N-VPFS 1 a21-8104_13nvpfs.htm N-VPFS

The Lincoln National Life Insurance Company

Consolidated Financial Statements

December 31, 2020 and 2019

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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, 2020 and 2019, and 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, 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) (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.

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.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

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		Deferred Acquisition Costs Asset and Future Contract Benefits Liability
Description of the Matter		At December 31, 2020, deferred acquisition costs totaled $5.6 billion and future contract benefits liabilities totaled $40.1 billion, a portion of which related to universal life-type contracts with secondary guarantees and variable annuity contracts with guaranteed benefit riders. The carrying amount of the deferred acquisition costs related to these products is the total of costs deferred less amortization, which is calculated in relation to the present value of estimated gross profits of the underlying contracts. As described in Notes 1 (see section on DAC, VOBA, DSI and DFEL) and 8 to the consolidated financial statements, there is a significant amount of uncertainty inherent in calculating estimated gross profits as the calculation includes significant management judgment in developing certain assumptions, such as expected future mortality experience, investment margins, capital market performance, retention and rider utilization. Management’s assumptions are adjusted, also known as unlocked, for emerging experience and expected changes in trends. The unlocking results in deferred acquisition cost amortization being recalculated, using the new assumptions for estimated gross profits, that results either in additional or less cumulative amortization expense. The future contract benefits liability related to these product guarantees is based on estimates of how much the Company will need to pay for future benefits and the amount of fees to be collected from policyholders for these policy features. As described in Note 1 to the consolidated financial statements (see section on Future Contract Benefits and Other Contract Holder Funds), there is significant uncertainty inherent in estimating this liability because there is a significant amount of management judgment involved in developing certain assumptions that impact the liability balance, which are consistent with the assumptions used to amortize the related deferred acquisition cost asset as noted above and which include expected mortality experience, investment margins, capital market performance, retention and rider utilization. Auditing the valuation of deferred acquisition costs and future contract benefits liabilities related to these products was complex and required the involvement of our actuarial specialists due to the high degree of judgment used by management in setting the assumptions used in the estimate of both the amortization of deferred acquisition costs and the future contract benefits liability related to these products.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the deferred acquisition costs and future contract benefits liability estimation processes, including, among others, controls related to the review and approval processes that management has in place for the assumptions used in estimating the estimated gross profits related to deferred acquisition costs and the future contract benefits liability. This included testing controls related to management’s evaluation of the need to update assumptions based on the comparison of actual Company experience to previous assumptions and updating investment margins for current and expected future market conditions. We involved actuarial specialists to assist with our audit procedures which included, among others, an evaluation of the methodology applied by management with those methods used in prior periods. To assess the significant assumptions used by management, we compared the significant assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes in these assumptions. In addition, we performed an independent recalculation of estimated gross profits related to deferred policy acquisition costs and the future policy benefit reserves for a sample of cohorts or contracts which we compared to the actuarial model used by management.

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		Variable Annuity Guaranteed Living Benefit Riders Embedded Derivatives
Description of the Matter		The Company’s variable annuity guaranteed living benefit riders include an embedded derivative, represented by an asset totaling $450 million as of December 31, 2020, related to the non-life contingent feature of the product which is accounted for at fair value, with changes in fair value recognized in income. As described in Notes 1 (see section on Separate Account Assets and Liabilities), 6 and 21 to the consolidated financial statements, there is a significant amount of estimation uncertainty inherent in measuring the fair value of the embedded derivative because of the sensitivity of certain assumptions underlying the estimate, including stock market performance, policy lapse experience and rider utilization. Management’s assumptions are adjusted over time for emerging experience and expected changes in trends, resulting in changes to the estimated fair value of the embedded derivative. Auditing the valuation of the embedded derivative related to variable annuity guaranteed living benefit riders was complex and required the involvement of our actuarial specialists due to the high degree of judgment used by management in setting the assumptions used in the estimate of the value of the embedded derivative.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the embedded derivative estimation process, including, among others, controls related to the review and approval processes that management has in place to develop the assumptions used in measuring the fair value of the embedded derivative. This included testing controls related to management’s evaluation of current and future market conditions and the need to update policy lapse and rider utilization assumptions. We involved actuarial specialists to assist with our audit procedures which included, among others, an evaluation of the methodology applied by management with those methods used in prior periods. To assess the significant assumptions used by management, we compared the significant assumptions noted above to historical experience, observable market data or management’s estimates of prospective changes in these assumptions. In addition, we performed an independent recalculation of the embedded derivative for a sample of contracts which we compared to the fair value model used by management.
		Valuation of Goodwill for the Life Insurance Reporting Unit
Description of the Matter		At December 31, 2020, the Company’s goodwill was $1.8 billion, of which $634 million related to the Company’s Life Insurance reporting unit. As discussed in Notes 1 (see section on Goodwill) and 10 of the consolidated financial statements, goodwill is tested for impairment at least annually at the reporting unit level. Determining the fair value of the Life Insurance reporting unit as part of the goodwill impairment analysis is sensitive to significant assumptions such as the discount rate, which reflects the market expected, weighted-average rate of return adjusted for the risk factors associated with the operations, and other relevant assumptions impacting projected financial information, such as the profitability of new and in-force business, all of which are affected by expectations about future market or economic conditions. Auditing the fair value of the Company’s Life Insurance reporting unit was complex and required the involvement of our valuation and actuarial specialists due to the high degree of judgment used by management.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process. This included, among others, controls related to the review and approval processes that management has in place to develop the assumptions used in the estimation process, including management’s determination of the applicable discount rate, and other assumptions for the Life Insurance reporting unit. We involved actuarial and valuation specialists to assist with our audit procedures which included, among others, an evaluation of the methodology applied by management with those methods used in prior periods. To assess the significant assumptions used by management, we compared the significant assumptions noted above to current industry and economic trends, recent market transactions and other relevant factors. We reviewed the historical accuracy of management’s estimate and performed sensitivity analyses of significant assumptions to evaluate the changes in the fair value of the Life Insurance reporting unit that would result from changes in the assumptions.

/s/ Ernst & Young LLP

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

Philadelphia, Pennsylvania

March 9, 2021

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)



	As of December 31,
	2020		2019
ASSETS
Investments:
Fixed maturity available-for-sale securities, at fair value
(amortized cost: 2020 – $103,021; 2019 – $93,307; allowance for credit losses: 2020 – $13; 2019 – $0)	$	121,111	$	103,773
Trading securities		4,442		4,602
Equity securities		127		103
Mortgage loans on real estate, net of allowance for credit losses
(portion at fair value: 2020 – $832; 2019 – $0)		16,681		16,244
Policy loans		2,411		2,460
Derivative investments		3,109		1,911
Other investments		3,025		2,565
Total investments		150,906		131,658
Cash and invested cash		1,462		1,879
Deferred acquisition costs and value of business acquired		5,824		7,745
Premiums and fees receivable		484		464
Accrued investment income		1,217		1,109
Reinsurance recoverables, net of allowance for credit losses		18,752		19,164
Funds withheld reinsurance assets		530		542
Goodwill		1,778		1,778
Other assets		19,401		18,106
Separate account assets		167,965		153,571
Total assets	$	368,319	$	336,016

LIABILITIES AND STOCKHOLDER’S EQUITY
Liabilities
Future contract benefits	$	40,146	$	35,717
Other contract holder funds		104,858		97,422
Short-term debt		497		609
Long-term debt		2,412		2,414
Reinsurance related embedded derivatives		540		375
Funds withheld reinsurance liabilities		7,179		5,566
Payables for collateral on investments		6,215		5,077
Other liabilities		13,466		13,680
Separate account liabilities		167,965		153,571
Total liabilities		343,278		314,431

Contingencies and Commitments (See Note 14)

Stockholder’s Equity
Common stock – 10,000,000 shares authorized, issued and outstanding		11,853		11,312
Retained earnings		4,167		4,437
Accumulated other comprehensive income (loss)		9,021		5,836
Total stockholder’s equity		25,041		21,585
Total liabilities and stockholder’s equity	$	368,319	$	336,016

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See accompanying Notes to Consolidated Financial Statements

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)



	For the Years Ended December 31,
	2020			2019			2018
Revenues
Insurance premiums	$	5,122		$	5,277		$	4,362
Fee income		6,120			6,247			5,733
Net investment income		5,264			4,962			4,844
Realized gain (loss)		(526	)		(828	)		(92	)
Amortization of deferred gain on business sold through reinsurance		33			27			4
Other revenues		553			507			507
Total revenues		16,566			16,192			15,358
Expenses
Interest credited		2,899			2,754			2,589
Benefits		8,050			7,585			6,144
Commissions and other expenses		4,889			5,065			4,583
Interest and debt expense		125			145			136
Strategic digitization expense		68			66			76
Total expenses		16,031			15,615			13,528
Income (loss) before taxes		535			577			1,830
Federal income tax expense (benefit)		(56	)		(37	)		257
Net income (loss)		591			614			1,573
Other comprehensive income (loss), net of tax:
Unrealized investment gains (losses)		3,177			5,173			(3,314	)
Funded status of employee benefit plans		8			4			2
Total other comprehensive income (loss), net of tax		3,185			5,177			(3,312	)
Comprehensive income (loss)	$	3,776		$	5,791		$	(1,739	)

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See accompanying Notes to Consolidated Financial Statements

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF STOCKHOLDER’S EQUITY

(in millions)



	For the Years Ended December 31,
	2020			2019			2018
Common Stock
Balance as of beginning-of-year	$	11,312		$	11,237		$	10,713
Capital contribution from Lincoln National Corporation		510			50			500
Stock compensation/issued for benefit plans		31			25			24
Balance as of end-of-year		11,853			11,312			11,237

Retained Earnings
Balance as of beginning-of-year		4,437			4,423			4,405
Cumulative effect from adoption of new accounting standards		(201	)		-			(644	)
Net income (loss)		591			614			1,573
Dividends paid to Lincoln National Corporation		(660	)		(600	)		(911	)
Balance as of end-of-year		4,167			4,437			4,423

Accumulated Other Comprehensive Income (Loss)
Balance as of beginning-of-year		5,836			659			3,327
Cumulative effect from adoption of new accounting standards		-			-			644
Other comprehensive income (loss), net of tax		3,185			5,177			(3,312	)
Balance as of end-of-year		9,021			5,836			659
Total stockholder’s equity as of end-of-year	$	25,041		$	21,585		$	16,319

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See accompanying Notes to Consolidated Financial Statements

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)



	For the Years Ended December 31,
	2020			2019			2018
Cash Flows from Operating Activities
Net income (loss)	$	591		$	614		$	1,573
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Realized (gain) loss		526			828			92
Trading securities purchases, sales and maturities, net		253			(2,522	)		(120	)
Amortization of deferred gain on business sold through reinsurance		(33	)		(27	)		(4	)
Change in:
Deferred acquisition costs, value of business acquired, deferred sales inducements
and deferred front-end loads deferrals and interest, net of amortization		68			(448	)		(108	)
Premiums and fees receivable		(20	)		104			(87	)
Accrued investment income		(88	)		(22	)		(6	)
Insurance liabilities and reinsurance-related balances		392			(1,195	)		(128	)
Accrued expenses		(21	)		89			(99	)
Federal income tax accruals		(134	)		(282	)		65
Cash management agreement		(1,341	)		(1,115	)		329
Other		92			343			88
Net cash provided by (used in) operating activities		285			(3,633	)		1,595
Cash Flows from Investing Activities
Purchases of available-for-sale securities and equity securities		(16,149	)		(14,927	)		(12,406	)
Sales of available-for-sale securities and equity securities		1,214			6,771			3,191
Maturities of available-for-sale securities		5,180			6,426			6,348
Purchase of common stock in acquisition, net of cash acquired		-			-			(1,410	)
Sale of business, net		-			-			(12	)
Purchases of alternative investments		(395	)		(433	)		(314	)
Sales and repayments of alternative investments		171			131			178
Issuance of mortgage loans on real estate		(1,790	)		(4,218	)		(2,920	)
Repayment and maturities of mortgage loans on real estate		1,133			1,144			1,048
Issuance (repayment) of policy loans, net		49			32			20
Net change in collateral on investments, derivatives and related settlements		1,775			349			654
Other		(149	)		(259	)		(191	)
Net cash provided by (used in) investing activities		(8,961	)		(4,984	)		(5,814	)
Cash Flows from Financing Activities
Capital contribution from Lincoln National Corporation		510			50			500
Payment of long-term debt, including current maturities		(30	)		(28	)		(13	)
Issuance of long-term debt, net of issuance costs		30			28			13
Issuance (payment) of short-term debt		(112	)		321			278
Proceeds from sale-leaseback transactions		-			-			88
Payment related to sale-leaseback transactions		(47	)		(83	)		-
Proceeds from certain financing arrangements		109			107			-
Deposits of fixed account values, including the fixed portion of variable		14,009			16,049			13,616
Withdrawals of fixed account values, including the fixed portion of variable		(6,069	)		(5,800	)		(5,957	)
Transfers to and from separate accounts, net		528			(1,362	)		(2,469	)
Common stock issued for benefit plans		(9	)		(34	)		(25	)
Dividends paid to Lincoln National Corporation		(660	)		(600	)		(911	)
Net cash provided by (used in) financing activities		8,259			8,648			5,120

Net increase (decrease) in cash, invested cash and restricted cash		(417	)		31			901
Cash, invested cash and restricted cash as of beginning-of-year		1,879			1,848			947
Cash, invested cash and restricted cash as of end-of-year	$	1,462		$	1,879		$	1,848

See accompanying Notes to Consolidated Financial Statements

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 22 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”). 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 financial assets, derivatives, allowances for credit losses, deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”), goodwill and other intangibles, future contract benefits, other contract holder funds including deferred front-end loads (“DFEL”), pension plans, stock-based incentive compensation, income taxes including the recoverability of our deferred tax assets, 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.

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 Codification^TM(“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.

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 Engine^TM 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 impairment-related, including those attributable to credit risk factors that may require a credit loss allowance.

For our debt securities, we generally consider the following to determine whether our debt securities with unrealized losses are credit 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 impairment 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 impairment has occurred, and a credit loss allowance is recorded, with a corresponding charge to realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). The remainder of the decline to fair value related to factors other than credit loss is recorded in other comprehensive income (“OCI”) to unrealized losses on fixed maturity AFS securities on our Consolidated Statements of Stockholder’s Equity, as this amount is considered a noncredit impairment.

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;

●The 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 a credit loss impairment through a credit loss allowance, we continue to reassess the expected cash flows of the debt security at each subsequent measurement date as necessary. If the measurement of credit loss changes, we recognize a provision for (or reversal of) credit loss expense through realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss), limited by the amount that amortized cost exceeds fair value. Losses are charged against the allowance for credit losses when management believes the uncollectibility of a debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest on debt securities is written-off when deemed uncollectible.

To determine the 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 portfolio, including current credit enhancements and trends in the underlying collateral performance to determine whether or not they are sufficient to provide for the recovery of our amortized cost. 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 borrower 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.

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 requires a credit loss allowance. 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. 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. 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 a credit loss by comparing the expected cash flows to amortized cost. To the extent that the security has already been impaired through a credit loss allowance 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 credit loss allowance 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 an impairment through a credit loss allowance is recognized.

We further monitor the cash flows of all of our debt 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 debt 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 through a credit loss allowance for 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.

Mortgage Loans on Real Estate

Mortgage loans on real estate consist of commercial and residential mortgage loans and are generally carried at unpaid principal balances adjusted for amortization of premiums and accretion of discounts and are net of allowance for credit losses. We carry certain commercial mortgage loans at fair value where the fair value option has been elected. 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 allowance for credit losses, and subsequent recoveries, if any, are likewise credited to the allowance for credit losses. Accrued interest on mortgage loans is written-off when deemed uncollectible.

In connection with our recognition of an allowance for credit losses for mortgage loans on real estate, we perform a quantitative analysis using a probability of default/loss given default/exposure at default approach to estimate expected credit losses in our mortgage loan portfolio as well as unfunded commitments related to commercial mortgage loans, exclusive of certain mortgage loans held at fair value. Our model estimates expected credit losses over the contractual terms of the loans, which are the periods over which we are exposed to credit risk, adjusted for expected prepayments. Credit loss estimates are segmented by commercial mortgage loans, residential mortgage loans, and unfunded commitments related to commercial mortgage loans.

The allowance for credit losses for pooled loans of similar risk (i.e., commercial and residential mortgage loans) is estimated using relevant historical credit loss information adjusted for current conditions and reasonable and supportable forecasts of future conditions. Historical credit loss experience provides the basis for the estimation of expected credit losses with adjustments for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term lengths as well as adjustments for changes in environmental conditions, such as unemployment rates, property values, or other factors that management deems relevant. We apply probability weights to the positive, base and adverse scenarios we use. For periods beyond our reasonable and supportable forecast, we use implicit mean reversion over the remaining life of the recoverable, meaning our model will inherently revert to the baseline scenario as the baseline is representative of the historical average over a longer period of time.

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 credit loss 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.

Allowance for credit losses are maintained at a level we believe is adequate to absorb current expected lifetime credit losses. Our periodic evaluation of the adequacy of the allowance for credit losses 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, reasonable and supportable forecasts about the future and other relevant factors.

Mortgage loans on real estate are presented net of the allowance for credit losses on our Consolidated Balance Sheets. Changes in the allowance are reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). Mortgage loans on real estate deemed uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for credit losses, limited to the aggregate of amounts previously charged-off and expected to be charged-off.

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) an allowance for credit losses. 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 credit loss 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. These credit quality metrics are monitored and reviewed at least annually.

Most of our off-balance sheet commitments relate to commercial mortgage loans. As such, an allowance for credit losses is developed based on the commercial mortgage loan process outlined above, along with an internally developed conversion factor.

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, including updated forecasts, which can cause the allowance for credit losses to increase or decrease over time as such evaluations are revised. Generally, residential mortgage loan pools exclude loans that are nonperforming, as those loans are evaluated individually using the evaluation framework for specific allowance for credit losses 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. We monitor and update aging schedules and nonaccrual status on a monthly basis.

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.

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 intangible 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 revenue and expenses 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.

We estimated an allowance for credit losses for all reinsurance recoverables and related reinsurance deposit assets held by our subsidiaries. As such, we performed a quantitative analysis using a probability of loss approach to estimate expected credit losses for reinsurance recoverables, inclusive of similar assets recognized using the deposit method of accounting. The credit loss allowance is a general allowance for pools of receivables with similar risk characteristics segmented by credit risk ratings and receivables assessed on an individual basis that do not share similar risk characteristics where we anticipate a credit loss over the life of reinsurance-related assets.

Our model uses relevant internal or external historical loss information adjusted for current conditions and reasonable and supportable forecasts of future events and conditions in developing our loss estimate. We utilized historical credit rating data to form an estimation of probability of default of counterparties by means of a transition matrix that provides the rates of credit migration for credit ratings transitioning to impairment. We updated reinsurer credit ratings during the quarter to incorporate the most up-to-date information on the current state of the financial stability of our reinsurers. To simulate changes in economic conditions, we used positive, base and adverse scenarios that include varying levels of loss given default assumptions to reflect the impact of changes in severity of losses. We applied probability weights to the positive, base and adverse scenarios. For periods beyond our reasonable and supportable forecasts, we used implicit mean reversion over the remaining life of the recoverable. Additionally, we considered factors that impact our exposure at default that are driven by actuarial expectations around term and mortality assumptions rather than being directly driven by market or economic environment.

Our model estimates the expected credit losses over the life of the reinsurance asset. Credit loss estimates are segmented based on counterparty credit risk. Our modeling process utilizes counterparty credit ratings, collateral types and amounts, and term and run-off assumptions. For reinsurance recoverables that do not share similar risk characteristics, we assessed on an individual basis to determine a specific credit loss allowance.

We estimated expected credit losses over the contractual term of the recoverable, which is the period during which we are exposed to the credit risk. Reinsurance recoverables may not have explicit contractual lives, but are tied to the underlying insurance products; as a result, we estimated the contractual life by utilizing actuarial estimates of the timing of payouts related to those underlying products.

