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, default risk, basis risk and credit risk. We assess these risks by continually identifying and monitoring changes in interest rate exposure, foreign currency exposure, equity market exposure and credit exposure that may adversely affect expected future cash flows and by evaluating hedging opportunities. Derivative instruments that are used as part of our interest rate risk management strategy include interest rate swap agreements, interest rate cap agreements, interest rate futures, forward-starting interest rate swaps, consumer price index swaps, interest rate cap corridors, treasury locks and reverse treasury locks. Derivative instruments that are used as part of our foreign currency risk management strategy include foreign currency swaps, currency futures and foreign currency forwards. Call options based on our stock, call options based on the S&P 500 Index® (“S&P 500”), total return swaps, variance swaps, equity collars, put options and equity futures are used as part of our equity market risk management strategy. We also use credit default swaps as part of our credit risk management strategy.

We evaluate and recognize our derivative instruments in accordance with the Derivatives and Hedging Topic of the FASB ASC. As of June 30, 2011, we had derivative instruments that were designated and qualifying as cash flow hedges and fair value hedges. We also had embedded derivatives that were economic hedges, but were not designed to meet the requirements for hedge accounting treatment. See Note 1 in our 2010 Form 10-K for a detailed discussion of the accounting treatment for derivative instruments.

Our derivative instruments are monitored by our Asset Liability Management Committee and our Equity Risk Management Committee as part of those committees' oversight of our derivative activities. Our committees are responsible for implementing various hedging strategies that are developed through their analysis of financial simulation models and other internal and industry sources. The resulting hedging strategies are incorporated into our overall risk management strategies.

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 living benefit guarantees offered in our variable annuity products, including the Lincoln SmartSecurity® Advantage guaranteed withdrawal benefit (“GWB”) feature, the 4LATER® Advantage guaranteed income benefit (“GIB”) feature and the i4LIFE® Advantage GIB feature. See “Guaranteed Living Benefit (“GLB”) Reserves Embedded Derivatives” below for further details.

See Note 13 for additional disclosures related to the fair value of our financial instruments and see Note 4 for derivative instruments related to our consolidated VIEs.

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

							As of June 30, 2011
							Number			Asset Carrying				(Liability) Carrying
							of	Notional		or Fair Value				or Fair Value
						Instruments		Amounts		Gain		Loss		Gain		Loss
Derivative Instruments
	Designated and Qualifying
	as Hedging Instruments
Cash flow hedges:
	Interest rate swap agreements⁽¹⁾						150	$	901	$	24	$	(85)	$	-	$	-
	Forward-starting interest rate swaps ⁽¹⁾						1		39		-		(1)		-		-
	Foreign currency swaps⁽¹⁾						13		340		41		(20)		-		-
	Reverse treasury locks ⁽¹⁾						10		1,300		-		(33)		-		-
		Total cash flow hedges					174		2,580		65		(139)		-		-
Fair value hedges:
	Interest rate swap agreements⁽²⁾						11		1,675		120		(37)		-		(83)
		Total fair value hedges					11		1,675		120		(37)		-		(83)
			Total derivative instruments
				designated and qualifying as
				hedging instruments			185		4,255		185		(176)		-		(83)
Derivative Instruments Not
	Designated and Not Qualifying
	as Hedging Instruments
Interest rate futures⁽¹⁾							9,796		1,617		-		-		-		-
Equity futures⁽¹⁾							9,638		726		-		-		-		-
Interest rate swap agreements⁽¹⁾							94		8,880		52		(494)		-		-
Credit default swaps⁽³⁾							8		125		-		-		-		(7)
Total return swaps⁽¹⁾							12		915		1		(7)		-		-
Put options⁽¹⁾							169		6,352		1,219		-		-		-
Call options (based on S&P 500)⁽¹⁾							539		4,552		293		-		-		-
Variance swaps⁽¹⁾							45		28		24		(38)		-		-
Currency futures⁽¹⁾							29		4		-		-		-		-
Consumer price index swaps⁽¹⁾							98		51		1		(1)		-		-
Interest rate cap corridors⁽¹⁾							79		8,375		38		-		-		-
Embedded derivatives:
	Deferred compensation plans⁽³⁾						6		-		-		-		-		(360)
	Indexed annuity contracts⁽⁴⁾						141,509		-		-		-		-		(506)
	GLB reserves⁽⁴⁾						322,398		-		-		-		595		(873)
	Reinsurance related ⁽⁵⁾						-		-		-		-		-		(119)
			Total derivative instruments not
				designated and not qualifying as
				hedging instruments			484,420		31,625		1,628		(540)		595		(1,865)
					Total derivative instruments		484,605	$	35,880	$	1,813	$	(716)	$	595	$	(1,948)

