Lincoln National 10Q 2022 Q3 Quarterly report

__________________________________________________________________________________________________________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q

_________________

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2022

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ______ to ______

Commission File Number: 1-6028

_________________

LINCOLN NATIONAL CORPORATION

(Exact name of registrant as specified in its charter)

_________________



Indiana	35-1140070
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

150 N. Radnor-Chester Road, Suite A305, Radnor, Pennsylvania	19087
(Address of principal executive offices)	(Zip Code)

(484) 583-1400

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

__________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock	LNC	New York Stock Exchange

__________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer		Accelerated Filer	
Non-accelerated Filer		Smaller Reporting Company	
		Emerging Growth Company	

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨No x

As of October 31, 2022, there were 169,215,464 shares of the registrant’s common stock outstanding.

_________________________________________________________________________________________________________

Lincoln National Corporation

Table of Contents


		Page
PART I
Item 1.	Financial Statements:
	Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	1
	Unaudited Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended
	September 30, 2022 and 2021	2
	Unaudited Consolidated Statements of Stockholders’ Equity for the three and nine months ended
	September 30, 2022 and 2021	3
	Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021	4
	Notes to Unaudited Consolidated Financial Statements:
	Note 1 – Nature of Operations and Basis of Presentation	5
	Note 2 – New Accounting Standards	6
	Note 3 – Variable Interest Entities	8
	Note 4 – Investments	9
	Note 5 – Derivatives	18
	Note 6 – Federal Income Taxes	28
	Note 7 – Goodwill	28
	Note 8 – Guaranteed Benefit Features	29
	Note 9 – Liability for Unpaid Claims	30
	Note 10 – Debt	30
	Note 11 – Contingencies and Commitments	31
	Note 12 – Shares and Stockholders’ Equity	33
	Note 13 – Realized Gain (Loss)	36
	Note 14 – Fair Value of Financial Instruments	37
	Note 15 – Segment Information	50
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	100
Item 4.	Controls and Procedures	100

PART II
Item 1.	Legal Proceedings	101
Item 1A.	Risk Factors	101
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	101
Item 6.	Exhibits	101
	Exhibit Index for the Report on Form 10-Q	102
	Signatures	103

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

LINCOLN NATIONAL CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share data)



		As of				As of
	September 30,				December 31,
		2022				2021

	(Unaudited)
ASSETS
Investments:
Fixed maturity available-for-sale securities, at fair value
(amortized cost: 2022 - $111,058; 2021 - $105,177; allowance for credit losses: 2022 - $18; 2021 - $19)		$	97,572			$	118,746
Trading securities			3,580				4,482
Equity securities			427				318
Mortgage loans on real estate, net of allowance for credit losses
(portion at fair value: 2022 - $495; 2021 - $739)			18,066				17,991
Policy loans			2,347				2,364
Derivative investments			3,681				5,437
Other investments			3,820				4,292
Total investments			129,493				153,630
Cash and invested cash			1,472				2,612
Deferred acquisition costs and value of business acquired			13,676				6,081
Premiums and fees receivable			583				580
Accrued investment income			1,283				1,189
Reinsurance recoverables, net of allowance for credit losses			20,045				20,295
Funds withheld reinsurance assets			501				517
Goodwill			1,144				1,778
Other assets			19,191				18,036
Separate account assets			137,295				182,583
Total assets		$	324,683			$	387,301

LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Future contract benefits		$	41,716			$	41,030
Other contract holder funds			118,174				111,702
Short-term debt			500				300
Long-term debt			5,959				6,325
Reinsurance-related embedded derivatives			-				206
Funds withheld reinsurance liabilities			2,190				2,118
Payables for collateral on investments			6,865				8,946
Other liabilities			9,767				13,819
Separate account liabilities			137,295				182,583
Total liabilities			322,466				367,029

Contingencies and Commitments (See Note 11)

Stockholders’ Equity
Preferred stock – 10,000,000 shares authorized			-				-
Common stock – 800,000,000 shares authorized; 169,214,493 and 177,193,515 shares
issued and outstanding as of September 30, 2022, and December 31, 2021, respectively			4,534				4,735
Retained earnings			6,311				9,096
Accumulated other comprehensive income (loss)			(8,628	)			6,441
Total stockholders’ equity			2,217				20,272
Total liabilities and stockholders’ equity		$	324,683			$	387,301

‎

See accompanying Notes to Consolidated Financial Statements

Table of Contents

LINCOLN NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited, in millions, except per share data)



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Revenues
Insurance premiums	$	1,548		$	1,394		$	4,523		$	4,198
Fee income		1,527			1,996			4,602			5,258
Net investment income		1,326			1,576			4,108			4,670
Realized gain (loss)		220			85			771			(97	)
Amortization of deferred gain on business sold through reinsurance		18			9			56			27
Other revenues		159			181			529			571
Total revenues		4,798			5,241			14,589			14,627
Expenses
Interest credited		722			750			2,125			2,224
Benefits		5,106			2,122			10,562			6,278
Commissions and other expenses		1,358			1,906			3,721			4,462
Interest and debt expense		71			73			205			204
Spark program expense		44			22			118			57
Impairment of intangibles		634			-			634			-
Total expenses		7,935			4,873			17,365			13,225
Income (loss) before taxes		(3,137	)		368			(2,776	)		1,402
Federal income tax expense (benefit)		(563	)		50			(543	)		217
Net income (loss)		(2,574	)		318			(2,233	)		1,185
Other comprehensive income (loss), net of tax		(4,285	)		(630	)		(15,069	)		(2,082	)
Comprehensive income (loss)	$	(6,859	)	$	(312	)	$	(17,302	)	$	(897	)

Net Income (Loss) Per Common Share
Basic	$	(15.17	)	$	1.70		$	(13.01	)	$	6.25
Diluted		(15.17	)		1.68			(13.06	)		6.19

Cash Dividends Declared Per Common Share	$	0.45		$	0.42		$	1.35		$	1.26

‎

See accompanying Notes to Consolidated Financial Statements

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LINCOLN NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in millions)



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Common Stock
Balance as of beginning-of-period	$	4,546		$	5,021		$	4,735		$	5,082
Stock compensation/issued for benefit plans		15			16			30			64
Retirement of common stock/cancellation of shares		(27	)		(81	)		(231	)		(190	)
Balance as of end-of-period		4,534			4,956			4,534			4,956

Retained Earnings
Balance as of beginning-of-period		8,985			9,245			9,096			8,686
Net income (loss)		(2,574	)		318			(2,233	)		1,185
Retirement of common stock		(23	)		(119	)		(319	)		(265	)
Common stock dividends declared		(77	)		(79	)		(233	)		(241	)
Balance as of end-of-period		6,311			9,365			6,311			9,365

Accumulated Other Comprehensive Income (Loss)
Balance as of beginning-of-period		(4,343	)		7,479			6,441			8,931
Other comprehensive income (loss), net of tax		(4,285	)		(630	)		(15,069	)		(2,082	)
Balance as of end-of-period		(8,628	)		6,849			(8,628	)		6,849
Total stockholders’ equity as of end-of-period	$	2,217		$	21,170		$	2,217		$	21,170

‎

See accompanying Notes to Consolidated Financial Statements

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LINCOLN NATIONAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)



	For the Nine
	Months Ended
	September 30,
	2022			2021
Cash Flows from Operating Activities
Net income (loss)	$	(2,233	)	$	1,185
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Realized (gain) loss		(771	)		97
Sales and maturities (purchases) of trading securities, net		163			219
Amortization of deferred gain on business sold through reinsurance		(56	)		(27	)
Impairment of intangibles		634			-
Change in:
Deferred acquisition costs, value of business acquired, deferred sales inducements
and deferred front-end loads deferrals and interest, net of amortization		80			348
Premiums and fees receivable		(3	)		(98	)
Accrued investment income		(80	)		(34	)
Insurance liabilities and reinsurance-related balances		6,166			(1,779	)
Accrued expenses		(402	)		246
Federal income tax accruals		(490	)		216
Other		386			(265	)
Net cash provided by (used in) operating activities		3,394			108
Cash Flows from Investing Activities
Purchases of available-for-sale securities and equity securities		(12,008	)		(11,897	)
Sales of available-for-sale securities and equity securities		1,196			1,452
Maturities of available-for-sale securities		4,333			7,055
Purchases of alternative investments		(484	)		(506	)
Sales and repayments of alternative investments		383			258
Issuance of mortgage loans on real estate		(1,928	)		(2,213	)
Repayment and maturities of mortgage loans on real estate		1,872			1,274
Repayment (issuance) of policy loans, net		17			48
Net change in collateral on investments, derivatives and related settlements		(3,155	)		2,312
Other		(93	)		(219	)
Net cash provided by (used in) investing activities		(9,867	)		(2,436	)
Cash Flows from Financing Activities
Payment of long-term debt, including current maturities		(300	)		-
Issuance of long-term debt, net of issuance costs		296			-
Payment related to modification or early extinguishment of debt		-			(8	)
Payment related to sale-leaseback transactions		(52	)		-
Proceeds from certain financing arrangements		53			50
Deposits of fixed account values, including the fixed portion of variable		11,067			9,150
Withdrawals of fixed account values, including the fixed portion of variable		(4,943	)		(4,961	)
Transfers from (to) separate accounts, net		12			(252	)
Common stock issued for benefit plans		(15	)		14
Repurchase of common stock		(550	)		(455	)
Dividends paid to common stockholders		(234	)		(241	)
Other		(1	)		(63	)
Net cash provided by (used in) financing activities		5,333			3,234
Net increase (decrease) in cash, invested cash and restricted cash		(1,140	)		906
Cash, invested cash and restricted cash as of beginning-of-year		2,612			1,708
Cash, invested cash and restricted cash as of end-of-period	$	1,472		$	2,614

See accompanying Notes to Consolidated Financial Statements

Table of Contents

LINCOLN NATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations and Basis of Presentation

Nature of Operations

Lincoln National Corporation and its subsidiaries (“LNC” or the “Company,” which also may be referred to as “we,” “our” or “us”) operate multiple insurance businesses through four business segments. See Note 15 for additional details. The collective group of businesses uses “Lincoln Financial Group” as its marketing identity. Through our business segments, we sell a wide range of wealth protection, accumulation, retirement income and group protection products and solutions. These products primarily include fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL and VUL, indexed universal life insurance (“IUL”), term life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.

Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2021 Form 10-K.

