2
Subaccount 		  American
Funds
Growth-Income
Fund - Class 2
Subaccount 		 

NET ASSETS AT JANUARY 1, 2018

  

$

2,155,522

    

$

1,780,387

    

$

—

    

$

13,957,461

    

$

7,087,753

    

$

31,609,079

    

$

14,516,853

    

Changes From Operations:

  

• Net investment income (loss)

    

(18,762

)

    

(19,550

)

    

—

      

58,728

      

(23,767

)

    

(179,636

)

    

65,081

    

• Net realized gain (loss) on investments

    

237,018

      

304,769

      

—

      

186,705

      

657,520

      

4,164,515

      

1,262,840

    

• Net change in unrealized appreciation or depreciation on investments

    

(428,180

)

    

(256,982

)

    

—

      

(857,747

)

    

(1,309,969

)

    

(4,123,355

)

    

(1,696,439

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 		   

(209,924

)

    

28,237

      

—

      

(612,314

)

    

(676,216

)

    

(138,476

)

    

(368,518

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(314,733

)

    

205,946

      

—

      

(852,013

)

    

(311,090

)

    

(2,971,688

)

    

(98,216

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS 		   

(314,733

)

    

205,946

      

—

      

(852,013

)

    

(311,090

)

    

(2,971,688

)

    

(98,216

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(524,657

)

    

234,183

      

—

      

(1,464,327

)

    

(987,306

)

    

(3,110,164

)

    

(466,734

)

  

NET ASSETS AT DECEMBER 31, 2018

    

1,630,865

      

2,014,570

      

—

      

12,493,134

      

6,100,447

      

28,498,915

      

14,050,119

    

Changes From Operations:

  

• Net investment income (loss)

    

(15,474

)

    

(7,287

)

    

(17,846

)

    

74,024

      

7,631

      

(73,966

)

    

98,826

    

• Net realized gain (loss) on investments

    

165,293

      

659,190

      

316,247

      

480,381

      

566,785

      

3,986,705

      

1,813,361

    

• Net change in unrealized appreciation or depreciation on investments

    

309,250

      

(209,033

)

    

(10,531

)

    

1,684,785

      

1,404,692

      

4,061,538

      

1,473,252

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

459,069

      

442,870

      

287,870

      

2,239,190

      

1,979,108

      

7,974,277

      

3,385,439

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(60,103

)

    

(2,457,440

)

    

2,594,143

      

(1,539,656

)

    

(719,228

)

    

(3,487,978

)

    

(1,591,430

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS 		   

(60,103

)

    

(2,457,440

)

    

2,594,143

      

(1,539,656

)

    

(719,228

)

    

(3,487,978

)

    

(1,591,430

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

398,966

      

(2,014,570

)

    

2,882,013

      

699,534

      

1,259,880

      

4,486,299

      

1,794,009

    

NET ASSETS AT DECEMBER 31, 2019

  

$

2,029,831

    

$

—

    

$

2,882,013

    

$

13,192,668

    

$

7,360,327

    

$

32,985,214

    

$

15,844,128

    

See accompanying notes.
L-8


    American
Funds
International
Fund - Class 2
Subaccount 		  BlackRock
Global
Allocation V.I.
Fund - Class I
Subaccount 		  Delaware VIP®
Diversified
Income Series -
Standard
Class
Subaccount 		  Delaware VIP®
High Yield
Series -
Standard
Class
Subaccount 		  Delaware VIP®
REIT Series -
Service
Class
Subaccount 		  Delaware VIP®
Small Cap
Value
Series - Service
Class
Subaccount 		 

NET ASSETS AT JANUARY 1, 2018

  

$

10,285,892

    

$

1,750,130

    

$

4,515,407

    

$

2,142,719

    

$

10,265,880

    

$

9,889,988

    

Changes From Operations:

  

• Net investment income (loss)

    

62,729

      

(356

)

    

95,853

      

98,640

      

79,412

      

(34,469

)

  

• Net realized gain (loss) on investments

    

646,350

      

73,722

      

(13,766

)

    

(39,549

)

    

183,750

      

922,343

    

• Net change in unrealized appreciation or depreciation on investments

    

(2,040,969

)

    

(212,427

)

    

(220,866

)

    

(162,420

)

    

(1,053,497

)

    

(2,467,481

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 		   

(1,331,890

)

    

(139,061

)

    

(138,779

)

    

(103,329

)

    

(790,335

)

    

(1,579,607

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(773,290

)

    

(39,919

)

    

(117,267

)

    

(304,503

)

    

(1,502,871

)

    

(1,054,647

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS 		   

(773,290

)

    

(39,919

)

    

(117,267

)

    

(304,503

)

    

(1,502,871

)

    

(1,054,647

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(2,105,180

)

    

(178,980

)

    

(256,046

)

    

(407,832

)

    

(2,293,206

)

    

(2,634,254

)

  

NET ASSETS AT DECEMBER 31, 2018

    

8,180,712

      

1,571,150

      

4,259,361

      

1,734,887

      

7,972,674

      

7,255,734

    

Changes From Operations:

  

• Net investment income (loss)

    

36,164

      

4,106

      

83,905

      

100,113

      

78,788

      

(15,358

)

  

• Net realized gain (loss) on investments

    

291,960

      

55,911

      

12,565

      

(51,811

)

    

67,681

      

716,780

    

• Net change in unrealized appreciation or depreciation on investments

    

1,357,539

      

188,919

      

287,522

      

206,747

      

1,784,942

      

1,120,669

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

1,685,663

      

248,936

      

383,992

      

255,049

      

1,931,411

      

1,822,091

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(1,045,525

)

    

(190,585

)

    

(530,050

)

    

(195,533

)

    

(1,187,023

)

    

(1,109,808

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS 		   

(1,045,525

)

    

(190,585

)

    

(530,050

)

    

(195,533

)

    

(1,187,023

)

    

(1,109,808

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

640,138

      

58,351

      

(146,058

)

    

59,516

      

744,388

      

712,283

    

NET ASSETS AT DECEMBER 31, 2019

  

$

8,820,850

    

$

1,629,501

    

$

4,113,303

    

$

1,794,403

    

$

8,717,062

    

$

7,968,017

    


L-9


Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    Delaware VIP®
Smid Cap
Core Series -
Service Class
Subaccount		   DWS
Alternative
Asset
Allocation VIP
Portfolio - Class A
Subaccount		   Fidelity® VIP
Asset
Manager
Portfolio -
Initial Class
Subaccount		   Fidelity® VIP
Contrafund®
Portfolio -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2020
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2025
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2030
Portfolio(SM) -
Service Class 2
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

5,944,277

    

$

200,147

    

$

33,305,989

    

$

23,211,096

    

$

—

    

$

—

    

$

—

    

Changes From Operations:

  

• Net investment income (loss)

    

(59,273

)

    

2,180

      

207,488

      

(129,346

)

    

510

      

561

      

1,124

    

• Net realized gain (loss) on investments

    

1,852,038

      

(729

)

    

(579,295

)

    

2,441,334

      

(443

)

    

1,141

      

784

    

• Net change in unrealized appreciation or depreciation on investments

    

(2,551,452

)

    

(22,330

)

    

(1,557,552

)

    

(3,934,854

)

    

(2,820

)

    

(8,092

)

    

(16,537

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(758,687

)

    

(20,879

)

    

(1,929,359

)

    

(1,622,866

)

    

(2,753

)

    

(6,390

)

    

(14,629

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(191,741

)

    

18,637

      

(2,930,672

)

    

(1,132,633

)

    

53,025

      

108,482

      

181,247

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(191,741

)

    

18,637

      

(2,930,672

)

    

(1,132,633

)

    

53,025

      

108,482

      

181,247

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(950,428

)

    

(2,242

)

    

(4,860,031

)

    

(2,755,499

)

    

50,272

      

102,092

      

166,618

    

NET ASSETS AT DECEMBER 31, 2018

    

4,993,849

      

197,905

      

28,445,958

      

20,455,597

      

50,272

      

102,092

      

166,618

    

Changes From Operations:

  

• Net investment income (loss)

    

(37,891

)

    

6,277

      

223,856

      

(177,358

)

    

998

      

2,743

      

2,392

    

• Net realized gain (loss) on investments

    

156,337

      

(1,854

)

    

1,279,769

      

2,968,312

      

3,182

      

4,025

      

11,756

    

• Net change in unrealized appreciation or depreciation on investments

    

1,209,506

      

21,739

      

3,179,852

      

3,103,289

      

7,972

      

19,338

      

35,667

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

1,327,952

      

26,162

      

4,683,477

      

5,894,243

      

12,152

      

26,106

      

49,815

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(819,511

)

    

(24,037

)

    

(2,766,035

)

    

(2,220,435

)

    

49,420

      

119,510

      

97,600

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(819,511

)

    

(24,037

)

    

(2,766,035

)

    

(2,220,435

)

    

49,420

      

119,510

      

97,600

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

508,441

      

2,125

      

1,917,442

      

3,673,808

      

61,572

      

145,616

      

147,415

    

NET ASSETS AT DECEMBER 31, 2019

  

$

5,502,290

    

$

200,030

    

$

30,363,400

    

$

24,129,405

    

$

111,844

    

$

247,708

    

$

314,033

    

See accompanying notes.
L-10


    Fidelity® VIP
Freedom 2035
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2040
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2045
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2050
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2055
Portfolio(SM) -
Service Class 2
Subaccount		   Fidelity® VIP
Freedom 2060
Portfolio(SM) -
Service Class 2
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

111,024

    

$

7,055

    

$

26,658

    

$

18,159

    

$

—

    

$

—

    

Changes From Operations:

  

• Net investment income (loss)

    

1,227

      

731

      

115

      

502

      

—

      

—

    

• Net realized gain (loss) on investments

    

4,602

      

(157

)

    

6

      

292

      

—

      

—

    

• Net change in unrealized appreciation or depreciation on investments

    

(67,580

)

    

(10,723

)

    

(6,542

)

    

(9,089

)

    

—

      

—

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(61,751

)

    

(10,149

)

    

(6,421

)

    

(8,295

)

    

—

      

—

    

Changes From Unit Transactions:

  

• Net unit transactions

    

529,937

      

103,468

      

27,090

      

74,084

      

—

      

—

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

529,937

      

103,468

      

27,090

      

74,084

      

—

      

—

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

468,186

      

93,319

      

20,669

      

65,789

      

—

      

—

    

NET ASSETS AT DECEMBER 31, 2018

    

579,210

      

100,374

      

47,327

      

83,948

      

—

      

—

    

Changes From Operations:

  

• Net investment income (loss)

    

5,071

      

1,250

      

667

      

2,051

      

15

      

2

    

• Net realized gain (loss) on investments

    

28,006

      

4,324

      

2,013

      

4,691

      

7

      

1

    

• Net change in unrealized appreciation or depreciation on investments

    

120,729

      

26,973

      

13,080

      

30,130

      

61

      

3

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

153,806

      

32,547

      

15,760

      

36,872

      

83

      

6

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(32,941

)

    

55,285

      

36,797

      

146,017

      

1,577

      

184

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(32,941

)

    

55,285

      

36,797

      

146,017

      

1,577

      

184

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

120,865

      

87,832

      

52,557

      

182,889

      

1,660

      

190

    

NET ASSETS AT DECEMBER 31, 2019

  

$

700,075

    

$

188,206

    

$

99,884

    

$

266,837

    

$

1,660

    

$

190

    


L-11


Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    Fidelity® VIP
Government
Money Market
Portfolio -
Initial Class
Subaccount		   Fidelity® VIP
Growth
Portfolio -
Initial Class
Subaccount		   Janus
Henderson
Global
Research
Portfolio -
Institutional
Shares
Subaccount		   LVIP
Baron
Growth
Opportunities
Fund -
Service Class
Subaccount		   LVIP
BlackRock
Advantage
Allocation
Fund -
Standard Class
Subaccount		   LVIP
BlackRock
Global
Real Estate
Fund -
Standard Class
Subaccount		   LVIP
BlackRock
Inflation
Protected
Bond Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

50,046

    

$

86,565,270

    

$

9,148,987

    

$

16,192,827

    

$

337,435

    

$

464,809

    

$

720,731

    

Changes From Operations:

  

• Net investment income (loss)

    

328

      

(671,453

)

    

13,189

      

(166,015

)

    

4,622

      

11,613

      

29,839

    

• Net realized gain (loss) on investments

    

—

      

15,744,288

      

255,366

      

1,348,926

      

61,953

      

3,784

      

(6,409

)

  

• Net change in unrealized appreciation or depreciation on investments

    

—

      

(15,474,717

)

    

(908,983

)

    

(1,922,070

)

    

(88,545

)

    

(55,192

)

    

(28,640

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

328

      

(401,882

)

    

(640,428

)

    

(739,159

)

    

(21,970

)

    

(39,795

)

    

(5,210

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(13,112

)

    

(7,255,001

)

    

(700,719

)

    

(696,327

)

    

15,352

      

(29,706

)

    

25,622

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(13,112

)

    

(7,255,001

)

    

(700,719

)

    

(696,327

)

    

15,352

      

(29,706

)

    

25,622

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(12,784

)

    

(7,656,883

)

    

(1,341,147

)

    

(1,435,486

)

    

(6,618

)

    

(69,501

)

    

20,412

    

NET ASSETS AT DECEMBER 31, 2018

    

37,262

      

78,908,387

      

7,807,840

      

14,757,341

      

330,817

      

395,308

      

741,143

    

Changes From Operations:

  

• Net investment income (loss)

    

725

      

(646,863

)

    

1,278

      

(169,696

)

    

4,613

      

7,517

      

8,948

    

• Net realized gain (loss) on investments

    

—

      

9,404,714

      

845,222

      

1,455,745

      

3,742

      

34,550

      

(11,661

)

  

• Net change in unrealized appreciation or depreciation on investments

    

(1

)

    

16,178,471

      

1,205,446

      

3,690,853

      

39,444

      

47,281

      

39,041

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

724

      

24,936,322

      

2,051,946

      

4,976,902

      

47,799

      

89,348

      

36,328

    

Changes From Unit Transactions:

  

• Net unit transactions

    

56,119

      

(9,999,349

)

    

(1,063,429

)

    

(1,412,901

)

    

(63,419

)

    

(152,213

)

    

(87,425

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

56,119

      

(9,999,349

)

    

(1,063,429

)

    

(1,412,901

)

    

(63,419

)

    

(152,213

)

    

(87,425

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

56,843

      

14,936,973

      

988,517

      

3,564,001

      

(15,620

)

    

(62,865

)

    

(51,097

)

  

NET ASSETS AT DECEMBER 31, 2019

  

$

94,105

    

$

93,845,360

    

$

8,796,357

    

$

18,321,342

    

$

315,197

    

$

332,443

    

$

690,046

    

See accompanying notes.
L-12


    LVIP
Blended
Large Cap
Growth
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
Blended
Mid Cap
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
Delaware
Bond Fund -
Standard Class
Subaccount		   LVIP
Delaware
Diversified
Floating
Rate Fund -
Service Class
Subaccount		   LVIP
Delaware
Social
Awareness
Fund -
Standard Class
Subaccount		   LVIP
Delaware
Wealth
Builder
Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

1,424,678

    

$

79,413

    

$

3,362,696

    

$

202,868

    

$

15,887,276

    

$

245,760

    

Changes From Operations:

  

• Net investment income (loss)

    

(3,726

)

    

(1,043

)

    

62,932

      

4,067

      

49,736

      

6,759

    

• Net realized gain (loss) on investments

    

184,293

      

6,257

      

(6,846

)

    

461

      

1,681,724

      

49,264

    

• Net change in unrealized appreciation or depreciation on investments

    

(253,178

)

    

(6,347

)

    

(118,031

)

    

(6,209

)

    

(2,475,037

)

    

(74,288

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(72,611

)

    

(1,133

)

    

(61,945

)

    

(1,681

)

    

(743,577

)

    

(18,265

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(14,188

)

    

37,107

      

(385,667

)

    

(20,807

)

    

(1,428,188

)

    

68,405

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(14,188

)

    

37,107

      

(385,667

)

    

(20,807

)

    

(1,428,188

)

    