							As of December 31, 2010
							Number			Asset Carrying				(Liability) Carrying
							of	Notional		or Fair Value				or Fair Value
						Instruments		Amounts		Gain		Loss		Gain		Loss
Derivative Instruments
	Designated and Qualifying
	as Hedging Instruments
Cash flow hedges:
	Interest rate swap agreements⁽¹⁾						151	$	926	$	24	$	(71)	$	-	$	-
	Forward-starting interest rate swaps ⁽¹⁾						2		150		1		-		-		-
	Foreign currency swaps⁽¹⁾						13		340		43		(13)		-		-
	Reverse treasury locks ⁽¹⁾						5		1,000		11		(5)		-		-
		Total cash flow hedges					171		2,416		79		(89)		-		-
Fair value hedges:
	Interest rate swap agreements⁽²⁾						11		1,675		106		(51)		-		(55)
		Total fair value hedges					11		1,675		106		(51)		-		(55)
			Total derivative instruments
				designated and qualifying as
				hedging instruments			182		4,091		185		(140)		-		(55)
Derivative Instruments Not
	Designated and Not Qualifying
	as Hedging Instruments
Interest rate cap agreements⁽¹⁾							3		150		-		-		-		-
Interest rate futures⁽¹⁾							15,881		2,251		-		-		-		-
Equity futures⁽¹⁾							13,375		907		-		-		-		-
Interest rate swap agreements⁽¹⁾							81		7,955		34		(511)		-		-
Credit default swaps⁽³⁾							9		145		-		-		-		(16)
Total return swaps⁽¹⁾							9		900		-		(21)		-		-
Put options⁽¹⁾							145		5,602		1,151		-		-		-
Call options (based on S&P 500)⁽¹⁾							544		4,083		301		-		-		-
Variance swaps⁽¹⁾							50		30		46		(34)		-		-
Currency futures⁽¹⁾							1,589		219		-		-		-		-
Consumer price index swaps⁽¹⁾							100		55		-		(2)		-		-
Interest rate cap corridors⁽¹⁾							73		8,050		52		-		-		-
Embedded derivatives:
	Deferred compensation plans⁽³⁾						6		-		-		-		-		(363)
	Indexed annuity contracts⁽⁴⁾						132,260		-		-		-		-		(497)
	GLB reserves⁽⁴⁾						305,962		-		-		-		518		(926)
	Reinsurance related ⁽⁵⁾						-		-		-		-		-		(102)
	AFS securities⁽¹⁾						1		-		15		-		-		-
			Total derivative instruments not
				designated and not qualifying as
				hedging instruments			470,088		30,347		1,599		(568)		518		(1,904)
					Total derivative instruments		470,270	$	34,438	$	1,784	$	(708)	$	518	$	(1,959)