In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Interim results for the nine months ended September 30, 2022, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022, especially when considering the risks and uncertainties associated with the COVID-19 pandemic and the future impacts of the pandemic on our business, results of operations and financial condition. All material inter-company accounts and transactions have been eliminated in consolidation.

‎

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2. New Accounting Standards

The following table provides a description of our adoption of new Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and the impact of the adoption on the consolidated 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 2020-04, Reference Rate Reform (Topic 848) and related amendments	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 elected practical expedients to maintain hedge accounting for certain derivatives. We will continue to evaluate our options under this guidance as our reference rate reform adoption process continues. This ASU has not had a material impact to our consolidated financial condition and results of operations, but we will continue to evaluate those impacts as our transition progresses.

Table of Contents

Standard

Description

Effective Date

Effect on Financial Statements or Other Significant Matters

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

These amendments make changes to the accounting and reporting for long-duration contracts issued by an insurance entity that will significantly change how insurers account for long-duration contracts, including how they measure, recognize and make disclosures about insurance liabilities and deferred acquisition costs. 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 effective January 1, 2023, and early adoption is permitted.

January 1, 2023

We will adopt this ASU effective January 1, 2023, with a transition date of January 1, 2021, using a modified retrospective approach, except for market risk benefits in which we will apply a full retrospective transition approach.
‎
‎ We continue to make progress in our implementation process that includes, but is not limited to, refining significant accounting policy decisions, employing appropriate internal controls, modifying actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures.

We currently estimate that, at the transition date of January 1, 2021, the adoption of this standard and related amendments will result in a decrease to previously reported stockholders’ equity in an after-tax range of approximately $1.2 billion to $2.2 billion, including a decrease to previously reported retained earnings in an after-tax range of approximately $6.0 billion to $7.0 billion, and an increase to previously reported accumulated other comprehensive income (loss) (“AOCI”) in an after-tax range of approximately $4.3 billion to $5.3 billion.

We are continuing to evaluate the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to better assess the effects as we continue to progress with our implementation efforts.

The remeasurement of certain current benefits (e.g., guaranteed death benefits on variable annuities) to fair valued market risk benefits, excluding the portion attributable to non-performance risk (“NPR”), is expected to have the most significant impact to retained earnings.

The most significant drivers of the cumulative adjustment to AOCI are expected to be the NPR associated with the fair valued market risk benefits, the elimination of deferred acquisition costs (“DAC”) and DAC-like intangible balances recorded in AOCI related to changes in unrealized gains and losses on investments, and the changes in the discount rate assumption since the inception of the contracts to reflect the changes in the upper-medium-grade fixed-income instrument (single-A) interest rate for the liability for future policy benefits

Table of Contents

Standard

Description

Effective Date

Effect on Financial Statements or Other Significant Matters (Continued)

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

associated with certain long-duration contracts.

The effect this standard adoption has on stockholders’ equity will be impacted by economic conditions, including fluctuations in both the capital markets and interest rates, as well as certain actuarial assumptions. As such, based on market movements subsequent to January 1, 2021, we expect the impact to stockholders’ equity will be less significant as of September 30, 2022, in comparison to the expected transition impact.

3. Variable Interest Entities

Consolidated VIEs

Asset information (dollars in millions) for the consolidated variable interest entities (“VIEs”) included on our Consolidated Balance Sheets was as follows:

As of September 30, 2022

As of December 31, 2021

Number

Notional

Carrying

Notional

Carrying

Instruments

Amounts

Value

Instruments

Amounts

Value

Assets

Total return swap

566

594

There were no gains or losses for consolidated VIEs recognized on our Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021.

Unconsolidated VIEs

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 asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“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 4.

Limited Partnerships and Limited Liability Companies

We invest in certain limited partnerships (“LPs”) and limited liability companies (“LLCs”) that we have concluded are VIEs. Our exposure to loss is limited to the capital we invest in the LPs and LLCs. 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 $2.9 billion as of September 30, 2022, and December 31, 2021.

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4. Investments

Fixed Maturity AFS Securities

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



	As of September 30, 2022
							Allowance
	Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	89,112	$	611	$	12,270	$	7	$	77,446
U.S. government bonds		410		6		32		-		384
State and municipal bonds		5,412		188		511		-		5,089
Foreign government bonds		377		16		55		-		338
RMBS		2,244		28		219		5		2,048
CMBS		1,789		-		240		-		1,549
ABS		11,341		34		1,023		5		10,347
Hybrid and redeemable preferred securities		373		29		30		1		371
Total fixed maturity AFS securities	$	111,058	$	912	$	14,380	$	18	$	97,572



	As of December 31, 2021
							Allowance
	Amortized		Gross Unrealized				for Credit		Fair
	Cost		Gains		Losses		Losses		Value
Fixed maturity AFS securities:
Corporate bonds	$	86,373	$	12,113	$	349	$	17	$	98,120
U.S. government bonds		375		60		2		-		433
State and municipal bonds		5,322		1,311		12		-		6,621
Foreign government bonds		373		64		5		-		432
RMBS		2,334		196		4		1		2,525
CMBS		1,552		61		14		-		1,599
ABS		8,439		127		54		-		8,512
Hybrid and redeemable preferred securities		409		107		11		1		504
Total fixed maturity AFS securities	$	105,177	$	14,039	$	451	$	19	$	118,746

The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of September 30, 2022, were as follows:



	Amortized		Fair
	Cost		Value
Due in one year or less	$	3,138	$	3,105
Due after one year through five years		17,300		16,361
Due after five years through ten years		18,948		16,779
Due after ten years		56,298		47,383
Subtotal		95,684		83,628
Structured securities (RMBS, CMBS, ABS)		15,374		13,944
Total fixed maturity AFS securities	$	111,058	$	97,572

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

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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 September 30, 2022
	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	$	63,882		$	10,929	$	3,620		$	1,341	$	67,502		$	12,270
U.S. government bonds		269			26		22			6		291			32
State and municipal bonds		2,024			471		106			40		2,130			511
Foreign government bonds		130			27		76			28		206			55
RMBS		1,630			211		35			8		1,665			219
CMBS		1,317			178		222			62		1,539			240
ABS		8,291			845		1,596			178		9,887			1,023
Hybrid and redeemable
preferred securities		96			6		67			24		163			30
Total fixed maturity AFS securities	$	77,639		$	12,693	$	5,744		$	1,687	$	83,383		$	14,380

Total number of fixed maturity AFS securities in an unrealized loss position															8,129



	As of December 31, 2021
	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	$	10,796		$	234	$	1,567		$	115	$	12,363		$	349
U.S. government bonds		6			-		26			2		32			2
State and municipal bonds		522			11		24			1		546			12
Foreign government bonds		61			3		56			2		117			5
RMBS		262			3		22			1		284			4
CMBS		446			12		37			2		483			14
ABS		4,646			49		165			5		4,811			54
Hybrid and redeemable
preferred securities		47			1		76			10		123			11
Total fixed maturity AFS securities	$	16,786		$	313	$	1,973		$	138	$	18,759		$	451

Total number of fixed maturity AFS securities in an unrealized loss position															2,597

⁽¹⁾As of September 30, 2022, and December 31, 2021, we recognized $8 million of gross unrealized losses in other comprehensive income (loss) (“OCI”) for fixed maturity AFS securities for which an allowance for credit losses has been recorded.

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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 September 30, 2022
			Gross			Number
	Fair		Unrealized			of
	Value		Losses		Securities⁽¹⁾
Less than six months	$	19,010	$	7,186			2,166
Six months or greater, but less than nine months		477		326			79
Nine months or greater, but less than twelve months		1		-			2
Twelve months or greater		1		-			13
Total	$	19,489	$	7,512			2,260


	As of December 31, 2021
			Gross			Number
	Fair		Unrealized			of
	Value		Losses		Securities ⁽¹⁾
Less than six months	$	12	$	3			6
Twelve months or greater		58		8			24
Total	$	70	$	11			30

⁽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 increased by $13.9 billion for the nine months ended September 30, 2022. As discussed further below, we believe the unrealized loss position as of September 30, 2022, 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 September 30, 2022, 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 September 30, 2022, 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 rising interest rates and widening credit spreads 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 September 30, 2022, and December 31, 2021, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of September 30, 2022, and December 31, 2021, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.7 billion and a fair value of $3.5 billion and $3.8 billion, respectively. Based upon the analysis discussed above, we believe that as of September 30, 2022, and December 31, 2021, we would have recovered the amortized cost of each corporate bond.

As of September 30, 2022, the unrealized losses associated with our mortgage-backed securities and ABS were attributable primarily to rising interest rates and widening credit spreads 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 September 30, 2022, 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.

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



	For the Three
	Months Ended
	September 30, 2022
	Corporate
	Bonds		RMBS		Other		Total
Balance as of beginning-of-period	$	7	$	3	$	2	$	12
Additions from purchases of PCD debt securities ⁽¹⁾		-		-		-		-
Additions for securities for which credit losses were not
previously recognized		-		2		1		3
Additions (reductions) for securities for which credit losses
were previously recognized		-		-		3		3
Balance as of end-of-period ⁽²⁾	$	7	$	5	$	6	$	18


	For the Nine
	Months Ended
	September 30, 2022
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-year	$	17		$	1	$	1	$	19
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		2			2		1		5
Additions (reductions) for securities for which credit losses
were previously recognized		1			2		4		7
Reductions for securities disposed		(1	)		-		-		(1	)
Reductions for securities charged-off		(12	)		-		-		(12	)
Balance as of end-of-period ⁽²⁾	$	7		$	5	$	6	$	18



	For the Three
	Months Ended
	September 30, 2021
	Corporate
	Bonds		RMBS		Other		Total
Balance as of beginning-of-period	$	8	$	1	$	-	$	9
Additions from purchases of PCD debt securities ⁽¹⁾		-		-		-		-
Additions for securities for which credit losses were not
previously recognized		8		-		-		8
Balance as of end-of-period ⁽²⁾	$	16	$	1	$	-	$	17

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	For the Nine
	Months Ended
	September 30, 2021
	Corporate
	Bonds			RMBS		Other		Total
Balance as of beginning-of-year	$	12		$	1	$	-	$	13
Additions from purchases of PCD debt securities ⁽¹⁾		-			-		-		-
Additions for securities for which credit losses were not
previously recognized		8			-		-		8
Additions (reductions) for securities for which credit losses
were previously recognized		2			-		-		2
Reductions for securities charged-off		(6	)		-		-		(6	)
Balance as of end-of-period ⁽²⁾	$	16		$	1	$	-	$	17

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

⁽²⁾As of September 30, 2022 and 2021, accrued investment income on fixed maturity AFS securities totaled $1.1 billion and was excluded from the estimate of credit losses.