68,405

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(86,799

)

    

35,974

      

(447,612

)

    

(22,488

)

    

(2,171,765

)

    

50,140

    

NET ASSETS AT DECEMBER 31, 2018

    

1,337,879

      

115,387

      

2,915,084

      

180,380

      

13,715,511

      

295,900

    

Changes From Operations:

  

• Net investment income (loss)

    

(4,058

)

    

(1,431

)

    

59,354

      

2,442

      

165,985

      

9,287

    

• Net realized gain (loss) on investments

    

93,679

      

15,979

      

40,782

      

369

      

871,036

      

7,602

    

• Net change in unrealized appreciation or depreciation on investments

    

157,899

      

13,577

      

130,832

      

3,315

      

3,044,510

      

28,494

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

247,520

      

28,125

      

230,968

      

6,126

      

4,081,531

      

45,383

    

Changes From Unit Transactions:

  

• Net unit transactions

    

9,688

      

27,496

      

(208,647

)

    

(10,988

)

    

(1,056,156

)

    

111,904

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

9,688

      

27,496

      

(208,647

)

    

(10,988

)

    

(1,056,156

)

    

111,904

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

257,208

      

55,621

      

22,321

      

(4,862

)

    

3,025,375

      

157,287

    

NET ASSETS AT DECEMBER 31, 2019

  

$

1,595,087

    

$

171,008

    

$

2,937,405

    

$

175,518

    

$

16,740,886

    

$

453,187

    


L-13


Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    LVIP
Dimensional
U.S. Core
Equity 1
Fund -
Standard Class
Subaccount		   LVIP
Franklin
Templeton
Global Equity
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
Global
Conservative
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP
Global
Growth
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP
Global
Income Fund -
Standard Class
Subaccount		   LVIP
Global
Moderate
Allocation
Managed
Risk Fund -
Standard Class
Subaccount		   LVIP
JPMorgan
Retirement
Income Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

6,005,103

    

$

87,079

    

$

1,390,988

    

$

4,428,996

    

$

250,523

    

$

21,517,364

    

$

1,138,548

    

Changes From Operations:

  

• Net investment income (loss)

    

28,105

      

390

      

19,603

      

58,604

      

7,722

      

478,278

      

19,127

    

• Net realized gain (loss) on investments

    

177,148

      

1,060

      

41,912

      

82,547

      

45

      

310,568

      

130,287

    

• Net change in unrealized appreciation or depreciation on investments

    

(653,486

)

    

(11,146

)

    

(128,348

)

    

(442,675

)

    

(5,328

)

    

(2,016,427

)

    

(208,551

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(448,233

)

    

(9,696

)

    

(66,833

)

    

(301,524

)

    

2,439

      

(1,227,581

)

    

(59,137

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

(440,521

)

    

7,721

      

(138,797

)

    

(297,955

)

    

83,803

      

634,088

      

(89,842

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(440,521

)

    

7,721

      

(138,797

)

    

(297,955

)

    

83,803

      

634,088

      

(89,842

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

(888,754

)

    

(1,975

)

    

(205,630

)

    

(599,479

)

    

86,242

      

(593,493

)

    

(148,979

)

  

NET ASSETS AT DECEMBER 31, 2018

    

5,116,349

      

85,104

      

1,185,358

      

3,829,517

      

336,765

      

20,923,871

      

989,569

    

Changes From Operations:

  

• Net investment income (loss)

    

43,099

      

415

      

18,801

      

50,875

      

3,239

      

450,640

      

31,306

    

• Net realized gain (loss) on investments

    

331,041

      

1,058

      

61,912

      

251,506

      

512

      

1,136,080

      

(38,403

)

  

• Net change in unrealized appreciation or depreciation on investments

    

1,007,451

      

6,236

      

75,797

      

235,344

      

11,000

      

1,330,732

      

169,209

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

1,381,591

      

7,709

      

156,510

      

537,725

      

14,751

      

2,917,452

      

162,112

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(855,851

)

    

(29,124

)

    

(123,269

)

    

(341,369

)

    

(128,175

)

    

(1,558,391

)

    

266,795

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(855,851

)

    

(29,124

)

    

(123,269

)

    

(341,369

)

    

(128,175

)

    

(1,558,391

)

    

266,795

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

525,740

      

(21,415

)

    

33,241

      

196,356

      

(113,424

)

    

1,359,061

      

428,907

    

NET ASSETS AT DECEMBER 31, 2019

  

$

5,642,089

    

$

63,689

    

$

1,218,599

    

$

4,025,873

    

$

223,341

    

$

22,282,932

    

$

1,418,476

    

See accompanying notes.
L-14


    LVIP
JPMorgan
Select
Mid Cap
Value
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
Mondrian
International
Value Fund -
Standard Class
Subaccount		   LVIP
SSGA Bond
Index Fund -
Standard Class
Subaccount		   LVIP
SSGA
Emerging
Markets
100 Fund -
Standard Class
Subaccount		   LVIP
SSGA
Global
Tactical
Allocation
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
SSGA
International
Index Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

268,820

    

$

3,143,240

    

$

639,241

    

$

1,190,182

    

$

1,564,389

    

$

321,293

    

Changes From Operations:

  

• Net investment income (loss)

    

1,263

      

65,166

      

11,478

      

38,736

      

27,877

      

7,498

    

• Net realized gain (loss) on investments

    

757

      

23,697

      

(4,026

)

    

(13,007

)

    

10,143

      

2,315

    

• Net change in unrealized appreciation or depreciation on investments

    

(39,884

)

    

(462,600

)

    

(16,276

)

    

(183,217

)

    

(175,645

)

    

(75,063

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS		    

(37,864

)

    

(373,737

)

    

(8,824

)

    

(157,488

)

    

(137,625

)

    

(65,250

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

42,050

      

(18,208

)

    

17,432

      

(4,235

)

    

(52,832

)

    

130,972

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

42,050

      

(18,208

)

    

17,432

      

(4,235

)

    

(52,832

)

    

130,972

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

4,186

      

(391,945

)

    

8,608

      

(161,723

)

    

(190,457

)

    

65,722

    

NET ASSETS AT DECEMBER 31, 2018

    

273,006

      

2,751,295

      

647,849

      

1,028,459

      

1,373,932

      

387,015

    

Changes From Operations:

  

• Net investment income (loss)

    

1,081

      

85,834

      

18,259

      

26,578

      

23,252

      

9,006

    

• Net realized gain (loss) on investments

    

6,580

      

14,083

      

6,278

      

(30,105

)

    

27,454

      

959

    

• Net change in unrealized appreciation or depreciation on investments

    

37,721

      

358,231

      

30,808

      

67,472

      

145,330

      

77,116

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

45,382

      

458,148

      

55,345

      

63,945

      

196,036

      

87,081

    

Changes From Unit Transactions:

  

• Net unit transactions

    

44,646

      

(91,044

)

    

159,740

      

(103,974

)

    

(54,134

)

    

78,879

    
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

44,646

      

(91,044

)

    

159,740

      

(103,974

)

    

(54,134

)

    

78,879

    

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

90,028

      

367,104

      

215,085

      

(40,029

)

    

141,902

      

165,960

    

NET ASSETS AT DECEMBER 31, 2019

  

$

363,034

    

$

3,118,399

    

$

862,934

    

$

988,430

    

$

1,515,834

    

$

552,975

    


L-15


Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2018 and 2019

    LVIP
SSGA
International
Managed
Volatility
Fund -
Standard Class
Subaccount		   LVIP
SSGA
S&P 500
Index Fund -
Standard Class
Subaccount		   LVIP
SSGA
Small-Cap
Index Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
2010 Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
2020 Fund -
Standard Class
Subaccount 		  LVIP
T. Rowe Price
2030 Fund -
Standard Class
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

64,257

    

$

113,020,936

    

$

28,226,020

    

$

468,127

    

$

1,827,841

    

$

4,951,009

    

Changes From Operations:

  

• Net investment income (loss)

    

1,429

      

917,187

      

(12,047

)

    

5,436

      

11,521

      

36,422

    

• Net realized gain (loss) on investments

    

922

      

5,684,608

      

1,746,558

      

30,831

      

110,902

      

193,833

    

• Net change in unrealized appreciation or depreciation on investments

    

(13,825

)

    

(12,216,409

)

    

(4,869,047

)

    

(61,041

)

    

(217,028

)

    

(604,176

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(11,474

)

    

(5,614,614

)

    

(3,134,536

)

    

(24,774

)

    

(94,605

)

    

(373,921

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

36,195

      

(8,685,096

)

    

(2,226,190

)

    

6,269

      

(399,812

)

    

(370,632

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

36,195

      

(8,685,096

)

    

(2,226,190

)

    

6,269

      

(399,812

)

    

(370,632

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

24,721

      

(14,299,710

)

    

(5,360,726

)

    

(18,505

)

    

(494,417

)

    

(744,553

)

  

NET ASSETS AT DECEMBER 31, 2018

    

88,978

      

98,721,226

      

22,865,294

      

449,622

      

1,333,424

      

4,206,456

    

Changes From Operations:

  

• Net investment income (loss)

    

1,821

      

762,904

      

(7,895

)

    

7,715

      

29,268

      

68,848

    

• Net realized gain (loss) on investments

    

4,005

      

8,380,736

      

1,747,611

      

66,987

      

255,148

      

658,746

    

• Net change in unrealized appreciation or depreciation on investments

    

10,885

      

19,307,591

      

3,528,142

      

(18,048

)

    

(48,306

)

    

146,728

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

16,711

      

28,451,231

      

5,267,858

      

56,654

      

236,110

      

874,322

    

Changes From Unit Transactions:

  

• Net unit transactions

    

19,701

      

(10,169,845

)

    

(2,260,059

)

    

(98,069

)

    

61,777

      

(183,492

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

19,701

      

(10,169,845

)

    

(2,260,059

)

    

(98,069

)

    

61,777

      

(183,492

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

36,412

      

18,281,386

      

3,007,799

      

(41,415

)

    

297,887

      

690,830

    

NET ASSETS AT DECEMBER 31, 2019

  

$

125,390

    

$

117,002,612

    

$

25,873,093

    

$

408,207

    

$

1,631,311

    

$

4,897,286

    

See accompanying notes.
L-16


    LVIP
T. Rowe Price
2040 Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
2050 Fund -
Standard Class
Subaccount		   LVIP
T. Rowe Price
Structured
Mid-Cap
Growth Fund -
Standard Class
Subaccount 		  Neuberger
Berman AMT
Large Cap
Value
Portfolio -
I Class
Subaccount		   Neuberger
Berman AMT
Sustainable
Equity
Portfolio -
I Class
Subaccount		   T. Rowe Price
International
Stock Portfolio
Subaccount		  

NET ASSETS AT JANUARY 1, 2018

  

$

1,781,962

    

$

963,677

    

$

20,032,741

    

$

5,421,035

    

$

—

    

$

10,066,206

    

Changes From Operations:

  

• Net investment income (loss)

    

13,824

      

9,705

      

(124,674

)

    

8,277

      

—

      

27,977

    

• Net realized gain (loss) on investments

    

80,199

      

14,346

      

2,178,859

      

564,489

      

—

      

1,044,481

    

• Net change in unrealized appreciation or depreciation on investments

    

(275,094

)

    

(138,976

)

    

(2,816,079

)

    

(667,914

)

    

—

      

(2,491,411

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS		    

(181,071

)

    

(114,925

)

    

(761,894

)

    

(95,148

)

    

—

      

(1,418,953

)

  

Changes From Unit Transactions:

  

• Net unit transactions

    

183,435

      

250,708

      

(703,518

)

    

(777,737

)

    

—

      

(966,610

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

183,435

      

250,708

      

(703,518

)

    

(777,737

)

    

—

      

(966,610

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

2,364

      

135,783

      

(1,465,412

)

    

(872,885

)

    

—

      

(2,385,563

)

  

NET ASSETS AT DECEMBER 31, 2018

    

1,784,326

      

1,099,460

      

18,567,329

      

4,548,150

      

—

      

7,680,643

    

Changes From Operations:

  

• Net investment income (loss)

    

25,216

      

19,775

      

(180,168

)

    

79,813

      

(11,669

)

    

117,381

    

• Net realized gain (loss) on investments

    

298,943

      

154,038

      

2,485,253

      

198,910

      

248,083

      

424,570

    

• Net change in unrealized appreciation or depreciation on investments

    

87,622

      

123,600

      

4,233,234

      

246,523

      

156,589

      

1,418,271

    

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

    

411,781

      

297,413

      

6,538,319

      

525,246

      

393,003

      

1,960,222

    

Changes From Unit Transactions:

  

• Net unit transactions

    

(61,259

)

    

385,017

      

(1,320,080

)

    

(5,073,396

)

    

4,467,846

      

(666,351

)

  
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
UNIT TRANSACTIONS		    

(61,259

)

    

385,017

      

(1,320,080

)

    

(5,073,396

)

    

4,467,846

      

(666,351

)

  

TOTAL INCREASE (DECREASE) IN NET ASSETS

    

350,522

      

682,430

      

5,218,239

      

(4,548,150

)

    

4,860,849

      

1,293,871

    

NET ASSETS AT DECEMBER 31, 2019

  

$

2,134,848

    

$

1,781,890

    

$

23,785,568

    

$

—

    

$

4,860,849

    

$

8,974,514

    


L-17


Lincoln National Variable Annuity Account L

Notes to financial statements

December 31, 2019

1. Accounting Policies and Variable Account Information

The Variable Account: Lincoln National Variable Annuity Account L (the Variable Account) is a segregated investment account of The Lincoln National Life Insurance Company (the Company) and is registered as a unit investment trust with the Securities and Exchange Commission under the Investment Company Act of 1940, as amended. The operations of the Variable Account, which commenced on September 26, 1996, are part of the operations of the Company. The Variable Account consists of three products as follows:

• Group Variable Annuity
• Lincoln Secured Retirement Income		  

• Lincoln Retirement Income Rollover

  

The assets of the Variable Account are owned by the Company. The Variable Account's assets support the annuity contracts and may not be used to satisfy liabilities arising from any other business of the Company.

Basis of Presentation: The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for unit investment trusts.

Accounting Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions affecting the reported amounts as of the date of the financial statements. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts that require use of estimates is the fair value of certain assets.

Investments: The assets of the Variable Account are divided into variable subaccounts, each of which may be invested in shares of one of sixty-two mutual funds (the Funds) of eleven open-ended management investment companies, each Fund with its own investment objective. The Funds are:

AllianceBernstein Variable Products Series Fund:

AB VPS Global Thematic Growth Portfolio - Class B

AB VPS Large Cap Growth Portfolio - Class B

American Century Variable Portfolios, Inc.:

American Century VP Balanced Fund - Class I

American Funds Insurance Series®:

American Funds Global Growth Fund - Class 2

American Funds Growth Fund - Class 2

American Funds Growth-Income Fund - Class 2

American Funds International Fund - Class 2

BlackRock Variable Series Funds, Inc.:

BlackRock Global Allocation V.I. Fund - Class I

Delaware VIP® Trust:

Delaware VIP® Diversified Income Series - Standard Class

Delaware VIP® High Yield Series - Standard Class

Delaware VIP® REIT Series - Service Class

Delaware VIP® Small Cap Value Series - Service Class

Delaware VIP® Smid Cap Core Series - Service Class

Deutsche DWS Variable Series II:

DWS Alternative Asset Allocation VIP Portfolio - Class A

Fidelity® Variable Insurance Products:

Fidelity® VIP Asset Manager Portfolio - Initial Class

Fidelity® VIP Contrafund® Portfolio - Service Class 2

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

Fidelity® VIP Government Money Market Portfolio - Initial Class

Fidelity® VIP Growth Portfolio - Initial Class

Janus Aspen Series:

Janus Henderson Global Research Portfolio - Institutional Shares

Lincoln Variable Insurance Products Trust*:

LVIP Baron Growth Opportunities Fund - Service Class

LVIP BlackRock Advantage Allocation Fund - Standard Class

LVIP BlackRock Global Real Estate Fund - Standard Class

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

LVIP Delaware Bond Fund - Standard Class

LVIP Delaware Diversified Floating Rate Fund - Service Class

LVIP Delaware Social Awareness Fund - Standard Class

LVIP Delaware Wealth Builder Fund - Standard Class


L-18


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

LVIP Global Income Fund - Standard Class

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

LVIP JPMorgan Retirement Income Fund - Standard Class

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

LVIP Mondrian International Value Fund - Standard Class

LVIP SSGA Bond Index Fund - Standard Class

LVIP SSGA Emerging Markets 100 Fund - Standard Class

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

LVIP SSGA International Index Fund - Standard Class

LVIP SSGA International Managed Volatility Fund - Standard Class

LVIP SSGA S&P 500 Index Fund - Standard Class

LVIP SSGA Small-Cap Index Fund - Standard Class

LVIP T. Rowe Price 2010 Fund - Standard Class

LVIP T. Rowe Price 2020 Fund - Standard Class

LVIP T. Rowe Price 2030 Fund - Standard Class

LVIP T. Rowe Price 2040 Fund - Standard Class

LVIP T. Rowe Price 2050 Fund - Standard Class

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

Neuberger Berman Advisers Management Trust:

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

T. Rowe Price International Series, Inc.:

T. Rowe Price International Stock Portfolio

*  Denotes an affiliate of the Company

The Fidelity VIP Government Money Market Portfolio is used only for investments of initial contributions for which the Company has not received complete order instructions. Upon receipt of complete order instructions, the payments transferred to the Fidelity VIP Government Money Market Portfolio are allocated to purchase shares of one or more of the above Funds.