Reinsurance agreements often require the reinsurer to collateralize the recoverable with funds in a trust account for the benefit of the ceding insurance entity that can reduce the expected credit losses on a given agreement. As such, we review reinsurance collateral by individual agreement to sensitize risk of loss based on level of collateralization. This review is driven by the assumption that non-collateralized reinsurance recoverables would have materially higher losses in time of default. Therefore, reinsurance recoverables are pooled as either fully-collateralized or non-collateralized.

Reinsurance recoverables are presented net of the allowance for credit losses on our Consolidated Balance Sheets. Changes in the allowance for credit losses are reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). Reinsurance recoverables deemed uncollectible are charged against the allowance for credit losses, and subsequent recoveries, if any, are credited to the allowance for credit losses, limited to the aggregate of amounts previously charged-off and expected to be charged-off.

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 certain reinsurance assets, net of allowance for credit losses, specifically identifiable intangible assets, property and equipment owned by the Company, balances associated with corporate-owned and bank-owned life insurance, receivables resulting from sales of securities that had not yet settled as of the balance sheet date, DSI, operating lease right-of-use (“ROU”) assets, finance lease assets, certain financing arrangements, debt issuance costs associated with line-of-credit arrangements and other receivables and prepaid expenses. Other liabilities consist primarily of certain reinsurance payables, current and deferred taxes, pension and other employee benefit liabilities, derivative instrument liabilities, payables resulting from purchases of securities that had not yet settled as of the balance sheet date, 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 related to credit loss or non-credit, 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”). 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.

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.

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 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.

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 47 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 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, 2020 and 2019, participating policies comprised less than 1% of the face amount of business in force, and dividend expenses were $53 million, $51 million and $56 million for the years ended December 31, 2020, 2019 and 2018, 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.

Short-term and Long-term Debt

Short-term debt has contractual or expected maturities of one year or less. Long-term debt has 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.

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 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 impairments of investments and changes in the allowance for credit losses for financial assets, changes in fair value for mortgage loans on real estate accounted for under the fair value option, 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 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 over the term of the related borrowing.

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.

2. New Accounting Standards

Adoption of New Accounting Standards

The following table provides a description of our adoption of new Accounting Standards Updates (“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	Effective Date	Effect on Financial Statements or Other Significant Matters
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“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 a credit loss allowance. 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 permit entities to recognize improvements in credit loss estimates on fixed maturity AFS securities by reducing the allowance account immediately through earnings. The amendments are 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 was permitted for annual periods beginning after December 15, 2018, and interim periods therein.	January 1, 2020	The adoption of this standard and related amendments resulted in the recognition of a cumulative effect decrease of $216 million, net of DAC, VOBA, DSI, DFEL and changes in other contract holder funds, after-tax, to retained earnings. The overall adjustment recorded our allowance for credit losses as of the date of adoption, primarily related to commercial and residential mortgage loans, as well as reinsurance recoverables. Upon adoption of the standard, the concept of other-than-temporary impairment (“OTTI”) no longer exists; however, our prior period presentation herein is reflective of OTTI recorded in those periods.
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 was permitted.	January 1, 2020	Our adoption of ASU 2016-13 and related amendments is discussed above. The adoption of the remainder of this guidance did not have a material impact on our consolidated financial condition and results of operations.





Standard	Description	Effective Date	Effect on Financial Statements or Other Significant Matters
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 recognized a cumulative effect increase to retained earnings of $15 million, after-tax, by electing the fair value option for certain mortgage loans in connection with our adoption of ASC Topic 326.
ASU 2020-04, Reference Rate Reform (Topic 848)	The amendments in this update provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. If certain criteria are met, an entity will not be required to remeasure or reassess contracts impacted by reference rate reform. Additionally, changes to the critical terms of a hedging relationship affected by reference rate reform will not require entities to de-designate the relationship if certain requirements are met. The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, with certain exceptions. The amendments are effective for contract modifications made between March 12, 2020, and December 31, 2022.	March 12, 2020 through December 31, 2022	This standard may be elected and applied prospectively as reference rate reform unfolds. We have begun our implementation and are currently evaluating the impact of this ASU on our consolidated financial condition and results of operations.
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, 2023, and early adoption is permitted.	January 1, 2023	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. Effective September 1, 2019, Liberty Life’s name was changed to Lincoln Life Assurance Company of Boston.

In connection with the acquisition and pursuant to the Master Transaction Agreement (“MTA”), dated January 18, 2018, which is filed 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).

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.

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, 2020, 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 ABS, RMBS and CMBS. 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 $2.1 billion and $1.9 billion as of December 31, 2020 and 2019, respectively. Included in these carrying amounts are our investments in qualified affordable housing projects, which were $7 million and $13 million as of December 31, 2020 and 2019, 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 $1 million and $2 million for the years ended December 31, 2020 and 2019, 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, 2020.

5. Investments

Fixed Maturity AFS Securities

In 2020, we adopted ASU 2016-13, which resulted in a new recognition and measurement of credit losses on most financial assets. See Note 2 for additional information.

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



	As of December 31, 2020
							Allowance
	Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	85,625	$	15,947	$	136	$	12	$	101,424
U.S. government bonds		369		81		1		-		449
State and municipal bonds		5,145		1,517		-		-		6,662
Foreign government bonds		380		86		1		-		465
RMBS		2,551		289		1		1		2,838
CMBS		1,380		115		-		-		1,495
ABS		7,035		158		15		-		7,178
Hybrid and redeemable preferred securities		536		94		30		-		600
Total fixed maturity AFS securities	$	103,021	$	18,287	$	184	$	13	$	121,111

The amortized cost, gross unrealized gains, losses, 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

⁽¹⁾Prior to the adoption of ASU 2016-13, we recognized the OTTI attributed to noncredit factors as a separate component in OCI referred to as unrealized OTTI on fixed maturity AFS securities. This 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, 2020, were as follows:



	Amortized		Fair
	Cost		Value
Due in one year or less	$	3,324	$	3,348
Due after one year through five years		14,953		15,954
Due after five years through ten years		19,428		21,924
Due after ten years		54,350		68,374
Subtotal		92,055		109,600
Structured securities (RMBS, CMBS, ABS)		10,966		11,511
Total fixed maturity AFS securities	$	103,021	$	121,111

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

The fair value and gross unrealized losses of fixed maturity AFS securities (dollars in millions) for which an allowance for credit losses has not been recorded, 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, 2020
	Less Than or Equal					Greater Than
	to Twelve Months					Twelve Months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value			Losses		Value			Losses		Value			Losses ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	2,785		$	85	$	588		$	51	$	3,373		$	136
U.S. government bonds		28			1		-			-		28			1
Foreign government bonds		57			1		-			-		57			1
RMBS		43			1		6			-		49			1
ABS		1,527			9		355			6		1,882			15
Hybrid and redeemable
preferred securities		112			13		96			17		208			30
Total fixed maturity AFS securities	$	4,552		$	110	$	1,045		$	74	$	5,597		$	184

Total number of fixed maturity AFS securities in an unrealized loss position															782

⁽¹⁾We recognized $1 million of gross unrealized losses in OCI for fixed maturity AFS securities for which an allowance for credit losses has been recorded.

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

The fair value, gross unrealized losses (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, 2020
			Gross			Number
	Fair		Unrealized			of
	Value		Losses		Securities⁽¹⁾
Less than six months	$	63	$	23			14
Six months or greater, but less than nine months		2		1			4
Nine months or greater, but less than twelve months		22		6			13
Twelve months or greater		30		11			20
Total	$	117	$	41			51

⁽¹⁾We may reflect a security in more than one aging category based on various purchase dates.

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

⁽¹⁾We may reflect a security in more than one aging category based on various purchase dates.

Our gross unrealized losses on fixed maturity AFS securities decreased by $45 million for the year ended December 31, 2020. As discussed further below, we believe the unrealized loss position as of December 31, 2020, did not require an impairment recognized in earnings 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 difference in the fair value compared to the amortized cost was due to factors other than credit loss. Based upon this evaluation as of December 31, 2020, 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 impaired securities.

As of December 31, 2020, the unrealized losses associated with our corporate bond, U.S. government bond, state and municipal bond and foreign government 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 of each impaired security.

Credit ratings express opinions about the credit quality of a security. Securities rated investment grade (those rated BBB- or higher by S&P Global Ratings (“S&P”) 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, 2020 and 2019, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of December 31, 2020 and 2019, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.8 billion and $3.1 billion, respectively, and a fair value of $4.0 billion and $3.1 billion, respectively. Based upon the analysis discussed above, we believe that as of December 31, 2020 and 2019, we would have recovered the amortized cost of each corporate bond.

As of December 31, 2020, 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 impaired security.

As of December 31, 2020, 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 impaired security.

Credit Loss Impairment on Fixed Maturity AFS Securities

We regularly review our fixed maturity AFS securities for declines in fair value that we determine to be impairment-related, including those attributable to credit risk factors that may require an allowance for credit losses. See Note 1 for a detailed discussion regarding our accounting policy relating to the allowance for credit losses on our fixed maturity AFS securities.

Changes in the allowance for credit losses on fixed maturity AFS securities (in millions), aggregated by investment category, were as follows:



	For the Year Ended December 31, 2020
	Corporate
	Bonds			RMBS		ABS			Total
Balance as of beginning-of-year	$	-		$	-	$	-		$	-
Additions for securities for which credit losses were not
previously recognized		40			1		1			42
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-			-
Additions (reductions) for securities for which credit losses
were previously recognized		(1	)		-		(1	)		(2	)
Reductions for securities disposed		(15	)		-		-			(15	)
Reductions for securities charged-off		(12	)		-		-			(12	)
Balance as of end-of-year ⁽²⁾	$	12		$	1	$	-		$	13

⁽¹⁾Represents purchased credit-deteriorated (“PCD”) fixed maturity AFS securities.

⁽²⁾Accrued interest receivable on fixed maturity AFS securities totaled $1.0 billion as of December 31, 2020 and was excluded from the estimate of credit losses.

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
Balance as of beginning-of-year	$	337		$	358
Increases attributable to:
Credit losses on securities for which an
OTTI was not previously recognized		13			5
Credit losses on securities for which an
OTTI was previously recognized		2			2
Decreases attributable to:
Securities sold, paid down or matured		(148	)		(28	)
Balance as of end-of-year	$	204		$	337

Trading Securities

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



	As of December 31,
	2020		2019
Fixed maturity securities:
Corporate bonds	$	3,049	$	2,877
U.S. government bonds		-		45
State and municipal bonds		28		16
Foreign government bonds		92		45
RMBS		131		169
CMBS		134		163
ABS		966		1,238
Hybrid and redeemable preferred securities		42		49
Total trading securities	$	4,442	$	4,602

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, 2020, 2019 and 2018, was $117 million, $225 million and $(55) 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, 2020									As of December 31, 2019
	Commercial			Residential			Total			Commercial			Residential			Total
Current	$	16,162		$	610		$	16,772		$	15,525		$	659		$	16,184
30 to 59 days past due		4			28			32			3			27			30
60 to 89 days past due		-			8			8			-			10			10
90 or more days past due		-			69			69			-			16			16
Allowance for credit losses		(186	)		(17	)		(203	)		-			(2	)		(2	)
Unamortized premium (discount)		(14	)		22			8			(17	)		23			6
Mark-to-market gains (losses) ⁽¹⁾		(5	)		-			(5	)		-			-			-
Total carrying value	$	15,961		$	720		$	16,681		$	15,511		$	733		$	16,244

⁽¹⁾Represents the mark-to-market on certain commercial mortgage loans on real estate for which we have elected the fair value option. See Note 21 for additional information.

Our commercial mortgage loan portfolio has the largest concentrations in California, which accounted for 24% of commercial mortgage loans on real estate as of December 31, 2020 and 2019, and Texas, which accounted for 10% and 11% of commercial mortgage loans on real estate as of December 31, 2020 and 2019, respectively.

Our residential mortgage loan portfolio has the largest concentrations in California, which accounted for 32% and 34% of residential mortgage loans on real estate as of December 31, 2020 and 2019, respectively, and Florida, which accounted for 18% and 20% of residential mortgage loans on real estate as of December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, we had 147 and 38 residential mortgage loans, respectively, that were either delinquent or in foreclosure.

For our commercial mortgage loans, there were four specifically identified impaired loans with an aggregate carrying value of $1 million as of December 31, 2020. There was one specifically identified impaired loan with a carrying value of less than $1 million as of December 31, 2019.

For our residential mortgage loans, there were 76 specifically identified impaired loans with an aggregate carrying value of $34 million as of December 31, 2020. There were four specifically identified impaired loans with an aggregate carrying value of $1 million as of December 31, 2019.

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


	For the Years Ended December 31,
	2020		2019		2018
Average carrying value for impaired mortgage loans on real estate	$	21	$	-	$	5
Interest income recognized on impaired mortgage loans on real estate		-		-		1
Interest income collected on impaired mortgage loans on real estate		-		-		1

The amortized cost of mortgage loans on real estate on nonaccrual status (in millions) was as follows:



	As of December 31, 2020				As of January 1, 2020
	Nonaccrual				Nonaccrual
	with no				with no
	Allowance				Allowance
	for Credit				for Credit
	Losses		Nonaccrual		Losses		Nonaccrual
Commercial mortgage loans on real estate	$	-	$	-	$	-	$	-
Residential mortgage loans on real estate		-		71		-		17
Total	$	-	$	71	$	-	$	17

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, 2020				As of December 31, 2019
				Debt-				Debt-
				Service				Service
	Amortized		% of	Coverage	Amortized		% of	Coverage
Loan-to-Value Ratio	Cost		Total	Ratio	Cost		Total	Ratio
Less than 65%	$	15,157	93.8%	2.36	$	14,121	91.0%	2.35
65% to 74%		948	5.9%	1.69		1,389	9.0%	1.88
75% to 100%		47	0.3%	1.21		1	0.0%	1.09
Total	$	16,152	100.0%		$	15,511	100.0%

The amortized cost of commercial mortgage loans on real estate (in millions) by year of origination and credit quality indicator was as follows:



	As of December 31, 2020
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	75%		Coverage
	than 65%		Ratio	to 74%		Ratio	to 100%		Ratio	Total
Origination Year
2020	$	1,495	2.85	$	32	1.52	$	-	-	$	1,527
2019		3,098	2.24		258	1.78		2	1.74		3,358
2018		2,379	2.16		182	1.49		15	0.71		2,576
2017		1,779	2.34		169	1.73		-	-		1,948
2016		1,711	2.37		174	1.56		22	1.58		1,907
2015 and prior		4,695	2.38		133	1.95		8	1.02		4,836
Total	$	15,157		$	948		$	47		$	16,152

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, 2020			As of December 31, 2019
	Amortized		% of	Amortized		% of
Performance Indicator	Cost		Total	Cost ⁽¹⁾		Total
Performing	$	666	90.4%	$	718	97.7%
Nonperforming		71	9.6%		17	2.3%
Total	$	737	100.0%	$	735	100.0%

⁽¹⁾A valuation allowance of $2 million was established on residential mortgage loans on real estate as of December 31, 2019.

The amortized cost of residential mortgage loans on real estate (in millions) by year of origination and credit quality indicator was as follows:



	As of December 31, 2020
	Performing		Nonperforming			Total
Origination Year
2020	$	176		$	8	$	184
2019		315			51		366
2018		175			12		187
2017		-			-		-
2016		-			-		-
2015 and prior		-			-		-
Total	$	666		$	71	$	737

Credit Losses on Mortgage Loans on Real Estate

In connection with our recognition of an allowance for credit losses for mortgage loans on real estate, we perform a quantitative analysis using a probability of default/loss given default/exposure at default approach to estimate expected credit losses in our mortgage loan portfolio as well as unfunded commitments related to commercial mortgage loans, exclusive of certain mortgage loans held at fair value. See Note 1 for a detailed discussion regarding our accounting policy relating to the allowance for credit losses on our mortgage loans on real estate.

Changes in the allowance for credit losses on mortgage loans on real estate (in millions) were as follows:



	For the Year Ended December 31, 2020
	Commercial			Residential			Total
Balance as of beginning-of-year	$	-		$	2		$	2
Impact of adopting ASU 2016-13		61			26			87
Additions from provision for credit loss expense ⁽¹⁾		177			10			187
Additions from purchases of PCD mortgage loans on real estate		-			-			-
Additions (reductions) for mortgage loans on real estate for which
credit losses were previously recognized ⁽¹⁾		(52	)		(21	)		(73	)
Balance as of end-of-year ⁽²⁾	$	186		$	17		$	203

⁽¹⁾Due to changes in economic projections driven by the impact of the COVID-19 pandemic, the provision for credit loss expense increased by $114 million for the year ended December 31, 2020. For the year ended December 31, 2020, we recognized $2 million of credit loss expense related to unfunded commitments for mortgage loans on real estate.

⁽²⁾Accrued interest receivable on mortgage loans on real estate totaled $48 million as of December 31, 2020 and was excluded from the estimate of credit losses.

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

Balance as of beginning-of-year	$	-	$	3
Additions		-		-
Charge-offs, net of recoveries		-		(3	)
Balance as of end-of-year	$	-	$	-

Alternative Investments

As of December 31, 2020 and 2019, alternative investments included investments in 270 and 256 different partnerships, respectively, and represented approximately 1% of total investments.

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,
	2020			2019			2018
Fixed maturity AFS securities	$	4,241		$	4,214		$	4,129
Trading securities		198			187			79
Equity securities		3			4			4
Mortgage loans on real estate		674			626			492
Real estate		1			1			1
Policy loans		124			128			122
Invested cash		13			33			23
Commercial mortgage loan prepayment
and bond make-whole premiums		78			115			78
Alternative investments		218			24			222
Consent fees		5			7			4
Other investments		42			27			24
Investment income		5,597			5,366			5,178
Investment expense		(333	)		(404	)		(334	)
Net investment income	$	5,264		$	4,962		$	4,844

Impairments on Fixed Maturity AFS Securities

Details underlying credit loss expense incurred as a result of impairments that were recognized in net income (loss) and included in realized gain (loss) on fixed maturity AFS securities (in millions) were as follows:



	For the Years Ended December 31,
	2020			2019			2018
Credit Loss Expense Recognized in Net Income (Loss) ⁽¹⁾
Fixed maturity AFS securities:
Corporate bonds	$	(24	)	$	(13	)	$	(5	)
RMBS		(1	)		(1	)		(1	)
ABS		-			(1	)		(1	)
Gross credit loss expense recognized in net income (loss)		(25	)		(15	)		(7	)
Associated amortization of DAC, VOBA, DSI and DFEL		1			-			-
Net credit loss expense recognized in net income (loss)	$	(24	)	$	(15	)	$	(7	)

⁽¹⁾For the year ended December 31, 2020, we recognized credit loss expense incurred and write-downs taken as a result of impairments through net income (loss), pursuant to ASU 2016-13. For the years ended December 31, 2019 and 2018, prior to the adoption of ASU 2016-13, we recognized write-downs taken as a result of OTTI through net income (loss).

During the year ended December 31, 2019, we recorded $14 million of OTTI recognized in OCI. During the year ended December 31, 2018, we recorded no OTTI recognized in OCI.

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, 2020				As of December 31, 2019
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Collateral payable for derivative investments ⁽¹⁾	$	2,970	$	2,970	$	1,383	$	1,383
Securities pledged under securities lending agreements ⁽²⁾		115		112		114		110
Investments pledged for Federal Home Loan Bank of
Indianapolis (“FHLBI”)⁽³⁾		3,130		5,049		3,580		5,480
Total payables for collateral on investments	$	6,215	$	8,131	$	5,077	$	6,973

⁽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 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.

We have repurchase agreements through which we can obtain liquidity by pledging securities. 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, 2020 and 2019, we were not participating in any open repurchase agreements.