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 September 30, 2022									As of December 31, 2021
	Commercial			Residential			Total			Commercial			Residential			Total
Current	$	16,894		$	1,214		$	18,108		$	17,167		$	837		$	18,004
30 to 59 days past due		-			12			12			15			21			36
60 to 89 days past due		-			5			5			-			5			5
90 or more days past due		-			28			28			-			29			29
Allowance for credit losses		(80	)		(11	)		(91	)		(79	)		(17	)		(96	)
Unamortized premium (discount)		(9	)		34			25			(11	)		27			16
Mark-to-market gains (losses) ⁽¹⁾		(21	)		-			(21	)		(3	)		-			(3	)
Total carrying value	$	16,784		$	1,282		$	18,066		$	17,089		$	902		$	17,991

⁽¹⁾Represents the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 14 for additional information.

Our commercial mortgage loan portfolio had the largest concentrations in California, which accounted for 27% and 26% of commercial mortgage loans on real estate as of September 30, 2022, and December 31, 2021, respectively, and Texas, which accounted for 9% of commercial mortgage loans on real estate as of September 30, 2022, and December 31, 2021.

As of September 30, 2022, our residential mortgage loan portfolio had the largest concentrations in California and New Jersey, which accounted for 18% and 11% of residential mortgage loans on real estate, respectively. As of December 31, 2021, our residential mortgage loan portfolio had the largest concentrations in California and Florida, which accounted for 22% and 14% of residential mortgage loans on real estate, respectively.

As of September 30, 2022, and December 31, 2021, we had 64 and 65 residential mortgage loans, respectively, that were either delinquent or in foreclosure. As of September 30, 2022, and December 31, 2021, we had 42 and 34 residential mortgage loans in foreclosure, respectively, with an aggregate carrying value of $19 million and $15 million, respectively.

As of September 30, 2022, and December 31, 2021, there were three and four specifically identified impaired commercial mortgage loans, respectively, with an aggregate carrying value of $1 million.

As of September 30, 2022, and December 31, 2021, there were 36 and 50 specifically identified impaired residential mortgage loans, respectively, with an aggregate carrying value of $14 million and $22 million, respectively.

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



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Average aggregate carrying value for impaired mortgage loans on real estate	$	13	$	31	$	16	$	33
Interest income recognized on impaired mortgage loans on real estate		-		-		-		-
Interest income collected on impaired mortgage loans on real estate		-		-		-		-

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


	As of September 30, 2022				As of December 31, 2021
	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		-		29		-		30
Total	$	-	$	29	$	-	$	30

We use loan-to-value and debt-service coverage ratios as credit quality indicators for our commercial mortgage loans on real estate. The amortized cost of commercial mortgage loans on real estate (dollars in millions) by year of origination and credit quality indicator was as follows:



	As of September 30, 2022
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2022	$	1,338	2.16	$	76	1.51	$	1	1.57	$	1,415
2021		2,360	3.05		73	1.52		-	-		2,433
2020		1,296	2.99		18	1.54		-	-		1,314
2019		2,709	2.13		103	1.54		-	-		2,812
2018		2,171	2.13		145	1.54		14	0.54		2,330
2017 and prior		6,407	2.37		173	1.55		1	1.06		6,581
Total	$	16,281		$	588		$	16		$	16,885

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	As of December 31, 2021
			Debt-			Debt-			Debt-
			Service			Service			Service
	Less		Coverage	65%		Coverage	Greater		Coverage
	than 65%		Ratio	to 75%		Ratio	than 75%		Ratio	Total
Origination Year
2021	$	2,384	3.04	$	136	1.74	$	-	-	$	2,520
2020		1,358	3.03		144	2.06		-	-		1,502
2019		2,917	2.15		188	1.42		-	-		3,105
2018		2,274	2.13		172	1.59		15	1.02		2,461
2017		1,655	2.33		149	1.74		27	0.83		1,831
2016 and prior		5,554	2.41		171	1.76		27	1.08		5,752
Total	$	16,142		$	960		$	69		$	17,171

We use loan performance status as the primary credit quality indicator for our residential mortgage loans on real estate. 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 September 30, 2022
	Performing		Nonperforming			Total
Origination Year
2022	$	423		$	-	$	423
2021		542			5		547
2020		95			2		97
2019		134			18		152
2018		70			4		74
2017 and prior		-			-		-
Total	$	1,264		$	29	$	1,293



	As of December 31, 2021
	Performing		Nonperforming			Total
Origination Year
2021	$	467		$	2	$	469
2020		129			2		131
2019		189			21		210
2018		104			5		109
2017		-			-		-
2016 and prior		-			-		-
Total	$	889		$	30	$	919

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.

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


	For the Three
	Months Ended
	September 30, 2022
	Commercial		Residential		Total
Balance as of beginning-of-period	$	72	$	9	$	81
Additions (reductions) from provision for credit loss expense ⁽¹⁾		8		2		10
Additions from purchases of PCD mortgage loans on real estate		-		-		-
Balance as of end-of-period ⁽²⁾	$	80	$	11	$	91

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	For the Nine
	Months Ended
	September 30, 2022
	Commercial		Residential			Total
Balance as of beginning-of-year	$	79	$	17		$	96
Additions (reductions) from provision for credit loss expense ⁽¹⁾		1		(6	)		(5	)
Additions from purchases of PCD mortgage loans on real estate		-		-			-
Balance as of end-of-period ⁽²⁾	$	80	$	11		$	91


	For the Three
	Months Ended
	September 30, 2021
	Commercial			Residential		Total
Balance as of beginning-of-period	$	156		$	14	$	170
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(41	)		2		(39	)
Additions from purchases of PCD mortgage loans on real estate		-			-		-
Balance as of end-of-period ⁽²⁾	$	115		$	16	$	131


	For the Nine
	Months Ended
	September 30, 2021
	Commercial			Residential			Total
Balance as of beginning-of-year	$	187		$	17		$	204
Additions (reductions) from provision for credit loss expense ⁽¹⁾		(72	)		(1	)		(73	)
Additions from purchases of PCD mortgage loans on real estate		-			-			-
Balance as of end-of-period ⁽²⁾	$	115		$	16		$	131

⁽¹⁾We recognized $1 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the three months ended September 30, 2022 and 2021. We recognized $(1) million and $4 million of credit loss benefit (expense) related to unfunded commitments for mortgage loans on real estate for the nine months ended September 30, 2022 and 2021, respectively.

⁽²⁾Accrued investment income on mortgage loans on real estate totaled $50 million as of September 30, 2022 and 2021, and was excluded from the estimate of credit losses.

Alternative Investments

As of September 30, 2022, and December 31, 2021, alternative investments included investments in 332 and 311 different partnerships, respectively, and represented approximately 2% of total investments.

Impairments on Fixed Maturity AFS Securities

Details underlying credit loss benefit (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 Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Credit Loss Benefit (Expense)
Fixed maturity AFS securities:
Corporate bonds	$	-		$	(8	)	$	(2	)	$	(9	)
RMBS		(2	)		-			(4	)		-
ABS		(3	)		-			(5	)		-
Gross credit loss benefit (expense)		(5	)		(8	)		(11	)		(9	)
Associated amortization of DAC, VOBA, DSI and DFEL ⁽¹⁾		-			-			-			-
Net credit loss benefit (expense)	$	(5	)	$	(8	)	$	(11	)	$	(9	)

⁽¹⁾DAC, value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”).

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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 September 30, 2022				As of December 31, 2021
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Collateral payable for derivative investments ⁽¹⁾	$	3,435	$	3,435	$	5,575	$	5,575
Securities pledged under securities lending agreements ⁽²⁾		300		289		241		235
Investments pledged for Federal Home Loan Bank of
Indianapolis⁽³⁾		3,130		3,911		3,130		4,876
Total payables for collateral on investments	$	6,865	$	7,635	$	8,946	$	10,686

⁽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. This also includes interest payable on collateral. See Note 5 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 Federal Home Loan Bank (“FHLB”) of Indianapolis (“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 September 30, 2022, and December 31, 2021, 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 Nine
	Months Ended
	September 30,
	2022			2021
Collateral payable for derivative investments	$	(2,140	)	$	1,973
Securities pledged under securities lending agreements		59			184
Total increase (decrease) in payables for collateral on investments	$	(2,081	)	$	2,157

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



	As of September 30, 2022
	Overnight and Continuous		Up to 30 Days		30 - 90 ‎Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	298	$	-	$	-	$	-	$	298
Foreign government bonds		2		-		-		-		2
Total gross secured borrowings	$	300	$	-	$	-	$	-	$	300

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	As of December 31, 2021
	Overnight and Continuous		Up to 30 Days		30 - 90 ‎Days		Greater Than 90 Days		Total
Securities Lending
Corporate bonds	$	239	$	-	$	-	$	-	$	239
Foreign government bonds		1		-		-		-		1
Equity securities		1		-		-		-		1
Total gross secured borrowings	$	241	$	-	$	-	$	-	$	241

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 consolidated financial statements. In addition, we receive securities in connection with securities borrowing agreements that we are permitted to sell or re-pledge. As of September 30, 2022, the fair value of all collateral received that we are permitted to sell or re-pledge was $25 million, and we had re-pledged all of this collateral to cover initial margin and over-the-counter collateral requirements on certain derivative investments.

Investment Commitments

As of September 30, 2022, our investment commitments were $2.7 billion, which included $1.7 billion of LPs, $709 million of private placement securities and $339 million of mortgage loans on real estate.

Concentrations of Financial Instruments

As of September 30, 2022, and December 31, 2021, our most significant investments in one issuer were our investments in securities issued by the Federal National Mortgage Association with a fair value of $752 million and $926 million, respectively, or 1% of total investments, and our investments in securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $735 million and $953 million, respectively, or 1% of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

As of September 30, 2022, and December 31, 2021, our most significant investments in one industry were our investments in securities in the financial services industry with a fair value of $16.3 billion and $19.2 billion, respectively, or 13% and 12%, respectively, of total investments, and our investments in securities in the consumer non-cyclical industry with a fair value of $14.9 billion and $19.6 billion, respectively, or 11% and 13%, respectively, of total investments. These concentrations include fixed maturity AFS, trading and equity securities.