Each subaccount invests in shares of a single underlying Fund. The investment performance of each subaccount will reflect the investment performance of the underlying Fund less separate account expenses. There is no assurance that the investment objective of any underlying Fund will be met. A Fund calculates a daily net asset value per share ("NAV") which is based on the market value of its investment portfolio. The amount of risk varies significantly between subaccounts. Due to the level of risk associated with certain investment portfolios, it is at least reasonably possible that changes in the values of investment portfolios will occur in the near term and that such changes could materially affect contract holders' investments in the Funds and the amounts reported in the financial statements. The contract holder assumes all of the investment performance risk for the subaccounts selected.

Investments in the Funds are stated at fair value as determined by the closing net asset value per share on December 31, 2019. Net asset value is quoted by the Funds as derived by the fair value of the Funds' underlying investments. The difference between cost and net asset value is reflected as unrealized appreciation or depreciation of investments. There are no redemption restrictions on investments in the Funds.

Investments for which the fair value is measured at NAV using the practical expedient (investments in investees measured at NAV) are excluded from the fair value hierarchy. Accordingly, the Variable Account's investments in the Funds have not been classified in the fair value hierarchy.

Investment transactions are accounted for on a trade-date basis. The cost of investments sold is determined by the average cost method.

ASC 946-10-15, "Financial Services - Investment Companies (Topic 946) - Scope and Scope Exceptions" provides accounting guidance for assessing whether an entity is an investment company. This guidance evaluates the entity's purpose and design to determine whether the entity is an investment company. The standard also adds additional disclosure requirements regarding contractually required commitments to investees. Management has evaluated the criteria in the standard and concluded that the Variable Account qualifies as an investment company and therefore applies the accounting requirements of ASC 946.

Dividends: Dividends paid to the Variable Account are automatically reinvested in shares of the Funds on the payable date with the exception of Fidelity VIP Money Market Portfolio, which is invested monthly. Dividend income is recorded on the ex-dividend date.

Federal Income Taxes: Operations of the Variable Account form a part of and are taxed with operations of the Company, which is taxed as a "life insurance company" under the Internal Revenue Code. The Variable


L-19


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

Account will not be taxed as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended. Under current federal income tax law, no federal income taxes are payable or receivable with respect to the Variable Account's net investment income and the net realized gain (loss) on investments.

Investment Fund Changes: During 2018, the following funds changed their names:

Previous Fund Name

  

New Fund Name

  

LVIP Managed Risk Profile 2010 Fund - Standard Class

  

LVIP T. Rowe Price 2010 Fund - Standard Class

  

LVIP Managed Risk Profile 2020 Fund - Standard Class

  

LVIP T. Rowe Price 2020 Fund - Standard Class

  

LVIP Managed Risk Profile 2030 Fund - Standard Class

  

LVIP T. Rowe Price 2030 Fund - Standard Class

  

LVIP Managed Risk Profile 2040 Fund - Standard Class

  

LVIP T. Rowe Price 2040 Fund - Standard Class

  

LVIP Managed Risk Profile 2050 Fund - Standard Class

  

LVIP T. Rowe Price 2050 Fund - Standard Class

  

Also during 2018, the following fund family changed its name:

Previous Fund Family Name

  

New Fund Family Name

  

Deutsche Variable Series II

  

Deutsche DWS Variable Series II

  

During 2019, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2019, the 2019 statements of operations and statements of changes in net assets and total return and investment income ratios in note 3 are for the period from the commencement of operations to December 31, 2019:

AB VPS Large Cap Growth Portfolio - Class B

  

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

  

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

  

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

  

During 2019, the following funds changed their names:  

Previous Fund Name

  

New Fund Name

  

LVIP BlackRock Scientific Allocation Fund - Standard Class

  

LVIP BlackRock Advantage Allocation Fund - Standard Class

  

LVIP Clarion Global Real Estate Fund - Standard Class

  

LVIP BlackRock Global Real Estate Fund - Standard Class

  

Also during 2019, the following funds ceased to be available as investment options to Variable Account contract owners:

AB VPS Growth Portfolio - Class B

  

Neuberger Berman AMT Large Cap Value Portfolio - I Class

  

2. Mortality and Expense Guarantees and Other Transactions with Affiliates

Amounts are paid to the Company for mortality and expense guarantees at a percentage of the current value of the Variable Account each day with the exception of Fidelity VIP Government Money Market Portfolio, which does not have a mortality and expense charge. The mortality and expense risk charges for each of the variable subaccounts are reported in the statements of operations. The ranges of rates are as follows for the three contract types within the Variable Account:

•  Group Variable Annuity at a daily rate of .0020548% to .0027397% (.75% to 1.00% on an annual basis)

•  Lincoln Secured Retirement Income at a daily rate of .0001370% to .0017808% (.05% to .65% on an annual basis)

•  Lincoln Retirement Income Rollover at a daily rate of .0001370% to .0017808% (.05% to .65% on an annual basis)

The Company charges an annual account fee which varies by product. Refer to the product prospectus for the account fee rate. The account fees are for items such as processing applications, issuing contracts, policy value calculation, confirmations and periodic reports. The Company, upon surrender of a policy, may assess a surrender charge. Amounts retained by the Company for account fees and surrender charges for 2019 and 2018 were $186,134 and $192,109, respectively.

Surrender, contract and all other charges are included within Contract withdrawals on the Statements of Changes in Net Assets.


L-20


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights

A summary of the fee rates, unit values, units outstanding, net assets and total return and investment income ratios for variable annuity contracts as of and for each year or period in the five years ended December 31, 2019, follows:

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

AB VPS Global Thematic Growth Portfolio - Class B

  
     

2019

          

0.75

%

    

1.00

%

  

$

8.94

    

$

9.39

      

226,348

    

$

2,029,831

      

28.49

%

    

28.81

%

    

0.17

%

  
     

2018

          

0.75

%

    

1.00

%

    

6.96

      

7.29

      

233,702

      

1,630,865

      

-10.88

%

    

-10.66

%

    

0.00

%

  
     

2017

          

0.75

%

    

1.00

%

    

7.81

      

8.15

      

275,626

      

2,155,522

      

34.94

%

    

35.28

%

    

0.28

%

  
     

2016

          

0.75

%

    

1.00

%

    

5.79

      

6.03

      

293,802

      

1,702,782

      

-1.86

%

    

-1.62

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

5.90

      

6.13

      

313,715

      

1,852,385

      

1.63

%

    

1.88

%

    

0.00

%

  

AB VPS Growth Portfolio - Class B

  
     

2018

          

0.75

%

    

1.00

%

    

17.76

      

18.59

      

113,026

      

2,014,570

      

2.74

%

    

2.99

%

    

0.00

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.28

      

18.05

      

102,612

      

1,780,387

      

32.81

%

    

33.14

%

    

0.00

%

  
     

2016

          

0.75

%

    

1.00

%

    

13.01

      

13.55

      

105,554

      

1,379,285

      

-0.15

%

    

0.10

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

13.03

      

13.54

      

127,091

      

1,661,558

      

7.74

%

    

8.01

%

    

0.00

%

  

AB VPS Large Cap Growth Portfolio - Class B

  
     

2019

    

4/26/19

    

0.75

%

    

1.00

%

    

11.17

      

11.19

      

258,055

      

2,882,013

      

11.02

%

    

11.21

%

    

0.00

%

  

American Century VP Balanced Fund - Class I

  
     

2019

          

0.75

%

    

1.00

%

    

54.46

      

57.32

      

241,211

      

13,192,668

      

18.66

%

    

18.96

%

    

1.54

%

  
     

2018

          

0.75

%

    

1.00

%

    

45.89

      

48.19

      

270,897

      

12,493,134

      

-4.79

%

    

-4.55

%

    

1.41

%

  
     

2017

          

0.75

%

    

1.00

%

    

48.20

      

50.48

      

288,309

      

13,957,461

      

12.78

%

    

13.06

%

    

1.54

%

  
     

2016

          

0.75

%

    

1.00

%

    

42.74

      

44.65

      

315,713

      

13,545,258

      

5.93

%

    

6.19

%

    

1.46

%

  
     

2015

          

0.75

%

    

1.00

%

    

40.35

      

42.05

      

327,511

      

13,265,699

      

-3.54

%

    

-3.30

%

    

1.72

%

  

American Funds Global Growth Fund - Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

38.66

      

40.20

      

189,801

      

7,360,327

      

33.93

%

    

34.27

%

    

1.09

%

  
     

2018

          

0.75

%

    

1.00

%

    

28.86

      

29.94

      

210,734

      

6,100,447

      

-9.95

%

    

-9.72

%

    

0.65

%

  
     

2017

          

0.75

%

    

1.00

%

    

32.05

      

33.16

      

220,493

      

7,087,753

      

30.16

%

    

30.49

%

    

0.68

%

  
     

2016

          

0.75

%

    

1.00

%

    

24.62

      

25.42

      

218,019

      

5,388,246

      

-0.38

%

    

-0.13

%

    

0.84

%

  
     

2015

          

0.75

%

    

1.00

%

    

24.72

      

25.45

      

229,813

      

5,699,030

      

5.87

%

    

6.14

%

    

1.01

%

  

American Funds Growth Fund - Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

29.44

      

30.89

      

1,115,556

      

32,985,214

      

29.47

%

    

29.80

%

    

0.74

%

  
     

2018

          

0.75

%

    

1.00

%

    

22.74

      

23.80

      

1,248,307

      

28,498,915

      

-1.24

%

    

-0.99

%

    

0.42

%

  
     

2017

          

0.75

%

    

1.00

%

    

23.02

      

24.04

      

1,367,467

      

31,609,079

      

27.02

%

    

27.33

%

    

0.50

%

  
     

2016

          

0.75

%

    

1.00

%

    

18.12

      

18.88

      

1,458,298

      

26,531,963

      

8.40

%

    

8.67

%

    

0.71

%

  
     

2015

          

0.75

%

    

1.00

%

    

16.72

      

17.37

      

1,566,846

      

26,293,002

      

5.79

%

    

6.06

%

    

0.60

%

  

American Funds Growth-Income Fund - Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

32.14

      

33.42

      

491,348

      

15,844,128

      

24.88

%

    

25.19

%

    

1.62

%

  
     

2018

          

0.75

%

    

1.00

%

    

25.73

      

26.69

      

544,747

      

14,050,119

      

-2.76

%

    

-2.52

%

    

1.42

%

  
     

2017

          

0.75

%

    

1.00

%

    

26.47

      

27.38

      

547,569

      

14,516,853

      

21.16

%

    

21.47

%

    

1.41

%

  
     

2016

          

0.75

%

    

1.00

%

    

21.84

      

22.54

      

568,668

      

12,443,140

      

10.41

%

    

10.69

%

    

1.37

%

  
     

2015

          

0.75

%

    

1.00

%

    

19.78

      

20.37

      

592,659

      

11,743,805

      

0.45

%

    

0.70

%

    

1.32

%

  

American Funds International Fund - Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

20.10

      

21.09

      

437,426

      

8,820,850

      

21.66

%

    

21.96

%

    

1.40

%

  
     

2018

          

0.75

%

    

1.00

%

    

16.52

      

17.29

      

493,856

      

8,180,712

      

-14.00

%

    

-13.78

%

    

1.64

%

  
     

2017

          

0.75

%

    

1.00

%

    

19.21

      

20.06

      

534,213

      

10,285,892

      

30.83

%

    

31.16

%

    

1.25

%

  
     

2016

          

0.75

%

    

1.00

%

    

14.68

      

15.29

      

594,190

      

8,740,565

      

2.50

%

    

2.76

%

    

1.26

%

  
     

2015

          

0.75

%

    

1.00

%

    

14.33

      

14.88

      

636,510

      

9,133,407

      

-5.48

%

    

-5.24

%

    

1.46

%

  

BlackRock Global Allocation V.I. Fund - Class I

  
     

2019

          

0.75

%

    

1.00

%

    

18.22

      

18.71

      

89,412

      

1,629,501

      

16.82

%

    

17.11

%

    

1.25

%

  
     

2018

          

0.75

%

    

1.00

%

    

15.60

      

15.97

      

100,713

      

1,571,150

      

-8.26

%

    

-8.03

%

    

0.97

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.00

      

17.37

      

102,881

      

1,750,130

      

12.73

%

    

13.01

%

    

1.38

%

  
     

2016

          

0.75

%

    

1.00

%

    

15.08

      

15.37

      

95,894

      

1,446,798

      

3.08

%

    

3.34

%

    

1.14

%

  
     

2015

          

0.75

%

    

1.00

%

    

14.63

      

14.87

      

104,709

      

1,532,499

      

-1.70

%

    

-1.45

%

    

1.13

%

  

Delaware VIP® Diversified Income Series - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

19.69

      

20.47

      

208,647

      

4,113,303

      

9.34

%

    

9.61

%

    

2.96

%

  
     

2018

          

0.75

%

    

1.00

%

    

18.01

      

18.67

      

236,208

      

4,259,361

      

-3.10

%

    

-2.86

%

    

3.20

%

  
     

2017

          

0.75

%

    

1.00

%

    

18.58

      

19.22

      

242,662

      

4,515,407

      

4.18

%

    

4.44

%

    

2.66

%

  
     

2016

          

0.75

%

    

1.00

%

    

17.84

      

18.41

      

263,775

      

4,710,551

      

2.49

%

    

2.75

%

    

3.12

%

  
     

2015

          

0.75

%

    

1.00

%

    

17.40

      

17.91

      

305,107

      

5,315,575

      

-2.07

%

    

-1.82

%

    

3.02

%

  


L-21


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Delaware VIP® High Yield Series - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

  

$

22.32

    

$

23.15

      

80,340

    

$

1,794,403

      

15.27

%

    

15.56

%

    

6.47

%

  
     

2018

          

0.75

%

    

1.00

%

    

19.37

      

20.04

      

89,546

      

1,734,887

      

-5.42

%

    

-5.18

%

    

6.11

%

  
     

2017

          

0.75

%

    

1.00

%

    

20.48

      

21.13

      

104,467

      

2,142,719

      

6.42

%

    

6.68

%

    

6.07

%

  
     

2016

          

0.75

%

    

1.00

%

    

19.24

      

19.81

      

112,364

      

2,165,692

      

12.04

%

    

12.32

%

    

6.56

%

  
     

2015

          

0.75

%

    

1.00

%

    

17.18

      

17.64

      

131,395

      

2,259,594

      

-7.53

%

    

-7.29

%

    

6.52

%

  

Delaware VIP® REIT Series - Service Class

  
     

2019

          

0.75

%

    

1.00

%

    

46.83

      

49.13

      

185,807

      

8,717,062

      

25.24

%

    

25.55

%

    

1.89

%

  
     

