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 our exposures that may adversely affect expected future cash flows and by evaluating hedging opportunities.

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.

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 financial instruments and see Note 4 for derivative instruments related to our consolidated VIEs.

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

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

We use interest rate cap agreements to provide a level of protection from the effect of rising interest rates to economically hedge our annuity business. 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.

We use interest rate cap corridors to provide a level of protection from the effect of rising interest rates for our annuity business. 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 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.

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. These instruments either hedge the interest rate risk of floating rate bond coupon payments by replicating a fixed rate bond, or hedge our exposure to fixed rate bond coupon payments and the change in the underlying asset values as interest rates fluctuate.

Finally, we use interest rate swap agreements designated and qualifying as fair value hedges to hedge against changes in the value of anticipated transactions and commitments as interest rate fluctuate.

We use treasury locks designated and qualifying as cash flow hedges to hedge the interest rate exposure related to our issuance of fixed rate securities or the anticipated future cash flows of floating rate fixed maturity securities due to changes in interest rates. In addition, we use reverse treasury locks designated and qualifying as cash flow hedges 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.

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

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 used foreign currency forward contracts to hedge the liability exposure on certain options in the variable annuity products. The foreign currency forward contracts obligated us to deliver a specified amount of currency at a future date and a specified exchange rate.

We use foreign currency swaps designated and qualifying as cash flow hedges, 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.

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

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.

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.

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 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.

In addition, we use total return swaps to hedge the liability exposure on certain options in variable annuity products. We receive the total return on a portfolio of indexes and pay a floating rate of interest.

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

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 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.

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.

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 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 GLB reserves 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 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.

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 embedded derivative reserve and the benefit reserve based on the specific characteristics of each GLB feature.

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. 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.

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.

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 (in millions) were as follows:

				As of December 31, 2011						As of December 31, 2010
				Notional		Fair Value				Notional		Fair Value
				Amounts		Asset		Liability		Amounts		Asset		Liability
Qualifying Hedges
Cash flow hedges:
	Interest rate contracts⁽¹⁾			$	2,512	$	130	$	-	$	2,076	$	(40)	$	-
	Foreign currency contracts⁽¹⁾				340		38		-		340		30		-
		Total cash flow hedges			2,852		168		-		2,416		(10)		-
Fair value hedges:
	Interest rate contracts⁽²⁾				1,675		319		319		1,675		55		55
Non-Qualifying Hedges
Interest rate contracts⁽¹⁾					30,232		568		-		18,406		(426)		-
Foreign currency contracts⁽¹⁾					4		-		-		219		-		-
Equity market contracts⁽¹⁾					16,401		2,096		-		11,577		1,442		-
Credit contracts⁽¹⁾					48		-		-		-		-		-
Credit contracts⁽³⁾					148		-		16		145		-		16
Embedded derivatives:
	Deferred compensation plans⁽³⁾				-		-		354		-		-		363
	Indexed annuity contracts⁽⁴⁾				-		-		399		-		-		497
	GLB reserves⁽⁴⁾				-		-		2,217		-		-		408
	Reinsurance related ⁽⁵⁾				-		-		168		-		-		102
	AFS securities⁽¹⁾				-		-		-		-		15		-
			Total derivative instruments	$	51,360	$	3,151	$	3,473	$	34,438	$	1,076	$	1,441

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

			Remaining Life as of December 31, 2011
			Less Than		1 – 5		6 – 10		11 – 30		Over 30
			1 Year		Years		Years		Years		Years		Total
Interest rate contracts⁽¹⁾			$	2,154	$	11,353	$	11,349	$	9,556	$	7	$	34,419
Foreign currency contracts⁽²⁾				4		154		105		81		-		344
Equity market contracts				8,638		3,155		4,589		17		2		16,401
Credit contracts				40		116		40		-		-		196
	Total derivative instruments
		with notional amounts	$	10,836	$	14,778	$	16,083	$	9,654	$	9	$	51,360