5. 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, commodity 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 14 for additional disclosures related to the fair value of our derivative instruments.

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 and anticipated issuances of fixed-rate securities.

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.

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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-rate long-term debt and fixed maturity securities due to interest rate risks.

Treasury and Reverse Treasury Locks

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 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.

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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, indexed variable annuity, fixed indexed annuity, IUL and VUL products.

Our indexed annuity and IUL contracts permit the holder to elect an interest rate return or an equity market component, where interest credited to the contracts is linked to the performance of the 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, indexed variable annuity and VUL 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 and indexed 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.

Commodity Contracts

We use commodity contracts to economically hedge certain investments that are closely tied to the changes in commodity values. The commodity contract is an over-the-counter contract that combines a purchase put/sold call to lock in a commodity price within a predetermined range in exchange for a net premium.

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 (“CDSs”) to hedge the liability exposure on certain options in variable annuity products.

We buy CDSs to hedge against a drop in bond prices due to credit concerns of certain bond issuers. A CDS 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.

CDSs – Selling Protection

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

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We sell CDSs to offer credit protection to contract holders and investors. The CDSs hedge the contract holders and investors against a drop in bond prices due to credit concerns of certain bond issuers. A CDS 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 Accounting Standards Codification (“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 guaranteed living benefit (“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. 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 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.

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, 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 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 modified coinsurance 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.

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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 September 30, 2022						As of December 31, 2021
	Notional		Fair Value				Notional		Fair Value
	Amounts		Asset		Liability		Amounts		Asset		Liability
Qualifying Hedges
Cash flow hedges:
Interest rate contracts ⁽¹⁾	$	2,953	$	103	$	303	$	3,222	$	98	$	436
Foreign currency contracts ⁽¹⁾		4,323		959		4		3,979		283		51
Total cash flow hedges		7,276		1,062		307		7,201		381		487
Fair value hedges:
Interest rate contracts ⁽¹⁾		1,155		1		57		1,157		-		213
Non-Qualifying Hedges
Interest rate contracts ⁽¹⁾		98,366		957		955		82,786		897		176
Foreign currency contracts ⁽¹⁾		504		51		5		487		7		2
Equity market contracts ⁽¹⁾		91,951		4,950		2,262		92,641		6,461		2,108
Commodity contracts ⁽¹⁾		10		15		11		-		-		-
Credit contracts ⁽¹⁾		258		-		-		49		-		-
Embedded derivatives:
GLB direct ⁽²⁾		-		1,442		-		-		1,963		-
GLB ceded ⁽²⁾		-		37		149		-		56		182
Reinsurance-related ⁽³⁾		-		479		-		-		-		206
Indexed annuity and IUL contracts ^{(2) (4)}		-		456		3,194		-		528		6,131
Total derivative instruments	$	199,520	$	9,450	$	6,940	$	184,321	$	10,293	$	9,505

⁽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 other assets and 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 September 30, 2022
	Less Than		1 - 5		6 - 10		11 - 30		Over 30
	1 Year		Years		Years		Years		Years		Total
Interest rate contracts ⁽¹⁾	$	30,996	$	30,208	$	21,979	$	18,078	$	1,213	$	102,474
Foreign currency contracts ⁽²⁾		321		707		1,710		1,892		197		4,827
Equity market contracts		51,238		22,177		7,741		10		10,785		91,951
Commodity contracts		10		-		-		-		-		10
Credit contracts		-		6		252		-		-		258
Total derivative instruments
with notional amounts	$	82,565	$	53,098	$	31,682	$	19,980	$	12,195	$	199,520

⁽¹⁾As of September 30, 2022, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was April 20, 2067.

⁽²⁾As of September 30, 2022, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 16, 2061.

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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						Amortized Cost of the
	Hedged						Hedged
	Assets / (Liabilities)						Assets / (Liabilities)
	As of			As of			As of		As of
	September 30,			December 31,			September 30,		December 31,
	2022			2021			2022		2021
Line Item in the Consolidated Balance Sheets in
which the Hedged Item is Included
Fixed maturity AFS securities, at fair value	$	597		$	764		$	47	$	211
Long-term debt ⁽¹⁾		(699	)		(854	)		176		21

⁽¹⁾Includes $(345) million and $(356) million of unamortized adjustments from discontinued hedges as of September 30, 2022, and December 31, 2021, respectively.

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



	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	(103	)	$	(402	)
Other comprehensive income (loss):
Unrealized holding gains (losses) arising during the period:
Cash flow hedges:
Interest rate contracts		123			116
Foreign currency contracts		178			113
Change in foreign currency exchange rate adjustment		623			129
Change in DAC, VOBA, DSI and DFEL		34			-
Income tax benefit (expense)		(201	)		(76	)
Less:
Reclassification adjustment for gains (losses)
included in net income (loss):
Cash flow hedges:
Interest rate contracts ⁽¹⁾		1			2
Interest rate contracts ⁽²⁾		(11	)		(18	)
Foreign currency contracts ⁽¹⁾		48			34
Foreign currency contracts ⁽³⁾		29			(2	)
Associated amortization of DAC, VOBA, DSI and DFEL		(3	)		(1	)
Income tax benefit (expense)		(13	)		(3	)
Balance as of end-of-period	$	603		$	(132	)

⁽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 interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).

⁽³⁾The OCI offset is reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

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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 Three Months Ended September 30,
	2022									2021
	Realized			Net			Interest			Realized			Net			Interest
	Gain			Investment			and Debt			Gain			Investment			and Debt
	(Loss)			Income			Expense			(Loss)			Income			Expense
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	220		$	1,326		$	71		$	85		$	1,576		$	73

Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(42	)		36			-			(10	)		8
Derivatives designated as
hedging instruments		-			42			(36	)		-			10			(8	)
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			-			(1	)		-			1			(6	)
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		25			19			-			-			13			-

Non-Qualifying Hedges
Interest rate contracts		(552	)		-			-			(149	)		-			-
Foreign currency contracts		4			-			-			-			-			-
Equity market contracts		(188	)		-			-			387			-			-
Commodity contracts		(6	)		-			-			-			-			-
Credit contracts		(2	)		-			-			-			-			-
Embedded derivatives:
GLB		25			-			-			(61	)		-			-
Reinsurance-related		174			-			-			24			-			-
Indexed annuity and IUL
contracts		347			-			-			33			-			-

‎

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	Gain (Loss) Recognized in Income
	For the Nine Months Ended September 30,
	2022									2021
	Realized			Net			Interest			Realized			Net			Interest
	Gain			Investment			and Debt			Gain			Investment			and Debt
	(Loss)			Income			Expense			(Loss)			Income			Expense
Total Line Items in which the
Effects of Fair Value or Cash
Flow Hedges are Recorded	$	771		$	4,108		$	205		$	(97	)	$	4,670		$	204

Qualifying Hedges
Gain or (loss) on fair value
hedging relationships:
Interest rate contracts:
Hedged items		-			(164	)		154			-			(59	)		51
Derivatives designated as
hedging instruments		-			164			(154	)		-			59			(51	)
Gain or (loss) on cash flow
hedging relationships:
Interest rate contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		-			1			(11	)		-			2			(18	)
Foreign currency contracts:
Amount of gain or (loss)
reclassified from AOCI
into income		29			48			-			(2	)		34			-

Non-Qualifying Hedges
Interest rate contracts		(1,998	)		-			-			(876	)		-			-
Foreign currency contracts		6			-			-			(1	)		-			-
Equity market contracts		(2,100	)		-			-			2,342			-			-
Commodity contracts		4			-			-			-			-			-
Credit contracts		(2	)		-			-			-			-			-
Embedded derivatives:
GLB		(507	)		-			-			1,075			-			-
Reinsurance-related		685			-			-			88			-			-
Indexed annuity and IUL
contracts		3,030			-			-			(1,296	)		-			-

As of September 30, 2022, $92 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 nine months ended September 30, 2022 and 2021, 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.

As of September 30, 2022, and December 31, 2021, we did not have any exposure related to CDSs for which we are the seller.

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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 September 30, 2022, 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, our insurance subsidiaries 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 September 30, 2022, or December 31, 2021.

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 September 30, 2022					As of December 31, 2021
	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)
AA-	$	614	$	(6	)	$	2,346	$	(281	)
A+		2,758		(180	)		2,772		(251	)
A		56		-			456		(189	)
	$	3,428	$	(186	)	$	5,574	$	(721	)

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Balance Sheet Offsetting

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



	As of September 30, 2022
				Embedded
	Derivative			Derivative
	Instruments			Instruments		Total

Financial Assets
Gross amount of recognized assets	$	6,556		$	2,414	$	8,970
Gross amounts offset		(3,174	)		-		(3,174	)
Net amount of assets ⁽¹⁾		3,382			2,414		5,796
Gross amounts not offset:
Cash collateral ⁽²⁾		(3,382	)		-		(3,382	)
Non-cash collateral		-			-		-
Net amount	$	-		$	2,414	$	2,414

Financial Liabilities
Gross amount of recognized liabilities	$	287		$	3,343	$	3,630
Gross amounts offset		(181	)		-		(181	)
Net amount of liabilities		106			3,343		3,449
Gross amounts not offset:
Cash collateral ⁽²⁾		(106	)		-		(106	)
Non-cash collateral		-			-		-
Net amount	$	-		$	3,343	$	3,343

⁽¹⁾Includes deferred premiums receivable (payable) of $(299) million reported in other assets and other liabilities on our Consolidated Balance Sheets.

⁽²⁾Excludes excess cash collateral received of $46 million and excess cash collateral pledged of $80 million, as the cash collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.



	As of December 31, 2021
				Embedded
	Derivative			Derivative
	Instruments			Instruments		Total
Financial Assets
Gross amount of recognized assets	$	7,938		$	2,547	$	10,485
Gross amounts offset		(2,241	)		-		(2,241	)
Net amount of assets ⁽¹⁾		5,697			2,547		8,244
Gross amounts not offset:
Cash collateral ⁽²⁾		(5,574	)		-		(5,574	)
Non-cash collateral		(123	)		-		(123	)
Net amount	$	-		$	2,547	$	2,547

Financial Liabilities
Gross amount of recognized liabilities	$	777		$	6,519	$	7,296
Gross amounts offset		(68	)		-		(68	)
Net amount of liabilities		709			6,519		7,228
Gross amounts not offset:
Cash collateral ⁽²⁾		(709	)		-		(709	)
Non-cash collateral		-			-		-
Net amount	$	-		$	6,519	$	6,519

⁽¹⁾Includes deferred premiums receivable (payable) of $260 million reported in other assets on our Consolidated Balance Sheets.