‎

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


	For the Years Ended December 31,
	2020			2019			2018
Collateral payable for derivative investments	$	1,587		$	767		$	(85	)
Securities pledged under securities lending agreements		1			26			(134	)
Securities pledged under repurchase agreements		-			(152	)		(379	)
Investments pledged for FHLBI		(450	)		(350	)		1,030
Total increase (decrease) in payables for collateral on investments	$	1,138		$	291		$	432

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



	As of December 31, 2020
	Overnight and Continuous		Up to 30 Days		30 - 90 Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	114	$	-	$	-	$	-	$	114
Foreign government bonds		1		-		-		-		1
Total gross secured borrowings	$	115	$	-	$	-	$	-	$	115



	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

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 that we are permitted to sell or re-pledge. As of December 31, 2020, the fair value of all collateral received that we are permitted to sell or re-pledge was $25 million, and we did not re-pledge any of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative investments as of December 31, 2020.

Investment Commitments

As of December 31, 2020, our investment commitments were $2.8 billion, which included $1.4 billion of LPs, $989 million of mortgage loans on real estate and $500 million of private placement securities.

Concentrations of Financial Instruments

As of December 31, 2020 and 2019, 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 $1.2 billion and $1.3 billion, respectively, or 1% of total investments, and our investments in securities issued by the White Chapel LLC with a fair value of $1.0 billion, or 1% of total investments and Federal National Mortgage Association with a fair value of $1.0 billion, or 1% of total investments, respectively. These concentrations include fixed maturity AFS, trading and equity securities.

As of December 31, 2020 and 2019, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of $21.7 billion and $18.2 billion, respectively, or 14% of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of $19.2 billion and $15.4 billion, respectively, or 13% and 12%, 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 21 for additional disclosures related to the fair value of our derivative instruments and Note 4 for derivative instruments related to our consolidated VIEs.

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.

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® Index and Other Indices

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

Our indexed annuity and indexed universal life insurance (“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 Index 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 six 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 counterparties to pay us 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.

Embedded Derivatives

We have embedded derivatives that include:

GLB Reserves Embedded Derivatives

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.

We use a hedging strategy designed to mitigate the 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 guaranteed withdrawal benefit and guaranteed income benefit features. These GLB features are reinsured among various reinsurance counterparties on a coinsurance basis. We cede a portion of the GLB features to LNBAR, a wholly-owned subsidiary of LNC, on a funds withheld coinsurance 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 income statement eﬀect of changes in embedded derivative GLB reserves assumed by LNBAR caused by those same factors. We rebalance our hedge positions based upon changes in these factors as needed. While we actively manage our 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 our 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.

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® Index or other indices. Contract holders may elect to rebalance index options at renewal dates. At the end of each indexed term, 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.

‎

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, 2020						As of December 31, 2019
	Notional		Fair Value				Notional		Fair Value
	Amounts		Asset		Liability		Amounts		Asset		Liability
Qualifying Hedges
Cash flow hedges:
Interest rate contracts ⁽¹⁾	$	964	$	87	$	11	$	1,174	$	108	$	12
Foreign currency contracts ⁽¹⁾		3,089		147		151		2,874		191		51
Total cash flow hedges		4,053		234		162		4,048		299		63
Fair value hedges:
Interest rate contracts ⁽¹⁾		530		-		271		546		-		202
Non-Qualifying Hedges
Interest rate contracts ⁽¹⁾		135,434		1,587		159		112,921		1,082		219
Foreign currency contracts ⁽¹⁾		304		1		8		262		1		3
Equity market contracts ⁽¹⁾		74,300		3,486		1,952		43,283		1,442		664
Credit contracts ⁽¹⁾		51		-		-		55		-		-
Embedded derivatives:
GLB direct ⁽²⁾		-		450		-		-		450		-
GLB ceded ⁽²⁾		-		82		531		-		60		510
Reinsurance related ⁽³⁾		-		-		540		-		-		375
Indexed annuity and IUL contracts ^{(2) (4)}		-		550		3,594		-		927		2,585
Total derivative instruments	$	214,672	$	6,390	$	7,217	$	161,115	$	4,261	$	4,621

⁽¹⁾Reported in derivative investments and other liabilities on our Consolidated Balance Sheets.

⁽²⁾Reported in other assets and other liabilities on our Consolidated Balance Sheets.

⁽³⁾Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.

⁽⁴⁾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, 2020
	Less Than		1 – 5		6 – 10		11 – 30		Over 30
	1 Year		Years		Years		Years		Years		Total
Interest rate contracts ⁽¹⁾	$	14,052	$	57,331	$	29,217	$	36,328	$	-	$	136,928
Foreign currency contracts ⁽²⁾		227		411		1,062		1,693		-		3,393
Equity market contracts		40,716		19,445		5,831		12		8,296		74,300
Credit contracts		-		51		-		-		-		51
Total derivative instruments
with notional amounts	$	54,995	$	77,238	$	36,110	$	38,033	$	8,296	$	214,672

⁽¹⁾As of December 31, 2020, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 30, 2022.

⁽²⁾As of December 31, 2020, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 17, 2050.

‎

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

Cumulative Fair Value

Hedging Adjustment

Included in the

Amortized Cost of the

Hedged

Assets / (Liabilities)

As of

December 31,

2020

2019

2020

2019

Line Item in the Consolidated Balance Sheets in

which the Hedged Item is Included

Fixed maturity AFS securities, at fair value

824

776

271

202

The change in our unrealized gain (loss) on derivative instruments within AOCI (in millions) was as follows:



	For the Years Ended December 31,
	2020			2019			2018
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	181		$	119		$	27
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		(16	)		73			(4	)
Foreign currency contracts		93			108			44
Change in foreign currency exchange rate adjustment		(174	)		(52	)		111
Change in DAC, VOBA, DSI and DFEL		(23	)		(5	)		(14	)
Income tax benefit (expense)		26			(26	)		(29	)
Less:
Reclassification adjustment for gains (losses)
included in net income (loss):
Cash flow hedges:
Interest rate contracts ⁽¹⁾		2			3			4
Foreign currency contracts ⁽¹⁾		56			35			27
Foreign currency contracts ⁽²⁾		6			9			-
Associated amortization of DAC, VOBA, DSI and DFEL		(7	)		(2	)		(3	)
Income tax benefit (expense)		(12	)		(9	)		(6	)
Balance as of end-of-year	$	42		$	181		$	119

⁽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).

‎

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 Years Ended December 31,
		2020					2019
	Realized			Net			Realized			Net
	Gain			Investment			Gain			Investment
	(Loss)			Income			(Loss)			Income
Total Line Items in which the Effects of
Fair Value or Cash Flow Hedges are Recorded	$	(526	)	$	5,264		$	(828	)	$	4,962

Qualifying Hedges
Gain or (loss) on fair value hedging relationships:
Interest rate contracts:
Hedged items		-			69			-			63
Derivatives designated as hedging instruments		-			(69	)		-			(63	)
Gain or (loss) on cash flow hedging relationships:
Interest rate contracts:
Amount of gain or (loss) reclassified from AOCI into income		-			2			-			3
Foreign currency contracts:
Amount of gain or (loss) reclassified from AOCI into income		6			56			9			35

Non-Qualifying Hedges
Interest rate contracts		1,287			-			982			-
Foreign currency contracts		(3	)		-			(1	)		-
Equity market contracts		971			-			(137	)		-
Credit contracts		(6	)		-			-			-
Embedded derivatives:
GLB		1			-			1			-
Reinsurance related		(241	)		-			(626	)		-
Indexed annuity and IUL contracts		(471	)		-			(742	)		-

‎

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 Year
	Ended
	December 31,
	2018
Qualifying Hedges
Cash flow hedges:
Interest rate contracts ⁽¹⁾	$	4
Foreign currency contracts ⁽¹⁾		27
Total cash flow hedges		31
Fair value hedges:
Interest rate contracts ⁽¹⁾		(14	)
Interest rate contracts ⁽²⁾		37
Total fair value hedges		23
Non-Qualifying Hedges
Interest rate contracts ⁽²⁾		(149	)
Foreign currency contracts ⁽²⁾		5
Equity market contracts ⁽²⁾		445
Equity market contracts ⁽³⁾		(17	)
Embedded derivatives:
GLB⁽²⁾		(1	)
Reinsurance related ⁽²⁾		292
Indexed annuity and IUL contracts ⁽²⁾		81
Total derivative instruments	$	710

⁽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 Year
	Ended
	December 31,
	2018
Offset to net investment income	$	4
Offset to realized gain (loss)		27

As of December 31, 2020, $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, 2020 and 2019, 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.

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Information related to our credit default swaps for which we are the seller (dollars in millions) was as follows:

As of December 31, 2020

Credit

Reason

Nature

Rating of

Number

Maximum

for

Underlying

Fair

Potential

Credit Contract Type

Maturity

Entering

Recourse

Obligation ⁽¹⁾

Instruments

Value ⁽²⁾

Payout

Basket credit default swaps

12/20/2025

⁽³⁾

⁽⁴⁾

BBB+

As of December 31, 2019

Credit

Reason

Nature

Rating of

Number

Maximum

for

Underlying

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⁾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.

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,
		2020			2019
Maximum potential payout		$	51		$	55
Less: Counterparty thresholds			-			-
Maximum collateral potentially required to post		$	51		$	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, our counterparties would have been required to post $1 million of collateral as of December 31, 2020.

‎

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, 2020, 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, 2020 or 2019.

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, 2020					As of December 31, 2019
	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-	$	1,232	$	(7	)	$	441	$	(22	)
A+		1,112		(175	)		549		(168	)
A		53		-			36		-
A-		572		-			355		-
	$	2,969	$	(182	)	$	1,381	$	(190	)

Balance Sheet Offsetting

Information related to the effects of offsetting (in millions) was as follows:



		As of December 31, 2020
					Embedded
	Derivative				Derivative
	Instruments				Instruments			Total

Financial Assets
Gross amount of recognized assets		$	4,978			$	1,082	$	6,060
Gross amounts offset			(1,869	)			-		(1,869	)
Net amount of assets			3,109				1,082		4,191
Gross amounts not offset:
Cash collateral			(2,969	)			-		(2,969	)
Non-cash collateral			(56	)			-		(56	)
Net amount		$	84			$	1,082	$	1,166

Financial Liabilities
Gross amount of recognized liabilities		$	902			$	4,665	$	5,567
Gross amounts offset			(330	)			-		(330	)
Net amount of liabilities			572				4,665		5,237
Gross amounts not offset:
Cash collateral			(182	)			-		(182	)
Non-cash collateral			-				-		-
Net amount		$	390			$	4,665	$	5,055

‎



		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

7. Federal Income Taxes

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



	For the Years Ended December 31,
	2020			2019			2018
Current	$	(59	)	$	175		$	179
Deferred		3			(212	)		78
Federal income tax expense (benefit)	$	(56	)	$	(37	)	$	257

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



	For the Years Ended December 31,
	2020			2019			2018
Income (loss) before taxes	$	535		$	577		$	1,830
Federal statutory rate		21%			21%			21%
Federal income tax expense (benefit) at federal statutory rate		112			121			384
Effect of:
Tax-preferred investment income ⁽¹⁾		(98	)		(99	)		(87	)
Tax credits		(39	)		(40	)		(39	)
Excess tax benefits from stock-based compensation		2			(6	)		(3	)
Tax impact associated with the Tax Cuts and Jobs Act ⁽²⁾		(37	)		(16	)		3
Other items		4			3			(1	)
Federal income tax expense (benefit)	$	(56	)	$	(37	)	$	257
Effective tax rate		-10%			-6%			14%

⁽¹⁾Relates primarily to separate account dividends eligible for the dividends-received deduction.

⁽²⁾In 2018, we recognized a $3 million tax expense from the impact of the reduced federal statutory rate under the Tax Cuts and Jobs Act (the “Tax Act”) on our adoption of an Internal Revenue Service pronouncement related to variable annuity contracts. In 2019, we recognized a $16 million tax benefit from the impact of the reduced corporate tax rate under the Tax Act on our election to revalue policyholder tax reserves. In 2020, we recognized a $37 million tax benefit attributable to the carry back of a 2020 net operating loss under the provisions of the Coronavirus Aid, Relief, and Economic Security Act, which provides for a five-year carryback period.

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



	As of December 31,
	2020			2019
Current	$	381		$	255
Deferred		(3,422	)		(2,605	)
Total federal income tax asset (liability)	$	(3,041	)	$	(2,350	)

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



	As of December 31,
	2020			2019
Deferred Tax Assets
Future contract benefits and other contract holder funds	$	2,262		$	527
Reinsurance related embedded derivative asset		113			79
Compensation and benefit plans		163			135
Intangibles		27			26
Net operating losses		218			216
Other		5			14
Total deferred tax assets	$	2,788		$	997
Deferred Tax Liabilities
DAC	$	418		$	854
VOBA		165			191
Net unrealized gain on fixed maturity AFS securities		3,836			2,216
Net unrealized gain on trading securities		88			70
Investment activity		1,299			154
Other		404			117
Total deferred tax liabilities	$	6,210		$	3,602
Net deferred tax asset (liability)	$	(3,422	)	$	(2,605	)

As of December 31, 2020, 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 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.

We are subject to examination by U.S. federal, state, local and non-U.S. income authorities. With few exceptions for limited scope review, we are no longer subject to U.S. federal examinations for years before 2017. In the first quarter of 2021, the Internal Revenue Service commenced an examination of our refund claims for 2014 and 2015 that is anticipated to be completed by the end of 2021. We are currently under examination by several state and local taxing jurisdictions; however, we do not expect these examinations will materially impact us.

A reconciliation of the unrecognized tax benefits (in millions) was as follows:



	For the Years Ended
	December 31,
	2020		2019
Balance as of beginning-of-year	$	41	$	12
Increases for prior year tax positions		2		29
Balance as of end-of-year	$	43	$	41

As of December 31, 2020 and 2019, $43 million and $41 million, respectively, of our unrecognized tax benefits presented above, if recognized, would have affected our federal income tax expense (benefit) and our effective tax rate. We anticipate that it is reasonably possible that unrecognized tax benefits will decrease by $9 million by the end of 2021.

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, 2020, 2019 and 2018, 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, 2020 and 2019.

‎

8. DAC, VOBA, DSI and DFEL

Changes in DAC (in millions) were as follows:


	For the Years Ended December 31,
	2020			2019			2018
Balance as of beginning-of-year	$	7,418		$	9,509		$	7,909
Cumulative effect from adoption of new accounting
standard		5			-			-
Business acquired (sold) through reinsurance		(26	)		-			(246	)
Business recaptured through reinsurance		-			59			-
Deferrals		1,427			1,900			1,596
Amortization, net of interest:
Amortization, excluding unlocking, net of interest		(811	)		(922	)		(913	)
Unlocking		(211	)		(471	)		(115	)
Adjustment related to realized (gains) losses		(35	)		(43	)		(42	)
Adjustment related to unrealized (gains) losses		(2,177	)		(2,614	)		1,320
Balance as of end-of-year	$	5,590		$	7,418		$	9,509

Changes in VOBA (in millions) were as follows:


	For the Years Ended December 31,
	2020			2019			2018
Balance as of beginning-of-year	$	327		$	799		$	499
Business acquired (sold) through reinsurance		-			-			(11	)
Business acquired		-			-			30
Deferrals		3			6			7
Amortization:
Amortization, excluding unlocking		(107	)		(115	)		(127	)
Unlocking		(201	)		143			(60	)
Accretion of interest ⁽¹⁾		44			45			48
Adjustment related to realized (gains) losses		-			(1	)		(2	)
Adjustment related to unrealized (gains) losses		168			(550	)		415
Balance as of end-of-year	$	234		$	327		$	799

⁽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, 2020, was as follows:



2021	$	67
2022		65
2023		64
2024		59
2025		52

Changes in DSI (in millions) were as follows:


	For the Years Ended December 31,
	2020			2019			2018
Balance as of beginning-of-year	$	281		$	298		$	287
Business acquired (sold) through reinsurance		-			-			(21	)
Deferrals		7			26			48
Amortization, net of interest:
Amortization, excluding unlocking, net of interest		(20	)		(28	)		(28	)
Unlocking		(1	)		(3	)		-
Adjustment related to realized (gains) losses		(2	)		(2	)		(1	)
Adjustment related to unrealized (gains) losses		(6	)		(10	)		13
Balance as of end-of-year	$	259		$	281		$	298

Changes in DFEL (in millions) were as follows:


	For the Years Ended December 31,
	2020			2019			2018
Balance as of beginning-of-year	$	646		$	2,763		$	1,429
Cumulative effect from adoption of new accounting
standard		4			-			-
Business recaptured through reinsurance		-			5			-
Deferrals		1,002			1,092			874
Amortization, net of interest:
Amortization, excluding unlocking, net of interest		(529	)		(533	)		(474	)
Unlocking		(275	)		(426	)		(52	)
Adjustment related to realized (gains) losses		16			(11	)		(19	)
Adjustment related to unrealized (gains) losses		(468	)		(2,244	)		1,005
Balance as of end-of-year	$	396		$	646		$	2,763

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,
	2020			2019			2018
Direct insurance premiums and fee income	$	13,159		$	13,347		$	11,882
Reinsurance assumed		101			97			96
Reinsurance ceded		(2,018	)		(1,920	)		(1,883	)
Total insurance premiums and fee income	$	11,242		$	11,524		$	10,095

Direct insurance benefits	$	10,497		$	9,482		$	8,513
Reinsurance recoveries netted against benefits		(2,447	)		(1,897	)		(2,369	)
Total benefits	$	8,050		$	7,585		$	6,144

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 incurred under the policies we issue. We evaluate each reinsurance agreement to determine whether the agreement provides indemnification against loss or liability. As discussed in Note 25, a portion of this reinsurance activity is with affiliated companies.

As of December 31, 2020, 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 17% of the mortality risk on newly issued life insurance contracts in 2020.

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 $18.8 billion and $19.2 billion as of December 31, 2020 and 2019, 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 $11.3 billion and $11.8 billion as of December 31, 2020 and 2019, 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 $15.2 billion and $14.7 billion as of December 31, 2020 and 2019, 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 $1.2 billion and $1.3 billion as of December 31, 2020 and 2019, respectively. Swiss Re has funded a trust, with a balance of $1.2 billion as of December 31, 2020, 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, 2020, included $151 million and $35 million, respectively, related to the business sold to Swiss Re. In addition, the amounts recoverable from LNBAR were $2.7 billion and $2.4 billion as of December 31, 2020 and 2019, 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 $3.2 billion as of December 31, 2020.

Adoption of ASU 2016-13

In 2020, we adopted ASU 2016-13, which resulted in a new recognition and measurement of credit losses on most financial assets. We established a credit loss allowance of $190 million as of January 1, 2020, for reinsurance-related assets for the risk of credit losses inherent in reinsurance transactions. During 2020, there have not been any changes to the credit loss allowance that would be material to our financial statements. See Note 2 for additional information. See Note 1 for a detailed discussion regarding our accounting policy relating to the allowance for credit losses on our reinsurance-related assets.

Modco Agreements

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 $5.8 billion and $6.6 billion as of December 31, 2020 and 2019, respectively, within other assets on our Consolidated Balance Sheets. We held assets in support of reserves associated with the transaction in a Modco investment portfolio, which consisted of the following (in millions):


	As of			As of
	December 31,			December 31,
	2020			2019
Fixed maturity AFS securities		$	1,531		$	2,308
Trading securities			3,357			3,534
Equity securities			17			14
Mortgage loans on real estate			832			698
Derivative investments			103			130
Other investments			167			94
Cash and invested cash			92			62
Accrued investment income			42			57
Other assets			3			-
Total		$	6,144		$	6,897

In addition, the portfolio was supported by $185 million of over-collateralization and a $170 million letter of credit as of December 31, 2020. As described in Note 1, we recorded a deferred gain on business sold through reinsurance related to the transaction with Athene and amortized $29 million, $30 million and $8 million of the gain during 2020, 2019 and 2018, respectively.

See “Realized Gain (Loss)” in Note 16 for information on reinsurance related embedded derivatives.

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, 2020
	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			684			-			-		-		684
Total goodwill		$	3,930		$	(2,152	)	$	-	$	-	$	1,778



		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

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, 2020 and 2019, 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.