2018

          

0.75

%

    

1.00

%

    

37.39

      

39.13

      

212,859

      

7,972,674

      

-8.44

%

    

-8.21

%

    

1.86

%

  
     

2017

          

0.75

%

    

1.00

%

    

40.83

      

42.63

      

250,792

      

10,265,880

      

0.26

%

    

0.51

%

    

1.37

%

  
     

2016

          

0.75

%

    

1.00

%

    

40.73

      

42.42

      

304,963

      

12,446,688

      

4.56

%

    

4.83

%

    

0.95

%

  
     

2015

          

0.75

%

    

1.00

%

    

38.95

      

40.46

      

319,994

      

12,490,856

      

2.49

%

    

2.75

%

    

1.02

%

  

Delaware VIP® Small Cap Value Series - Service Class

  
     

2019

          

0.75

%

    

1.00

%

    

34.10

      

35.46

      

232,887

      

7,968,017

      

26.45

%

    

26.77

%

    

0.78

%

  
     

2018

          

0.75

%

    

1.00

%

    

26.97

      

27.97

      

268,330

      

7,255,734

      

-17.77

%

    

-17.56

%

    

0.61

%

  
     

2017

          

0.75

%

    

1.00

%

    

32.80

      

33.93

      

300,858

      

9,889,988

      

10.65

%

    

10.92

%

    

0.65

%

  
     

2016

          

0.75

%

    

1.00

%

    

29.64

      

30.59

      

328,415

      

9,753,563

      

29.78

%

    

30.11

%

    

0.66

%

  
     

2015

          

0.75

%

    

1.00

%

    

22.84

      

23.51

      

342,295

      

7,832,045

      

-7.39

%

    

-7.16

%

    

0.49

%

  

Delaware VIP® Smid Cap Core Series - Service Class

  
     

2019

          

0.75

%

    

1.00

%

    

24.88

      

26.11

      

220,546

      

5,502,290

      

27.97

%

    

28.29

%

    

0.30

%

  
     

2018

          

0.75

%

    

1.00

%

    

19.44

      

20.35

      

256,302

      

4,993,849

      

-13.27

%

    

-13.06

%

    

0.00

%

  
     

2017

          

0.75

%

    

1.00

%

    

22.42

      

23.40

      

264,634

      

5,944,277

      

17.20

%

    

17.50

%

    

0.09

%

  
     

2016

          

0.75

%

    

1.00

%

    

19.13

      

19.92

      

275,984

      

5,288,718

      

6.94

%

    

7.21

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

17.89

      

18.58

      

300,527

      

5,384,054

      

6.24

%

    

6.51

%

    

0.16

%

  

DWS Alternative Asset Allocation VIP Portfolio - Class A

  
     

2019

          

0.75

%

    

1.00

%

    

14.07

      

14.45

      

14,211

      

200,030

      

13.54

%

    

13.83

%

    

4.03

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.39

      

12.69

      

15,965

      

197,905

      

-10.04

%

    

-9.82

%

    

2.11

%

  
     

2017

          

0.75

%

    

1.00

%

    

13.78

      

14.07

      

14,525

      

200,147

      

6.34

%

    

6.61

%

    

2.37

%

  
     

2016

          

0.75

%

    

1.00

%

    

12.96

      

13.20

      

17,766

      

230,194

      

4.25

%

    

4.51

%

    

2.03

%

  
     

2015

          

0.75

%

    

1.00

%

    

12.43

      

12.63

      

15,980

      

198,618

      

-7.23

%

    

-6.99

%

    

2.92

%

  

Fidelity® VIP Asset Manager Portfolio - Initial Class

  
     

2019

          

0.75

%

    

1.00

%

    

53.01

      

55.80

      

571,317

      

30,363,400

      

17.07

%

    

17.37

%

    

1.73

%

  
     

2018

          

0.75

%

    

1.00

%

    

45.28

      

47.54

      

626,716

      

28,445,958

      

-6.29

%

    

-6.06

%

    

1.64

%

  
     

2017

          

0.75

%

    

1.00

%

    

48.32

      

50.61

      

687,618

      

33,305,989

      

12.97

%

    

13.25

%

    

1.86

%

  
     

2016

          

0.75

%

    

1.00

%

    

42.77

      

44.69

      

743,480

      

31,871,934

      

2.05

%

    

2.30

%

    

1.32

%

  
     

2015

          

0.75

%

    

1.00

%

    

41.92

      

43.68

      

827,635

      

34,757,222

      

-0.85

%

    

-0.61

%

    

1.53

%

  

Fidelity® VIP Contrafund® Portfolio - Service Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

33.49

      

35.14

      

719,182

      

24,129,405

      

29.97

%

    

30.29

%

    

0.21

%

  
     

2018

          

0.75

%

    

1.00

%

    

25.77

      

26.97

      

792,368

      

20,455,597

      

-7.57

%

    

-7.34

%

    

0.43

%

  
     

2017

          

0.75

%

    

1.00

%

    

27.88

      

29.11

      

830,957

      

23,211,096

      

20.38

%

    

20.68

%

    

0.77

%

  
     

2016

          

0.75

%

    

1.00

%

    

23.16

      

24.12

      

908,140

      

21,068,336

      

6.66

%

    

6.93

%

    

0.56

%

  
     

2015

          

0.75

%

    

1.00

%

    

21.71

      

22.56

      

991,770

      

21,570,788

      

-0.58

%

    

-0.33

%

    

0.79

%

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

  
     

2019

          

1.00

%

    

1.00

%

    

11.27

      

11.27

      

9,926

      

111,844

      

18.69

%

    

18.69

%

    

2.25

%

  
     

2018

    

1/16/18

    

1.00

%

    

1.00

%

    

9.49

      

9.49

      

5,295

      

50,272

      

-9.00

%

    

-9.00

%

    

3.54

%

  

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

  
     

2019

          

1.00

%

    

1.00

%

    

11.36

      

11.36

      

21,802

      

247,708

      

20.30

%

    

20.30

%

    

2.93

%

  
     

2018

    

1/11/18

    

1.00

%

    

1.00

%

    

9.44

      

9.44

      

10,810

      

102,092

      

-9.48

%

    

-9.48

%

    

1.69

%

  

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

11.50

      

11.56

      

27,297

      

314,033

      

22.88

%

    

23.19

%

    

1.83

%

  
     

2018

    

3/6/18

    

0.75

%

    

1.00

%

    

9.36

      

9.38

      

17,798

      

166,618

      

-9.68

%

    

-9.18

%

    

1.76

%

  

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

  
     

2019

          

0.75

%

    

1.00

%

    

11.63

      

11.63

      

60,195

      

700,075

      

25.87

%

    

25.87

%

    

1.74

%

  
     

2018

          

1.00

%

    

1.00

%

    

9.24

      

9.24

      

62,689

      

579,210

      

-10.40

%

    

-10.40

%

    

1.24

%

  
     

2017

    

12/13/17

    

1.00

%

    

1.00

%

    

10.31

      

10.31

      

10,767

      

111,024

      

0.96

%

    

0.96

%

    

0.94

%

  


L-22


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

  
     

2019

          

1.00

%

    

1.00

%

  

$

11.66

    

$

11.66

      

16,146

    

$

188,206

      

26.96

%

    

26.96

%

    

1.87

%

  
     

2018

          

1.00

%

    

1.00

%

    

9.18

      

9.18

      

10,933

      

100,374

      

-11.02

%

    

-11.02

%

    

3.15

%

  
     

2017

    

12/11/17

    

1.00

%

    

1.00

%

    

10.32

      

10.32

      

684

      

7,055

      

1.04

%

    

1.04

%

    

0.88

%

  

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

  
     

2019

          

1.00

%

    

1.00

%

    

11.66

      

11.66

      

8,569

      

99,884

      

26.98

%

    

26.98

%

    

2.00

%

  
     

2018

          

1.00

%

    

1.00

%

    

9.18

      

9.18

      

5,156

      

47,327

      

-11.03

%

    

-11.03

%

    

1.29

%

  
     

2017

    

12/12/17

    

1.00

%

    

1.00

%

    

10.32

      

10.32

      

2,584

      

26,658

      

1.03

%

    

1.03

%

    

0.91

%

  

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

  
     

2019

          

1.00

%

    

1.00

%

    

11.66

      

11.66

      

22,893

      

266,837

      

26.94

%

    

26.94

%

    

2.24

%

  
     

2018

          

1.00

%

    

1.00

%

    

9.18

      

9.18

      

9,143

      

83,948

      

-11.02

%

    

-11.02

%

    

2.28

%

  
     

2017

    

12/5/17

    

1.00

%

    

1.00

%

    

10.32

      

10.32

      

1,760

      

18,159

      

1.93

%

    

1.93

%

    

1.63

%

  

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

  
     

2019

    

6/24/19

    

1.00

%

    

1.00

%

    

10.84

      

10.84

      

153

      

1,660

      

8.41

%

    

8.41

%

    

3.13

%

  

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

  
     

2019

    

11/18/19

    

1.00

%

    

1.00

%

    

10.84

      

10.84

      

18

      

190

      

3.80

%

    

3.80

%

    

1.69

%

  

Fidelity® VIP Government Money Market Portfolio - Initial Class

  
     

2019

          

0.00

%

    

0.00

%

    

18.85

      

18.87

      

4,993

      

94,105

      

1.99

%

    

2.02

%

    

1.92

%

  
     

2018

          

0.00

%

    

0.00

%

    

18.47

      

18.50

      

2,017

      

37,262

      

1.65

%

    

1.65

%

    

1.59

%

  
     

2017

          

0.00

%

    

0.00

%

    

18.17

      

18.20

      

2,754

      

50,046

      

0.67

%

    

0.67

%

    

0.65

%

  
     

2016

          

0.00

%

    

0.00

%

    

18.05

      

18.08

      

3,786

      

68,351

      

0.20

%

    

0.20

%

    

0.19

%

  
     

2015

          

0.00

%

    

0.00

%

    

18.02

      

18.04

      

1,941

      

34,965

      

0.02

%

    

0.03

%

    

0.02

%

  

Fidelity® VIP Growth Portfolio - Initial Class

  
     

2019

          

0.75

%

    

1.00

%

    

126.46

      

133.11

      

739,567

      

93,845,360

      

32.98

%

    

33.31

%

    

0.26

%

  
     

2018

          

0.75

%

    

1.00

%

    

95.10

      

99.85

      

827,062

      

78,908,387

      

-1.16

%

    

-0.91

%

    

0.24

%

  
     

2017

          

0.75

%

    

1.00

%

    

96.22

      

100.77

      

896,802

      

86,565,270

      

33.79

%

    

34.12

%

    

0.22

%

  
     

2016

          

0.75

%

    

1.00

%

    

71.92

      

75.13

      

965,781

      

69,659,103

      

-0.20

%

    

0.05

%

    

0.03

%

  
     

2015

          

0.75

%

    

1.00

%

    

72.06

      

75.10

      

1,063,302

      

76,830,690

      

6.11

%

    

6.37

%

    

0.25

%

  

Janus Henderson Global Research Portfolio - Institutional Shares

  
     

2019

          

0.75

%

    

1.00

%

    

28

      

29

      

314,370

      

8,796,357

      

27.76

%

    

28.08

%

    

0.99

%

  
     

2018

          

0.75

%

    

1.00

%

    

21.79

      

22.88

      

356,650

      

7,807,840

      

-7.79

%

    

-7.56

%

    

1.12

%

  
     

2017

          

0.75

%

    

1.00

%

    

23.63

      

24.75

      

385,355

      

9,148,987

      

25.76

%

    

26.08

%

    

0.82

%

  
     

2016

          

0.75

%

    

1.00

%

    

18.79

      

19.63

      

428,756

      

8,090,071

      

1.05

%

    

1.30

%

    

0.99

%

  
     

2015

          

0.75

%

    

1.00

%

    

18.60

      

19.38

      

474,214

      

8,850,052

      

-3.26

%

    

-3.02

%

    

0.65

%

  

LVIP Baron Growth Opportunities Fund - Service Class

  
     

2019

          

0.75

%

    

1.00

%

    

88.74

      

93.41

      

205,745

      

18,321,342

      

35.03

%

    

35.36

%

    

0.00

%

  
     

2018

          

0.75

%

    

1.00

%

    

65.72

      

69.01

      

223,853

      

14,757,341

      

-4.89

%

    

-4.65

%

    

0.00

%

  
     

2017

          

0.75

%

    

1.00

%

    

69.10

      

72.38

      

233,609

      

16,192,827

      

25.97

%

    

26.29

%

    

0.00

%

  
     

2016

          

0.75

%

    

1.00

%

    

54.85

      

57.31

      

250,256

      

13,770,178

      

4.52

%

    

4.78

%

    

0.45

%

  
     

2015

          

0.75

%

    

1.00

%

    

52.48

      

54.70

      

278,447

      

14,652,966

      

-5.72

%

    

-5.48

%

    

0.00

%

  

LVIP BlackRock Advantage Allocation Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

20.64

      

21.20

      

15,265

      

315,197

      

15.50

%

    

15.78

%

    

2.42

%

  
     

2018

          

0.75

%

    

1.00

%

    

17.87

      

18.31

      

18,507

      

330,817

      

-6.32

%

    

-6.01

%

    

2.35

%

  
     

2017

          

0.75

%

    

1.00

%

    

19.08

      

19.48

      

17,685

      

337,435

      

13.19

%

    

13.51

%

    

2.02

%

  
     

2016

          

0.75

%

    

1.00

%

    

16.86

      

17.16

      

17,993

      

303,308

      

3.61

%

    

3.87

%

    

1.73

%

  
     

2015

          

0.75

%

    

1.00

%

    

16.27

      

16.53

      

18,412

      

299,759

      

-2.13

%

    

-1.89

%

    

1.48

%

  

LVIP BlackRock Emerging Markets Managed Volatility Fund - Standard Class

  
     

2016

          

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

5.21

%

  
     

2015

          

0.75

%

    

1.00

%

    

7.83

      

7.83

      

3,254

      

25,469

      

-15.86

%

    

-15.86

%

    

1.75

%

  

LVIP BlackRock Global Real Estate Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

11.75

      

12.12

      

28,214

      

332,443

      

23.71

%

    

23.98

%

    

2.79

%

  
     

2018

          

0.75

%

    

1.00

%

    

9.50

      

9.78

      

41,558

      

395,308

      

-9.25

%

    

-9.03

%

    

3.74

%

  
     

2017

          

0.75

%

    

1.00

%

    

10.46

      

10.75

      

44,301

      

464,809

      

9.76

%

    

10.04

%

    

3.54

%

  
     

2016

          

0.75

%

    

1.00

%

    

9.53

      

9.77

      

72,541

      

693,843

      

0.18

%

    

0.43

%

    

4.20

%

  
     

2015

          

0.75

%

    

1.00

%

    

9.52

      

9.72

      

63,079

      

601,774

      

-2.21

%

    

-1.96

%

    

3.03

%

  


L-23


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

  

$

9.88

    

$

10.07

      

69,810

    

$

690,046

      

4.84

%

    

5.10

%

    

2.17

%

  
     

2018

          

0.75

%

    

1.00

%

    

9.43

      

9.58

      

78,616

      

741,143

      

-0.72

%

    

-0.49

%

    

5.16

%

  
     

2017

          

0.75

%

    

1.00

%

    

9.49

      

9.63

      

75,902

      

720,731

      

1.17

%

    

1.42

%

    

1.62

%

  
     

2016

          

0.75

%

    

1.00

%

    

9.38

      

9.49

      

80,502

      

755,992

      

2.56

%

    

2.82

%

    

1.23

%

  
     

2015

          

0.69

%

    

0.94

%

    

9.15

      

9.23

      

77,644

      

710,885

      

-3.73

%

    

-3.49

%

    

1.14

%

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

13.58

      

14.25

      

116,888

      

1,595,087

      

18.74

%

    

19.04

%

    

0.70

%

  
     

2018

          

0.75

%

    

1.00

%

    

11.44

      

11.97

      

116,442

      

1,337,879

      

-5.27

%

    

-5.03

%

    

0.72

%

  
     

2017

          

0.75

%

    

1.00

%

    