⁽²⁾Excludes excess cash collateral pledged of $12 million, as the cash collateral offset is limited to the net estimated fair value of derivatives after application of netting arrangements.

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6. Federal Income Taxes

The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss). The effective tax rate was 18% and 20% for the three and nine months ended September 30, 2022, respectively, compared to 14% and 15%, respectively, for the corresponding periods in 2021. The effective tax rate on pre-tax income is typically lower than the prevailing corporate federal income tax rate of 21% due to benefits from preferential tax items including the separate accounts dividends-received deduction and tax credits.

For the three and nine months ended September 30, 2022, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to a tax benefit at 21% from pre-tax losses in addition to the effects of preferential tax items.

For the three and nine months ended September 30, 2021, the effective tax rate differed from the prevailing corporate federal income tax rate due primarily to the effects of the preferential tax items.

7. Goodwill

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



								For the Nine Months Ended
								September 30, 2022
	Gross			Accumulated				Net					Net
	Goodwill			Impairment				Goodwill					Goodwill
	as of			as of				as of					as of
	Beginning-			Beginning-				Beginning-					End-
		of-Year			of-Year			of-Year		Impairment			of-Period
Annuities		$	1,040		$	(600	)	$	440	$	-		$	440
Retirement Plan Services			20			-			20		-			20
Life Insurance			2,188			(1,554	)		634		(634	)		-
Group Protection			684			-			684		-			684
Total goodwill		$	3,932		$	(2,154	)	$	1,778	$	(634	)	$	1,144

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 a result of the current capital market environment, including (i) declining equity markets and (ii) the impact of rising interest rates on our discount rate assumption, we accelerated our quantitative goodwill impairment test for our Life Insurance reporting unit as we concluded that there were indicators of impairment. Based on this quantitative test, which includes updating our best estimate assumptions therein, we incurred an impairment during the third quarter of 2022 of the Life Insurance reporting unit goodwill of $634 million, which represents a write-off of the entire balance of goodwill for the reporting unit.

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8. Guaranteed Benefit Features

Information on the guaranteed death benefit (“GDB”) features outstanding (dollars in millions) was as follows:


	As of		As of
	September 30,		December 31,
	2022 ⁽¹⁾			2021 ⁽¹⁾
Return of Net Deposits
Total account value	$	91,411		$	117,503
Net amount at risk ⁽²⁾		2,035			84
Average attained age of contract holders		67 years			67 years

Minimum Return
Total account value	$	69		$	102
Net amount at risk ⁽²⁾		16			11
Average attained age of contract holders		79 years			79 years
Guaranteed minimum return		5%			5%

Anniversary Contract Value
Total account value	$	20,910		$	28,788
Net amount at risk ⁽²⁾		4,701			400
Average attained age of contract holders		73 years			73 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 Nine
	Months Ended
	September 30,
	2022			2021
Balance as of beginning-of-year	$	132		$	121
Changes in reserves		262			31
Benefits paid		(38	)		(16	)
Balance as of end-of-period	$	356		$	136

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		As of
	September 30,		December 31,
	2022			2021
Asset Type
Domestic equity	$	56,039		$	77,290
International equity		15,161			21,223
Fixed income		35,512			45,231
Total	$	106,712		$	143,744

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 40% and 39% of total life insurance in-force reserves as of September 30, 2022, and December 31, 2021, respectively.

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9. 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 Nine
	Months Ended
	September 30,
	2022			2021
Balance as of beginning-of-year	$	6,280		$	5,934
Reinsurance recoverable		147			151
Net balance as of beginning-of-year		6,133			5,783
Incurred related to:
Current year		2,972			2,999
Prior years:
Interest		123			112
All other incurred ⁽¹⁾		(206	)		(284	)
Total incurred		2,889			2,827
Paid related to:
Current year		(1,362	)		(1,393	)
Prior years		(1,363	)		(1,222	)
Total paid		(2,725	)		(2,615	)
Net balance as of end-of-period		6,297			5,995
Reinsurance recoverable		144			145
Balance as of end-of-period	$	6,441		$	6,140

⁽¹⁾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 2.5% to 5.0% that vary by year of claim incurral.

10. Debt

Changes in debt (in millions) were as follows:



	For the Nine
	Months Ended
	September 30,
	2022
Balance as of beginning-of-year	$	6,625
3.40% senior notes issued, due 2032		300
Repayment of 4.20% senior notes, due 2022		(300	)
Unamortized premiums (discounts)		(1	)
Unamortized adjustments from discontinued hedges		(11	)
Fair value hedge on interest rate swap agreements		(154	)
Balance as of end-of-period	$	6,459

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11. 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.

LNC is 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 LNC 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 September 30, 2022.

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 September 30, 2022, 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 $190 million, after-tax. 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.

Among other matters, we are presently engaged in litigation, including relating to cost of insurance rates (“Cost of Insurance and Other Litigation”), as described below. No accrual has been made for several of these matters. Although a loss is believed to be reasonably possible for these matters, for some of these matters, we are not able to estimate a reasonably possible amount or range of potential liability. An adverse outcome in one or more of these matters may have a material impact on the consolidated financial statements, but, based on information currently known, management does not believe those cases are likely to have such an impact.

Reinsurance Disputes

Certain reinsurers have sought rate increases on certain yearly renewable term agreements. We are disputing the requested rate increases under these agreements. We may initiate legal proceedings, as necessary, under these agreements in order to protect our contractual rights. Additionally, reinsurers have initiated, and may in the future initiate, legal proceedings against us. We believe it is unlikely the outcome of these disputes would have a material impact on the consolidated financial statements.

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Cost of Insurance and Other Litigation

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 The Lincoln National Life Insurance Company (“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.

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 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, Case No. 2:16-cv-06605-GJP, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 20, 2017. Plaintiffs purport to own certain universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2016. Plaintiffs sought to represent classes of policyowners and sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion. We are vigorously defending this matter.

In re: Lincoln National 2017 COI Rate Litigation, pending in the U.S. District Court for the Eastern District of Pennsylvania, Case No. 2:17-cv-04150, is a consolidated litigation matter related to multiple putative class action cases that were consolidated by an order dated March 28, 2018. Plaintiffs purport to own certain universal life insurance policies originally issued by Jefferson-Pilot (now LNL). Among other things, plaintiffs allege that LNL and LNC breached the terms of policyholders’ contracts by increasing non-guaranteed cost of insurance rates beginning in 2017. Plaintiffs sought to represent classes of policyholders and sought damages on their behalf. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion. We are vigorously defending this matter.

Iwanski v. First Penn-Pacific Life Insurance Company (“FPP”), No. 2:18-cv-01573 filed in the U.S. District Court for the Eastern District of Pennsylvania is a putative class action that was filed on April 13, 2018. Plaintiff alleges that defendant FPP breached the terms of his life insurance policy by deducting non-guaranteed cost of insurance charges in excess of what is permitted by the policies. Plaintiff seeks to represent all owners of universal life insurance policies issued by FPP containing non-guaranteed cost of insurance provisions that are similar to those of Plaintiff’s policy and seeks damages on their behalf. Breach of contract is the only cause of action asserted. 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 Lincoln Life & Annuity Company of New York (“LLANY”) charged more for non-guaranteed cost of insurance than was permitted by the policies. On March 31, 2022, the court issued an order granting plaintiff’s motion for class certification and certified a class of all current or former owners of six universal life insurance products issued by LLANY that were assessed a cost of insurance charge any time on or after June 27, 2013. Plaintiff seeks damages on behalf of the class. We are vigorously defending this matter.

Angus v. The Lincoln National Life Insurance Company, pending in the U.S. District Court for the Eastern District of Pennsylvania, No. 2:22-cv-01878, is a putative class action filed on May 13, 2022. Plaintiff alleges that defendant LNL breached the terms of her life insurance policy by deducting non-guaranteed cost of insurance charges in excess of what is permitted by the policies. Plaintiff seeks to represent all owners of universal life insurance policies issued or insured by LNL or its predecessors containing non-guaranteed cost of insurance

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provisions that are similar to those of plaintiff’s policy and seeks damages on their behalf. Breach of contract is the only cause of action asserted. On August 26, 2022, LNL filed a motion to dismiss. 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. On July, 2, 2021, the court granted, with prejudice, LLANY’s November 2020 motion to dismiss this matter. Plaintiff filed a notice of appeal on July 28, 2021, and on September 26, 2022, the U.S. Court of Appeals for the Second Circuit reserved its decision and certified a question to the New York Court of Appeals. On October 20, 2022, the New York Court of Appeals accepted the question, and has set a briefing schedule.

12. Shares and Stockholders’ Equity

Common Shares

The changes in our common stock (number of shares) were as follows:


	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Common Stock
Balance as of beginning-of-period	170,224,116		189,089,948		177,193,515		192,329,691
Stock compensation/issued for benefit plans	10,052		61,099		686,473		943,925
Retirement/cancellation of shares	(1,019,675	)	(3,061,825	)	(8,665,495	)	(7,184,394	)
Balance as of end-of-period	169,214,493		186,089,222		169,214,493		186,089,222

Common Stock as of End-of-Period
Basic basis	169,214,493		186,089,222		169,214,493		186,089,222
Diluted basis	170,658,861		188,103,623		170,658,861		188,103,623

Our common stock is without par value.

Average Shares

A reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share was as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Weighted-average shares, as used in basic calculation	169,706,526		187,276,859		171,647,108		189,665,059
Shares to cover non-vested stock	779,215		1,451,686		1,011,546		1,239,640
Average stock options outstanding during the period	380,706		1,847,513		1,236,484		1,604,627
Assumed acquisition of shares with assumed
proceeds and benefits from exercising stock
options (at average market price for the period)	(280,067	)	(1,444,711	)	(978,538	)	(1,224,255	)
Shares repurchasable from measured but
unrecognized stock option expense	-		(40,280	)	(28,008	)	(26,570	)
Average deferred compensation shares	508,980		-		507,487		-
Weighted-average shares, as used in diluted calculation⁽¹⁾	171,095,360		189,091,067		173,396,079		191,258,501

⁽¹⁾Due to reporting a net loss for the three and nine months ended September 30, 2022, basic shares were used in the diluted earnings per share (“EPS”) calculation for those periods as the use of diluted shares would have resulted in a lower loss per share.