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, 2020					As of December 31, 2019
	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			59		100			55
Group Protection:
VOCRA		576			55		576			25
VODA		31			5		31			2
Insurance licenses ⁽¹⁾		3			-		3			-
Total	$	715		$	119	$	715		$	82

⁽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, 2020, was as follows:




2021	$	37
2022		37
2023		37
2024		37
2025		37
Thereafter		403

11. Guaranteed Benefit Features

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



	As of December 31,
	2020 ⁽¹⁾		2019 ⁽¹⁾
Return of Net Deposits
Total account value	$	109,856	$	101,601
Net amount at risk ⁽²⁾		72		71
Average attained age of contract holders		66 years		65 years

Minimum Return
Total account value	$	100	$	92
Net amount at risk ⁽²⁾		12		13
Average attained age of contract holders		78 years		77 years
Guaranteed minimum return		5%		5%

Anniversary Contract Value
Total account value	$	27,650	$	25,763
Net amount at risk ⁽²⁾		390		384
Average attained age of contract holders		72 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,
	2020			2019			2018
Balance as of beginning-of-year	$	117		$	161		$	100
Changes in reserves		30			(24	)		77
Benefits paid		(26	)		(20	)		(16	)
Balance as of end-of-year	$	121		$	117		$	161

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,
	2020		2019
Asset Type
Domestic equity	$	70,362	$	64,093
International equity		20,855		19,852
Fixed income		43,521		41,405
Total	$	134,738	$	125,350

Percent of total variable annuity separate account values		98%		98%

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 37% and 35% of total life insurance in-force reserves as of December 31, 2020 and 2019, respectively. UL and VUL products with secondary guarantees represented 31%, 27% and 36% of total life insurance sales for the years ended December 31, 2020, 2019 and 2018, respectively.

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,
	2020			2019			2018
Balance as of beginning-of-year	$	5,552		$	5,335		$	2,222
Reinsurance recoverable		152			143			57
Net balance as of beginning-of-year		5,400			5,192			2,165
Business acquired ⁽¹⁾		-			-			2,842
Incurred related to:
Current year		3,517			3,193			2,531
Prior years:
Interest		148			151			120
All other incurred ⁽²⁾		(209	)		(308	)		(208	)
Total incurred		3,456			3,036			2,443
Paid related to:
Current year		(1,707	)		(1,518	)		(1,197	)
Prior years		(1,366	)		(1,310	)		(1,061	)
Total paid		(3,073	)		(2,828	)		(2,258	)
Net balance as of end-of-year		5,783			5,400			5,192
Reinsurance recoverable		151			152			143
Balance as of end-of-year	$	5,934		$	5,552		$	5,335

⁽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 2.75% to 5%. The discount rates vary by year of claim incurral.

13. Short-Term and Long-Term Debt

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



	As of December 31,
	2020		2019
Short-Term Debt
Short-term debt ⁽¹⁾	$	497	$	609

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		611		613
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		254		284
4.225% surplus note, due 2037		28		28
4.00% surplus note, due 2037		30		-
4.50% surplus note, due 2038		13		13
Total long-term debt	$	2,412	$	2,414

⁽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, 2020, were as follows:



2021	$	-
2022		-
2023		-
2024		50
2025		-
Thereafter		2,362
Total	$	2,412

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, 2020, was $611 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.

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, 2020, was $254 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.

On March 31, 2020, 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 October 9, 2037, and interest to be paid quarterly at an annual rate of 4.00%. 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

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



		As of December 31, 2020
	Expiration	Maximum		LOCs
	Date	Available		Issued
Credit Facilities
Five-year revolving credit facility	July 31, 2024	$	2,250	$	213
LOC facility⁽¹⁾	August 26, 2031		990		943
LOC facility⁽¹⁾	October 1, 2031		954		954
Total		$	4,194	$	2,110

⁽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.

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, 2020, 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, 2020, 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, 2020. 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,

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, 2020, 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 agreements. We are disputing the requested rate increases under these agreements. We will initiate arbitration proceedings, as necessary, under these agreements in order to protect our contractual rights. Additionally, reinsurers have initiated, and may in the future 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. Lincoln Life & 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 defense of this case. On September 30, 2020, the court denied plaintiff’s motion for summary judgment and granted in part Voya’s motion for summary judgment. The court has not yet set a trial date, and we continue to vigorously defend 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 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.

Other Litigation

Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York, pending in the U.S. District Court for the Southern District of New York, No. 1:20-cv-06805, is a putative class action that was filed on August 24, 2020. Plaintiff Andrew Nitkewicz, as trustee of the Joan C. Lupe Trust, 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 for which planned annual, semi-annual, or quarterly premiums were paid for any period beyond the end of the policy month of the insured’s death. Plaintiff alleges LLANY failed to refund unearned premium in violation of New York Insurance Law Section 3203(a)(2) in connection with the payment of death benefit claims for certain insurance policies. Plaintiff seeks compensatory damages and pre-judgment interest on behalf of the various classes and sub-class. We are vigorously defending this matter.

Commitments

Leases

As of December 31, 2020 and 2019, we recognized operating lease ROU assets of $162 million and $202 million, respectively, and associated lease liabilities of $170 million and $208 million, respectively. The weighted-average discount rate and remaining lease term were 3.1% and six years, respectively, as of December 31, 2020, and 3.2% and six years, respectively, as of December 31, 2019. Operating lease expense for the years ended December 31, 2020, 2019 and 2018, was $42 million, $46 million and $43 million, respectively, and reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).

As of December 31, 2020 and 2019, the net book value of assets recorded as finance leases was $75 million and $128 million, respectively, and the associated accumulated amortization was $398 million and $345 million, respectively. 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 two years, respectively, as of December 31, 2020 and 2019.

Finance lease expense (in millions) was as follows:



	For the Years Ended
	December 31,
	2020		2019
Amortization of ROU assets ⁽¹⁾	$	53	$	67
Interest on lease liabilities ⁽²⁾		6		13
Total	$	59	$	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).

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



	For the Years Ended
	December 31,
	2020		2019
Supplemental Cash Flow Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	43	$	47
Financing cash flows from finance leases		53		96

Supplemental Non-cash Information
ROU assets obtained in exchange for new lease obligations:
Operating leases	$	10	$	78

Our future minimum lease payments (in millions) under non-cancellable leases as of December 31, 2020, were as follows:



	Operating		Finance
	Leases		Leases
2021	$	42	$	62
2022		37		72
2023		33		79
2024		27		17
2025		22		7
Thereafter		47		4
Total future minimum lease payments		208		241
Less: Amount representing interest		38		7
Present value of minimum lease payments	$	170	$	234

As of December 31, 2020, we had no leases that had not yet commenced.

Vulnerability from Concentrations

As of December 31, 2020, 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 $(9) million and $(13) million as of December 31, 2020 and 2019, respectively.

‎

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,
	2020			2019			2018
Unrealized Gain (Loss) on AFS Securities
Balance as of beginning-of-year	$	5,637		$	536		$	3,283
Cumulative effect from adoption of new accounting standards		40			-			634
Unrealized holding gains (losses) arising during the year		7,585			8,856			(5,995	)
Change in foreign currency exchange rate adjustment		180			46			(107	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		(3,559	)		(2,460	)		1,748
Income tax benefit (expense)		(901	)		(1,370	)		923
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(52	)		(26	)		(44	)
Associated amortization of DAC, VOBA, DSI and DFEL		38			(11	)		(19	)
Income tax benefit (expense)		3			8			13
Balance as of end-of-year	$	8,993		$	5,637		$	536
Unrealized OTTI on AFS Securities
Balance as of beginning-of-year	$	40		$	29		$	39
(Increases) attributable to:
Cumulative effect from adoption of new accounting standards		(40	)		-			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	)
Change in DAC, VOBA, DSI and DFEL		-			(2	)		(5	)
Income tax benefit (expense)		-			(7	)		4
Balance as of end-of-year	$	-		$	40		$	29
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	181		$	119		$	27
Cumulative effect from adoption of new accounting standard		-			-			6
Unrealized holding gains (losses) arising during the year		77			181			40
Change in foreign currency exchange rate adjustment		(174	)		(52	)		111
Change in DAC, VOBA, DSI and DFEL		(23	)		(5	)		(14	)
Income tax benefit (expense)		26			(26	)		(29	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		64			47			31
Associated amortization of DAC, VOBA, DSI and DFEL		(7	)		(2	)		(3	)
Income tax benefit (expense)		(12	)		(9	)		(6	)
Balance as of end-of-year	$	42		$	181		$	119
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(22	)	$	(25	)	$	(22	)
Cumulative effect from adoption of new accounting standard		-			-			(5	)
Adjustment arising during the year		10			4			3
Income tax benefit (expense)		(2	)		(1	)		(1	)
Balance as of end-of-year	$	(14	)	$	(22	)	$	(25	)

‎

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,
	2020			2019			2018
Unrealized Gain (Loss) on AFS Securities
Gross reclassification	$	(52	)	$	(26	)	$	(44	)	Realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		38			(11	)		(19	)	Realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		(14	)		(37	)		(63	)	operations before taxes
Income tax benefit (expense)		3			8			13		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(11	)	$	(29	)	$	(50	)	Net income (loss)

Unrealized OTTI on AFS Securities
Gross reclassification	$	-		$	4		$	7		Realized gain (loss)
Change in DAC, VOBA, DSI and DFEL		-			-			-		Realized gain (loss)
Reclassification before income										Income (loss) from continuing
tax benefit (expense)		-			4			7		operations before taxes
Income tax benefit (expense)		-			(1	)		(1	)	Federal income tax expense (benefit)
Reclassification, net of income tax	$	-		$	3		$	6		Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	2		$	3		$	4		Net investment income
Foreign currency contracts		56			35			27		Net investment income
Foreign currency contracts		6			9			-		Realized gain (loss)
Total gross reclassifications		64			47			31
Associated amortization of DAC,
VOBA, DSI and DFEL		(7	)		(2	)		(3	)	Commissions and other expenses
Reclassifications before income										Income (loss) from continuing
tax benefit (expense)		57			45			28		operations before taxes
Income tax benefit (expense)		(12	)		(9	)		(6	)	Federal income tax expense (benefit)
Reclassifications, net of income tax	$	45		$	36		$	22		Net income (loss)

‎

16. 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,
	2020			2019			2018
Fixed maturity AFS securities:
Gross gains	$	26		$	44		$	36
Gross losses		(78	)		(70	)		(80	)
Credit loss benefit (expense) ⁽¹⁾		(25	)		-			-
Gross OTTI		-			(15	)		(7	)
Realized gain (loss) on equity securities⁽²⁾		8			(4	)		(17	)
Credit loss benefit (expense) on mortgage loans on real estate		(117	)		(2	)		2
Other gain (loss) on investments		(7	)		(9	)		-
Associated amortization of DAC, VOBA, DSI and DFEL
and changes in other contract holder funds		31			(13	)		(22	)
Total realized gain (loss) related to certain financial assets		(162	)		(69	)		(88	)
Realized gain (loss) on the mark-to-market on certain instruments ⁽³⁾⁽⁴⁾		(142	)		(426	)		251
Indexed annuity and IUL contracts net derivatives results: ⁽⁵⁾
Gross gain (loss)		38			(80	)		(51	)
Associated amortization of DAC, VOBA, DSI and DFEL		(26	)		2			12
GLB fees ceded to LNBAR and attributed fees:
Gross gain (loss)		(205	)		(223	)		(184	)
Associated amortization of DAC, VOBA, DSI and DFEL		(29	)		(32	)		(32	)
Total realized gain (loss)	$	(526	)	$	(828	)	$	(92	)

⁽¹⁾Includes changes in the allowance for credit losses as well as direct write-downs to amortized cost as a result of negative credit events.

⁽²⁾Includes market adjustments on equity securities still held of $8 million and $(4) million for the years ended December 31, 2020 and 2019, respectively.

⁽³⁾Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts, net derivatives results), reinsurance related embedded derivatives and trading securities. See Notes 1 and 9 for information regarding Modco.

⁽⁴⁾Includes gains and losses from fair value changes on mortgage loans on real estate accounted for under the fair value option of $(24) million for the year ended December 31, 2020.

⁽⁵⁾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.

17. Commissions and Other Expenses

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



	For the Years Ended December 31,
	2020			2019			2018
Commissions	$	2,193		$	2,566		$	2,271
General and administrative expenses		2,014			2,152			1,910
Expenses associated with reserve financing and LOCs		55			52			64
DAC and VOBA deferrals and interest, net of amortization		(144	)		(586	)		(436	)
Broker-dealer expenses		378			372			358
Specifically identifiable intangible asset amortization		37			26			9
Taxes, licenses and fees		336			353			322
Acquisition and integration costs related to mergers and acquisitions		20			130			85
Total	$	4,889		$	5,065		$	4,583

‎

18. 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 for the years ended December 31, 2020 and 2019. We do not expect to be required to make any contributions to these pension plans in 2021. 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 $4 million, $6 million and $6 million during 2020, 2019 and 2018, respectively. In 2021, we expect the plans to make benefit payments of approximately $11 million.

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


	As of or For the Years Ended December 31,
	2020			2019			2020			2019

							Other Postretirement
	Pension Plans						Benefit Plans
Fair value of plan assets	$	115		$	109		$	8		$	9
Projected benefit obligation		116			115			10			10
Funded status	$	(1	)	$	(6	)	$	(2	)	$	(1	)

Amounts Recognized on the
Consolidated Balance Sheets
Other assets	$	-		$	-		$	-		$	-
Other liabilities		(1	)		(6	)		(2	)		(1	)
Net amount recognized	$	(1	)	$	(6	)	$	(2	)	$	(1	)

Weighted-Average Assumptions
Benefit obligations:
Weighted-average discount rate		2.95%			3.50%			2.96%			3.50%
Net periodic benefit cost:
Weighted-average discount rate		3.50%			4.50%			3.50%			4.50%
Expected return on plan assets		4.25%			4.50%			6.50%			6.50%

The weighted average discount rate was determined based on a corporate yield curve as of December 31, 2020, 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,
	2020		2019

Fixed maturity securities:
Corporate bonds	$	12	$	-
U.S. government bonds		67		83
Cash and invested cash		36		26
Other investments		8		9
Total	$	123	$	118

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 21 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 $(9) million, $10 million and $(4) million for the years ended December 31, 2020, 2019 and 2018, respectively.

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 $97 million, $101 million and $90 million, for the years ended December 31, 2020, 2019 and 2018, 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 $35 million, $22 million and $12 million for the years ended December 31, 2020, 2019 and 2018, 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,
	2020		2019
Total liabilities ⁽¹⁾	$	673	$	579
Investments dedicated to fund liabilities ⁽²⁾		229		202

⁽¹⁾Reported in other liabilities on our Consolidated Balance Sheets.

⁽²⁾Reported in other assets on our Consolidated Balance Sheets.

19. 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, and restricted stock units (“RSUs”), among other types of awards. 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,
	2020		2019		2018
Stock options	$	9	$	8	$	5
Performance shares		5		16		14
RSUs		34		35		30
Total	$	48	$	59	$	49

Recognized tax benefit	$	10	$	12	$	10

20. 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.

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.



	For the Years Ended December 31,
	2020			2019		2018
U.S. net gain (loss) from operations, after-tax	$	(247	)	$	379	$	686
U.S. net income (loss)		53			359		1,013
U.S. dividends to LNC holding company		660			600		910

Comparison of 2020 to 2019

Statutory net income (loss) decreased due primarily to increases in benefits and unfavorable reserve strain on certain products, partially offset by favorable equity markets.

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.

State Prescribed and Permitted Practices

The states of domicile for LNL and LLANY, Indiana and New York, respectively, have adopted certain prescribed or permitted accounting practices that differ from those found in NAIC SAP. These prescribed practices are 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, the use of a more conservative valuation interest rate on certain annuities prescribed by the states of Indiana and New York and use of the continuous Commissioners’ Annuity Reserve Valuation Method in the calculation of reserves as prescribed by the state of New York. The statutory permitted practice allows accounting for certain call option derivative assets at amortized cost and allows determining certain indexed annuity and indexed life statutory reserve calculations with the assumption that the market value of the related liability call option(s) associated with the current index term is zero. At the conclusion of the index term, credited interest is reflected in the reserve as realized, based on actual index performance.

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, 2020 and 2019. 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, 2020 and 2019. Lastly, the state of Vermont has permitted a practice to account for certain excess of loss reinsurance agreements with unaffiliated reinsurers as an asset and form of surplus as of December 31, 2020 and 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,
	2020			2019
State Prescribed Practices
Calculation of reserves using the Indiana universal life method	$	14		$	24
Conservative valuation rate on certain annuities		(44	)		(49	)
Calculation of reserves using continuous CARVM		(1	)		-
State Permitted Practice
Derivative instruments and equity indexed reserves		(100	)		-
Vermont Subsidiaries Permitted Practices ⁽¹⁾
Lesser of LOC and XXX additional reserve as surplus		1,897			1,947
LLC notes and variable value surplus notes		1,640			1,648
Excess of loss reinsurance agreements		452			419

⁽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 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, 2020, the Company’s RBC ratio was in excess of four times the aforementioned company action level RBC.

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 $850 million in 2021 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.

‎

21. 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, 2020						As of December 31, 2019
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	121,111		$	121,111		$	103,773		$	103,773
Trading securities		4,442			4,442			4,602			4,602
Equity securities		127			127			103			103
Mortgage loans on real estate		16,681			18,129			16,244			16,774
Derivative investments ⁽¹⁾		3,109			3,109			1,911			1,911
Other investments		3,015			3,015			2,554			2,554
Cash and invested cash		1,462			1,462			1,879			1,879
Other assets:
GLB direct embedded derivatives		450			450			450			450
GLB ceded embedded derivatives		82			82			60			60
Indexed annuity ceded embedded derivatives		550			550			927			927
Separate account assets		167,965			167,965			153,571			153,571

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(3,594	)		(3,594	)		(2,585	)		(2,585	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(1,854	)		(1,854	)		(1,900	)		(1,900	)
Account values of certain investment contracts		(40,917	)		(49,709	)		(38,606	)		(46,781	)
Short-term debt		(497	)		(497	)		(609	)		(609	)
Long-term debt		(2,412	)		(2,834	)		(2,414	)		(2,714	)
Reinsurance related embedded derivatives		(540	)		(540	)		(375	)		(375	)
Other liabilities:
Derivative liabilities⁽¹⁾		(353	)		(353	)		(238	)		(238	)
GLB ceded embedded derivatives		(531	)		(531	)		(510	)		(510	)
Benefit Plans’ Assets ⁽²⁾		123			123			118			118

⁽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 18 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, excluding mortgage loans accounted for using the fair value option, 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.

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, 2020 and 2019, 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.

Fair Value Option

Mortgage loans on real estate, net of allowance for credit losses, as reported on our Consolidated Balance Sheets, includes commercial mortgage loans for which the fair value option was elected. The fair value option allows us to elect fair value as an alternative measurement for mortgage loans not otherwise reported at fair value. We have made these elections for certain mortgage loans associated with Modco agreements to help mitigate the inconsistency in earnings that would otherwise result from the use of embedded derivatives included with these loans. Changes in fair value are reflected in realized gain (loss) on our Consolidated Statement of Comprehensive Income (Loss) for commercial mortgage loans. Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and quality ratings for the period reported. Due to lack of observable inputs as a result of a change to a third-party pricing source, certain mortgage loans electing the fair value option were categorized as Level 3 as of December 31, 2020.

The fair value and aggregate contractual principal for mortgage loans where the fair value option was elected (in millions) was as follows:



	As of
	December 31,
	2020
Commercial mortgage loans: ⁽¹⁾
Fair value	$	832
Aggregate contractual principal		839
		-

⁽¹⁾As of December 31, 2020, no loans for which the fair value option has been elected were in non-accrual status and none were more than 90 days past due and still accruing interest.

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, 2020 or 2019.