12.07

      

12.61

      

117,506

      

1,424,678

      

24.88

%

    

25.19

%

    

0.64

%

  
     

2016

          

0.75

%

    

1.00

%

    

9.67

      

10.07

      

130,333

      

1,265,216

      

-2.29

%

    

-2.05

%

    

0.40

%

  
     

2015

          

0.75

%

    

1.00

%

    

9.89

      

10.28

      

159,858

      

1,586,727

      

0.33

%

    

0.58

%

    

0.00

%

  

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

14.88

      

15.09

      

11,489

      

171,008

      

23.67

%

    

23.98

%

    

0.00

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.03

      

12.17

      

9,587

      

115,387

      

-0.64

%

    

-0.39

%

    

0.00

%

  
     

2017

          

0.75

%

    

1.00

%

    

12.11

      

12.22

      

6,553

      

79,413

      

24.31

%

    

24.62

%

    

0.00

%

  
     

2016

          

0.75

%

    

1.00

%

    

9.74

      

9.81

      

2,177

      

21,233

      

1.24

%

    

1.48

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

9.62

      

9.62

      

2,394

      

23,053

      

-5.15

%

    

-5.15

%

    

0.00

%

  

LVIP Delaware Bond Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

17.85

      

18.56

      

164,242

      

2,937,405

      

8.12

%

    

8.39

%

    

3.00

%

  
     

2018

          

0.75

%

    

1.00

%

    

16.51

      

17.12

      

176,354

      

2,915,084

      

-1.82

%

    

-1.57

%

    

2.99

%

  
     

2017

          

0.75

%

    

1.00

%

    

16.81

      

17.39

      

199,585

      

3,362,696

      

3.33

%

    

3.59

%

    

2.71

%

  
     

2016

          

0.75

%

    

1.00

%

    

16.27

      

16.79

      

238,942

      

3,893,446

      

1.70

%

    

1.96

%

    

2.26

%

  
     

2015

          

0.75

%

    

1.00

%

    

16.00

      

16.47

      

271,002

      

4,340,416

      

-0.61

%

    

-0.36

%

    

2.25

%

  

LVIP Delaware Diversified Floating Rate Fund - Service Class

  
     

2019

          

0.75

%

    

1.00

%

    

10.19

      

10.40

      

17,218

      

175,518

      

3.30

%

    

3.54

%

    

2.24

%

  
     

2018

          

0.75

%

    

1.00

%

    

9.86

      

10.04

      

18,280

      

180,380

      

-0.97

%

    

-0.81

%

    

3.11

%

  
     

2017

          

0.75

%

    

1.00

%

    

9.96

      

10.13

      

20,363

      

202,868

      

1.26

%

    

1.36

%

    

0.80

%

  
     

2016

          

0.75

%

    

1.00

%

    

9.84

      

9.99

      

20,628

      

202,946

      

0.99

%

    

1.40

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

9.74

      

9.74

      

20,149

      

196,284

      

-1.96

%

    

-1.96

%

    

1.17

%

  

LVIP Delaware Social Awareness Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

41.18

      

43.35

      

405,064

      

16,740,886

      

30.66

%

    

30.99

%

    

2.05

%

  
     

2018

          

0.75

%

    

1.00

%

    

31.52

      

33.09

      

433,711

      

13,715,511

      

-5.51

%

    

-5.28

%

    

1.30

%

  
     

2017

          

0.75

%

    

1.00

%

    

33.36

      

34.94

      

474,679

      

15,887,276

      

19.00

%

    

19.30

%

    

1.28

%

  
     

2016

          

0.75

%

    

1.00

%

    

28.03

      

29.28

      

517,239

      

14,543,103

      

5.58

%

    

5.84

%

    

1.42

%

  
     

2015

          

0.75

%

    

1.00

%

    

26.55

      

27.67

      

566,033

      

15,071,433

      

-1.65

%

    

-1.40

%

    

1.46

%

  

LVIP Delaware Wealth Builder Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

21.84

      

22.42

      

20,746

      

453,187

      

14.75

%

    

15.04

%

    

3.80

%

  
     

2018

          

0.75

%

    

1.00

%

    

19.03

      

19.03

      

15,545

      

295,900

      

-6.16

%

    

-6.16

%

    

3.51

%

  
     

2017

          

1.00

%

    

1.00

%

    

20.28

      

20.28

      

12,116

      

245,760

      

11.17

%

    

11.17

%

    

2.09

%

  
     

2016

          

1.00

%

    

1.00

%

    

18.25

      

18.25

      

22,324

      

407,323

      

4.57

%

    

4.57

%

    

1.80

%

  
     

2015

          

1.00

%

    

1.00

%

    

17.45

      

17.45

      

19,011

      

331,712

      

-2.31

%

    

-2.31

%

    

1.91

%

  

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

24.64

      

25.85

      

228,116

      

5,642,089

      

28.82

%

    

29.14

%

    

1.76

%

  
     

2018

          

0.75

%

    

1.00

%

    

19.13

      

20.02

      

266,645

      

5,116,349

      

-8.22

%

    

-7.99

%

    

1.46

%

  
     

2017

          

0.75

%

    

1.00

%

    

20.84

      

21.76

      

287,313

      

6,005,103

      

19.67

%

    

19.97

%

    

1.41

%

  
     

2016

          

0.75

%

    

1.00

%

    

17.41

      

18.14

      

304,680

      

5,322,325

      

13.27

%

    

13.55

%

    

1.52

%

  
     

2015

          

0.75

%

    

1.00

%

    

15.37

      

15.97

      

337,969

      

5,211,826

      

-2.98

%

    

-2.74

%

    

1.59

%

  

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

  
     

2019

          

1.00

%

    

1.00

%

    

10.59

      

10.59

      

6,015

      

63,689

      

11.67

%

    

11.67

%

    

1.58

%

  
     

2018

          

1.00

%

    

1.00

%

    

9.48

      

9.48

      

8,976

      

85,104

      

-10.05

%

    

-10.05

%

    

1.42

%

  
     

2017

          

0.75

%

    

1.00

%

    

10.54

      

10.64

      

8,261

      

87,079

      

20.20

%

    

20.50

%

    

1.57

%

  
     

2016

          

0.75

%

    

1.00

%

    

8.77

      

8.77

      

5,483

      

48,081

      

1.40

%

    

1.40

%

    

1.73

%

  
     

2015

          

1.00

%

    

1.00

%

    

8.65

      

8.65

      

3,433

      

29,685

      

-8.94

%

    

-8.94

%

    

1.59

%

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

19.60

      

20.33

      

62,097

      

1,218,599

      

13.87

%

    

14.15

%

    

2.55

%

  
     

2018

          

0.75

%

    

1.00

%

    

17.21

      

17.81

      

68,794

      

1,185,358

      

-5.40

%

    

-5.17

%

    

2.53

%

  
     

2017

          

0.75

%

    

1.00

%

    

18.20

      

18.78

      

76,364

      

1,390,988

      

9.40

%

    

9.67

%

    

2.38

%

  
     

2016

          

0.75

%

    

1.00

%

    

16.63

      

17.12

      

75,021

      

1,249,003

      

3.98

%

    

4.24

%

    

1.95

%

  
     

2015

          

0.75

%

    

1.00

%

    

16.00

      

16.43

      

83,903

      

1,343,203

      

-2.97

%

    

-2.73

%

    

1.84

%

  


L-24


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

  

$

18.33

    

$

19.01

      

219,235

    

$

4,025,873

      

14.70

%

    

14.99

%

    

2.29

%

  
     

2018

          

0.75

%

    

1.00

%

    

15.98

      

16.53

      

239,271

      

3,829,517

      

-7.26

%

    

-7.03

%

    

2.38

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.23

      

17.78

      

256,663

      

4,428,996

      

14.48

%

    

14.77

%

    

2.29

%

  
     

2016

          

0.75

%

    

1.00

%

    

15.05

      

15.49

      

271,306

      

4,088,600

      

3.71

%

    

3.97

%

    

1.66

%

  
     

2015

          

0.75

%

    

1.00

%

    

14.51

      

14.90

      

319,676

      

4,644,203

      

-4.65

%

    

-4.41

%

    

1.86

%

  

LVIP Global Income Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

13.01

      

13.36

      

17,164

      

223,341

      

5.67

%

    

5.94

%

    

2.28

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.31

      

12.61

      

27,351

      

336,765

      

0.89

%

    

1.14

%

    

3.91

%

  
     

2017

          

0.75

%

    

1.00

%

    

12.20

      

12.47

      

20,528

      

250,523

      

4.00

%

    

4.26

%

    

0.00

%

  
     

2016

          

0.75

%

    

1.00

%

    

11.73

      

11.96

      

27,092

      

318,100

      

-0.49

%

    

-0.25

%

    

0.00

%

  
     

2015

          

0.75

%

    

1.00

%

    

11.79

      

11.79

      

29,623

      

349,496

      

-3.00

%

    

-3.00

%

    

3.24

%

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

  
     

2019

          

0.05

%

    

1.00

%

    

12.88

      

19.79

      

1,576,348

      

22,282,932

      

13.87

%

    

14.96

%

    

2.39

%

  
     

2018

          

0.05

%

    

1.00

%

    

11.27

      

17.33

      

1,699,666

      

20,923,871

      

-6.37

%

    

-5.48

%

    

2.49

%

  
     

2017

          

0.05

%

    

1.00

%

    

11.99

      

18.47

      

1,641,212

      

21,517,364

      

13.18

%

    

14.26

%

    

2.35

%

  
     

2016

          

0.05

%

    

1.00

%

    

10.56

      

16.28

      

1,630,771

      

18,774,053

      

3.30

%

    

4.29

%

    

1.85

%

  
     

2015

          

0.05

%

    

1.00

%

    

10.19

      

15.72

      

1,446,630

      

16,239,060

      

-4.34

%

    

-3.42

%

    

2.58

%

  

LVIP JPMorgan Retirement Income Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

18.43

      

19.17

      

75,123

      

1,418,476

      

12.80

%

    

13.08

%

    

3.12

%

  
     

2018

          

0.75

%

    

1.00

%

    

16.34

      

16.95

      

59,774

      

989,569

      

-5.48

%

    

-5.24

%

    

2.68

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.29

      

17.89

      

65,102

      

1,138,548

      

9.85

%

    

10.13

%

    

2.51

%

  
     

2016

          

0.75

%

    

1.00

%

    

15.74

      

16.24

      

75,190

      

1,192,016

      

3.67

%

    

3.93

%

    

2.32

%

  
     

2015

          

0.75

%

    

1.00

%

    

15.18

      

15.63

      

78,946

      

1,206,062

      

-1.93

%

    

-1.68

%

    

2.70

%

  

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

11.93

      

12.10

      

30,385

      

363,034

      

15.01

%

    

15.29

%

    

1.31

%

  
     

2018

          

0.75

%

    

1.00

%

    

10.37

      

10.49

      

26,312

      

273,006

      

-12.68

%

    

-12.47

%

    

1.41

%

  
     

2017

          

0.75

%

    

1.00

%

    

11.88

      

11.99

      

22,623

      

268,820

      

13.55

%

    

13.84

%

    

1.24

%

  
     

2016

          

0.75

%

    

1.00

%

    

10.46

      

10.53

      

17,667

      

184,878

      

8.92

%

    

9.18

%

    

0.47

%

  
     

2015

          

0.75

%

    

1.00

%

    

9.61

      

9.61

      

26,076

      

250,511

      

-8.66

%

    

-8.66

%

    

0.83

%

  

LVIP Mondrian International Value Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

21.46

      

22.31

      

143,908

      

3,118,399

      

17.07

%

    

17.36

%

    

3.90

%

  
     

2018

          

0.75

%

    

1.00

%

    

18.33

      

19.01

      

148,817

      

2,751,295

      

-12.36

%

    

-12.14

%

    

3.12

%

  
     

2017

          

0.75

%

    

1.00

%

    

20.91

      

21.63

      

149,295

      

3,143,240

      

20.13

%

    

20.43

%

    

3.28

%

  
     

2016

          

0.75

%

    

1.00

%

    

17.41

      

17.96

      

162,608

      

2,847,099

      

2.98

%

    

3.23

%

    

2.64

%

  
     

2015

          

0.75

%

    

1.00

%

    

16.90

      

17.40

      

188,498

      

3,200,059

      

-4.75

%

    

-4.51

%

    

2.83

%

  

LVIP SSGA Bond Index Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

13.06

      

13.41

      

66,019

      

862,934

      

7.16

%

    

7.43

%

    

3.21

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.19

      

12.48

      

53,111

      

647,849

      

-1.31

%

    

-1.07

%

    

2.77

%

  
     

2017

          

0.75

%

    

1.00

%

    

12.35

      

12.62

      

51,752

      

639,241

      

2.16

%

    

2.41

%

    

2.60

%

  
     

2016

          

0.75

%

    

1.00

%

    

12.09

      

12.32

      

48,947

      

591,820

      

1.26

%

    

1.51

%

    

2.08

%

  
     

2015

          

0.75

%

    

1.00

%

    

11.94

      

12.14

      

49,584

      

592,055

      

-0.75

%

    

-0.50

%

    

2.54

%

  

LVIP SSGA Emerging Markets 100 Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

15.88

      

16.30

      

62,246

      

988,430

      

6.54

%

    

6.80

%

    

3.63

%

  
     

2018

          

0.75

%

    

1.00

%

    

14.90

      

15.26

      

68,986

      

1,028,459

      

-13.18

%

    

-12.96

%

    

4.38

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.17

      

17.54

      

69,315

      

1,190,182

      

22.60

%

    

22.91

%

    

2.56

%

  
     

2016

          

0.75

%

    

1.00

%

    

14.00

      

14.27

      

71,846

      

1,007,266

      

14.29

%

    

14.57

%

    

2.50

%

  
     

2015

          

0.75

%

    

1.00

%

    

12.25

      

12.45

      

79,159

      

970,656

      

-17.87

%

    

-17.66

%

    

4.25

%

  

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

15.97

      

16.56

      

94,775

      

1,515,834

      

14.60

%

    

14.89

%

    

2.61

%

  
     

2018

          

0.75

%

    

1.00

%

    

13.93

      

14.41

      

98,464

      

1,373,932

      

-9.09

%

    

-8.86

%

    

2.85

%

  
     

2017

          

0.75

%

    

1.00

%

    

15.33

      

15.82

      

101,941

      

1,564,389

      

13.67

%

    

13.96

%

    

4.03

%

  
     

2016

          

0.75

%

    

1.00

%

    

13.48

      

13.88

      

115,459

      

1,558,913

      

4.57

%

    

4.84

%

    

1.78

%

  
     

2015

          

0.75

%

    

1.00

%

    

12.89

      

13.24

      

125,993

      

1,626,464

      

-7.45

%

    

-7.22

%

    

2.95

%

  

LVIP SSGA International Index Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

18.06

      

18.55

      

30,617

      

552,975

      

20.37

%

    

20.67

%

    

2.87

%

  
     

2018

          

0.75

%

    

1.00

%

    

15.00

      

15.37

      

25,793

      

387,015

      

-14.56

%

    

-14.35

%

    

2.91

%

  
     

2017

          

0.75

%

    

1.00

%

    

17.56

      

17.95

      

18,295

      

321,293

      

23.45

%

    

23.76

%

    

2.96

%

  
     

2016

          

0.75

%

    

1.00

%

    

14.23

      

14.50

      

14,300

      

203,433

      

-0.01

%

    

0.24

%

    

2.81

%

  
     

2015

          

0.75

%

    

1.00

%

    

14.23

      

14.47

      

14,173

      

201,693

      

-2.20

%

    

-1.96

%

    

2.56

%

  


L-25


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

LVIP SSGA International Managed Volatility Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

  

$

12.76

    

$

12.85

      

9,825

    

$

125,390

      

17.61

%

    

17.90

%

    

2.85

%

  
     

2018

          

0.75

%

    

1.00

%

    

10.85

      

10.90

      

8,200

      

88,978

      

-13.08

%

    

-12.90

%

    

2.79

%

  
     

2017

          

0.75

%

    

1.00

%

    

12.48

      

12.52

      

5,147

      

64,257

      

23.03

%

    