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In the event the average market price of LNC common stock exceeds the issue price of stock options and the options have a dilutive effect to our EPS, such options will be shown in the table above.

We have participants in our deferred compensation plans who selected LNC stock as the measure for the investment return attributable to all or a portion of their deferral amounts. This obligation is settled in either cash or LNC stock pursuant to the applicable plan document. We exclude deferred units of LNC stock that are antidilutive from our diluted EPS calculation. The mark-to-market adjustment of these deferred units excluded from our diluted EPS calculation was $1 million and $8 million for the three and nine months ended September 30, 2022, respectively.

AOCI

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



	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS Securities and Certain Other
Investments
Balance as of beginning-of-year	$	6,777		$	9,611
Unrealized holding gains (losses) arising during the period		(27,065	)		(4,244	)
Change in foreign currency exchange rate adjustment		(620	)		(123	)
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds		7,625			1,359
Income tax benefit (expense)		4,281			640
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		(9	)		(4	)
Associated amortization of DAC, VOBA, DSI and DFEL		(10	)		(18	)
Income tax benefit (expense)		4			5
Balance as of end-of-period	$	(8,987	)	$	7,260
Unrealized Gain (Loss) on Derivative Instruments
Balance as of beginning-of-year	$	(103	)	$	(402	)
Unrealized holding gains (losses) arising during the period		301			229
Change in foreign currency exchange rate adjustment		623			129
Change in DAC, VOBA, DSI and DFEL		34			-
Income tax benefit (expense)		(201	)		(76	)
Less:
Reclassification adjustment for gains (losses) included in net income (loss)		67			16
Associated amortization of DAC, VOBA, DSI and DFEL		(3	)		(1	)
Income tax benefit (expense)		(13	)		(3	)
Balance as of end-of-period	$	603		$	(132	)
Foreign Currency Translation Adjustment
Balance as of beginning-of-year	$	(14	)	$	(12	)
Foreign currency translation adjustment arising during the period		(32	)		(2	)
Income tax benefit (expense)		(1	)		-
Balance as of end-of-period	$	(47	)	$	(14	)
Funded Status of Employee Benefit Plans
Balance as of beginning-of-year	$	(219	)	$	(266	)
Adjustment arising during the period		22			1
Balance as of end-of-period	$	(197	)	$	(265	)

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


	For the Nine
	Months Ended
	September 30,
	2022			2021
Unrealized Gain (Loss) on Fixed Maturity AFS
Securities and Certain Other Investments
Gross reclassification	$	(9	)	$	(4	)	Realized gain (loss)
Associated amortization of DAC,
VOBA, DSI and DFEL		(10	)		(18	)	Realized gain (loss)
Reclassification before income
tax benefit (expense)		(19	)		(22	)	Income (loss) before taxes
Income tax benefit (expense)		4			5		Federal income tax expense (benefit)
Reclassification, net of income tax	$	(15	)	$	(17	)	Net income (loss)

Unrealized Gain (Loss) on Derivative Instruments
Gross reclassifications:
Interest rate contracts	$	1		$	2		Net investment income
Interest rate contracts		(11	)		(18	)	Interest and debt expense
Foreign currency contracts		48			34		Net investment income
Foreign currency contracts		29			(2	)	Realized gain (loss)
Total gross reclassifications		67			16
Associated amortization of DAC,							Commissions and other
VOBA, DSI and DFEL		(3	)		(1	)	expenses
Reclassifications before income
tax benefit (expense)		64			15		Income (loss) before taxes
Income tax benefit (expense)		(13	)		(3	)	Federal income tax expense (benefit)
Reclassifications, net of income tax	$	51		$	12		Net income (loss)

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13. Realized Gain (Loss)

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed maturity AFS securities:
Gross gains	$	11		$	1		$	15		$	17
Gross losses		(15	)		(3	)		(24	)		(21	)
Credit loss benefit (expense) ⁽¹⁾		(5	)		(8	)		(11	)		(9	)
Realized gain (loss) on equity securities⁽²⁾		6			5			(2	)		37
Credit loss benefit (expense) on mortgage loans on real estate		(9	)		40			4			77
Credit loss benefit (expense) on reinsurance-related assets ⁽³⁾		(131	)		(2	)		(136	)		(6	)
Realized gain (loss) on the mark-to-market on certain instruments ⁽⁴⁾⁽⁵⁾		40			8			26			25
Other gain (loss) on investments		(26	)		(1	)		(28	)		1
Associated amortization of DAC, VOBA, DSI and DFEL
and changes in other contract holder funds		(6	)		(9	)		(13	)		(19	)
Total realized gain (loss) related to financial instruments
and reinsurance-related assets		(135	)		31			(169	)		102
Indexed annuity and IUL contracts net derivative results: ⁽⁶⁾
Gross gain (loss)		(15	)		(24	)		132			16
Associated amortization of DAC, VOBA, DSI and DFEL		18			19			(75	)		8
Variable annuity net derivative results: ⁽⁷⁾
Gross gain (loss)		386			60			973			(274	)
Associated amortization of DAC, VOBA, DSI and DFEL		(34	)		(1	)		(90	)		51
Total realized gain (loss)	$	220		$	85		$	771		$	(97	)

⁽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 mark-to-market adjustments on equity securities still held of $5 million and $4 million for the three months ended September 30, 2022 and 2021, respectively, and $3 million and $40 million for the nine months ended September 30, 2022 and 2021, respectively.

⁽³⁾In connection with our recognition of an allowance for credit losses for reinsurance-related assets, we perform 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. Our allowance for credit losses was $326 million and $190 million as of September 30, 2022, and December 31, 2021, respectively. The increase was attributable to updates to policyholder behavior assumptions that impacted ceded reserves.

⁽⁴⁾Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts net derivative results), reinsurance-related embedded derivatives, mortgage loans on real estate accounted for under the fair value option and trading securities.

⁽⁵⁾Includes gains and losses from fair value changes on mortgage loans on real estate accounted for under the fair value option of $(1) million and $2 million for the three months ended September 30, 2022 and 2021, respectively, and $(18) million and $2 million for the nine months ended September 30, 2022 and 2021, respectively.

⁽⁶⁾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.

⁽⁷⁾Includes the net difference in the change in embedded derivative reserves of our GLB riders and the change in the fair value of the derivative instruments we own to hedge the change in embedded derivative reserves on our GLB riders and the benefit ratio unlocking on our GLB and GDB riders, including the cost of purchasing the hedging instruments.

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14. Fair Value of Financial Instruments

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



	As of September 30, 2022						As of December 31, 2021
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	97,572		$	97,572		$	118,746		$	118,746
Trading securities		3,580			3,580			4,482			4,482
Equity securities		427			427			318			318
Mortgage loans on real estate		18,066			16,426			17,991			18,700
Derivative investments ⁽¹⁾		3,681			3,681			5,437			5,437
Other investments		3,811			3,811			4,284			4,284
Cash and invested cash		1,472			1,472			2,612			2,612
Other assets:
GLB direct embedded derivatives		1,442			1,442			1,963			1,963
GLB ceded embedded derivatives		37			37			56			56
Reinsurance-related embedded derivatives		479			479			-			-
Indexed annuity ceded embedded derivatives		456			456			528			528
Separate account assets		137,295			137,295			182,583			182,583

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(3,194	)		(3,194	)		(6,131	)		(6,131	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(1,739	)		(1,739	)		(1,788	)		(1,788	)
Account values of certain investment contracts		(42,922	)		(35,140	)		(41,194	)		(47,862	)
Short-term debt		(500	)		(497	)		(300	)		(302	)
Long-term debt		(5,959	)		(4,953	)		(6,325	)		(6,707	)
Reinsurance-related embedded derivatives		-			-			(206	)		(206	)
Other liabilities:
Derivative liabilities⁽¹⁾		(241	)		(241	)		(677	)		(677	)
GLB ceded embedded derivatives		(149	)		(149	)		(182	)		(182	)

⁽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.

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, excluding mortgage loans accounted for using the fair value option, are classified as Level 2 within the fair value hierarchy.

Other Investments

The carrying value of our assets classified as other investments, excluding short-term 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 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

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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 2 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 September 30, 2022, and December 31, 2021, 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 mortgage loans on real estate 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 modified coinsurance 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). Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and quality ratings for the period reported. Mortgage loans on real estate for which the fair value option was elected are valued using third-party pricing services. We have procedures in place to review the valuations each quarter to ensure they are reasonable, including utilizing a separate third party to reperform the valuation for a selection of mortgage loans on an annual basis. Due to lack of observable inputs, mortgage loans electing the fair value option are classified as Level 3 within the fair value hierarchy.

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


	As of		As of
	September 30,		December 31,
	2022		2021
Fair value	$	495	$	739
Aggregate contractual principal		516		742

As of September 30, 2022, and December 31, 2021, no loans for which the fair value option was 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

Short-Term Investments

Short-term investments consist of securities with original maturities of one year or less, but greater than three months, and are included in other investments on our Consolidated Balance Sheets. Securities included in short-term investments are carried at fair value, with valuation methods and inputs consistent with those applied to fixed maturity AFS securities.

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2022, or December 31, 2021.