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

							Remaining Life as of June 30, 2011
							Less Than		1 – 5		6 – 10		11 – 30		Over 30
							1 Year		Years		Years		Years		Years		Total
Derivative Instruments
	Designated and Qualifying
	as Hedging Instruments
Cash flow hedges:
	Interest rate swap agreements						$	24	$	59	$	264	$	547	$	7	$	901
	Forward-starting interest rate swaps							-		-		39		-		-		39
	Foreign currency swaps							-		124		135		81		-		340
	Reverse treasury locks							-		1,030		270		-		-		1,300
		Total cash flow hedges						24		1,213		708		628		7		2,580
Fair value hedges:
	Interest rate swap agreements							-		800		-		875		-		1,675
		Total fair value hedges						-		800		-		875		-		1,675
			Total derivative instruments
				designated and qualifying as
				hedging instruments				24		2,013		708		1,503		7		4,255
Derivative Instruments Not
	Designated and Not Qualifying
	as Hedging Instruments
Interest rate futures								1,617		-		-		-		-		1,617
Equity futures								726		-		-		-		-		726
Interest rate swap agreements								400		1,561		2,114		4,805		-		8,880
Credit default swaps								-		40		85		-		-		125
Total return swaps								615		300		-		-		-		915
Put options								-		1,664		4,688		-		-		6,352
Call options (based on S&P 500)								3,658		894		-		-		-		4,552
Variance swaps								-		3		25		-		-		28
Currency futures								4		-		-		-		-		4
Consumer price index swaps								4		15		13		17		2		51
Interest rate cap corridors								-		5,100		3,275		-		-		8,375
			Total derivative instruments
				not designated and not
				qualifying as hedging
				instruments				7,024		9,577		10,200		4,822		2		31,625
					Total derivative instruments
						with notional amounts	$	7,048	$	11,590	$	10,908	$	6,325	$	9	$	35,880

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

						For the Six
						Months Ended
						June 30,
						2011		2010
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year						$	(15)	$	11
Other comprehensive income (loss):
	Unrealized holding gains (losses) arising during the period:
		Cash flow hedges:
			Interest rate swap agreements				(20)		(41)
			Forward-starting interest rate swaps				(2)		-
			Foreign currency swaps				5		3
			Treasury locks				(19)		(29)
		Fair value hedges:
			Interest rate swap agreements				2		2
	Change in foreign currency exchange rate adjustment						(14)		32
	Change in DAC, VOBA, DSI and DFEL						1		3
	Income tax benefit (expense)						17		11
	Less:
		Reclassification adjustment for gains (losses) included in net income (loss):
			Cash flow hedges:
				Interest rate swap agreements⁽¹⁾			(5)		9
				Foreign currency swaps⁽¹⁾			1		1
				Treasury locks⁽²⁾			(7)		(2)
			Fair value hedges:
				Interest rate swap agreements⁽²⁾			2		2
		Associated amortization of DAC, VOBA, DSI and DFEL					1		(1)
		Income tax benefit (expense)					3		(3)
					Balance as of end-of-period	$	(40)	$	(14)

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

						For the Three				For the Six
						Months Ended				Months Ended
						June 30,				June 30,
						2011		2010		2011		2010
Derivative Instruments Designated and
	Qualifying as Hedging Instruments
Cash flow hedges:
	Interest rate swap agreements⁽¹⁾					$	(4)	$	6	$	(5)	$	8
	Foreign currency swaps⁽¹⁾						(1)		-		1		1
		Total cash flow hedges					(5)		6		(4)		9
Fair value hedges:
	Interest rate swap agreements⁽²⁾						13		9		25		17
		Total fair value hedges					13		9		25		17
			Total derivative instruments designated
				and qualifying as hedging instruments			8		15		21		26
Derivative Instruments Not Designated and
	Not Qualifying as Hedging Instruments
Interest rate futures⁽³⁾							13		179		(11)		214
Equity futures⁽³⁾							(10)		105		(54)		12
Interest rate swap agreements⁽³⁾							75		322		37		303
Foreign currency forwards⁽³⁾							-		-		-		43
Credit default swaps - fees⁽¹⁾							-		-		-		1
Credit default swaps - marked-to-market⁽³⁾							(1)		(17)		2		(7)
Total return swaps⁽⁴⁾							(15)		47		(34)		51
Put options⁽³⁾							69		493		(102)		383
Call options (based on S&P 500)⁽³⁾							8		(79)		61		(43)
Variance swaps⁽³⁾							(4)		140		(41)		94
Currency futures⁽³⁾							(1)		8		(5)		(7)
Consumer price index swaps⁽³⁾							1		1		1		-
Interest rate cap corridors⁽¹⁾							(10)		(11)		(16)		(11)
Embedded derivatives:
	Deferred compensation plans⁽⁴⁾						(5)		9		(13)		1
	Indexed annuity contracts⁽³⁾						6		56		54		15
	GLB reserves⁽³⁾						(160)		(1,174)		130		(993)
	Reinsurance related⁽³⁾						(28)		(46)		(18)		(62)
	AFS securities⁽¹⁾						-		(1)		1		-
			Total derivative instruments not designated
				and not qualifying as hedging instruments			(62)		32		(8)		(6)
					Total derivative instruments	$	(54)	$	47	$	13	$	20

The location in the Consolidated Statements of Income (Loss) where the gains (losses) are recorded for each of the derivative instruments discussed below is specified in the table above.