23.30

%

    

2.50

%

  
     

2016

    

12/9/16

    

0.75

%

    

1.00

%

    

10.15

      

10.15

      

3,998

      

40,571

      

-0.43

%

    

-0.42

%

    

1.00

%

  

LVIP SSGA S&P 500 Index Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

25.75

      

26.25

      

4,534,311

      

117,002,612

      

29.90

%

    

30.22

%

    

1.67

%

  
     

2018

          

0.75

%

    

1.00

%

    

19.83

      

20.16

      

4,971,046

      

98,721,226

      

-5.59

%

    

-5.36

%

    

1.79

%

  
     

2017

          

0.75

%

    

1.00

%

    

21.00

      

21.30

      

5,374,033

      

113,020,936

      

20.37

%

    

20.67

%

    

1.85

%

  
     

2016

          

0.75

%

    

1.00

%

    

17.45

      

17.65

      

5,938,000

      

103,721,849

      

10.65

%

    

10.92

%

    

1.85

%

  
     

2015

          

0.75

%

    

1.00

%

    

15.77

      

15.91

      

6,410,542

      

101,174,438

      

0.17

%

    

0.42

%

    

1.84

%

  

LVIP SSGA Small-Cap Index Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

21.39

      

21.80

      

1,207,619

      

25,873,093

      

23.79

%

    

24.10

%

    

0.95

%

  
     

2018

          

0.75

%

    

1.00

%

    

17.28

      

17.57

      

1,321,514

      

22,865,294

      

-12.25

%

    

-12.03

%

    

0.94

%

  
     

2017

          

0.75

%

    

1.00

%

    

19.69

      

19.97

      

1,431,731

      

28,226,020

      

13.07

%

    

13.35

%

    

0.98

%

  
     

2016

          

0.75

%

    

1.00

%

    

17.42

      

17.62

      

1,593,485

      

27,777,094

      

19.48

%

    

19.78

%

    

1.28

%

  
     

2015

          

0.75

%

    

1.00

%

    

14.58

      

14.71

      

1,762,892

      

25,715,728

      

-5.66

%

    

-5.43

%

    

0.89

%

  

LVIP T. Rowe Price 2010 Fund - Standard Class

  
     

2019

          

1.00

%

    

1.00

%

    

15.38

      

15.38

      

26,542

      

408,207

      

14.58

%

    

14.58

%

    

2.93

%

  
     

2018

          

1.00

%

    

1.00

%

    

13.42

      

13.42

      

33,497

      

449,622

      

-5.18

%

    

-5.18

%

    

2.16

%

  
     

2017

          

1.00

%

    

1.00

%

    

14.16

      

14.16

      

33,070

      

468,127

      

8.55

%

    

8.55

%

    

1.77

%

  
     

2016

          

1.00

%

    

1.00

%

    

13.04

      

13.04

      

34,374

      

448,270

      

3.40

%

    

3.40

%

    

1.71

%

  
     

2015

          

1.00

%

    

1.00

%

    

12.61

      

12.61

      

44,587

      

562,353

      

-2.59

%

    

-2.59

%

    

1.93

%

  

LVIP T. Rowe Price 2020 Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

15.27

      

15.76

      

106,583

      

1,631,311

      

17.74

%

    

18.04

%

    

2.94

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.97

      

13.35

      

102,578

      

1,333,424

      

-6.52

%

    

-6.28

%

    

1.70

%

  
     

2017

          

0.75

%

    

1.00

%

    

13.88

      

14.25

      

131,500

      

1,827,841

      

10.91

%

    

11.19

%

    

1.76

%

  
     

2016

          

0.75

%

    

1.00

%

    

12.51

      

12.82

      

159,040

      

1,992,170

      

3.41

%

    

3.67

%

    

1.60

%

  
     

2015

          

0.75

%

    

1.00

%

    

12.10

      

12.36

      

204,519

      

2,476,908

      

-3.18

%

    

-2.94

%

    

1.91

%

  

LVIP T. Rowe Price 2030 Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

15.18

      

15.66

      

322,422

      

4,897,286

      

20.93

%

    

21.24

%

    

2.46

%

  
     

2018

          

0.75

%

    

1.00

%

    

12.55

      

12.92

      

334,961

      

4,206,456

      

-8.51

%

    

-8.28

%

    

1.82

%

  
     

2017

          

0.75

%

    

1.00

%

    

13.72

      

14.09

      

360,838

      

4,951,009

      

12.34

%

    

12.62

%

    

1.95

%

  
     

2016

          

0.75

%

    

1.00

%

    

12.21

      

12.51

      

374,363

      

4,573,267

      

2.68

%

    

2.94

%

    

1.86

%

  
     

2015

          

0.75

%

    

1.00

%

    

11.89

      

12.15

      

354,950

      

4,222,544

      

-3.63

%

    

-3.39

%

    

1.77

%

  

LVIP T. Rowe Price 2040 Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

14.55

      

15.02

      

146,547

      

2,134,848

      

23.20

%

    

23.51

%

    

2.23

%

  
     

2018

          

0.75

%

    

1.00

%

    

11.81

      

12.16

      

150,928

      

1,784,326

      

-9.63

%

    

-9.40

%

    

1.77

%

  
     

2017

          

0.75

%

    

1.00

%

    

13.07

      

13.42

      

136,361

      

1,781,962

      

13.49

%

    

13.79

%

    

1.99

%

  
     

2016

          

0.75

%

    

1.00

%

    

11.51

      

11.79

      

147,627

      

1,699,884

      

2.78

%

    

3.04

%

    

1.83

%

  
     

2015

          

0.75

%

    

1.00

%

    

11.20

      

11.45

      

143,308

      

1,605,682

      

-4.19

%

    

-3.95

%

    

1.69

%

  

LVIP T. Rowe Price 2050 Fund - Standard Class

  
     

2019

          

1.00

%

    

1.00

%

    

14.89

      

14.89

      

119,658

      

1,781,890

      

23.91

%

    

23.91

%

    

2.31

%

  
     

2018

          

1.00

%

    

1.00

%

    

12.02

      

12.02

      

91,484

      

1,099,460

      

-9.38

%

    

-9.38

%

    

1.91

%

  
     

2017

          

1.00

%

    

1.00

%

    

13.26

      

13.26

      

72,662

      

963,677

      

15.94

%

    

15.94

%

    

2.23

%

  
     

2016

          

1.00

%

    

1.00

%

    

11.44

      

11.44

      

55,235

      

631,833

      

3.38

%

    

3.38

%

    

2.06

%

  
     

2015

          

1.00

%

    

1.00

%

    

11.07

      

11.07

      

38,835

      

429,730

      

-4.70

%

    

-4.70

%

    

2.00

%

  

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

  
     

2019

          

0.75

%

    

1.00

%

    

44.14

      

46.46

      

536,674

      

23,785,568

      

36.03

%

    

36.37

%

    

0.17

%

  
     

2018

          

0.75

%

    

1.00

%

    

32.45

      

34.07

      

570,133

      

18,567,329

      

-4.04

%

    

-3.80

%

    

0.38

%

  
     

2017

          

0.75

%

    

1.00

%

    

33.81

      

35.41

      

590,506

      

20,032,741

      

23.50

%

    

23.81

%

    

0.20

%

  
     

2016

          

0.75

%

    

1.00

%

    

27.38

      

28.60

      

636,474

      

17,479,698

      

6.49

%

    

6.75

%

    

0.27

%

  
     

2015

          

0.75

%

    

1.00

%

    

25.71

      

26.79

      

718,249

      

18,515,932

      

1.09

%

    

1.34

%

    

0.12

%

  

Neuberger Berman AMT Large Cap Value Portfolio - I Class

  
     

2019

          

0.00

%

    

0.00

%

    

—

      

—

      

—

      

—

      

0.00

%

    

0.00

%

    

1.99

%

  
     

2018

          

0.75

%

    

1.00

%

    

29.06

      

30.51

      

155,853

      

4,548,150

      

-2.02

%

    

-1.78

%

    

1.14

%

  
     

2017

          

0.75

%

    

1.00

%

    

29.66

      

31.06

      

182,155

      

5,421,035

      

12.23

%

    

12.51

%

    

0.58

%

  
     

2016

          

0.75

%

    

1.00

%

    

26.43

      

27.61

      

208,670

      

5,530,042

      

26.10

%

    

26.41

%

    

0.73

%

  
     

2015

          

0.75

%

    

1.00

%

    

20.96

      

21.84

      

207,472

      

4,359,911

      

-12.68

%

    

-12.46

%

    

0.74

%

  


L-26


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

3. Financial Highlights (continued)

Subaccount

  

Year

   Commencement
Date(1)		   Minimum
Fee
Rate(2)		   Maximum
Fee
Rate(2)		   Minimum
Unit
Value(3)		   Maximum
Unit
Value(3)		   Units
Outstanding		  

Net Assets

   Minimum
Total
Return(4)		   Maximum
Total
Return(4)		   Investment
Income
Ratio(5)		  

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

  
     

2019

    

4/29/19

    

0.75

%

    

1.00

%

  

$

10.93

    

$

10.95

      

444,546

    

$

4,860,849

      

8.79

%

    

8.98

%

    

0.41

%

  

T. Rowe Price International Stock Portfolio

  
     

2019

          

0.75

%

    

1.00

%

    

27.71

      

29.17

      

322,849

      

8,974,514

      

26.50

%

    

26.82

%

    

2.38

%

  
     

2018

          

0.75

%

    

1.00

%

    

21.91

      

23.00

      

349,531

      

7,680,643

      

-15.06

%

    

-14.84

%

    

1.28

%

  
     

2017

          

0.75

%

    

1.00

%

    

25.79

      

27.01

      

389,279

      

10,066,206

      

26.61

%

    

26.93

%

    

1.11

%

  
     

2016

          

0.75

%

    

1.00

%

    

20.37

      

21.28

      

413,387

      

8,441,756

      

1.11

%

    

1.36

%

    

0.95

%

  
     

2015

          

0.75

%

    

1.00

%

    

20.15

      

20.99

      

469,356

      

9,479,699

      

-1.89

%

    

-1.64

%

    

0.90

%

  

(1)  Reflects less than a full year of activity. Funds were first received in this option on the commencement date noted or the option was inactive at the date funds were received thereby a succeeding commencement date is disclosed.

(2)  These amounts represent the annualized minimum and maximum contract expenses of the separate account, consisting primarily of mortality and expense charges, for only those subaccounts which contain investments as of the respective year end. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying funds have been excluded.

(3)  As the unit value is presented as a range of minimum to maximum values for only those subaccounts which existed for the entire year, some individual contract unit values may not be within the ranges presented as a result of partial year activity.

(4)  These amounts represent the total return, including changes in value of mutual funds, and reflect deductions for all items included in the fee rate. The total return does not include contract charges deducted directly from policy account values. The total return is not annualized. As the total return is presented as a range of minimum to maximum values for only those subaccounts which existed for the entire year, some individual contract total returns may not be within the ranges presented as a result of partial year activity.

(5)  These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense guarantee charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. Investment income ratios are not annualized.

Note: Fee rate, unit value and total return minimum and maximum are the same where there is only one active contract level charge for the subaccount.

4. Purchases and Sales of Investments

The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2019:

Subaccount

   Aggregate
Cost of
Purchases		   Aggregate
Proceeds
from Sales		  

AB VPS Global Thematic Growth Portfolio - Class B

  

$

209,267

    

$

175,470

    

AB VPS Growth Portfolio - Class B

    

746,169

      

2,676,755

    

AB VPS Large Cap Growth Portfolio - Class B

    

3,302,347

      

379,521

    

American Century VP Balanced Fund - Class I

    

667,659

      

1,840,139

    

American Funds Global Growth Fund - Class 2

    

919,966

      

1,246,152

    

American Funds Growth Fund - Class 2

    

3,846,165

      

4,136,545

    

American Funds Growth-Income Fund - Class 2

    

2,552,947

      

2,449,632

    

American Funds International Fund - Class 2

    

546,862

      

1,333,834

    

BlackRock Global Allocation V.I. Fund - Class I

    

186,885

      

320,218

    

Delaware VIP® Diversified Income Series - Standard Class

    

520,453

      

966,348

    

Delaware VIP® High Yield Series - Standard Class

    

538,284

      

633,450

    


L-27


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

4. Purchases and Sales of Investments (continued)

Subaccount

   Aggregate
Cost of
Purchases		   Aggregate
Proceeds
from Sales		  

Delaware VIP® REIT Series - Service Class

  

$

285,779

    

$

1,395,401

    

Delaware VIP® Small Cap Value Series - Service Class

    

933,714

      

1,426,925

    

Delaware VIP® Smid Cap Core Series - Service Class

    

461,832

      

991,170

    

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

33,569

      

51,347

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

1,770,173

      

3,050,748

    

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

2,874,113

      

2,630,194

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

54,453

      

478

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

142,720

      

16,992

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

223,131

      

115,602

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

214,634

      

221,217

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

61,694

      

845

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

50,503

      

11,000

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

164,967

      

12,446

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

1,601

      

2

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

187

      

—

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

154,533

      

97,689

    

Fidelity® VIP Growth Portfolio - Initial Class

    

5,975,825

      

11,124,582

    

Janus Henderson Global Research Portfolio - Institutional Shares

    

635,196

      

1,189,727

    

LVIP Baron Growth Opportunities Fund - Service Class

    

1,267,341

      

2,372,578

    

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

39,144

      

82,283

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

56,376

      

188,034

    

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

178,434

      

255,684

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

168,391

      

100,709

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

58,773

      

18,958

    

LVIP Delaware Bond Fund - Standard Class

    

388,668

      

511,977

    

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

100,256

      

108,782

    

LVIP Delaware Social Awareness Fund - Standard Class

    

1,297,928

      

1,427,973

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

209,781

      

70,291

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

421,007

      

963,914

    

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

19,899

      

48,276

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

103,847

      

162,185

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

369,163

      

480,626

    

LVIP Global Income Fund - Standard Class

    

21,166

      

146,124

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

5,772,126

      

5,940,976

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

541,544

      

243,355

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

164,865

      

115,656

    

LVIP Mondrian International Value Fund - Standard Class

    

502,006

      

445,767

    

LVIP SSGA Bond Index Fund - Standard Class

    

559,573

      

381,613

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

121,764

      

198,904

    

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

117,030

      

127,355

    

LVIP SSGA International Index Fund - Standard Class

    

113,893

      

25,438

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

100,761

      

79,029

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

6,661,563

      

11,799,354

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

1,581,671

      

2,641,669

    

LVIP T. Rowe Price 2010 Fund - Standard Class

    

97,978

      

120,678

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

621,679

      

270,480

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

1,014,775

      

492,783

    

LVIP T. Rowe Price 2040 Fund - Standard Class

    

542,787

      

297,608

    

LVIP T. Rowe Price 2050 Fund - Standard Class

    

706,182

      

154,004

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

2,505,523

      

2,424,297

    

Neuberger Berman AMT Large Cap Value Portfolio - I Class

    

1,135,009

      

5,122,632

    

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

5,194,676

      

489,325

    

T. Rowe Price International Stock Portfolio

    

695,406

      

888,711

    


L-28


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

5. Investments

The following is a summary of investments owned at December 31, 2019:

Subaccount

   Shares
Owned		   Net
Asset
Value		   Fair Value
of Shares		   Cost of
Shares		  

AB VPS Global Thematic Growth Portfolio - Class B

    

63,058

    

$

32.19

    

$

2,029,831

    

$

1,329,482

    

AB VPS Large Cap Growth Portfolio - Class B

    

50,314

      

57.28

      

2,882,013

      

2,892,544

    

American Century VP Balanced Fund - Class I

    

1,612,796

      

8.18

      

13,192,668

      

11,318,620

    

American Funds Global Growth Fund - Class 2

    

228,298

      

32.24

      

7,360,327

      

5,860,854

    

American Funds Growth Fund - Class 2

    

409,398

      

80.57

      

32,985,214

      

25,898,350

    

American Funds Growth-Income Fund - Class 2

    

316,376

      

50.08

      

15,844,128

      

13,788,462

    

American Funds International Fund - Class 2

    

424,487

      

20.78

      