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



		As of September 30, 2022
		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		$	-		$	72,433			$	5,013		$	77,446
U.S. government bonds			364			20				-			384
State and municipal bonds			-			5,089				-			5,089
Foreign government bonds			-			304				34			338
RMBS			-			2,038				10			2,048
CMBS			-			1,549				-			1,549
ABS			-			9,256				1,091			10,347
Hybrid and redeemable preferred securities			44			268				59			371
Trading securities			-			2,978				602			3,580
Equity securities			13			246				168			427
Mortgage loans on real estate			-			-				495			495
Derivative investments ⁽¹⁾			-			6,400				636			7,036
Other investments – short-term investments			-			143				-			143
Cash and invested cash			-			1,472				-			1,472
Other assets:
GLB direct embedded derivatives			-			-				1,442			1,442
GLB ceded embedded derivatives			-			-				37			37
Reinsurance-related embedded derivatives			-			479				-			479
Indexed annuity ceded embedded derivatives			-			-				456			456
Separate account assets			420			136,875				-			137,295
Total assets		$	841		$	239,550			$	10,043		$	250,434

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(3,194	)	$	(3,194	)
Other liabilities:
Derivative liabilities⁽¹⁾			-			(2,965	)			(631	)		(3,596	)
GLB ceded embedded derivatives			-			-				(149	)		(149	)
Total liabilities		$	-		$	(2,965	)		$	(3,974	)	$	(6,939	)

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		As of December 31, 2021
		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		$	-		$	92,400			$	5,720		$	98,120
U.S. government bonds			428			5				-			433
State and municipal bonds			-			6,621				-			6,621
Foreign government bonds			-			391				41			432
RMBS			-			2,521				4			2,525
CMBS			-			1,599				-			1,599
ABS			-			7,642				870			8,512
Hybrid and redeemable preferred securities			54			357				93			504
Trading securities			32			3,622				828			4,482
Equity securities			7			216				95			318
Mortgage loans on real estate			-			-				739			739
Derivative investments ⁽¹⁾			-			7,597				149			7,746
Other investments – short-term investments			-			154				-			154
Cash and invested cash			-			2,612				-			2,612
Other assets:
GLB direct embedded derivatives			-			-				1,963			1,963
GLB ceded embedded derivatives			-			-				56			56
Indexed annuity ceded embedded derivatives			-			-				528			528
Separate account assets			646			181,929				-			182,575
Total assets		$	1,167		$	307,666			$	11,086		$	319,919

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(6,131	)	$	(6,131	)
Reinsurance-related embedded derivatives			-			(206	)			-			(206	)
Other liabilities:
Derivative liabilities⁽¹⁾			-			(2,858	)			(128	)		(2,986	)
GLB ceded embedded derivatives			-			-				(182	)		(182	)
Total liabilities		$	-		$	(3,064	)		$	(6,441	)	$	(9,505	)

⁽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.

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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 Three Months Ended September 30, 2022
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,476		$	1		$	(513	)	$	65		$	(16	)	$	5,013
Foreign government bonds		37			-			(3	)		-			-			34
RMBS		1			-			-			9			-			10
CMBS		-			-			-			-			-			-
ABS		1,153			-			(38	)		123			(147	)		1,091
Hybrid and redeemable preferred
securities		104			(2	)		(37	)		(6	)		-			59
Trading securities		620			(24	)		-			3			3			602
Equity securities		145			24			-			(1	)		-			168
Mortgage loans on real estate		528			(1	)		(4	)		(28	)		-			495
Derivative investments		3			3			-			-			(1	)		5
Other assets: ⁽³⁾
GLB direct embedded derivatives		1,400			42			-			-			-			1,442
GLB ceded embedded derivatives		41			(4	)		-			-			-			37
Indexed annuity ceded embedded derivatives		440			(47	)		-			63			-			456
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(3,366	)		394			-			(222	)		-			(3,194	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(136	)		(13	)		-			-			-			(149	)
Total, net	$	6,446		$	373		$	(595	)	$	6		$	(161	)	$	6,069

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	For the Three Months Ended September 30, 2021
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,429		$	1		$	(88	)	$	55		$	(25	)	$	5,372
Foreign government bonds		43			-			(3	)		66			-			106
RMBS		1			-			-			-			-			1
CMBS		9			-			-			-			(8	)		1
ABS		630			-			(2	)		144			(38	)		734
Hybrid and redeemable preferred
securities		102			-			6			(27	)		-			81
Trading securities		630			3			-			(33	)		-			600
Equity securities		82			5			-			-			-			87
Mortgage loans on real estate		818			4			3			(33	)		-			792
Derivative investments		1			-			-			-			-			1
Other assets: ⁽³⁾
GLB direct embedded derivatives		1,767			(69	)		-			-			-			1,698
GLB ceded embedded derivatives		53			2			-			-			-			55
Indexed annuity ceded embedded derivatives		-			(14	)		-			(6	)		515			495
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		-			47			-			86			(4,937	)		(4,804	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(152	)		6			-			-			-			(146	)
Total, net	$	9,413		$	(15	)	$	(84	)	$	252		$	(4,493	)	$	5,073

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	For the Nine Months Ended September 30, 2022
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,720		$	2		$	(1,523	)	$	716		$	98		$	5,013
Foreign government bonds		41			-			(7	)		-			-			34
RMBS		4			-			-			21			(15	)		10
CMBS		-			-			-			17			(17	)		-
ABS		870			-			(98	)		576			(257	)		1,091
Hybrid and redeemable preferred
securities		93			(2	)		(26	)		(6	)		-			59
Trading securities		828			(82	)		-			(143	)		(1	)		602
Equity securities		95			56			-			17			-			168
Mortgage loans on real estate		739			(16	)		(10	)		(218	)		-			495
Derivative investments		21			5			(6	)		-			(15	)		5
Other assets: ⁽³⁾
GLB direct embedded derivatives		1,963			(521	)		-			-			-			1,442
GLB ceded embedded derivatives		56			(19	)		-			-			-			37
Indexed annuity ceded embedded derivatives		528			(214	)		-			142			-			456
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(6,131	)		3,244			-			(307	)		-			(3,194	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		(182	)		33			-			-			-			(149	)
Total, net	$	4,645		$	2,486		$	(1,670	)	$	815		$	(207	)	$	6,069

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Table of Contents


	For the Nine Months Ended September 30, 2021
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,121		$	4		$	(139	)	$	440		$	(54	)	$	5,372
U.S. government bonds		5			-			-			(5	)		-			-
Foreign government bonds		74			-			(11	)		80			(37	)		106
RMBS		2			(1	)		-			-			-			1
CMBS		-			1			-			8			(8	)		1
ABS		570			1			(5	)		426			(258	)		734
Hybrid and redeemable preferred
securities		104			-			18			(41	)		-			81
Trading securities		644			2			-			(31	)		(15	)		600
Equity securities		59			31			-			(3	)		-			87
Mortgage loans on real estate		832			11			6			(57	)		-			792
Derivative investments		1,542			1,249			-			(132	)		(2,658	)		1
Other assets: ⁽³⁾
GLB direct embedded derivatives		450			1,248			-			-			-			1,698
GLB ceded embedded derivatives		82			(27	)		-			-			-			55
Indexed annuity ceded embedded derivatives		550			17			-			(60	)		(12	)		495
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽³⁾		(3,594	)		(579	)		-			136			(767	)		(4,804	)
Other liabilities – GLB ceded embedded
derivatives ⁽³⁾		-			(146	)		-			-			-			(146	)
Total, net	$	6,441		$	1,811		$	(131	)	$	761		$	(3,809	)	$	5,073

⁽¹⁾The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 5).

⁽²⁾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).

⁽³⁾Gains (losses) from the changes in fair value are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

‎

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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 Three Months Ended September 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	173		$	(4	)	$	(50	)	$	(52	)	$	(2	)	$	65
RMBS		9			-			-			-			-			9
CMBS		-			-			-			-			-			-
ABS		213			-			-			(90	)		-			123
Hybrid and redeemable preferred
securities		-			-			-			-			(6	)		(6	)
Trading securities		11			-			-			(8	)		-			3
Equity securities		-			(1	)		-			-			-			(1	)
Mortgage loans on real estate		2			-			-			(30	)		-			(28	)
Other assets – indexed annuity ceded
embedded derivatives		37			-			-			26			-			63
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(181	)		-			-			(41	)		-			(222	)
Total, net	$	264		$	(5	)	$	(50	)	$	(195	)	$	(8	)	$	6



	For the Three Months Ended September 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	219		$	(12	)	$	(82	)	$	(70	)	$	-		$	55
Foreign government bonds		66			-			-			-			-			66
ABS		195			-			-			(51	)		-			144
Hybrid and redeemable preferred
securities		3			-			-			-			(30	)		(27	)
Trading securities		3			(15	)		-			(21	)		-			(33	)
Mortgage loans on real estate		8			-			(22	)		(19	)		-			(33	)
Other assets – indexed annuity ceded
embedded derivatives		19			-			-			(25	)		-			(6	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(47	)		-			-			133			-			86
Total, net	$	466		$	(27	)	$	(104	)	$	(53	)	$	(30	)	$	252

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	For the Nine Months Ended September 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	1,026		$	(4	)	$	(75	)	$	(181	)	$	(50	)	$	716
RMBS		21			-			-			-			-			21
CMBS		17			-			-			-			-			17
ABS		768			-			-			(185	)		(7	)		576
Hybrid and redeemable preferred
securities		-			-			-			-			(6	)		(6	)
Trading securities		282			(220	)		-			(205	)		-			(143	)
Equity securities		26			(9	)		-			-			-			17
Mortgage loans on real estate		14			-			-			(232	)		-			(218	)
Other assets – indexed annuity ceded
embedded derivatives		76			-			-			66			-			142
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(410	)		-			-			103			-			(307	)
Total, net	$	1,820		$	(233	)	$	(75	)	$	(634	)	$	(63	)	$	815


	For the Nine Months Ended September 30, 2021
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	926		$	(29	)	$	(103	)	$	(337	)	$	(17	)	$	440
U.S. government bonds		-			-			(5	)		-			-			(5	)
Foreign government bonds		80			-			-			-			-			80
CMBS		8			-			-			-			-			8
ABS		563			-			-			(137	)		-			426
Hybrid and redeemable preferred
securities		9			(20	)		-			-			(30	)		(41	)
Trading securities		127			(23	)		-			(135	)		-			(31	)
Equity securities		6			(9	)		-			-			-			(3	)
Mortgage loans on real estate		89			(101	)		(26	)		(19	)		-			(57	)
Derivative investments		174			(124	)		(182	)		-			-			(132	)
Other assets – indexed annuity ceded
embedded derivatives		22			-			-			(82	)		-			(60	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(155	)		-			-			291			-			136
Total, net	$	1,849		$	(306	)	$	(316	)	$	(419	)	$	(47	)	$	761

Table of Contents

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 Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Trading securities	$	(23	)	$	3		$	(81	)	$	3
Equity securities		23			5			57			35
Mortgage loans on real estate		(1	)		4			(16	)		12
Derivative investments		2			-			5			-
GLB embedded derivatives		237			140			76			1,854
Embedded derivatives – indexed annuity
and IUL contracts		(55	)		(36	)		4			22
Total, net⁽¹⁾	$	183		$	116		$	45		$	1,926