Gains (losses) (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows:

As of June 30, 2011, $21 million of the deferred net losses on derivative instruments in accumulated OCI were expected to be reclassified to earnings during the next twelve months. This reclassification would be due primarily to the interest rate variances related to the interest rate swap agreements.

For the three and six months ended June 30, 2011 and 2010, 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.

We use a portion of our interest rate swap agreements to hedge the interest rate risk of our exposure to floating rate bond coupon payments, replicating a fixed rate bond. An interest rate swap is a contractual agreement to exchange payments at one or more times based on the actual or expected price level, performance or value of one or more underlying interest rates. We are required to pay the counterparty the stream of variable interest payments based on the coupon payments from the hedged bonds, and in turn, receive a fixed payment from the counterparty at a predetermined interest rate. The gains or losses on interest rate swaps hedging our interest rate exposure on floating rate bond coupon payments are reclassified from accumulated OCI to net income (loss) as the related bond interest is accrued.

In addition, we use interest rate swap agreements to hedge our exposure to fixed rate bond coupon payments and the change in underlying asset values as interest rates fluctuate.

As of June 30, 2011, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 2042.

We use forward-starting interest rate swaps to hedge our exposure to interest rate fluctuations related to the forecasted purchase of certain AFS securities. The gains or losses resulting from the swap agreements are recorded in OCI. The gains or losses are reclassified from accumulated OCI to earnings over the life of the assets once the assets are purchased.

We use foreign currency swaps, which are traded over-the-counter, to hedge some of the foreign exchange risk of investments in fixed maturity securities denominated in foreign currencies. A foreign currency swap is a contractual agreement to exchange the currencies of two different countries at a specified rate of exchange in the future. The gains or losses on foreign currency swaps hedging foreign exchange risk exposure on foreign currency bond coupon payments are reclassified from accumulated OCI to net income (loss) as the related bond interest is accrued.

As of June 30, 2011, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was July 2022.

We use reverse treasury locks to hedge the interest rate exposure related to the 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. The gains or losses resulting from the reverse treasury locks are recorded in OCI and are reclassified from accumulated OCI to earnings over the life of the assets once the assets are purchased.

Gains (losses) (in millions) on derivative instruments designated and qualifying as fair value hedges were as follows:

We used a portion of our interest rate swap agreements to hedge the risk of paying a higher fixed rate of interest on junior subordinated debentures issued to affiliated trusts, which were redeemed during 2010, and on senior debt than would be paid on long-term debt based on current interest rates in the marketplace. We are required to pay the counterparty a stream of variable interest payments based on the referenced index, and in turn, we receive a fixed payment from the counterparty at a predetermined interest rate. The net receipts or payments earned or owed from these interest rate swap agreements are recorded as an adjustment to the interest expense for the debt being hedged in the period it occurs. The changes in fair value of the interest rate swap agreements are recorded as an offsetting adjustment to derivative investments and long-term debt on our Consolidated Balance Sheets.

We use various other derivative instruments for risk management and income generation purposes that either do not qualify for hedge accounting treatment or have not currently been designated by us for hedge accounting treatment.

We use interest rate cap agreements to provide a level of protection from the effect of rising interest rates for our annuity business, within our Annuities and Defined Contribution segments. Interest rate cap agreements entitle us to receive quarterly payments from the counterparties on specified future reset dates, contingent on future interest rates. For each cap, the amount of such quarterly payments, if any, is determined by the excess of a market interest rate over a specified cap rate, multiplied by the notional amount divided by four. Our interest rate cap agreements provide an economic hedge of our annuity business.

We use interest rate futures and 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.

We use interest rate swap agreements 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.

We sold 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.

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

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

Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding. If these netting agreements were not in place, we would have been required to post approximately $8 million as of June 30, 2011, after considering the fair values of the associated investments counterparties' credit ratings as compared to ours and specified thresholds that once exceeded result in the payment of cash.