8,820,850

      

7,850,701

    

BlackRock Global Allocation V.I. Fund - Class I

    

95,181

      

17.12

      

1,629,501

      

1,559,728

    

Delaware VIP® Diversified Income Series - Standard Class

    

384,062

      

10.71

      

4,113,303

      

3,971,084

    

Delaware VIP® High Yield Series - Standard Class

    

353,229

      

5.08

      

1,794,403

      

1,858,902

    

Delaware VIP® REIT Series - Service Class

    

594,615

      

14.66

      

8,717,062

      

7,794,579

    

Delaware VIP® Small Cap Value Series - Service Class

    

209,354

      

38.06

      

7,968,017

      

7,081,181

    

Delaware VIP® Smid Cap Core Series - Service Class

    

258,566

      

21.28

      

5,502,290

      

5,968,982

    

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

14,984

      

13.35

      

200,030

      

199,405

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

1,993,657

      

15.23

      

30,363,400

      

28,897,668

    

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

668,405

      

36.10

      

24,129,405

      

19,454,309

    

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

8,035

      

13.92

      

111,844

      

106,692

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

16,286

      

15.21

      

247,708

      

236,462

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

20,674

      

15.19

      

314,033

      

294,903

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

28,965

      

24.17

      

700,075

      

647,927

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

8,201

      

22.95

      

188,206

      

172,039

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

4,356

      

22.93

      

99,884

      

93,551

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

12,972

      

20.57

      

266,837

      

246,005

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

151

      

10.97

      

1,660

      

1,599

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

17

      

10.98

      

190

      

187

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

94,105

      

1.00

      

94,105

      

94,106

    

Fidelity® VIP Growth Portfolio - Initial Class

    

1,186,564

      

79.09

      

93,845,360

      

55,643,975

    

Janus Henderson Global Research Portfolio - Institutional Shares

    

155,440

      

56.59

      

8,796,357

      

5,968,108

    

LVIP Baron Growth Opportunities Fund - Service Class

    

304,645

      

60.14

      

18,321,342

      

10,270,072

    

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

25,274

      

12.47

      

315,197

      

358,201

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

34,027

      

9.77

      

332,443

      

307,730

    

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

68,675

      

10.05

      

690,046

      

721,786

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

42,726

      

37.33

      

1,595,087

      

1,058,997

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

9,972

      

17.15

      

171,008

      

151,924

    

LVIP Delaware Bond Fund - Standard Class

    

214,378

      

13.70

      

2,937,405

      

2,904,570

    

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

17,554

      

10.00

      

175,518

      

177,833

    

LVIP Delaware Social Awareness Fund - Standard Class

    

406,786

      

41.15

      

16,740,886

      

14,634,972

    

LVIP Delaware Wealth Builder Fund - Standard Class

    

38,367

      

11.81

      

453,187

      

495,285

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

162,606

      

34.70

      

5,642,089

      

5,032,479

    

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

1,797

      

35.45

      

63,689

      

59,927

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

86,346

      

14.11

      

1,218,599

      

1,105,126

    

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

276,483

      

14.56

      

4,025,873

      

3,392,628

    

LVIP Global Income Fund - Standard Class

    

19,384

      

11.52

      

223,341

      

220,097

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

1,497,912

      

14.88

      

22,282,932

      

21,186,183

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

112,918

      

12.56

      

1,418,476

      

1,484,974

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

20,754

      

17.49

      

363,034

      

334,300

    

LVIP Mondrian International Value Fund - Standard Class

    

183,846

      

16.96

      

3,118,399

      

3,262,207

    

LVIP SSGA Bond Index Fund - Standard Class

    

75,300

      

11.46

      

862,934

      

861,482

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

115,188

      

8.58

      

988,430

      

1,119,065

    

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

123,560

      

12.27

      

1,515,834

      

1,392,031

    

LVIP SSGA International Index Fund - Standard Class

    

56,180

      

9.84

      

552,975

      

514,263

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

12,659

      

9.91

      

125,390

      

119,216

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

5,574,473

      

20.99

      

117,002,612

      

73,990,062

    

LVIP SSGA Small-Cap Index Fund - Standard Class

    

816,392

      

31.69

      

25,873,093

      

20,185,966

    

LVIP T. Rowe Price 2010 Fund - Standard Class

    

42,001

      

9.72

      

408,207

      

450,925

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

162,319

      

10.05

      

1,631,311

      

1,755,277

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

453,957

      

10.79

      

4,897,286

      

4,860,677

    

LVIP T. Rowe Price 2040 Fund - Standard Class

    

207,468

      

10.29

      

2,134,848

      

2,158,975

    


L-29


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

5. Investments (continued)

Subaccount

   Shares
Owned		   Net
Asset
Value		   Fair Value
of Shares		   Cost of
Shares		  

LVIP T. Rowe Price 2050 Fund - Standard Class

    

164,411

    

$

10.84

    

$

1,781,890

    

$

1,722,315

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

800,403

      

29.72

      

23,785,568

      

14,836,060

    

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

180,768

      

26.89

      

4,860,849

      

4,704,260

    

T. Rowe Price International Stock Portfolio

    

574,553

      

15.62

      

8,974,514

      

7,945,962

    

6. Changes in Units Outstanding

The change in units outstanding for the year ended December 31, 2019, is as follows:

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

AB VPS Global Thematic Growth Portfolio - Class B

    

13,125

      

(20,479

)

    

(7,354

)

  

AB VPS Growth Portfolio - Class B

    

11,166

      

(124,192

)

    

(113,026

)

  

AB VPS Large Cap Growth Portfolio - Class B

    

294,852

      

(36,797

)

    

258,055

    

American Century VP Balanced Fund - Class I

    

4,297

      

(33,983

)

    

(29,686

)

  

American Funds Global Growth Fund - Class 2

    

14,142

      

(35,075

)

    

(20,933

)

  

American Funds Growth Fund - Class 2

    

16,624

      

(149,375

)

    

(132,751

)

  

American Funds Growth-Income Fund - Class 2

    

27,621

      

(81,020

)

    

(53,399

)

  

American Funds International Fund - Class 2

    

13,599

      

(70,029

)

    

(56,430

)

  

BlackRock Global Allocation V.I. Fund - Class I

    

8,108

      

(19,409

)

    

(11,301

)

  

Delaware VIP® Diversified Income Series - Standard Class

    

21,838

      

(49,399

)

    

(27,561

)

  

Delaware VIP® High Yield Series - Standard Class

    

20,495

      

(29,701

)

    

(9,206

)

  

Delaware VIP® REIT Series - Service Class

    

3,583

      

(30,635

)

    

(27,052

)

  

Delaware VIP® Small Cap Value Series - Service Class

    

9,085

      

(44,528

)

    

(35,443

)

  

Delaware VIP® Smid Cap Core Series - Service Class

    

6,368

      

(42,124

)

    

(35,756

)

  

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

1,965

      

(3,719

)

    

(1,754

)

  

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

1,826

      

(57,225

)

    

(55,399

)

  

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

8,913

      

(82,099

)

    

(73,186

)

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

4,631

      

—

      

4,631

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

12,485

      

(1,493

)

    

10,992

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

19,889

      

(10,390

)

    

9,499

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

18,539

      

(21,033

)

    

(2,494

)

  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

5,258

      

(45

)

    

5,213

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

4,410

      

(997

)

    

3,413

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

14,876

      

(1,126

)

    

13,750

    

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

    

153

      

—

      

153

    

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

    

18

      

—

      

18

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

8,223

      

(5,247

)

    

2,976

    

Fidelity® VIP Growth Portfolio - Initial Class

    

3,213

      

(90,708

)

    

(87,495

)

  

Janus Henderson Global Research Portfolio - Institutional Shares

    

2,863

      

(45,143

)

    

(42,280

)

  

LVIP Baron Growth Opportunities Fund - Service Class

    

10,464

      

(28,572

)

    

(18,108

)

  

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

923

      

(4,165

)

    

(3,242

)

  

LVIP BlackRock Global Real Estate Fund - Standard Class

    

3,175

      

(16,519

)

    

(13,344

)

  

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

17,108

      

(25,914

)

    

(8,806

)

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

8,112

      

(7,666

)

    

446

    

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

3,240

      

(1,338

)

    

1,902

    

LVIP Delaware Bond Fund - Standard Class

    

16,933

      

(29,045

)

    

(12,112

)

  

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

9,600

      

(10,662

)

    

(1,062

)

  

LVIP Delaware Social Awareness Fund - Standard Class

    

7,379

      

(36,026

)

    

(28,647

)

  

LVIP Delaware Wealth Builder Fund - Standard Class

    

8,614

      

(3,413

)

    

5,201

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

3,307

      

(41,836

)

    

(38,529

)

  

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

1,902

      

(4,863

)

    

(2,961

)

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

1,804

      

(8,501

)

    

(6,697

)

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

7,383

      

(27,419

)

    

(20,036

)

  

LVIP Global Income Fund - Standard Class

    

1,338

      

(11,525

)

    

(10,187

)

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

340,450

      

(463,768

)

    

(123,318

)

  

LVIP JPMorgan Retirement Income Fund - Standard Class

    

29,059

      

(13,710

)

    

15,349

    

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

14,046

      

(9,973

)

    

4,073

    

LVIP Mondrian International Value Fund - Standard Class

    

16,841

      

(21,750

)

    

(4,909

)

  

LVIP SSGA Bond Index Fund - Standard Class

    

42,126

      

(29,218

)

    

12,908

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

6,155

      

(12,895

)

    

(6,740

)

  


L-30


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

6. Changes in Units Outstanding (continued)

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

4,492

      

(8,181

)

    

(3,689

)

  

LVIP SSGA International Index Fund - Standard Class

    

6,238

      

(1,414

)

    

4,824

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

8,064

      

(6,439

)

    

1,625

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

32,012

      

(468,747

)

    

(436,735

)

  

LVIP SSGA Small-Cap Index Fund - Standard Class

    

9,306

      

(123,201

)

    

(113,895

)

  

LVIP T. Rowe Price 2010 Fund - Standard Class

    

1,396

      

(8,351

)

    

(6,955

)

  

LVIP T. Rowe Price 2020 Fund - Standard Class

    

22,969

      

(18,964

)

    

4,005

    

LVIP T. Rowe Price 2030 Fund - Standard Class

    

21,550

      

(34,089

)

    

(12,539

)

  

LVIP T. Rowe Price 2040 Fund - Standard Class

    

17,046

      

(21,427

)

    

(4,381

)

  

LVIP T. Rowe Price 2050 Fund - Standard Class

    

39,156

      

(10,982

)

    

28,174

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

24,204

      

(57,663

)

    

(33,459

)

  

Neuberger Berman AMT Large Cap Value Portfolio - I Class

    

950

      

(156,803

)

    

(155,853

)

  

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

    

491,752

      

(47,206

)

    

444,546

    

T. Rowe Price International Stock Portfolio

    

7,517

      

(34,199

)

    

(26,682

)

  

The change in units outstanding for the year ended December 31, 2018, is as follows:

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

AB VPS Global Thematic Growth Portfolio - Class B

    

46,431

      

(88,355

)

    

(41,924

)

  

AB VPS Growth Portfolio - Class B

    

23,050

      

(12,636

)

    

10,414

    

American Century VP Balanced Fund - Class I

    

4,773

      

(22,185

)

    

(17,412

)

  

American Funds Global Growth Fund - Class 2

    

21,074

      

(30,833

)

    

(9,759

)

  

American Funds Growth Fund - Class 2

    

35,045

      

(154,205

)

    

(119,160

)

  

American Funds Growth-Income Fund - Class 2

    

46,355

      

(49,177

)

    

(2,822

)

  

American Funds International Fund - Class 2

    

34,808

      

(75,165

)

    

(40,357

)

  

BlackRock Global Allocation V.I. Fund - Class I

    

8,464

      

(10,632

)

    

(2,168

)

  

Delaware VIP® Diversified Income Series - Standard Class

    

22,078

      

(28,532

)

    

(6,454

)

  

Delaware VIP® High Yield Series - Standard Class

    

5,977

      

(20,898

)

    

(14,921

)

  

Delaware VIP® REIT Series - Service Class

    

6,442

      

(44,375

)

    

(37,933

)

  

Delaware VIP® Small Cap Value Series - Service Class

    

14,205

      

(46,733

)

    

(32,528

)

  

Delaware VIP® Smid Cap Core Series - Service Class

    

16,140

      

(24,472

)

    

(8,332

)

  

DWS Alternative Asset Allocation VIP Portfolio - Class A

    

2,316

      

(876

)

    

1,440

    

Fidelity® VIP Asset Manager Portfolio - Initial Class

    

5,158

      

(66,060

)

    

(60,902

)

  

Fidelity® VIP Contrafund® Portfolio - Service Class 2

    

30,940

      

(69,529

)

    

(38,589

)

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

    

7,540

      

(2,245

)

    

5,295

    

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

    

11,093

      

(283

)

    

10,810

    

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

    

17,865

      

(67

)

    

17,798

    

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

    

60,202

      

(8,280

)

    

51,922

    

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

    

11,081

      

(832

)

    

10,249

    

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

    

2,989

      

(417

)

    

2,572

    

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

    

8,899

      

(1,516

)

    

7,383

    

Fidelity® VIP Government Money Market Portfolio - Initial Class

    

5,675

      

(6,412

)

    

(737

)

  

Fidelity® VIP Growth Portfolio - Initial Class

    

13,651

      

(83,391

)

    

(69,740

)

  

Janus Henderson Global Research Portfolio - Institutional Shares

    

4,471

      

(33,176

)

    

(28,705

)

  

LVIP Baron Growth Opportunities Fund - Service Class

    

9,860

      

(19,616

)

    

(9,756

)

  

LVIP BlackRock Advantage Allocation Fund - Standard Class

    

1,477

      

(655

)

    

822

    

LVIP BlackRock Global Real Estate Fund - Standard Class

    

4,122

      

(6,865

)

    

(2,743

)

  

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

    

14,253

      

(11,539

)

    

2,714

    

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

    

6,401

      

(7,465

)

    

(1,064

)

  

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

    

7,603

      

(4,569

)

    

3,034

    

LVIP Delaware Bond Fund - Standard Class

    

13,665

      

(36,896

)

    

(23,231

)

  

LVIP Delaware Diversified Floating Rate Fund - Service Class

    

2,954

      

(5,037

)

    

(2,083

)

  

LVIP Delaware Social Awareness Fund - Standard Class

    

5,181

      

(46,149

)

    

(40,968

)

  

LVIP Delaware Wealth Builder Fund - Standard Class

    

4,249

      

(820

)

    

3,429

    

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

    

7,877

      

(28,545

)

    

(20,668

)

  

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

    

2,373

      

(1,658

)

    

715

    

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

    

4,934

      

(12,504

)

    

(7,570

)

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

    

8,099

      

(25,491

)

    

(17,392

)

  

LVIP Global Income Fund - Standard Class

    

9,947

      

(3,124

)

    

6,823

    

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

    

302,339

      

(243,885

)

    

58,454

    

LVIP JPMorgan Retirement Income Fund - Standard Class

    

2,438

      

(7,766

)

    

(5,328

)

  


L-31


Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

6. Changes in Units Outstanding (continued)

Subaccount

   Units
Issued		   Units
Redeemed		   Net Increase
(Decrease)		  

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

    

6,143

      

(2,454

)

    

3,689

    

LVIP Mondrian International Value Fund - Standard Class

    

10,324

      

(10,802

)

    

(478

)

  

LVIP SSGA Bond Index Fund - Standard Class

    

10,661

      

(9,302

)

    

1,359

    

LVIP SSGA Emerging Markets 100 Fund - Standard Class

    

14,389

      

(14,718

)

    

(329

)

  

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

    

4,401

      

(7,878

)

    

(3,477

)

  

LVIP SSGA International Index Fund - Standard Class

    

9,243

      

(1,745

)

    

7,498

    

LVIP SSGA International Managed Volatility Fund - Standard Class

    

4,133

      

(1,080

)

    

3,053

    

LVIP SSGA S&P 500 Index Fund - Standard Class

    

56,963

      

(459,950

)

    

(402,987

)

  

LVIP SSGA Small-Cap Index Fund - Standard Class

    

21,789

      

(132,006

)

    

(110,217

)

  

LVIP T. Rowe Price 2010 Fund - Standard Class

    

1,978

      

(1,551

)

    

427

    

LVIP T. Rowe Price 2020 Fund - Standard Class

    

11,326

      

(40,248

)

    

(28,922

)

  

LVIP T. Rowe Price 2030 Fund - Standard Class

    

37,404

      

(63,281

)

    

(25,877

)

  

LVIP T. Rowe Price 2040 Fund - Standard Class

    

26,162

      

(11,595

)

    

14,567

    

LVIP T. Rowe Price 2050 Fund - Standard Class

    

22,350

      

(3,528

)

    

18,822

    

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

    

18,732

      

(39,105

)

    

(20,373

)

  

Neuberger Berman AMT Large Cap Value Portfolio - I Class

    

3,694

      

(29,996

)

    

(26,302

)

  

T. Rowe Price International Stock Portfolio

    

9,173

      

(48,921

)

    

(39,748

)

  

7. Subsequent Events

Management evaluated subsequent events through the date these financial statements were issued.