‎

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



		As of December 31, 2020
		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		$	-		$	93,663			$	7,761		$	101,424
U.S. government bonds			438			6				5			449
State and municipal bonds			-			6,662				-			6,662
Foreign government bonds			-			391				74			465
RMBS			-			2,836				2			2,838
CMBS			-			1,494				1			1,495
ABS			-			6,608				570			7,178
Hybrid and redeemable preferred securities			53			444				103			600
Mortgage loans on real estate			-			-				832			832
Trading securities			5			3,794				643			4,442
Equity securities			22			48				57			127
Derivative investments ⁽¹⁾			-			1,733				3,575			5,308
Cash and invested cash			-			1,462				-			1,462
Other assets:
GLB direct embedded derivatives			-			-				450			450
GLB ceded embedded derivatives			-			-				82			82
Indexed annuity ceded embedded derivatives			-			-				550			550
Separate account assets			606			167,351				-			167,957
Total assets		$	1,124		$	286,492			$	14,705		$	302,321

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(3,594	)	$	(3,594	)
Reinsurance related embedded derivatives			-			(540	)			-			(540	)
Other liabilities:
Derivative liabilities ⁽¹⁾			-			(519	)			(2,033	)		(2,552	)
GLB ceded embedded derivatives			-			-				(531	)		(531	)
Total liabilities		$	-		$	(1,059	)		$	(6,158	)	$	(7,217	)

Benefit Plans’ Assets		$	-		$	123			$	-		$	123

‎



		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

⁽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.

‎

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, 2020
							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	$	6,978		$	(7	)	$	281		$	435		$	74		$	7,761
U.S. government bonds		5			-			-			-			-			5
Foreign government bonds		90			-			3			(19	)		-			74
RMBS		11			-			-			-			(9	)		2
CMBS		1			-			-			-			-			1
ABS		268			-			10			495			(203	)		570
Hybrid and redeemable
preferred securities		78			-			(2	)		9			18			103
Mortgage loans on real estate		-			(1	)		(10	)		56			787			832
Trading securities		666			10			-			(32	)		(1	)		643
Equity securities		30			4			-			18			5			57
Derivative investments		868			986			267			(363	)		(216	)		1,542
Other assets: ⁽⁶⁾
GLB direct embedded derivatives		450			-			-			-			-			450
GLB ceded embedded derivatives		60			22			-			-			-			82
Indexed annuity ceded embedded derivatives		927			538			-			(915	)		-			550
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽⁶⁾		(2,585	)		(1,009	)		-			-			-			(3,594	)
Other liabilities – GLB ceded embedded
derivatives ⁽⁶⁾		(510	)		(21	)		-			-			-			(531	)
Total, net	$	7,337		$	522		$	549		$	(316	)	$	455		$	8,547

‎



	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

‎



	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

⁽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 credit loss expense are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁶⁾Gains (losses) from the changes in fair value are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

‎

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, 2020
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,123		$	(318	)	$	(43	)	$	(195	)	$	(132	)	$	435
Foreign government bonds		-			-			(19	)		-			-			(19	)
ABS		571			-			-			(76	)		-			495
Hybrid and redeemable
preferred securities		13			(4	)		-			-			-			9
Mortgage loans on real estate		71			(15	)		-			-			-			56
Trading securities		300			(126	)		(40	)		(166	)		-			(32	)
Equity securities		20			(2	)		-			-			-			18
Derivative investments		520			(412	)		(471	)		-			-			(363	)
Other assets – indexed annuity ceded
embedded derivatives		25			-			-			(940	)		-			(915	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(284	)		-			-			284			-			-
Total, net	$	2,359		$	(877	)	$	(573	)	$	(1,093	)	$	(132	)	$	(316	)



	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

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,
	2020			2019			2018
Derivative investments	$	536		$	168		$	90
Embedded derivatives:
Indexed annuity and IUL contracts		634			(97	)		(38	)
Other assets – GLB direct and ceded		671			1,015			(75	)
Other liabilities – GLB direct and ceded		(671	)		(1,015	)		75
Total, net ⁽¹⁾	$	1,170		$	71		$	52

⁽¹⁾Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

The following summarizes changes in unrealized gains (losses) included in OCI, net of tax, 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
	Year Ended
	December 31,
		2020
Fixed maturity AFS securities:
Corporate bonds		$	60
Foreign government bonds			4
ABS			5
Hybrid and redeemable preferred securities			(3	)
Total, net		$	66

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


1
	For the Year Ended December 31, 2020
	Transfers		Transfers
	Into		Out of
	Level 3		Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	290	$	(216	)	$	74
RMBS		1		(10	)		(9	)
ABS		-		(203	)		(203	)
Hybrid and redeemable preferred
securities		18		-			18
Mortgage loans on real estate		787		-			787
Trading securities		1		(2	)		(1	)
Equity securities		5		-			5
Derivative investments		-		(216	)		(216	)
Total, net	$	1,102	$	(647	)	$	455



	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	)



	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	)

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, 2020, 2019 and 2018, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available. In 2020, transfers into Level 3 included certain commercial mortgage loans electing the fair value option. The transfers were due to a lack of observable valuation inputs used by a third-party pricing source. 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.
‎

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, 2020:



											Weighted
											Average
	Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	3,370		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.2	%	-	19.9	%	1.8	%
Foreign government
bonds		29		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	6.0	%	-	6.0	%	6.0	%
ABS		20		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	3.5	%	-	3.5	%	3.5	%
Equity securities		22		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	6.0	%	5.6	%
Other assets –
GLB direct and ceded
embedded derivatives		532		Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.06	%	-	1.35	%	0.95	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.53	%

Indexed annuity ceded
embedded derivatives		550		Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Liabilities
Future contract benefits –
indexed annuity and IUL
contracts embedded
derivatives	$	(3,594	)	Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Other liabilities –
GLB ceded embedded
derivatives		(531	)	Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.06	%	-	1.35	%	0.95	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.53	%

⁽¹⁾Unobservable inputs were weighted by the relative fair value of the instruments, unless otherwise noted.

⁽²⁾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.

⁽³⁾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.

⁽⁴⁾The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

⁽⁵⁾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.

⁽⁶⁾

The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract. The NPR input was weighted by the absolute value of the sensitivity of the reserve to the NPR assumption.

⁽⁷⁾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.

⁽⁸⁾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. Volatility assumptions vary by fund due to the benchmarking of different indices. The volatility input was weighted by the relative account value assigned to each index.

⁽⁹⁾The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.

⁽¹⁰⁾A weighted average input range is not a meaningful measurement for lapse rate, utilization factors or mortality rate.

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 would have resulted 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 have resulted 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 have resulted 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 have resulted in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs would have resulted 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 would not have affected 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 Note 1.

22. 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 and bank-owned UL and VUL 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 financial assets;

◾Changes in the fair value of equity 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; and

◾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”);

●Changes in reserves resulting from benefit ratio unlocking on our GLB riders;

●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.

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,
	2020			2019			2018
Revenues
Operating revenues:
Annuities	$	4,067		$	4,240		$	4,025
Retirement Plan Services		1,197			1,186			1,164
Life Insurance		7,086			6,999			6,489
Group Protection		4,792			4,587			3,756
Other Operations		166			199			209
Excluded realized gain (loss), pre-tax		(742	)		(1,019	)		(285	)
Total revenues	$	16,566		$	16,192		$	15,358



	For the Years Ended December 31,
	2020			2019			2018
Net Income (Loss)
Income (loss) from operations:
Annuities	$	1,125		$	987		$	1,122
Retirement Plan Services		157			162			160
Life Insurance		(12	)		267			530
Group Protection		42			237			186
Other Operations		(161	)		(148	)		(130	)
Excluded realized gain (loss), after-tax		(586	)		(804	)		(225	)
Benefit ratio unlocking, after-tax		4			-			-
Net impact from the Tax Cuts and Jobs Act		37			16			(3	)
Acquisition and integration costs related to mergers and acquisitions, after-tax		(15	)		(103	)		(67	)
Net income (loss)	$	591		$	614		$	1,573

Other segment information (in millions) was as follows:



	For the Years Ended December 31,
	2020		2019		2018
Net Investment Income
Annuities	$	1,192	$	1,070	$	947
Retirement Plan Services		924		917		892
Life Insurance		2,689		2,494		2,546
Group Protection		329		306		259
Other Operations		130		175		200
Total net investment income	$	5,264	$	4,962	$	4,844



	For the Years Ended December 31,
	2020		2019		2018
Amortization of DAC and VOBA, Net of Interest
Annuities	$	376	$	427	$	347
Retirement Plan Services		28		25		27
Life Insurance		768		757		701
Group Protection		114		111		92
Total amortization of DAC and VOBA, net of interest	$	1,286	$	1,320	$	1,167



	For the Years Ended December 31,
	2020			2019			2018
Federal Income Tax Expense (Benefit)
Annuities	$	187		$	148		$	187
Retirement Plan Services		21			21			28
Life Insurance		(28	)		50			116
Group Protection		11			63			50
Other Operations		(51	)		(61	)		(48	)
Excluded realized gain (loss)		(155	)		(215	)		(61	)
Benefit ratio unlocking		1			-			-
Net impact from the Tax Cuts and Jobs Act		(37	)		(16	)		3
Acquisition and integration costs related to
mergers and acquisitions		(5	)		(27	)		(18	)
Total federal income tax expense (benefit)	$	(56	)	$	(37	)	$	257



	As of December 31,
	2020		2019
Assets
Annuities	$	183,721	$	166,639
Retirement Plan Services		45,379		40,190
Life Insurance		102,806		93,327
Group Protection		10,201		9,468
Other Operations		26,212		26,392
Total assets	$	368,319	$	336,016

23. Supplemental Disclosures of Cash Flow Data

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



	For the Years Ended December 31,
	2020			2019			2018
Interest paid	$	127		$	152		$	154
Income taxes paid (received)		78			245			192
Significant non-cash investing and financing transactions:
Equity securities received in exchange of
fixed maturity AFS securities		17			-			-
Acquisition of note receivable from affiliate		45			392			31
Reduction of other assets in connection with
the expiration of an affiliate repurchase agreement		-			(150	)		-
Investments received in financing transactions		-			-			263
Exchange of surplus note for promissory note with affiliate:
Carrying value of net asset		13			40			58
Carrying value of net liability		(13	)		(40	)		(58	)

24. 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,
2020
Total revenues	$	4,241	$	3,531			$	4,571			$	4,223
Total expenses		3,640		3,757				5,029				3,605
Net income (loss)		502		(145	)			(327	)			561

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

‎

25. 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,
	2020			2019
Assets with affiliates:
Inter-company notes	$	1,514		$	1,557		Fixed maturity AFS securities
Ceded reinsurance contracts		(141	)		(115	)	Deferred acquisition costs and value of
							business acquired
Accrued inter-company interest receivable		4			6		Accrued investment income
Ceded reinsurance contracts		2,701			2,473		Reinsurance recoverables, net of allowance
							for credit losses
Ceded reinsurance contracts		221			228		Other assets
Cash management agreement		2,568			1,227		Other assets
Service agreement receivable		34			6		Other assets

Liabilities with affiliates:
Assumed reinsurance contracts		26			26		Future contract benefits
Assumed reinsurance contracts		387			390		Other contract holder funds
Ceded reinsurance contracts		(34	)		(38	)	Other contract holder funds
Inter-company short-term debt		497			609		Short-term debt
Inter-company long-term debt		2,412			2,414		Long-term debt
Ceded reinsurance contracts		145			46		Reinsurance related embedded derivatives
Ceded reinsurance contracts		5,233			3,757		Funds withheld reinsurance liabilities
Ceded reinsurance contracts		(287	)		497		Other liabilities
Accrued inter-company interest payable		4			5		Other liabilities
Service agreement payable		28			22		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,
	2020			2019			2018
Revenues with affiliates:
Premiums received on assumed (paid on ceded)
reinsurance contracts	$	(439	)	$	(407	)	$	(404	)	Insurance premiums
Fees for management of general account		(140	)		(133	)		(106	)	Net investment income
Net investment income on ceded funds withheld treaties		(119	)		(139	)		(123	)	Net investment income
Net investment income on inter-company notes		40			53			49		Net investment income
Realized gains (losses) on ceded reinsurance contracts:
GLB reserves embedded derivatives		(30	)		(305	)		709		Realized gain (loss)
Other gains (losses)		(175	)		(301	)		237		Realized gain (loss)
Reinsurance related settlements		193			472			(1,189	)	Realized gain (loss)
Amortization of deferred gain (loss) on reinsurance
contracts		3			(4	)		(5	)	Amortization of deferred gain
										on business sold through
										reinsurance
Benefits and expenses with affiliates:
Interest credited on assumed reinsurance contracts		45			60			57		Interest credited
Reinsurance (recoveries) benefits on ceded reinsurance		(585	)		(254	)		(610	)	Benefits
Ceded reinsurance contracts		(1	)		(19	)		(8	)	Commissions and other
										expenses
Service agreement payments (receipts)		(17	)		15			3		Commissions and other
										expenses
Interest expense on inter-company debt		116			130			126		Interest and debt expense

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, 2020.

Service Agreements

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 $1 million and $115 million as of December 31, 2020 and 2019, respectively. The LOCs are obtained by the affiliate reinsurer and issued by banks in order for the Company to recognize the reserve credit.

Lincoln National Variable Annuity Account L

L-1

Lincoln National Variable Annuity Account L

Statements of assets and liabilities

December 31, 2020

Subaccount	Investments		Total Assets		Net Assets
AB VPS Global Thematic Growth Portfolio - Class B	$	2,597,200	$	2,597,200	$	2,597,200
AB VPS Large Cap Growth Portfolio - Class B		3,738,664		3,738,664		3,738,664
American Century VP Balanced Fund - Class I		13,633,701		13,633,701		13,633,701
American Funds Global Growth Fund - Class 2		8,294,125		8,294,125		8,294,125
American Funds Growth Fund - Class 2		44,961,365		44,961,365		44,961,365
American Funds Growth-Income Fund - Class 2		15,599,663		15,599,663		15,599,663
American Funds International Fund - Class 2		8,953,737		8,953,737		8,953,737
BlackRock Global Allocation V.I. Fund - Class I		1,676,387		1,676,387		1,676,387
Delaware VIP^® Diversified Income Series - Standard Class		4,633,362		4,633,362		4,633,362
Delaware VIP^® High Yield Series - Standard Class		1,750,515		1,750,515		1,750,515
Delaware VIP^® REIT Series - Service Class		6,897,595		6,897,595		6,897,595
Delaware VIP^® Small Cap Value Series - Service Class		6,517,097		6,517,097		6,517,097
Delaware VIP^® Smid Cap Core Series - Service Class		5,331,060		5,331,060		5,331,060
DWS Alternative Asset Allocation VIP Portfolio - Class A		228,652		228,652		228,652
Fidelity^® VIP Asset Manager Portfolio - Initial Class		31,712,253		31,712,253		31,712,253
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		27,494,571		27,494,571		27,494,571
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		160,668		160,668		160,668
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		395,904		395,904		395,904
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		1,085,539		1,085,539		1,085,539
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		831,022		831,022		831,022
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		417,256		417,256		417,256
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		284,357		284,357		284,357
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		521,583		521,583		521,583
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		66,439		66,439		66,439
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		40,109		40,109		40,109
Fidelity^® VIP Government Money Market Portfolio - Initial Class		185,044		185,044		185,044
Fidelity^® VIP Growth Portfolio - Initial Class		118,047,600		118,047,600		118,047,600
Janus Henderson Global Research Portfolio - Institutional Shares		9,583,494		9,583,494		9,583,494
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		795,470		795,470		795,470
LVIP Baron Growth Opportunities Fund - Service Class		21,564,358		21,564,358		21,564,358
LVIP BlackRock Advantage Allocation Fund - Standard Class		264,959		264,959		264,959
LVIP BlackRock Global Real Estate Fund - Standard Class		319,330		319,330		319,330
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		652,526		652,526		652,526
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		1,806,049		1,806,049		1,806,049
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		249,833		249,833		249,833
LVIP Delaware Bond Fund - Standard Class		3,642,466		3,642,466		3,642,466
LVIP Delaware Diversified Floating Rate Fund - Service Class		181,194		181,194		181,194
LVIP Delaware Social Awareness Fund - Standard Class		17,302,118		17,302,118		17,302,118
LVIP Delaware Wealth Builder Fund - Standard Class		467,530		467,530		467,530
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		5,839,359		5,839,359		5,839,359
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		72,124		72,124		72,124
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		1,189,406		1,189,406		1,189,406
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		3,598,942		3,598,942		3,598,942
LVIP Global Income Fund - Standard Class		187,052		187,052		187,052
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		19,857,528		19,857,528		19,857,528
LVIP JPMorgan Retirement Income Fund - Standard Class		1,412,300		1,412,300		1,412,300
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		380,986		380,986		380,986
LVIP Mondrian International Value Fund - Standard Class		2,564,770		2,564,770		2,564,770
LVIP SSGA Bond Index Fund - Standard Class		1,089,320		1,089,320		1,089,320
LVIP SSGA Emerging Markets 100 Fund - Standard Class		1,007,972		1,007,972		1,007,972
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		1,545,962		1,545,962		1,545,962
LVIP SSGA International Index Fund - Standard Class		596,514		596,514		596,514
LVIP SSGA International Managed Volatility Fund - Standard Class		141,190		141,190		141,190
LVIP SSGA S&P 500 Index Fund - Standard Class		122,806,192		122,806,192		122,806,192
LVIP SSGA Small-Cap Index Fund - Standard Class		26,778,488		26,778,488		26,778,488
LVIP T. Rowe Price 2010 Fund - Standard Class		466,136		466,136		466,136
LVIP T. Rowe Price 2020 Fund - Standard Class		1,829,870		1,829,870		1,829,870
LVIP T. Rowe Price 2030 Fund - Standard Class		4,864,596		4,864,596		4,864,596
LVIP T. Rowe Price 2040 Fund - Standard Class		2,443,824		2,443,824		2,443,824
LVIP T. Rowe Price 2050 Fund - Standard Class		2,155,880		2,155,880		2,155,880
LVIP T. Rowe Price 2060 Fund - Standard Class		1,872		1,872		1,872
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		28,043,794		28,043,794		28,043,794
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		5,269,843		5,269,843		5,269,843
T. Rowe Price International Stock Portfolio		9,278,226		9,278,226		9,278,226

See accompanying notes.
L-2

[THIS PAGE INTENTIONALLY LEFT BLANK]