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.

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.

We use indexed annuity contracts to 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. Contract holders may elect to rebalance index options at renewal dates, either annually or biannually. As of each renewal date, we have the opportunity to re-price the indexed component by establishing participation rates, subject to minimum guarantees. We purchase 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. The mark-to-market of the options held generally offsets the change in value of the embedded derivative within the indexed annuity.

We use variance swaps to hedge the liability exposure on certain options in variable annuity products. Variance swaps are contracts entered into at no cost and whose payoff is the difference between the realized variance rate of an underlying index and the fixed variance rate determined as of inception.

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.

We use consumer price index swaps to hedge the liability exposure on certain options in fixed/indexed 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.

We use interest rate cap corridors to provide a level of protection from the effect of rising interest rates for our annuity business, within our Retirement Solutions – Annuities and Retirement Solutions – Defined Contribution segments. 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. Our interest rate cap corridors provide an economic hedge of our annuity business.

We have certain deferred compensation plans that have embedded derivative instruments. The liability related to these plans varies based on the investment options selected by the participants. The liability related to certain investment options selected by the participants is marked-to-market through net income (loss).

We distribute indexed annuity contracts that 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. This feature represents an embedded derivative under the Derivatives and Hedging Topic of the FASB ASC. Contract holders may elect to rebalance index options at renewal dates, either annually or biannually. As of each renewal date, we have the opportunity to re-price the indexed component by establishing participation rates, subject to minimum guarantees. We purchase S&P 500 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. The mark-to-market of the options held generally offsets the change in value of the embedded derivative within the indexed annuity.

We have certain GLB variable annuity products with GWB and GIB features that are embedded derivatives. Certain features of these guarantees, notably our GIB, 4LATER® and Lincoln Lifetime IncomeSMAdvantage features, 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 embedded derivative reserve and the benefit reserve based on the specific characteristics of each GLB feature. As of June 30, 2011, we had $32.6 billion of account values that were attributable to variable annuities with a GWB feature and $12.6 billion of account values that were attributable to variable annuities with a GIB 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 GWB and GIB features. The hedging strategy is designed such that changes in the value of the hedge contracts due to changes in equity markets, interest rates and implied volatilities move in the opposite direction of changes in embedded derivative reserves of the GWB and GIB caused by those same factors. As part of our current hedging program, equity markets, interest rates and volatility in market conditions are monitored on a daily basis. 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 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.

We have certain modified coinsurance arrangements and coinsurance with funds withheld reinsurance arrangements 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 arrangements. Changes in the estimated fair value of these derivatives as they occur are recorded through net income (loss). Offsetting these amounts are corresponding changes in the estimated fair value of trading securities in portfolios that support these arrangements.

We own various debt securities that either contain call options to exchange the debt security for other specified securities of the borrower, usually common stock, or contain call options to receive the return on equity-like indexes. The change in fair value of these embedded derivatives flows through net income (loss).

We are exposed to credit loss in the event of nonperformance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or nonperformance risk. The nonperformance risk 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 June 30, 2011, the nonperformance risk adjustment was $8 million. The credit risk associated with such agreements is minimized by purchasing such agreements from financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring all 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, our insurance subsidiaries have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of the derivatives contract, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contract. In certain transactions, we and the counterparty have entered into a collateral support agreement requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. We do not believe the inclusion of termination or collateralization events pose any material threat to the liquidity position of any insurance subsidiary of the Company. 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. As of June 30, 2011, the exposure was $139 million.

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 June 30, 2011				As of December 31, 2010
	Collateral		Collateral		Collateral		Collateral
	Posted by		Posted by		Posted by		Posted by
S&P	Counter-		LNC		Counter-		LNC
Credit	Party		(Held by		Party		(Held by
Rating of	(Held by		Counter-		(Held by		Counter-
Counterparty	LNC)		Party)		LNC)		Party)

AAA	$	11	$	-	$	1	$	-
AA		131		-		99		-
AA-		130		-		65		-
A+		475		(58)		548		(76)
A		506		(265)		436		(223)
	$	1,253	$	(323)	$	1,149	$	(299)