The worldwide coronavirus, or COVID-19, outbreak in the first quarter of 2020 has led to an extreme downturn and volatility of the financial markets and wide-ranging changes in consumer behavior. As the economic and regulatory environment continues to evolve, we cannot reasonably estimate the length or severity of this event or the impact to Separate Account performance and financial results. However, in general, a deterioration in general economic and business conditions can have a negative impact on individual unit values and could cause a net decrease in net assets resulting from operations of the separate account.

Management identified no other items or events required for disclosure.


L-32


Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of The Lincoln National Life Insurance Company
and

Contract Owners of Lincoln National Variable Annuity Account L

Opinion on the Financial Statements

We have audited the accompanying statements of assets and liabilities of each of the subaccounts listed in the Appendix that comprise Lincoln National Variable Annuity Account L ("Variable Account"), as of December 31, 2019, the related statements of operations and the statements of changes in net assets for each of the periods indicated in the Appendix, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of each subaccount as of December 31, 2019, the results of its operations and changes in its net assets for each of the periods indicated in the Appendix, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Variable Account's management. Our responsibility is to express an opinion on each of the subaccounts' financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Variable Account in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2019, by correspondence with the fund companies or their transfer agents, as applicable. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Ernst & Young

We have served as the Variable Account's Auditor since 1996.
Philadelphia, Pennsylvania
April 23, 2020


L-33


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

AB VPS Global Thematic Growth Portfolio - Class B

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

AB VPS Growth Portfolio - Class B

  

N/A - the fund ceased to be available as an investment option to Variable Account contract owners during 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019 (the fund ceased to be available as an investment option to Variable Account contract owners during 2019)

  

AB VPS Large Cap Growth Portfolio - Class B

  

As of December 31, 2019

  

For the period from April 26, 2019 through December 31, 2019

  

For the period from April 26, 2019 through December 31, 2019

  

American Century VP Balanced Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Global Growth Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Growth Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

American Funds Growth-Income Fund - Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  
American Funds International
Fund - Class 2		  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

BlackRock Global Allocation V.I. Fund - Class I

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Diversified Income Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® High Yield Series - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® REIT Series - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Small Cap Value Series - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Delaware VIP® Smid Cap Core Series - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

DWS Alternative Asset Allocation VIP Portfolio - Class A

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Asset Manager Portfolio - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Contrafund® Portfolio - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2020 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For the year ended December 31, 2019 and the period from January 16, 2018 (commencement of operations) through December 31, 2018

  

Fidelity® VIP Freedom 2025 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For the year ended December 31, 2019 and the period from January 11, 2018 (commencement of operations) through December 31, 2018

  

Fidelity® VIP Freedom 2030 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For the year ended December 31, 2019 and the period from March 6, 2018 (commencement of operations) through December 31, 2018

  


L-34


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

Fidelity® VIP Freedom 2035 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2040 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2045 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2050 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Freedom 2055 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the period from June 24, 2019 through December 31, 2019

  

For the period from June 24, 2019 through December 31, 2019

  

Fidelity® VIP Freedom 2060 Portfolio(SM) - Service Class 2

  

As of December 31, 2019

  

For the period from November 18, 2019 through December 31, 2019

  

For the period from November 18, 2019 through December 31, 2019

  

Fidelity® VIP Government Money Market Portfolio - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Fidelity® VIP Growth Portfolio - Initial Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Janus Henderson Global Research Portfolio - Institutional Shares

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Baron Growth Opportunities Fund - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP BlackRock Advantage Allocation Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP BlackRock Global Real Estate Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Bond Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Diversified Floating Rate Fund - Service Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Delaware Social Awareness Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  
LVIP Delaware Wealth Builder
Fund - Standard Class		  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


L-35


Subaccount

   Statements of
Assets and Liabilities		  

Statements of Operations

  

Statements of Changes in Net Assets

  

LVIP Global Income Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP JPMorgan Retirement Income Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP Mondrian International Value Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Bond Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Emerging Markets 100 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA International Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA International Managed Volatility Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA S&P 500 Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP SSGA Small-Cap Index Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price 2010 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price 2020 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price 2030 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price 2040 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price 2050 Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  

Neuberger Berman AMT Large Cap Value Portfolio - I Class

  

N/A - the fund ceased to be available as an investment option to Variable Account contract owners during 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019 (the fund ceased to be available as an investment option to Variable Account contract owners during 2019)

  

Neuberger Berman AMT Sustainable Equity Portfolio - I Class

  

As of December 31, 2019

  

For the period from April 29, 2019 through December 31, 2019

  

For the period from April 29, 2019 through December 31, 2019

  

T. Rowe Price International Stock Portfolio

  

As of December 31, 2019

  

For the year ended December 31, 2019

  

For each of the two years in the period ended December 31, 2019

  


L-36


Lincoln National Variable Annuity Account L
PART C - OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) List of Financial Statements
1. Part A
The Table of Condensed Financial Information is included in Part A of this Registration Statement.
2. Part B
The following financial statements for the Variable Account are included in Part B of this Registration Statement:
Statement of Assets and Liabilities - December 31, 2019
Statement of Operations - Year ended December 31, 2019
Statements of Changes in Net Assets - Years ended December 31, 2019 and 2018
Notes to Financial Statements - December 31, 2019
Report of Independent Registered Public Accounting Firm
3. Part B
The following consolidated financial statements for The Lincoln National Life Insurance Company are included in Part B of this Registration Statement:
Consolidated Balance Sheets - Years ended December 31, 2019 and 2018
Consolidated Statements of Comprehensive Income (Loss) - Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Stockholder’s Equity - Years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows - Years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements - December 31, 2019
Report of Independent Registered Public Accounting Firm
(b) List of Exhibits
(2) Not Applicable.

 

(7) Not Applicable.
(b) Fund Participation Agreements and Amendments between The Lincoln National Life Insurance Company and:
B-2

 

(c) Rule 22c-2 Agreements between The Lincoln National Life Insurance Company and:
(11) Not Applicable
(12) Not Applicable
Item 25. Directors and Officers of the Depositor
The following list contains the officers and directors of The Lincoln National Life Insurance Company who are engaged directly or indirectly in activities relating to Lincoln National Variable Annuity Account L as well as the contracts. The list also shows The Lincoln National Life Insurance Company's executive officers.
B-3

 

Name   Positions and Offices with Depositor
Ellen G. Cooper*   Executive Vice President, Chief Investment Officer, and Director
Randal J. Freitag*   Executive Vice President, Chief Financial Officer, and Director
Wilford H. Fuller*   Executive Vice President and Director
Christopher A. Giovanni*   Senior Vice President and Treasurer
Dennis R. Glass*   President and Director
Stephen B. Harris*   Senior Vice President and Chief Ethics and Compliance Officer
Christine Janofsky*   Senior Vice President and Controller
Leon E. Roday*   Executive Vice President, General Counsel and Director
Keith J. Ryan**   Vice President and Director
Nancy A. Smith*   Senior Vice President and Secretary
Joseph D. Spada***   Vice President and Chief Compliance Officer for Separate Accounts
*Principal business address is Radnor Financial Center, 150 Radnor Chester Road, Radnor, PA 19087
**Principal business address is 1300 South Clinton Street, Fort Wayne, Indiana 46802
***Principal business address is 350 Church Street, Hartford, Connecticut 06096
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant
See Exhibit 13 above: Lincoln National Corporation Organizational Chart.
Item 27. Number of Contractowners
As of March 31, 2020 there were 37,591 participants in group contracts under Account L.
Item 28. Indemnification
a) Brief description of indemnification provisions.
In general, Article VII of the By-Laws of The Lincoln National Life Insurance Company (Lincoln Life or Company) provides that Lincoln Life will indemnify certain persons against expenses, judgments and certain other specified costs incurred by any such person if he/she is made a party or is threatened to be made a party to a suit or proceeding because he/she was a director, officer, or employee of Lincoln Life, as long as he/she acted in good faith and in a manner he/she reasonably believed to be in the best interests of, or act opposed to the best interests of, Lincoln Life. Certain additional conditions apply to indemnification in criminal proceedings.
In particular, separate conditions govern indemnification of directors, officers, and employees of Lincoln Life in connection with suits by, or in the right of, Lincoln Life.
Please refer to Article VII of the By-Laws of Lincoln Life (Exhibit no. 6(b) hereto) for the full text of the indemnification provisions. Indemnification is permitted by, and is subject to the requirements of, Indiana law.
b) Undertaking pursuant to Rule 484 of Regulation C under the Securities Act of 1933:
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 28(a) above or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any such action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 29. Principal Underwriter
(a) Lincoln Financial Distributors, Inc. (“LFD”) currently serves as Principal Underwriter for: Lincoln National Variable Annuity Account C; Lincoln National Flexible Premium Variable Life Account D; Lincoln National Variable Annuity Account E; Lincoln National Flexible Premium Variable Life Account F; Lincoln National Flexible Premium Variable Life Account G; Lincoln National Variable Annuity Account H; Lincoln Life & Annuity Variable Annuity Account H; Lincoln Life Flexible Premium Variable Life
B-4

 

Account J; Lincoln Life Flexible Premium Variable Life Account K; Lincoln National Variable Annuity Account L; Lincoln Life & Annuity Variable Annuity Account L; Lincoln Life Flexible Premium Variable Life Account M; Lincoln Life & Annuity Flexible Premium Variable Life Account M; Lincoln Life Variable Annuity Account N; Lincoln New York Account N for Variable Annuities; Lincoln Life Variable Annuity Account Q; Lincoln Life Flexible Premium Variable Life Account R; LLANY Separate Account R for Flexible Premium Variable Life Insurance; Lincoln Life Flexible Premium Variable Life Account S; LLANY Separate Account S for Flexible Premium Variable Life Insurance; Lincoln Life Variable Annuity Account T; Lincoln Life Variable Annuity Account W; and Lincoln Life Flexible Premium Variable Life Account Y and Lincoln Life & Annuity Flexible Premium Variable Life Account Y; Lincoln Life Variable Annuity Account JF-H; Lincoln Life Variable Annuity Account JF-I; Lincoln Life Flexible Premium Variable Life Account JF-A; Lincoln Life Flexible Premium Variable Life Account JF-C; Lincoln Life Variable Annuity Account JL-A; Lincoln Life & Annuity Flexible Premium Variable Life Account JA-B; Lincoln Variable Insurance Products Trust; Lincoln Advisors Trust.
(b) Officers and Directors of Lincoln Financial Distributors, Inc.:
Name   Positions and Offices with Underwriter
Andrew J. Bucklee*   Senior Vice President and Director
Wilford H. Fuller*   President, Chief Executive Officer and Director
Christopher A. Giovanni*   Senior Vice President and Treasurer
John C. Kennedy*   Senior Vice President, Head of Retirement Solutions Distribution, and Director
Macgregor B. Maitland*   Vice President and Chief Compliance Officer (Distribution)
Thomas P. O'Neill*   Senior Vice President and Chief Operating Officer
Christopher P. Potochar*   Senior Vice President and Director, Head of Finance and Strategy
Claire H. Hanna*   Secretary
*Principal Business address is Radnor Financial Center, 150 Radnor Chester Road, Radnor, PA 19087
(c) N/A
Item 30. Location of Accounts and Records
All accounts, books, and other documents, except accounting records, required to be maintained by Section 31a of the 1940 Act and the Rules promulgated thereunder are maintained by The Lincoln National Life Insurance Company, 1300 South Clinton Street, Fort Wayne, Indiana 46802. The accounting records are maintained by State Street Bank and Trust Company, 801 Pennsylvania Avenue, Kansas City, MO 64105.
Item 31. Management Services
Not Applicable.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted.
(b) Registrant undertakes that it will include either (1) as part of any application to purchase a Certificate or an Individual Contract offered by the Prospectus, a space that an applicant can check to request a Statement of Additional Information, or (2) a post card or a similar written communication affixed to or included in the Prospectus that the applicant can remove to send for a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this Form promptly upon written or oral request to Lincoln Life at the address or phone number listed in the Prospectus.
(d) The Lincoln National Life Insurance Company hereby represents that the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by The Lincoln National Life Insurance Company.
Item 33.
For contracts sold in connection with the Texas Optional Retirement Program, Registrant is relying on Rule 6c-7 and represents that paragraphs (a) through (d) of that rule have been complied with.
B-5

 

SIGNATURES

 

(a)         As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of these Registration Statements and has caused the following Post-Effective Amendments to the Registration Statement to be signed on its behalf, in the City of Fort Wayne, and the State of Indiana on this 9th day of April, 2020 at 1:20 pm.

 

Lincoln National Variable Annuity Account L (811-07645; CIK: 0001015343)

 

333-187072 (Amendment No: 9)

333-187069 (Amendment No: 9)

333-187070 (Amendment No: 9)

333-187071 (Amendment No: 9)

333-198911 (Amendment No: 6)

333-198912 (Amendment No: 6)

333-198913 (Amendment No: 6)

333-198914 (Amendment No: 6)

333-04999 (Amendment No: 33)

 

Lincoln National Variable Annuity Account C (811-03214; CIK:0000353894)

 

033-25990 (Amendment No: 57)

333-112927 (Amendment No: 28)

333-179107 (Amendment No: 12)

 

Lincoln Life Variable Annuity Account Q (811-08569; CIK:0001048604)

 

333-43373 (Amendment No: 28)

 

Lincoln National Variable Annuity Account C

Lincoln National Variable Annuity Account L

Lincoln Life Variable Annuity Account Q

(Registrant)

 

 

By:

/s/ John D. Weber

 

 

John D. Weber

 

 

Vice President, The Lincoln National Life Insurance Company

 

Signed on its behalf, in the City of Radnor, and the State of Pennsylvania on this 9th day of April, 2020 at 1:20 pm.

 

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

(Depositor)

 

 

By:

/s/ Ralph R. Ferraro

 

 

Ralph R. Ferraro

 

 

(Signature-Officer of Depositor)

 

 

Senior Vice President, The Lincoln National Life Insurance Company

 

(b) As required by the Securities Act of 1933, these Amendments to the Registration Statements have been signed by the following persons in their capacities indicated on April 9, 2020 at 1:20 pm.

 

Signature

 

Title

 

 

 

*/s/ Dennis R. Glass

 

President, Director, and Chairman

Dennis R. Glass

 

(Principal Executive Officer)

 

 

 

*/s/ Ellen Cooper

 

Executive Vice President, Chief Investment Officer, and Director

Ellen Cooper

 

 

 

 

 

* /s/ Randal J. Freitag

 

Executive Vice President, Chief Financial Officer, and Director

Randal J. Freitag

 

(Principal Financial Officer)

 

 

 

* /s/ Wilford H. Fuller

 

Executive Vice President, and Director

Wilford H. Fuller

 

 

 

 

* /s/ Leon E. Roday

 

Executive Vice President, General Counsel and Director

Leon E. Roday

 

 

 

 

 

* /s/ Keith J. Ryan

 

Vice President and Director

Keith J. Ryan

 

 

 

 

 

* By

/s/ John D. Weber, Pursuant to a Power of Attorney

 

 

John D. Weber