Lincoln National Variable Annuity Account L

Statements of operations

Year Ended December 31, 2020

Subaccount	Dividends from Investment Income		Mortality and Expense Guarantee Charges			Net Investment Income (Loss)			Net Realized Gain (Loss) on Investments
AB VPS Global Thematic Growth Portfolio - Class B	$	9,313	$	(20,346	)	$	(11,033	)	$	116,230
AB VPS Large Cap Growth Portfolio - Class B		—		(30,877	)		(30,877	)		23,952
American Century VP Balanced Fund - Class I		154,003		(128,130	)		25,873			201,535
American Funds Global Growth Fund - Class 2		25,011		(70,697	)		(45,686	)		288,375
American Funds Growth Fund - Class 2		114,297		(350,967	)		(236,670	)		1,549,059
American Funds Growth-Income Fund - Class 2		193,684		(141,205	)		52,479			161,939
American Funds International Fund - Class 2		50,419		(75,908	)		(25,489	)		13,977
BlackRock Global Allocation V.I. Fund - Class I		19,208		(15,447	)		3,761			23,060
Delaware VIP^® Diversified Income Series - Standard Class		119,054		(43,798	)		75,256			29,928
Delaware VIP^® High Yield Series - Standard Class		103,219		(16,554	)		86,665			(38,090	)
Delaware VIP^® REIT Series - Service Class		119,744		(69,382	)		50,362			(131,734	)
Delaware VIP^® Small Cap Value Series - Service Class		64,726		(57,887	)		6,839			(288,288	)
Delaware VIP^® Smid Cap Core Series - Service Class		12,874		(44,654	)		(31,780	)		(234,387	)
DWS Alternative Asset Allocation VIP Portfolio - Class A		5,303		(2,003	)		3,300			(196	)
Fidelity^® VIP Asset Manager Portfolio - Initial Class		437,267		(290,998	)		146,269			153,968
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		20,015		(247,201	)		(227,186	)		1,078,548
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		1,501		(1,310	)		191			(1,232	)
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		3,491		(2,805	)		686			(271	)
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		9,503		(6,625	)		2,878			6,083
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		6,263		(6,910	)		(647	)		(8,249	)
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		2,718		(3,029	)		(311	)		2,049
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		1,819		(1,771	)		48			729
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		3,318		(3,594	)		(276	)		786
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		405		(140	)		265			4
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		260		(163	)		97			4
Fidelity^® VIP Government Money Market Portfolio - Initial Class		487		—			487			—
Fidelity^® VIP Growth Portfolio - Initial Class		76,119		(987,887	)		(911,768	)		6,231,755
Janus Henderson Global Research Portfolio - Institutional Shares		59,986		(80,634	)		(20,648	)		261,631
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		14,221		(166	)		14,055			6
LVIP Baron Growth Opportunities Fund - Service Class		—		(175,952	)		(175,952	)		1,207,934
LVIP BlackRock Advantage Allocation Fund - Standard Class		4,224		(2,549	)		1,675			(14,594	)
LVIP BlackRock Global Real Estate Fund - Standard Class		16,518		(2,920	)		13,598			(3,754	)
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		1,040		(6,514	)		(5,474	)		(4,313	)
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		5,895		(15,518	)		(9,623	)		86,537
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		—		(1,892	)		(1,892	)		3,121
LVIP Delaware Bond Fund - Standard Class		83,632		(33,722	)		49,910			16,851
LVIP Delaware Diversified Floating Rate Fund - Service Class		2,255		(1,751	)		504			(45	)
LVIP Delaware Social Awareness Fund - Standard Class		199,893		(150,326	)		49,567			267,012
LVIP Delaware Wealth Builder Fund - Standard Class		8,820		(3,777	)		5,043			(32,245	)
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		78,355		(49,721	)		28,634			30,942
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		697		(632	)		65			760
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		24,599		(11,628	)		12,971			10,501
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		74,633		(35,667	)		38,966			107,342
LVIP Global Income Fund - Standard Class		3,188		(2,217	)		971			3,567
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		395,550		(55,436	)		340,114			272,246
LVIP JPMorgan Retirement Income Fund - Standard Class		33,881		(12,092	)		21,789			7,372
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		4,055		(3,180	)		875			(1,121	)
LVIP Mondrian International Value Fund - Standard Class		56,716		(23,285	)		33,431			(110,806	)
LVIP SSGA Bond Index Fund - Standard Class		23,705		(14,402	)		9,303			63,584
LVIP SSGA Emerging Markets 100 Fund - Standard Class		30,278		(8,412	)		21,866			(37,415	)
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		26,887		(14,133	)		12,754			8,876
LVIP SSGA International Index Fund - Standard Class		12,918		(5,093	)		7,825			(3,473	)
LVIP SSGA International Managed Volatility Fund - Standard Class		2,507		(1,171	)		1,336			(5,993	)
LVIP SSGA S&P 500 Index Fund - Standard Class		1,755,977		(1,074,450	)		681,527			4,996,057
LVIP SSGA Small-Cap Index Fund - Standard Class		231,387		(216,233	)		15,154			351,692
LVIP T. Rowe Price 2010 Fund - Standard Class		9,486		(4,154	)		5,332			(652	)
LVIP T. Rowe Price 2020 Fund - Standard Class		40,404		(15,958	)		24,446			(11,221	)
LVIP T. Rowe Price 2030 Fund - Standard Class		95,669		(43,221	)		52,448			(13,410	)

See accompanying notes.
L-4

Subaccount	Dividends from Net Realized Gain on Investments		Total Net Realized Gain (Loss) on Investments			Net Change in Unrealized Appreciation or Depreciation on Investments			Net Increase (Decrease) in Net Assets Resulting from Operations
AB VPS Global Thematic Growth Portfolio - Class B	$	195,995	$	312,225		$	392,793		$	693,985
AB VPS Large Cap Growth Portfolio - Class B		262,184		286,136			690,514			945,773
American Century VP Balanced Fund - Class I		457,706		659,241			758,879			1,443,993
American Funds Global Growth Fund - Class 2		201,510		489,885			1,465,126			1,909,325
American Funds Growth Fund - Class 2		855,828		2,404,887			13,399,069			15,567,286
American Funds Growth-Income Fund - Class 2		387,347		549,286			1,014,716			1,616,481
American Funds International Fund - Class 2		—		13,977			946,669			935,157
BlackRock Global Allocation V.I. Fund - Class I		78,874		101,934			177,412			283,107
Delaware VIP^® Diversified Income Series - Standard Class		—		29,928			299,688			404,872
Delaware VIP^® High Yield Series - Standard Class		—		(38,090	)		40,524			89,099
Delaware VIP^® REIT Series - Service Class		381,793		250,059			(1,375,744	)		(1,075,323	)
Delaware VIP^® Small Cap Value Series - Service Class		369,038		80,750			(556,942	)		(469,353	)
Delaware VIP^® Smid Cap Core Series - Service Class		118,294		(116,093	)		505,632			357,759
DWS Alternative Asset Allocation VIP Portfolio - Class A		—		(196	)		7,954			11,058
Fidelity^® VIP Asset Manager Portfolio - Initial Class		385,836		539,804			3,150,959			3,837,032
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		135,154		1,213,702			5,436,311			6,422,827
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		8,360		7,128			11,036			18,355
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		11,732		11,461			33,325			45,472
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		22,817		28,900			112,747			144,525
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		30,433		22,184			91,414			112,951
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		13,361		15,410			54,645			69,744
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		5,766		6,495			41,529			48,072
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		13,080		13,866			70,327			83,917
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		1,566		1,570			3,704			5,539
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		1,064		1,068			5,324			6,489
Fidelity^® VIP Government Money Market Portfolio - Initial Class		—		—			—			487
Fidelity^® VIP Growth Portfolio - Initial Class		9,618,516		15,850,271			21,684,140			36,622,643
Janus Henderson Global Research Portfolio - Institutional Shares		434,834		696,465			801,883			1,477,700
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		—		6			7,128			21,189
LVIP Baron Growth Opportunities Fund - Service Class		390,879		1,598,813			4,028,034			5,450,895
LVIP BlackRock Advantage Allocation Fund - Standard Class		15,957		1,363			23,998			27,036
LVIP BlackRock Global Real Estate Fund - Standard Class		11,038		7,284			(31,209	)		(10,327	)
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		—		(4,313	)		36,719			26,932
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		25,649		112,186			225,865			328,428
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		—		3,121			50,325			51,554
LVIP Delaware Bond Fund - Standard Class		73,760		90,611			139,977			280,498
LVIP Delaware Diversified Floating Rate Fund - Service Class		—		(45	)		(174	)		285
LVIP Delaware Social Awareness Fund - Standard Class		990,107		1,257,119			1,385,810			2,692,496
LVIP Delaware Wealth Builder Fund - Standard Class		4,065		(28,180	)		28,302			5,165
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		209,146		240,088			456,560			725,282
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		—		760			6,994			7,819
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		22,817		33,318			20,266			66,555
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		31,901		139,243			(20,342	)		157,867
LVIP Global Income Fund - Standard Class		306		3,873			7,335			12,179
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		255,940		528,186			440,619			1,308,919
LVIP JPMorgan Retirement Income Fund - Standard Class		15,742		23,114			69,180			114,083
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		—		(1,121	)		7,805			7,559
LVIP Mondrian International Value Fund - Standard Class		62,486		(48,320	)		(211,384	)		(226,273	)
LVIP SSGA Bond Index Fund - Standard Class		—		63,584			2,478			75,365
LVIP SSGA Emerging Markets 100 Fund - Standard Class		—		(37,415	)		33,343			17,794
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		50,152		59,028			17,232			89,014
LVIP SSGA International Index Fund - Standard Class		—		(3,473	)		31,255			35,607
LVIP SSGA International Managed Volatility Fund - Standard Class		—		(5,993	)		4,284			(373	)
LVIP SSGA S&P 500 Index Fund - Standard Class		1,550,813		6,546,870			10,163,103			17,391,500
LVIP SSGA Small-Cap Index Fund - Standard Class		928,101		1,279,793			2,413,214			3,708,161
LVIP T. Rowe Price 2010 Fund - Standard Class		8,826		8,174			33,242			46,748
LVIP T. Rowe Price 2020 Fund - Standard Class		35,087		23,866			159,348			207,660
LVIP T. Rowe Price 2030 Fund - Standard Class		74,087		60,677			463,996			577,121

L-5

Lincoln National Variable Annuity Account L

Statements of operations (continued)

Year Ended December 31, 2020

Subaccount	Dividends from Investment Income		Mortality and Expense Guarantee Charges			Net Investment Income (Loss)			Net Realized Gain (Loss) on Investments
LVIP T. Rowe Price 2040 Fund - Standard Class	$	44,748	$	(20,613	)	$	24,135		$	(10,543	)
LVIP T. Rowe Price 2050 Fund - Standard Class		38,493		(17,762	)		20,731			(14,116	)
LVIP T. Rowe Price 2060 Fund - Standard Class		33		(5	)		28			—
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		—		(226,506	)		(226,506	)		1,114,128
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		27,779		(44,526	)		(16,747	)		(6,327	)
T. Rowe Price International Stock Portfolio		46,695		(81,129	)		(34,434	)		82,317

See accompanying notes.
L-6

Subaccount	Dividends from Net Realized Gain on Investments		Total Net Realized Gain (Loss) on Investments		Net Change in Unrealized Appreciation or Depreciation on Investments		Net Increase (Decrease) in Net Assets Resulting from Operations
LVIP T. Rowe Price 2040 Fund - Standard Class	$	32,988	$	22,445	$	277,393	$	323,973
LVIP T. Rowe Price 2050 Fund - Standard Class		30,307		16,191		247,196		284,118
LVIP T. Rowe Price 2060 Fund - Standard Class		6		6		187		221
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		1,541,155		2,655,283		4,166,520		6,595,297
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		190,813		184,486		634,081		801,820
T. Rowe Price International Stock Portfolio		363,186		445,503		657,891		1,068,960

L-7

Lincoln National Variable Annuity Account L

Statements of changes in net assets

Years Ended December 31, 2019 and 2020

	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, 2019	$	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
Changes From Operations:
• Net investment income (loss)		(11,033	)		—			(30,877	)		25,873			(45,686	)		(236,670	)		52,479
• Net realized gain (loss) on investments		312,225			—			286,136			659,241			489,885			2,404,887			549,286
• Net change in unrealized appreciation or depreciation on investments		392,793			—			690,514			758,879			1,465,126			13,399,069			1,014,716
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		693,985			—			945,773			1,443,993			1,909,325			15,567,286			1,616,481
Changes From Unit Transactions:
• Net unit transactions		(126,616	)		—			(89,122	)		(1,002,960	)		(975,527	)		(3,591,135	)		(1,860,946	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(126,616	)		—			(89,122	)		(1,002,960	)		(975,527	)		(3,591,135	)		(1,860,946	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		567,369			—			856,651			441,033			933,798			11,976,151			(244,465	)
NET ASSETS AT DECEMBER 31, 2020	$	2,597,200		$	—		$	3,738,664		$	13,633,701		$	8,294,125		$	44,961,365		$	15,599,663

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, 2019	$	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
Changes From Operations:
• Net investment income (loss)		(25,489	)		3,761			75,256			86,665			50,362			6,839
• Net realized gain (loss) on investments		13,977			101,934			29,928			(38,090	)		250,059			80,750
• Net change in unrealized appreciation or depreciation on investments		946,669			177,412			299,688			40,524			(1,375,744	)		(556,942	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		935,157			283,107			404,872			89,099			(1,075,323	)		(469,353	)
Changes From Unit Transactions:
• Net unit transactions		(802,270	)		(236,221	)		115,187			(132,987	)		(744,144	)		(981,567	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(802,270	)		(236,221	)		115,187			(132,987	)		(744,144	)		(981,567	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		132,887			46,886			520,059			(43,888	)		(1,819,467	)		(1,450,920	)
NET ASSETS AT DECEMBER 31, 2020	$	8,953,737		$	1,676,387		$	4,633,362		$	1,750,515		$	6,897,595		$	6,517,097

L-9

Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2019 and 2020

	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, 2019	$	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
Changes From Operations:
• Net investment income (loss)		(31,780	)		3,300			146,269			(227,186	)		191		686		2,878
• Net realized gain (loss) on investments		(116,093	)		(196	)		539,804			1,213,702			7,128		11,461		28,900
• Net change in unrealized appreciation or depreciation on investments		505,632			7,954			3,150,959			5,436,311			11,036		33,325		112,747
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		357,759			11,058			3,837,032			6,422,827			18,355		45,472		144,525
Changes From Unit Transactions:
• Net unit transactions		(528,989	)		17,564			(2,488,179	)		(3,057,661	)		30,469		102,724		626,981
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(528,989	)		17,564			(2,488,179	)		(3,057,661	)		30,469		102,724		626,981
TOTAL INCREASE (DECREASE) IN NET ASSETS		(171,230	)		28,622			1,348,853			3,365,166			48,824		148,196		771,506
NET ASSETS AT DECEMBER 31, 2020	$	5,331,060		$	228,652		$	31,712,253		$	27,494,571		$	160,668	$	395,904	$	1,085,539

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, 2019	$	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
Changes From Operations:
• Net investment income (loss)		(647	)		(311	)		48		(276	)		265		97
• Net realized gain (loss) on investments		22,184			15,410			6,495		13,866			1,570		1,068
• Net change in unrealized appreciation or depreciation on investments		91,414			54,645			41,529		70,327			3,704		5,324
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		112,951			69,744			48,072		83,917			5,539		6,489
Changes From Unit Transactions:
• Net unit transactions		17,996			159,306			136,401		170,829			59,240		33,430
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		17,996			159,306			136,401		170,829			59,240		33,430
TOTAL INCREASE (DECREASE) IN NET ASSETS		130,947			229,050			184,473		254,746			64,779		39,919
NET ASSETS AT DECEMBER 31, 2020	$	831,022		$	417,256		$	284,357	$	521,583		$	66,439	$	40,109

L-11

Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2019 and 2020

	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 American Global Balanced Allocation Managed Risk Fund - Standard Class 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
NET ASSETS AT JANUARY 1, 2019	$	37,262		$	78,908,387		$	7,807,840		$	—	$	14,757,341		$	330,817		$	395,308
Changes From Operations:
• Net investment income (loss)		725			(646,863	)		1,278			—		(169,696	)		4,613			7,517
• Net realized gain (loss) on investments		—			9,404,714			845,222			—		1,455,745			3,742			34,550
• Net change in unrealized appreciation or depreciation on investments		(1	)		16,178,471			1,205,446			—		3,690,853			39,444			47,281
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		724			24,936,322			2,051,946			—		4,976,902			47,799			89,348
Changes From Unit Transactions:
• Net unit transactions		56,119			(9,999,349	)		(1,063,429	)		—		(1,412,901	)		(63,419	)		(152,213	)
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	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		56,843			14,936,973			988,517			—		3,564,001			(15,620	)		(62,865	)
NET ASSETS AT DECEMBER 31, 2019		94,105			93,845,360			8,796,357			—		18,321,342			315,197			332,443
Changes From Operations:
• Net investment income (loss)		487			(911,768	)		(20,648	)		14,055		(175,952	)		1,675			13,598
• Net realized gain (loss) on investments		—			15,850,271			696,465			6		1,598,813			1,363			7,284
• Net change in unrealized appreciation or depreciation on investments		—			21,684,140			801,883			7,128		4,028,034			23,998			(31,209	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		487			36,622,643			1,477,700			21,189		5,450,895			27,036			(10,327	)
Changes From Unit Transactions:
• Net unit transactions		90,452			(12,420,403	)		(690,563	)		774,281		(2,207,879	)		(77,274	)		(2,786	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		90,452			(12,420,403	)		(690,563	)		774,281		(2,207,879	)		(77,274	)		(2,786	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		90,939			24,202,240			787,137			795,470		3,243,016			(50,238	)		(13,113	)
NET ASSETS AT DECEMBER 31, 2020	$	185,044		$	118,047,600		$	9,583,494		$	795,470	$	21,564,358		$	264,959		$	319,330

See accompanying notes.
L-12

	LVIP BlackRock Inflation Protected Bond Fund - Standard Class Subaccount			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
NET ASSETS AT JANUARY 1, 2019	$	741,143		$	1,337,879		$	115,387		$	2,915,084		$	180,380		$	13,715,511
Changes From Operations:
• Net investment income (loss)		8,948			(4,058	)		(1,431	)		59,354			2,442			165,985
• Net realized gain (loss) on investments		(11,661	)		93,679			15,979			40,782			369			871,036
• Net change in unrealized appreciation or depreciation on investments		39,041			157,899			13,577			130,832			3,315			3,044,510
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		36,328			247,520			28,125			230,968			6,126			4,081,531
Changes From Unit Transactions:
• Net unit transactions		(87,425	)		9,688			27,496			(208,647	)		(10,988	)		(1,056,156	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(87,425	)		9,688			27,496			(208,647	)		(10,988	)		(1,056,156	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		(51,097	)		257,208			55,621			22,321			(4,862	)		3,025,375
NET ASSETS AT DECEMBER 31, 2019		690,046			1,595,087			171,008			2,937,405			175,518			16,740,886
Changes From Operations:
• Net investment income (loss)		(5,474	)		(9,623	)		(1,892	)		49,910			504			49,567
• Net realized gain (loss) on investments		(4,313	)		112,186			3,121			90,611			(45	)		1,257,119
• Net change in unrealized appreciation or depreciation on investments		36,719			225,865			50,325			139,977			(174	)		1,385,810
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		26,932			328,428			51,554			280,498			285			2,692,496
Changes From Unit Transactions:
• Net unit transactions		(64,452	)		(117,466	)		27,271			424,563			5,391			(2,131,264	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(64,452	)		(117,466	)		27,271			424,563			5,391			(2,131,264	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		(37,520	)		210,962			78,825			705,061			5,676			561,232
NET ASSETS AT DECEMBER 31, 2020	$	652,526		$	1,806,049		$	249,833		$	3,642,466		$	181,194		$	17,302,118

L-13

Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2019 and 2020

	LVIP Delaware Wealth Builder Fund - Standard Class Subaccount			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
NET ASSETS AT JANUARY 1, 2019	$	295,900		$	5,116,349		$	85,104		$	1,185,358		$	3,829,517		$	336,765		$	20,923,871
Changes From Operations:
• Net investment income (loss)		9,287			43,099			415			18,801			50,875			3,239			450,640
• Net realized gain (loss) on investments		7,602			331,041			1,058			61,912			251,506			512			1,136,080
• Net change in unrealized appreciation or depreciation on investments		28,494			1,007,451			6,236			75,797			235,344			11,000			1,330,732
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		45,383			1,381,591			7,709			156,510			537,725			14,751			2,917,452
Changes From Unit Transactions:
• Net unit transactions		111,904			(855,851	)		(29,124	)		(123,269	)		(341,369	)		(128,175	)		(1,558,391	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		111,904			(855,851	)		(29,124	)		(123,269	)		(341,369	)		(128,175	)		(1,558,391	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		157,287			525,740			(21,415	)		33,241			196,356			(113,424	)		1,359,061
NET ASSETS AT DECEMBER 31, 2019		453,187			5,642,089			63,689			1,218,599			4,025,873			223,341			22,282,932
Changes From Operations:
• Net investment income (loss)		5,043			28,634			65			12,971			38,966			971			340,114
• Net realized gain (loss) on investments		(28,180	)		240,088			760			33,318			139,243			3,873			528,186
• Net change in unrealized appreciation or depreciation on investments		28,302			456,560			6,994			20,266			(20,342	)		7,335			440,619
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		5,165			725,282			7,819			66,555			157,867			12,179			1,308,919
Changes From Unit Transactions:
• Net unit transactions		9,178			(528,012	)		616			(95,748	)		(584,798	)		(48,468	)		(3,734,323	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		9,178			(528,012	)		616			(95,748	)		(584,798	)		(48,468	)		(3,734,323	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		14,343			197,270			8,435			(29,193	)		(426,931	)		(36,289	)		(2,425,404	)
NET ASSETS AT DECEMBER 31, 2020	$	467,530		$	5,839,359		$	72,124		$	1,189,406		$	3,598,942		$	187,052		$	19,857,528