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

						For the Years Ended December 31,
						2011		2010		2009
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year						$	(15)	$	11	$	127
Other comprehensive income (loss):
	Unrealized holding gains (losses) arising during the year:
		Cash flow hedges:
			Interest rate contracts				178		(47)		30
			Foreign currency contracts				3		14		(52)
		Fair value hedges:
			Interest rate contracts				4		4		4
			Equity market contracts				-		-		(28)
		Net investment in a foreign subsidiary					-		-		(74)
		AFS securities embedded derivatives					-		2		-
	Change in foreign currency exchange rate adjustment						7		4		-
	Change in DAC, VOBA, DSI and DFEL						(1)		(4)		22
	Income tax benefit (expense)						(66)		9		(13)
	Less:
		Reclassification adjustment for gains (losses) included in net income (loss):
			Cash flow hedges:
				Interest rate contracts⁽¹⁾			(15)		4		4
				Interest rate contracts⁽²⁾			(1)		4		-
				Foreign currency contracts⁽¹⁾			2		2		-
			Fair value hedges:
				Interest rate contracts⁽²⁾			4		4		4
		Associated amortization of DAC, VOBA, DSI and DFEL					-		(1)		-
		Income tax benefit (expense)					4		(5)		(3)
					Balance as of end-of-year	$	116	$	(15)	$	11

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 Years Ended December 31,
				2011		2010		2009
Qualifying Hedges
Cash flow hedges:
	Interest rate contracts⁽¹⁾			$	(15)	$	3	$	3
	Foreign currency contracts⁽¹⁾				2		2		1
		Total cash flow hedges			(13)		5		4
Fair value hedges:
	Interest rate contracts⁽²⁾				50		42		17
	Equity market contracts⁽³⁾				-		15		1
		Total fair value hedges			50		57		18
Non-Qualifying Hedges
Interest rate contracts⁽¹⁾					(44)		5		-
Interest rate contracts⁽³⁾					1,144		175		(1,553)
Foreign currency contracts⁽¹⁾					-		43		(98)
Foreign currency contracts⁽³⁾					(12)		(13)		(7)
Equity market contracts⁽³⁾					316		(386)		(1,379)
Equity market contracts⁽⁴⁾					21		(118)		35
Credit contracts⁽¹⁾					-		1		1
Credit contracts⁽³⁾					(7)		7		(37)
Embedded derivatives:
	Deferred compensation plans⁽⁴⁾				(11)		(34)		(63)
	Indexed annuity contracts⁽³⁾				5		(81)		(75)
	GLB reserves⁽³⁾				(1,809)		268		2,228
	Reinsurance related⁽³⁾				(66)		(71)		(62)
	AFS securities⁽¹⁾				-		2		-
			Total derivative instruments	$	(426)	$	(140)	$	(988)

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

As of December 31, 2011, $20 million of the deferred net losses on derivative instruments in accumulated OCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to the interest rate variances related to the interest rate swap agreements.

For the years ended December 31, 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.

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

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

As of December 31, 2011

Credit

Reason

Nature

Rating of

Number

Maximum

for

Underlying

Fair

Potential

Maturity

Entering

Recourse

Obligation⁽¹⁾

Instruments

Value⁽²⁾

Payout

12/20/2012⁽³⁾

⁽⁵⁾

⁽⁶⁾

BBB+

12/20/2016⁽⁴⁾

⁽⁵⁾

⁽⁶⁾

BBB+

(12)

03/20/2017⁽⁴⁾

⁽⁵⁾

⁽⁶⁾

BBB

(4)

(16)

148

As of December 31, 2010

Credit

Reason

Nature

Rating of

Number

Maximum

for

Underlying

Fair

Potential

Maturity

Entering

Recourse

Obligation⁽¹⁾

Instruments

Value⁽²⁾

Payout

12/20/2012⁽³⁾

⁽⁵⁾

⁽⁶⁾

BBB+

12/20/2016⁽⁴⁾

⁽⁵⁾

⁽⁶⁾

BBB

(12)

03/20/2017⁽⁴⁾

⁽⁵⁾

⁽⁶⁾

BBB-

(4)

(16)

145

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 $16 million as of December 31, 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 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 December 31, 2011, the nonperformance risk adjustment was $16 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. 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 December 31, 2011, the exposure was $81 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 December 31, 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	$	-	$	-	$	1	$	-
AA		35		-		99		-
AA-		219		-		65		-
A+		848		-		548		(76)
A		1,681		(120)		436		(223)
A-		387		-		-		-
	$	3,170	$	(120)	$	1,149	$	(299)