See accompanying notes.
L-14

	LVIP JPMorgan Retirement Income Fund - Standard Class Subaccount			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
NET ASSETS AT JANUARY 1, 2019	$	989,569		$	273,006		$	2,751,295		$	647,849	$	1,028,459		$	1,373,932
Changes From Operations:
• Net investment income (loss)		31,306			1,081			85,834			18,259		26,578			23,252
• Net realized gain (loss) on investments		(38,403	)		6,580			14,083			6,278		(30,105	)		27,454
• Net change in unrealized appreciation or depreciation on investments		169,209			37,721			358,231			30,808		67,472			145,330
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		162,112			45,382			458,148			55,345		63,945			196,036
Changes From Unit Transactions:
• Net unit transactions		266,795			44,646			(91,044	)		159,740		(103,974	)		(54,134	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		266,795			44,646			(91,044	)		159,740		(103,974	)		(54,134	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		428,907			90,028			367,104			215,085		(40,029	)		141,902
NET ASSETS AT DECEMBER 31, 2019		1,418,476			363,034			3,118,399			862,934		988,430			1,515,834
Changes From Operations:
• Net investment income (loss)		21,789			875			33,431			9,303		21,866			12,754
• Net realized gain (loss) on investments		23,114			(1,121	)		(48,320	)		63,584		(37,415	)		59,028
• Net change in unrealized appreciation or depreciation on investments		69,180			7,805			(211,384	)		2,478		33,343			17,232
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		114,083			7,559			(226,273	)		75,365		17,794			89,014
Changes From Unit Transactions:
• Net unit transactions		(120,259	)		10,393			(327,356	)		151,021		1,748			(58,886	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(120,259	)		10,393			(327,356	)		151,021		1,748			(58,886	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		(6,176	)		17,952			(553,629	)		226,386		19,542			30,128
NET ASSETS AT DECEMBER 31, 2020	$	1,412,300		$	380,986		$	2,564,770		$	1,089,320	$	1,007,972		$	1,545,962

L-15

Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2019 and 2020

	LVIP SSGA International Index Fund - Standard Class Subaccount			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. T. Rowe Price 2020 Fund - Standard Class Subaccount			LVIP T. Rowe Price 2030 Fund - Standard Class Subaccount
NET ASSETS AT JANUARY 1, 2019	$	387,015		$	88,978		$	98,721,226		$	22,865,294		$	449,622		$	1,333,424		$	4,206,456
Changes From Operations:
• Net investment income (loss)		9,006			1,821			762,904			(7,895	)		7,715			29,268			68,848
• Net realized gain (loss) on investments		959			4,005			8,380,736			1,747,611			66,987			255,148			658,746
• Net change in unrealized appreciation or depreciation on investments		77,116			10,885			19,307,591			3,528,142			(18,048	)		(48,306	)		146,728
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		87,081			16,711			28,451,231			5,267,858			56,654			236,110			874,322
Changes From Unit Transactions:
• Net unit transactions		78,879			19,701			(10,169,845	)		(2,260,059	)		(98,069	)		61,777			(183,492	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		78,879			19,701			(10,169,845	)		(2,260,059	)		(98,069	)		61,777			(183,492	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		165,960			36,412			18,281,386			3,007,799			(41,415	)		297,887			690,830
NET ASSETS AT DECEMBER 31, 2019		552,975			125,390			117,002,612			25,873,093			408,207			1,631,311			4,897,286
Changes From Operations:
• Net investment income (loss)		7,825			1,336			681,527			15,154			5,332			24,446			52,448
• Net realized gain (loss) on investments		(3,473	)		(5,993	)		6,546,870			1,279,793			8,174			23,866			60,677
• Net change in unrealized appreciation or depreciation on investments		31,255			4,284			10,163,103			2,413,214			33,242			159,348			463,996
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		35,607			(373	)		17,391,500			3,708,161			46,748			207,660			577,121
Changes From Unit Transactions:
• Net unit transactions		7,932			16,173			(11,587,920	)		(2,802,766	)		11,181			(9,101	)		(609,811	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		7,932			16,173			(11,587,920	)		(2,802,766	)		11,181			(9,101	)		(609,811	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		43,539			15,800			5,803,580			905,395			57,929			198,559			(32,690	)
NET ASSETS AT DECEMBER 31, 2020	$	596,514		$	141,190		$	122,806,192		$	26,778,488		$	466,136		$	1,829,870		$	4,864,596

See accompanying notes.
L-16

	LVIP T. Rowe Price 2040 Fund - Standard Class Subaccount			LVIP T. Rowe Price 2050 Fund - Standard Class Subaccount		T. Rowe Price 2060 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
NET ASSETS AT JANUARY 1, 2019	$	1,784,326		$	1,099,460	$	—	$	18,567,329		$	4,548,150		$	—
Changes From Operations:
• Net investment income (loss)		25,216			19,775		—		(180,168	)		79,813			(11,669	)
• Net realized gain (loss) on investments		298,943			154,038		—		2,485,253			198,910			248,083
• Net change in unrealized appreciation or depreciation on investments		87,622			123,600		—		4,233,234			246,523			156,589
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		411,781			297,413		—		6,538,319			525,246			393,003
Changes From Unit Transactions:
• Net unit transactions		(61,259	)		385,017		—		(1,320,080	)		(5,073,396	)		4,467,846
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(61,259	)		385,017		—		(1,320,080	)		(5,073,396	)		4,467,846
TOTAL INCREASE (DECREASE) IN NET ASSETS		350,522			682,430		—		5,218,239			(4,548,150	)		4,860,849
NET ASSETS AT DECEMBER 31, 2019		2,134,848			1,781,890		—		23,785,568			—			4,860,849
Changes From Operations:
• Net investment income (loss)		24,135			20,731		28		(226,506	)		—			(16,747	)
• Net realized gain (loss) on investments		22,445			16,191		6		2,655,283			—			184,486
• Net change in unrealized appreciation or depreciation on investments		277,393			247,196		187		4,166,520			—			634,081
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		323,973			284,118		221		6,595,297			—			801,820
Changes From Unit Transactions:
• Net unit transactions		(14,997	)		89,872		1,651		(2,337,071	)		—			(392,826	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(14,997	)		89,872		1,651		(2,337,071	)		—			(392,826	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		308,976			373,990		1,872		4,258,226			—			408,994
NET ASSETS AT DECEMBER 31, 2020	$	2,443,824		$	2,155,880	$	1,872	$	28,043,794		$	—		$	5,269,843

L-17

Lincoln National Variable Annuity Account L

Statements of changes in net assets (continued)

Years Ended December 31, 2019 and 2020

	T. Rowe Price International Stock Portfolio Subaccount
NET ASSETS AT JANUARY 1, 2019	$	7,680,643
Changes From Operations:
• Net investment income (loss)		117,381
• Net realized gain (loss) on investments		424,570
• Net change in unrealized appreciation or depreciation on investments		1,418,271
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS		1,960,222
Changes From Unit Transactions:
• Net unit transactions		(666,351	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(666,351	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		1,293,871
NET ASSETS AT DECEMBER 31, 2019		8,974,514
Changes From Operations:
• Net investment income (loss)		(34,434	)
• Net realized gain (loss) on investments		445,503
• Net change in unrealized appreciation or depreciation on investments		657,891
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		1,068,960
Changes From Unit Transactions:
• Net unit transactions		(765,248	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM UNIT TRANSACTIONS		(765,248	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		303,712
NET ASSETS AT DECEMBER 31, 2020	$	9,278,226

See accompanying notes.
L-18

Lincoln National Variable Annuity Account L

Notes to financial statements

December 31, 2020

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 PathBuilder^SM Income Version 1

• 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-four 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 American Global Balanced Allocation Managed Risk Fund - Standard Class

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

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

L-19

Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

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 2060 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, 2020. 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 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.

L-20

Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

1. Accounting Policies and Variable Account Information (continued)

Annuity Reserves: Reserves on contracts not involving life contingencies are calculated using an assumed investment return of 3%, 4%, 5% or 6%, as approved in each state. Reserves on contracts involving life contingencies are calculated using an assumed investment return of 3%, 4%, 5% or 6%, as approved in each state, and mortality tables based on issue year. For issue years

2015 and later, the 2012 IAM Table is used. Issue years 1998 to 2014 use the A2000 individual mortality table. Issue years 1985 to 1997 use the 1983a individual mortality table. Issue years 1976 to 1985 use the 1971 individual mortality table. Tables used for issues prior to 1976 include the Code Progressive with 4-year setback table and Code 49 table.

Investment Fund Changes: 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 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

During 2020, the following funds became available as investment options for account contract owners. Accordingly, for the subaccounts that commenced operations during 2020, the 2020 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, 2020:

LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class

LVIP T. Rowe Price 2060 Fund - Standard Class

Also during 2020, the Lincoln Secured Retirement Income product changed its name to Lincoln PathBuilder^SM Income Version 1.

COVID-19 Risk: The novel coronavirus (COVID-19), which was first detected in 2020, has resulted in , among other things, stressors to healthcare service infrastructure, country border closings, business and school closings and disruptions to supply chains and customer activity. This pandemic risk could have a significant adverse impact on subaccount investments.

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 2020 and 2019 were $176,475 and $186,134, respectively.

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

L-21

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, 2020, 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
		2020			0.75	%		1.00	%	$	12.32	$	12.96		210,493	$	2,597,200		37.70	%		38.04	%		0.45	%
		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	%
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	%
AB VPS Large Cap Growth Portfolio - Class B
		2020			0.75	%		1.00	%		14.94		15.00		250,130		3,738,664		33.80	%		34.14	%		0.00	%
		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
		2020			0.75	%		1.00	%		60.67		64.02		223,556		13,633,701		11.41	%		11.69	%		1.17	%
		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	%
American Funds Global Growth Fund - Class 2
		2020			0.75	%		1.00	%		49.93		52.05		165,537		8,294,125		29.17	%		29.49	%		0.35	%
		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	%
American Funds Growth Fund - Class 2
		2020			0.75	%		1.00	%		44.32		46.63		1,009,535		44,961,365		50.57	%		50.94	%		0.32	%
		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	%
American Funds Growth-Income Fund - Class 2
		2020			0.75	%		1.00	%		36.13		37.66		430,204		15,599,663		12.42	%		12.70	%		1.34	%
		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	%
American Funds International Fund - Class 2
		2020			0.75	%		1.00	%		22.68		23.86		393,355		8,953,737		12.84	%		13.12	%		0.65	%
		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	%
BlackRock Global Allocation V.I. Fund - Class I
		2020			0.75	%		1.00	%		21.83		22.47		76,772		1,676,387		19.80	%		20.10	%		1.24	%
		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	%
Delaware VIP^® Diversified Income Series - Standard Class
		2020			0.75	%		1.00	%		21.64		22.56		213,783		4,633,362		9.93	%		10.21	%		2.69	%
		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	%

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)
Delaware VIP^® High Yield Series - Standard Class
		2020			0.75	%		1.00	%	$	23.70	$	24.64		73,840	$	1,750,515		6.17	%		6.44	%		6.22	%
		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	%
Delaware VIP^® REIT Series - Service Class
		2020			0.75	%		1.00	%		41.43		43.57		166,165		6,897,595		-11.53	%		-11.31	%		1.71	%
		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	%
Delaware VIP^® Small Cap Value Series - Service Class
		2020			0.75	%		1.00	%		33.03		34.43		196,667		6,517,097		-3.15	%		-2.91	%		1.09	%
		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	%
Delaware VIP^® Smid Cap Core Series - Service Class
		2020			0.75	%		1.00	%		27.28		28.69		194,802		5,331,060		9.64	%		9.91	%		0.28	%
		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	%
DWS Alternative Asset Allocation VIP Portfolio - Class A
		2020			0.75	%		1.00	%		14.73		15.16		15,522		228,652		4.66	%		4.92	%		2.64	%
		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	%
Fidelity^® VIP Asset Manager Portfolio - Initial Class
		2020			0.75	%		1.00	%		60.29		63.62		524,599		31,712,253		13.73	%		14.01	%		1.48	%
		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	%
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2
		2020			0.75	%		1.00	%		43.18		45.43		635,374		27,494,571		28.94	%		29.26	%		0.08	%
		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	%
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2
		2020			1.00	%		1.00	%		12.80		12.80		12,554		160,668		13.58	%		13.58	%		1.14	%
		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
		2020			1.00	%		1.00	%		13.01		13.01		30,426		395,904		14.53	%		14.53	%		1.24	%
		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
		2020			0.75	%		1.00	%		13.28		13.38		81,731		1,085,539		15.48	%		15.77	%		1.41	%
		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
		2020			0.75	%		1.00	%		13.58		13.69		61,185		831,022		16.78	%		17.07	%		0.90	%
		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-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)
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2
		2020			1.00	%		1.00	%	$	13.73	$	13.73		30,386	$	417,256		17.81	%		17.81	%		0.90	%
		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
		2020			1.00	%		1.00	%		13.73		13.73		20,713		284,357		17.78	%		17.78	%		1.02	%
		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
		2020			1.00	%		1.00	%		13.73		13.73		37,984		521,583		17.81	%		17.81	%		0.92	%
		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
		2020			1.00	%		1.00	%		12.77		12.77		5,201		66,439		17.83	%		17.83	%		2.84	%
		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
		2020			1.00	%		1.00	%		12.78		12.78		3,139		40,109		17.85	%		17.85	%		1.58	%
		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
		2020			0.00	%		0.00	%		18.91		18.93		9,787		185,044		0.32	%		0.32	%		0.27	%
		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	%
Fidelity^® VIP Growth Portfolio - Initial Class
		2020			0.75	%		1.00	%		180.16		190.11		652,781		118,047,600		42.46	%		42.82	%		0.08	%
		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	%
Janus Henderson Global Research Portfolio - Institutional Shares
		2020			0.75	%		1.00	%		33.09		34.92		287,958		9,583,494		18.87	%		19.16	%		0.72	%
		2019			0.75	%		1.00	%		27.84		29.31		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	%
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class
		2020	11/30/20		0.25	%		0.25	%		10.83		10.83		73,425		795,470		2.75	%		2.75	%		1.81	%
LVIP Baron Growth Opportunities Fund - Service Class
		2020			0.75	%		1.00	%		117.80		124.32		182,409		21,564,358		32.75	%		33.08	%		0.00	%
		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	%
LVIP BlackRock Advantage Allocation Fund - Standard Class
		2020			0.75	%		1.00	%		23.12		23.80		11,456		264,959		12.00	%		12.27	%		1.65	%
		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	%
LVIP BlackRock Emerging Markets Managed Volatility Fund - Standard Class
		2016			0.00	%		0.00	%		—		—		—		—		0.00	%		0.00	%		5.21	%

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 BlackRock Global Real Estate Fund - Standard Class
		2020			0.75	%		1.00	%	$	11.37	$	11.76		27,976	$	319,330		-3.18	%		-2.94	%		5.51	%
		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	%
LVIP BlackRock Inflation Protected Bond Fund - Standard Class
		2020			0.75	%		1.00	%		10.30		10.52		63,329		652,526		4.23	%		4.49	%		0.16	%
		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	%
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class
		2020			0.75	%		1.00	%		16.65		17.51		107,947		1,806,049		22.59	%		22.89	%		0.37	%
		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	%
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class
		2020			0.75	%		1.00	%		18.82		19.13		13,275		249,833		26.44	%		26.76	%		0.00	%
		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	%
LVIP Delaware Bond Fund - Standard Class
		2020			0.75	%		1.00	%		19.41		20.23		187,390		3,642,466		8.77	%		9.05	%		2.45	%
		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	%
LVIP Delaware Diversified Floating Rate Fund - Service Class
		2020			0.75	%		1.00	%		10.20		10.44		17,754		181,194		0.11	%		0.35	%		1.28	%
		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	%
LVIP Delaware Social Awareness Fund - Standard Class
		2020			0.75	%		1.00	%		48.80		51.49		353,132		17,302,118		18.50	%		18.79	%		1.30	%
		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	%
LVIP Delaware Wealth Builder Fund - Standard Class
		2020			0.75	%		1.00	%		22.84		23.51		20,467		467,530		4.56	%		4.83	%		2.33	%
		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	%
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class
		2020			0.75	%		1.00	%		28.39		29.87		204,725		5,839,359		15.24	%		15.53	%		1.54	%
		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	%
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class
		2020			1.00	%		1.00	%		11.81		11.81		6,107		72,124		11.54	%		11.54	%		1.10	%
		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	%

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 Global Conservative Allocation Managed Risk Fund - Standard Class
		2020			0.75	%		1.00	%	$	20.78	$	21.60		57,205	$	1,189,406		6.01	%		6.27	%		2.10	%
		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	%
LVIP Global Growth Allocation Managed Risk Fund - Standard Class
		2020			0.75	%		1.00	%		19.21		19.97		186,913		3,598,942		4.80	%		5.07	%		2.06	%
		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	%
LVIP Global Income Fund - Standard Class
		2020			0.75	%		1.00	%		13.76		14.16		13,597		187,052		5.72	%		5.99	%		1.44	%
		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	%
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class
		2020			0.05	%		1.00	%		13.57		20.84		1,313,101		19,857,528		5.04	%		6.04	%		2.17	%
		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	%
LVIP JPMorgan Retirement Income Fund - Standard Class
		2020			0.75	%		1.00	%		19.98		20.83		70,087		1,412,300		8.39	%		8.66	%		2.45	%
		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	%
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class
		2020			0.75	%		1.00	%		12.04		12.24		31,635		380,986		0.93	%		1.17	%		1.27	%
		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	%
LVIP Mondrian International Value Fund - Standard Class
		2020			0.75	%		1.00	%		20.19		21.04		125,699		2,564,770		-5.92	%		-5.68	%		2.27	%
		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	%
LVIP SSGA Bond Index Fund - Standard Class
		2020			0.75	%		1.00	%		13.90		14.31		78,318		1,089,320		6.42	%		6.68	%		1.63	%
		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	%
LVIP SSGA Emerging Markets 100 Fund - Standard Class
		2020			0.75	%		1.00	%		16.14		16.61		62,457		1,007,972		1.63	%		1.89	%		3.59	%
		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	%
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class
		2020			0.75	%		1.00	%		16.92		17.59		91,209		1,545,962		5.95	%		6.22	%		1.88	%
		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	%

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)
LVIP SSGA International Index Fund - Standard Class
		2020			0.75	%		1.00	%	$	19.28	$	19.86		30,931	$	596,514		6.78	%		7.04	%		2.53	%
		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	%
LVIP SSGA International Managed Volatility Fund - Standard Class
		2020			0.75	%		1.00	%		12.51		12.64		11,284		141,190		-1.96	%		-1.67	%		2.13	%
		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
		2020			0.75	%		1.00	%		30.09		30.75		4,071,622		122,806,192		16.86	%		17.15	%		1.59	%
		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	%
LVIP SSGA Small-Cap Index Fund - Standard Class
		2020			0.75	%		1.00	%		25.25		25.80		1,058,878		26,778,488		18.01	%		18.31	%		1.05	%
		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	%
LVIP T. Rowe Price 2010 Fund - Standard Class
		2020			1.00	%		1.00	%		17.10		17.10		27,262		466,136		11.17	%		11.17	%		2.28	%
		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	%
LVIP T. Rowe Price 2020 Fund - Standard Class
		2020			0.75	%		1.00	%		17.13		17.72		106,775		1,829,870		12.14	%		12.42	%		2.51	%
		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	%
LVIP T. Rowe Price 2030 Fund - Standard Class
		2020			0.75	%		1.00	%		17.32		17.92		280,683		4,864,596		14.10	%		14.39	%		2.20	%
		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	%
LVIP T. Rowe Price 2040 Fund - Standard Class
		2020			0.75	%		1.00	%		16.80		17.38		145,433		2,443,824		15.46	%		15.75	%		2.16	%
		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	%
LVIP T. Rowe Price 2050 Fund - Standard Class
		2020			1.00	%		1.00	%		17.23		17.23		125,095		2,155,880		15.73	%		15.73	%		2.16	%
		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	%
LVIP T. Rowe Price 2060 Fund - Standard Class
		2020	8/11/20		1.00	%		1.00	%		13.25		13.25		141		1,872		15.41	%		15.41	%		2.35	%

L-27

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 T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class
		2020			0.75	%		1.00	%	$	57.55	$	60.73		485,121	$	28,043,794		30.38	%		30.71	%		0.00	%
		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	%
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	%
Neuberger Berman AMT Sustainable Equity Portfolio - I Class
		2020			0.75	%		1.00	%		12.94		13.00		407,047		5,269,843		18.37	%		18.67	%		0.61	%
		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
		2020			0.75	%		1.00	%		31.40		33.14		294,429		9,278,226		13.31	%		13.59	%		0.57	%
		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	%

(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.

L-28

Lincoln National Variable Annuity Account L

Notes to financial statements (continued)

4. Purchases and Sales of Investments

The aggregate cost of investments purchased and the aggregate proceeds from investments sold were as follows for 2020:

Subaccount	Aggregate Cost of Purchases		Aggregate Proceeds from Sales
AB VPS Global Thematic Growth Portfolio - Class B	$	409,273	$	350,927
AB VPS Large Cap Growth Portfolio - Class B		730,542		588,357
American Century VP Balanced Fund - Class I		929,236		1,448,617
American Funds Global Growth Fund - Class 2		510,081		1,329,784
American Funds Growth Fund - Class 2		2,242,023		5,214,000
American Funds Growth-Income Fund - Class 2		937,833		2,358,953
American Funds International Fund - Class 2		221,574		1,049,333
BlackRock Global Allocation V.I. Fund - Class I		166,577		320,163
Delaware VIP^® Diversified Income Series - Standard Class		973,675		783,232
Delaware VIP^® High Yield Series - Standard Class		272,961		319,283
Delaware VIP^® REIT Series - Service Class		760,388		1,072,377
Delaware VIP^® Small Cap Value Series - Service Class		875,613		1,481,303
Delaware VIP^® Smid Cap Core Series - Service Class		422,172		864,647
DWS Alternative Asset Allocation VIP Portfolio - Class A		27,562		6,698
Fidelity^® VIP Asset Manager Portfolio - Initial Class		867,346		2,823,420
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		958,895		4,108,588
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		79,093		40,073
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		166,646		51,504
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		777,694		125,018
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		152,138		104,356
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		189,284		16,928
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		159,753		17,538
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		194,290		10,657
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		61,144		73
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		34,642		51
Fidelity^® VIP Government Money Market Portfolio - Initial Class		260,223		169,284
Fidelity^® VIP Growth Portfolio - Initial Class		11,580,565		15,294,220
Janus Henderson Global Research Portfolio - Institutional Shares		657,016		933,393
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		789,110		774
LVIP Baron Growth Opportunities Fund - Service Class		604,649		2,597,601
LVIP BlackRock Advantage Allocation Fund - Standard Class		38,800		98,442
LVIP BlackRock Global Real Estate Fund - Standard Class		61,104		39,254
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		76,151		146,077
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		160,074		261,514
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		45,903		20,524
LVIP Delaware Bond Fund - Standard Class		900,301		352,068
LVIP Delaware Diversified Floating Rate Fund - Service Class		9,169		3,274
LVIP Delaware Social Awareness Fund - Standard Class		1,258,275		2,349,865
LVIP Delaware Wealth Builder Fund - Standard Class		197,473		179,187
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		434,276		724,508
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		13,161		12,480
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		75,313		135,273
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		281,953		795,884
LVIP Global Income Fund - Standard Class		32,237		79,428
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		7,620,847		10,759,116
LVIP JPMorgan Retirement Income Fund - Standard Class		600,404		683,132
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		60,241		48,973
LVIP Mondrian International Value Fund - Standard Class		175,616		407,055
LVIP SSGA Bond Index Fund - Standard Class		2,711,810		2,551,486
LVIP SSGA Emerging Markets 100 Fund - Standard Class		138,582		114,968
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		137,068		133,048
LVIP SSGA International Index Fund - Standard Class		116,518		100,761
LVIP SSGA International Managed Volatility Fund - Standard Class		63,434		45,925
LVIP SSGA S&P 500 Index Fund - Standard Class		4,559,676		13,915,256
LVIP SSGA Small-Cap Index Fund - Standard Class		1,358,377		3,217,888
LVIP T. Rowe Price 2010 Fund - Standard Class		32,067		6,728
LVIP T. Rowe Price 2020 Fund - Standard Class		252,285		201,853

L-29

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
LVIP T. Rowe Price 2030 Fund - Standard Class	$	468,504	$	951,780
LVIP T. Rowe Price 2040 Fund - Standard Class		252,138		210,012
LVIP T. Rowe Price 2050 Fund - Standard Class		302,583		161,673
LVIP T. Rowe Price 2060 Fund - Standard Class		1,689		4
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		1,844,807		2,867,229
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		286,818		505,578
T. Rowe Price International Stock Portfolio		476,891		913,387

5. Investments

The following is a summary of investments owned at December 31, 2020:

Subaccount	Shares Owned		Net Asset Value		Fair Value of Shares		Cost of Shares
AB VPS Global Thematic Growth Portfolio - Class B		64,065	$	40.54	$	2,597,200	$	1,504,058
AB VPS Large Cap Growth Portfolio - Class B		52,282		71.51		3,738,664		3,058,681
American Century VP Balanced Fund - Class I		1,561,707		8.73		13,633,701		11,000,774
American Funds Global Growth Fund - Class 2		203,687		40.72		8,294,125		5,329,526
American Funds Growth Fund - Class 2		377,288		119.17		44,961,365		24,475,432
American Funds Growth-Income Fund - Class 2		285,394		54.66		15,599,663		12,529,281
American Funds International Fund - Class 2		380,363		23.54		8,953,737		7,036,919
BlackRock Global Allocation V.I. Fund - Class I		86,013		19.49		1,676,387		1,429,202
Delaware VIP^® Diversified Income Series - Standard Class		400,810		11.56		4,633,362		4,191,455
Delaware VIP^® High Yield Series - Standard Class		343,238		5.10		1,750,515		1,774,490
Delaware VIP^® REIT Series - Service Class		570,993		12.08		6,897,595		7,350,856
Delaware VIP^® Small Cap Value Series - Service Class		191,792		33.98		6,517,097		6,187,203
Delaware VIP^® Smid Cap Core Series - Service Class		234,332		22.75		5,331,060		5,292,120
DWS Alternative Asset Allocation VIP Portfolio - Class A		16,690		13.70		228,652		220,073
Fidelity^® VIP Asset Manager Portfolio - Initial Class		1,861,048		17.04		31,712,253		27,095,562
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		588,371		46.73		27,494,571		17,383,164
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		10,769		14.92		160,668		144,480
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		23,721		16.69		395,904		351,333
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		64,886		16.73		1,085,539		953,662
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		30,654		27.11		831,022		687,460
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		16,173		25.80		417,256		346,444
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		10,979		25.90		284,357		236,495
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		22,376		23.31		521,583		430,424
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		5,252		12.65		66,439		62,674
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		3,176		12.63		40,109		34,782
Fidelity^® VIP Government Money Market Portfolio - Initial Class		185,044		1.00		185,044		185,045
Fidelity^® VIP Growth Portfolio - Initial Class		1,146,093		103.00		118,047,600		58,162,075
Janus Henderson Global Research Portfolio - Institutional Shares		150,637		63.62		9,583,494		5,953,362
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		64,353		12.36		795,470		788,342
LVIP Baron Growth Opportunities Fund - Service Class		273,257		78.92		21,564,358		9,485,054
LVIP BlackRock Advantage Allocation Fund - Standard Class		20,336		13.03		264,959		283,965
LVIP BlackRock Global Real Estate Fund - Standard Class		36,654		8.71		319,330		325,826
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		61,786		10.56		652,526		647,547
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		39,769		45.41		1,806,049		1,044,094
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		11,407		21.90		249,833		180,424
LVIP Delaware Bond Fund - Standard Class		252,879		14.40		3,642,466		3,469,654
LVIP Delaware Diversified Floating Rate Fund - Service Class		18,147		9.99		181,194		183,683
LVIP Delaware Social Awareness Fund - Standard Class		379,441		45.60		17,302,118		13,810,394
LVIP Delaware Wealth Builder Fund - Standard Class		38,652		12.10		467,530		481,326
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		152,859		38.20		5,839,359		4,773,189
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		1,824		39.55		72,124		61,368
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		81,971		14.51		1,189,406		1,055,667
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		240,507		14.96		3,598,942		2,986,039
LVIP Global Income Fund - Standard Class		15,477		12.09		187,052		176,473
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		1,300,939		15.26		19,857,528		18,320,160
LVIP JPMorgan Retirement Income Fund - Standard Class		106,452		13.27		1,412,300		1,409,618

L-30

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 JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		21,598	$	17.64	$	380,986	$	344,447
LVIP Mondrian International Value Fund - Standard Class		167,184		15.34		2,564,770		2,919,962
LVIP SSGA Bond Index Fund - Standard Class		90,348		12.06		1,089,320		1,085,390
LVIP SSGA Emerging Markets 100 Fund - Standard Class		118,196		8.53		1,007,972		1,105,264
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		124,214		12.45		1,545,962		1,404,927
LVIP SSGA International Index Fund - Standard Class		57,501		10.37		596,514		526,547
LVIP SSGA International Managed Volatility Fund - Standard Class		14,655		9.63		141,190		130,732
LVIP SSGA S&P 500 Index Fund - Standard Class		5,098,443		24.09		122,806,192		69,630,539
LVIP SSGA Small-Cap Index Fund - Standard Class		745,732		35.91		26,778,488		18,678,147
LVIP T. Rowe Price 2010 Fund - Standard Class		44,517		10.47		466,136		475,612
LVIP T. Rowe Price 2020 Fund - Standard Class		167,924		10.90		1,829,870		1,794,488
LVIP T. Rowe Price 2030 Fund - Standard Class		406,128		11.98		4,864,596		4,363,991
LVIP T. Rowe Price 2040 Fund - Standard Class		210,765		11.60		2,443,824		2,190,558
LVIP T. Rowe Price 2050 Fund - Standard Class		176,163		12.24		2,155,880		1,849,109
LVIP T. Rowe Price 2060 Fund - Standard Class		143		13.12		1,872		1,685
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		765,220		36.65		28,043,794		14,927,766
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		171,712		30.69		5,269,843		4,479,173
T. Rowe Price International Stock Portfolio		543,222		17.08		9,278,226		7,591,783

6. Changes in Units Outstanding

The change in units outstanding for the year ended December 31, 2020, is as follows:

Subaccount	Units Issued		Units Redeemed			Net Increase (Decrease)
AB VPS Global Thematic Growth Portfolio - Class B		21,634		(37,489	)		(15,855	)
AB VPS Large Cap Growth Portfolio - Class B		40,885		(48,810	)		(7,925	)
American Century VP Balanced Fund - Class I		6,509		(24,164	)		(17,655	)
American Funds Global Growth Fund - Class 2		8,330		(32,594	)		(24,264	)
American Funds Growth Fund - Class 2		44,010		(150,031	)		(106,021	)
American Funds Growth-Income Fund - Class 2		13,639		(74,783	)		(61,144	)
American Funds International Fund - Class 2		11,789		(55,860	)		(44,071	)
BlackRock Global Allocation V.I. Fund - Class I		5,075		(17,715	)		(12,640	)
Delaware VIP^® Diversified Income Series - Standard Class		43,290		(38,154	)		5,136
Delaware VIP^® High Yield Series - Standard Class		8,172		(14,672	)		(6,500	)
Delaware VIP^® REIT Series - Service Class		7,392		(27,034	)		(19,642	)
Delaware VIP^® Small Cap Value Series - Service Class		18,891		(55,111	)		(36,220	)
Delaware VIP^® Smid Cap Core Series - Service Class		15,108		(40,852	)		(25,744	)
DWS Alternative Asset Allocation VIP Portfolio - Class A		1,744		(433	)		1,311
Fidelity^® VIP Asset Manager Portfolio - Initial Class		4,262		(50,980	)		(46,718	)
Fidelity^® VIP Contrafund^® Portfolio - Service Class 2		25,859		(109,667	)		(83,808	)
Fidelity^® VIP Freedom 2020 Portfolio^(SM) - Service Class 2		6,186		(3,558	)		2,628
Fidelity^® VIP Freedom 2025 Portfolio^(SM) - Service Class 2		13,218		(4,594	)		8,624
Fidelity^® VIP Freedom 2030 Portfolio^(SM) - Service Class 2		64,699		(10,265	)		54,434
Fidelity^® VIP Freedom 2035 Portfolio^(SM) - Service Class 2		10,997		(10,007	)		990
Fidelity^® VIP Freedom 2040 Portfolio^(SM) - Service Class 2		15,660		(1,420	)		14,240
Fidelity^® VIP Freedom 2045 Portfolio^(SM) - Service Class 2		13,593		(1,449	)		12,144
Fidelity^® VIP Freedom 2050 Portfolio^(SM) - Service Class 2		15,891		(800	)		15,091
Fidelity^® VIP Freedom 2055 Portfolio^(SM) - Service Class 2		5,050		(2	)		5,048
Fidelity^® VIP Freedom 2060 Portfolio^(SM) - Service Class 2		3,121		—			3,121
Fidelity^® VIP Government Money Market Portfolio - Initial Class		13,751		(8,957	)		4,794
Fidelity^® VIP Growth Portfolio - Initial Class		15,372		(102,158	)		(86,786	)
Janus Henderson Global Research Portfolio - Institutional Shares		6,752		(33,164	)		(26,412	)
LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class		73,483		(58	)		73,425
LVIP Baron Growth Opportunities Fund - Service Class		3,024		(26,360	)		(23,336	)
LVIP BlackRock Advantage Allocation Fund - Standard Class		986		(4,795	)		(3,809	)
LVIP BlackRock Global Real Estate Fund - Standard Class		3,546		(3,784	)		(238	)
LVIP BlackRock Inflation Protected Bond Fund - Standard Class		7,971		(14,452	)		(6,481	)
LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class		9,652		(18,593	)		(8,941	)
LVIP Blended Mid Cap Managed Volatility Fund - Standard Class		3,060		(1,274	)		1,786

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 Delaware Bond Fund - Standard Class		41,312		(18,164	)		23,148
LVIP Delaware Diversified Floating Rate Fund - Service Class		793		(257	)		536
LVIP Delaware Social Awareness Fund - Standard Class		3,631		(55,563	)		(51,932	)
LVIP Delaware Wealth Builder Fund - Standard Class		8,731		(9,010	)		(279	)
LVIP Dimensional U.S. Core Equity 1 Fund - Standard Class		6,964		(30,355	)		(23,391	)
LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class		1,258		(1,166	)		92
LVIP Global Conservative Allocation Managed Risk Fund - Standard Class		1,792		(6,684	)		(4,892	)
LVIP Global Growth Allocation Managed Risk Fund - Standard Class		11,344		(43,666	)		(32,322	)
LVIP Global Income Fund - Standard Class		2,293		(5,860	)		(3,567	)
LVIP Global Moderate Allocation Managed Risk Fund - Standard Class		547,231		(810,478	)		(263,247	)
LVIP JPMorgan Retirement Income Fund - Standard Class		29,719		(34,755	)		(5,036	)
LVIP JPMorgan Select Mid Cap Value Managed Volatility Fund - Standard Class		5,596		(4,346	)		1,250
LVIP Mondrian International Value Fund - Standard Class		3,888		(22,097	)		(18,209	)
LVIP SSGA Bond Index Fund - Standard Class		196,813		(184,514	)		12,299
LVIP SSGA Emerging Markets 100 Fund - Standard Class		8,762		(8,551	)		211
LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class		4,430		(7,996	)		(3,566	)
LVIP SSGA International Index Fund - Standard Class		6,506		(6,192	)		314
LVIP SSGA International Managed Volatility Fund - Standard Class		5,960		(4,501	)		1,459
LVIP SSGA S&P 500 Index Fund - Standard Class		67,065		(529,754	)		(462,689	)
LVIP SSGA Small-Cap Index Fund - Standard Class		19,447		(168,188	)		(148,741	)
LVIP T. Rowe Price 2010 Fund - Standard Class		1,009		(289	)		720
LVIP T. Rowe Price 2020 Fund - Standard Class		12,796		(12,604	)		192
LVIP T. Rowe Price 2030 Fund - Standard Class		21,644		(63,383	)		(41,739	)
LVIP T. Rowe Price 2040 Fund - Standard Class		13,476		(14,590	)		(1,114	)
LVIP T. Rowe Price 2050 Fund - Standard Class		17,453		(12,016	)		5,437
LVIP T. Rowe Price 2060 Fund - Standard Class		141		—			141
LVIP T. Rowe Price Structured Mid-Cap Growth Fund - Standard Class		9,175		(60,728	)		(51,553	)
Neuberger Berman AMT Sustainable Equity Portfolio - I Class		8,798		(46,297	)		(37,499	)
T. Rowe Price International Stock Portfolio		4,285		(32,705	)		(28,420	)

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	)

L-32

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)
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	)
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	)

7. Subsequent Events

Management evaluated subsequent events through the date these financial statements were issued and determined there were no additional matters to be disclosed.

L-33

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, 2020, 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, 2020, 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, 2020, 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 22, 2021

L-34

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, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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 (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, 2020

For the year ended December 31, 2020

For the year ended December 31, 2020 and the period from April 26, 2019 (commencement of operations) through December 31, 2019

American Century VP Balanced Fund - Class I

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

American Funds Global Growth Fund - Class 2

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

American Funds Growth Fund - Class 2

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

American Funds Growth-Income Fund - Class 2

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

American Funds International Fund - Class 2

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

BlackRock Global Allocation V.I. Fund - Class I

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Delaware VIP^® Diversified Income Series - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Delaware VIP^® High Yield Series - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Delaware VIP^® REIT Series - Service Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Delaware VIP^® Small Cap Value Series - Service Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Delaware VIP^® Smid Cap Core Series - Service Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

DWS Alternative Asset Allocation VIP Portfolio - Class A

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Fidelity^® VIP Asset Manager Portfolio - Initial Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Fidelity^® VIP Contrafund^® Portfolio - Service Class 2

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

L-35

Subaccount

Statements of
Assets and Liabilities

Statements of Operations

Statements of Changes in Net Assets

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For the year ended December 31, 2020 and the period from June 24, 2019 (commencement of operations) through December 31, 2019

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

As of December 31, 2020

For the year ended December 31, 2020

For the year ended December 31, 2020 and the period from November 18, 2019 (commencement of operations) through December 31, 2019

Fidelity^® VIP Government Money Market Portfolio - Initial Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Fidelity^® VIP Growth Portfolio - Initial Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

Janus Henderson Global Research Portfolio - Institutional Shares

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP American Global Balanced Allocation Managed Risk Fund - Standard Class

As of December 31, 2020

For the period from November 30, 2020 through December 31, 2020

LVIP Baron Growth Opportunities Fund - Service Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP BlackRock Advantage Allocation Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP BlackRock Global Real Estate Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP BlackRock Inflation Protected Bond Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Blended Large Cap Growth Managed Volatility Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Blended Mid Cap Managed Volatility Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Delaware Bond Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Delaware Diversified Floating Rate Fund - Service Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Delaware Social Awareness Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Delaware Wealth Builder Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Franklin Templeton Global Equity Managed Volatility Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Global Conservative Allocation Managed Risk Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Global Growth Allocation Managed Risk Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

L-36

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, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Global Moderate Allocation Managed Risk Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP JPMorgan Retirement Income Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP Mondrian International Value Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA Bond Index Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA Emerging Markets 100 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA Global Tactical Allocation Managed Volatility Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA International Index Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA International Managed Volatility Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA S&P 500 Index Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP SSGA Small-Cap Index Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2010 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2020 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2030 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2040 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2050 Fund - Standard Class

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

LVIP T. Rowe Price 2060 Fund - Standard Class

As of December 31, 2020

For the period from August 11, 2020 through December 31, 2020

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

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

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 (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, 2020

For the year ended December 31, 2020

For the year ended December 31, 2020 and the period from April 29, 2019 (commencement of operations) through December 31, 2019

T. Rowe Price International Stock Portfolio

As of December 31, 2020

For the year ended December 31, 2020

For each of the two years in the period ended December 31, 2020

L-37

As of December 31,

U.S. capital and surplus