⁽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 Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed maturity AFS securities:
Corporate bonds	$	(519	)	$	(82	)	$	(1,532	)	$	(139	)
Foreign government bonds		(2	)		(3	)		(7	)		(11	)
ABS		(39	)		(1	)		(101	)		(5	)
Hybrid and redeemable preferred
securities		(38	)		6			(26	)		19
Mortgage loans on real estate		(4	)		3			(10	)		5
Total, net	$	(602	)	$	(77	)	$	(1,676	)	$	(131	)

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



	For the Three								For the Three
	Months Ended								Months Ended
	September 30, 2022								September 30, 2021
	Transfers		Transfers						Transfers			Transfers
	Into		Out of						Into			Out of
	Level 3		Level 3			Total			Level 3			Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	37	$	(53	)	$	(16	)	$	-		$	(25	)	$	(25	)
CMBS		-		-			-			-			(8	)		(8	)
ABS		15		(162	)		(147	)		8			(46	)		(38	)
Trading securities		4		(1	)		3			-			-			-
Derivative investments		-		(1	)		(1	)		-			-			-
Other assets – indexed annuity ceded
embedded derivatives		-		-			-			515			-			515
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		-		-			-			(4,937	)		-			(4,937	)
Total, net	$	56	$	(217	)	$	(161	)	$	(4,414	)	$	(79	)	$	(4,493	)



	For the Nine								For the Nine
	Months Ended								Months Ended
	September 30, 2022								September 30, 2021
	Transfers		Transfers						Transfers			Transfers
	Into		Out of						Into			Out of
	Level 3		Level 3			Total			Level 3			Level 3			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	265	$	(167	)	$	98		$	10		$	(64	)	$	(54	)
Foreign government bonds		-		-			-			-			(37	)		(37	)
RMBS		-		(15	)		(15	)		-			-			-
CMBS		-		(17	)		(17	)		-			(8	)		(8	)
ABS		16		(273	)		(257	)		8			(266	)		(258	)
Trading securities		4		(5	)		(1	)		14			(29	)		(15	)
Derivative investments		-		(15	)		(15	)		-			(2,658	)		(2,658	)
Other assets – indexed annuity ceded
embedded derivatives		-		-			-			515			(527	)		(12	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		-		-			-			(4,937	)		4,170			(767	)
Total, net	$	285	$	(492	)	$	(207	)	$	(4,390	)	$	581		$	(3,809	)

Transfers into and out of Level 3 are generally the result of observable market information on financial instruments no longer being available or becoming available to our pricing vendors. For the three and nine months ended September 30, 2022 and 2021, transfers in and out of Level 3 were attributable primarily to the financial instruments’ observable market information no longer being available or becoming available. In 2021, transfers out of Level 3 included derivative instruments for which we changed valuation techniques. This change in valuation technique was primarily from unobservable inputs in counterparty models to a mathematical model provided by a third party. The updated valuation technique is considered industry standard and provides us with greater visibility into the economic valuation inputs.
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The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of September 30, 2022:



											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	$	2,850		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.9	%	-	7.3	%	2.1	%
Foreign government
bonds		34		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.2	%	-	19.1	%	16.4	%
ABS		15		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	2.4	%	-	2.4	%	2.4	%
Hybrid and redeemable
preferred securities		7		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.4	%	-	1.5	%	1.5	%
Equity securities		19		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.2	%	-	4.5	%	4.3	%
Other assets:
GLB direct and ceded		1,479		Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
embedded derivatives					Utilization of guaranteed withdrawals⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.31	%	-	2.38	%	1.67	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.30	%

Indexed annuity ceded
embedded derivatives		456		Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Liabilities
Future contract benefits –
indexed annuity contracts
embedded derivatives	$	(3,293	)	Discounted cash flow	Lapse rate ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Other liabilities –
GLB ceded embedded
derivatives		(149	)	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⁾	0.31	%	-	2.38	%	1.67	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.30	%

⁽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 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.

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⁽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 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.

15. Segment Information

We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments. 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. A discussion of these segments and Other Operations is found in Note 21 to the Consolidated Financial Statements in our 2021 Form 10-K.

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”);

Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities;

Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value;

Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; 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 GDB and GLB riders and VUL products with secondary guarantees (“benefit ratio unlocking”);

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

Gains (losses) on modification or early extinguishment of debt;

Losses from the impairment of intangible assets;

Income (loss) from discontinued operations;

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Transaction and integration costs related to mergers and acquisitions including the acquisition or divestiture, through reinsurance or other means, of businesses or blocks of business; 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 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 Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022			2021
Revenues
Operating revenues:
Annuities	$	1,183		$	1,267	$	3,583		$	3,720
Retirement Plan Services		316			328		949			989
Life Insurance		1,762			2,325		5,387			6,293
Group Protection		1,333			1,243		3,959			3,743
Other Operations		36			42		111			125
Excluded realized gain (loss), pre-tax		171			36		618			(245	)
Amortization of DFEL associated with benefit ratio
unlocking, pre-tax		(3	)		-		(18	)		2
Total revenues	$	4,798		$	5,241	$	14,589		$	14,627



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	449		$	338		$	1,007		$	951
Retirement Plan Services		52			60			161			178
Life Insurance		(2,160	)		93			(1,988	)		455
Group Protection		37			(32	)		55			(12	)
Other Operations		(113	)		(152	)		(285	)		(307	)
Excluded realized gain (loss), after-tax		134			29			487			(193	)
Benefit ratio unlocking, after-tax		(339	)		(12	)		(1,036	)		119
Gain (loss) on modification or early extinguishment
of debt, after-tax		-			(6	)		-			(6	)
Impairment of intangibles		(634	)		-			(634	)		-
Net income (loss)	$	(2,574	)	$	318		$	(2,233	)	$	1,185

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Other segment information (in millions) was as follows:




		As of			As of
	September 30,			December 31,
		2022			2021
Assets
Annuities		$	161,456		$	201,732
Retirement Plan Services			40,858			47,625
Life Insurance			92,050			105,208
Group Protection			9,862			10,522
Other Operations			20,457			22,214
Total assets		$	324,683		$	387,301

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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


	Page
Forward-Looking Statements – Cautionary Language	54
Introduction	55
Executive Summary	55
Critical Accounting Policies and Estimates	56
Results of Consolidated Operations	60
Results of Annuities	62
Results of Retirement Plan Services	66
Results of Life Insurance	70
Results of Group Protection	76
Results of Other Operations	80
Realized Gain (Loss)	82
Consolidated Investments	84
Liquidity and Capital Resources	96

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The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of September 30, 2022, compared with December 31, 2021, and the results of operations for the three and nine months ended September 30, 2022, compared with the corresponding periods in 2021 of Lincoln National Corporation and its consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, “LNC,” “Company,” “we,” “our” or “us” refers to Lincoln National Corporation and its consolidated subsidiaries.

The MD&A is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”); and other reports filed with the Securities and Exchange Commission (“SEC”). For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2021 Form 10-K.

FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE

Certain statements made in this report and in other written or oral statements made by us or on our behalf are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements. Forward-looking statements may contain words like: “anticipate,” “believe,” “estimate,” “expect,” “project,” “shall,” “will” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.

Forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those expressed in or implied by such forward-looking statements due to a variety of factors, including:

The continuation of the COVID-19 pandemic, or future outbreaks of COVID-19, and uncertainty surrounding the length and severity of future impacts on the global economy and on our business, results of operations and financial condition;

Weak general economic and business conditions that may affect demand for our products, account values, investment results, guaranteed benefit liabilities, premium levels and claims experience;

Adverse global capital and credit market conditions that may affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;

The inability of our subsidiaries to pay dividends to the holding company in sufficient amounts, which could harm the holding company’s ability to meet its obligations;

Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on the payment of revenue sharing and 12b-1 distribution fees;

The impact of U.S. federal tax reform legislation on our business, earnings and capital;

The impact of Regulation Best Interest or other regulations adopted by the SEC, the Department of Labor or other federal or state regulators or self-regulatory organizations relating to the standard of care owed by investment advisers and/or broker-dealers that could affect our distribution model;

Actions taken by reinsurers to raise rates on in-force business;

Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products;

Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities;

The impact of the implementation of the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act relating to the regulation of derivatives transactions;

The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;

A decline or continued volatility in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products;

Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;

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A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings;

Changes in accounting principles that may affect our business, results of operations and financial condition, including the adoption effective January 1, 2023, of Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts;

Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;

Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;

Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain financial assets, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on financial assets;

Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems, including from cyberattacks or other breaches of our data security systems;

The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items;

The inability to realize or sustain the benefits we expect from, greater than expected investments in, and the potential impact of efforts related to, our strategic initiatives, including the Spark Initiative;

The adequacy and collectability of reinsurance that we have obtained;

Future pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;

Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;

The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and

The unanticipated loss of key management, financial planners or wholesalers.

The risks and uncertainties included here are not exhaustive. Our most recent Form 10-K as well as other reports that we file with the SEC include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.

Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.

INTRODUCTION

Executive Summary

We are a holding company that operates multiple insurance and retirement businesses through subsidiary companies. We sell a wide range of wealth protection, accumulation, retirement income and group protection products and solutions through our four business segments:

Annuities;

Retirement Plan Services;

Life Insurance; and

Group Protection

We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. See “Part I – Item 1. Business” in our 2021 Form 10-K for a discussion of our business segments and products.

In this report, in addition to providing consolidated revenues and net income (loss), we also provide segment operating revenues and income (loss) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments. Operating revenues and income (loss) from operations are the financial performance measures we use to evaluate and assess the results of our segments. Accordingly, we define and report operating revenues and income (loss) from operations by segment in Note 15. Our management believes that operating revenues and income (loss) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses. Certain items are excluded from operating revenue and income (loss) from operations because they are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in many instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. In addition, we believe that our definitions of operating revenues and income (loss)

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from operations will provide investors with a more valuable measure of our performance because it better reveals trends in our businesses.

We provide information about our segments’ and Other Operations’ operating revenue and expense line items and realized gain (loss), key drivers of changes and historical details underlying the line items below. For factors that could cause actual results to differ materially from those set forth, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2021 Form 10-K.

Industry trends, significant operational matters and outlook are described in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” of our 2021 Form 10-K, which is further updated by the discussion that follows.

COVID-19 Pandemic

The health, economic and business conditions precipitated by the worldwide COVID-19 pandemic that emerged in 2020 continue to adversely affect us and are expected to continue to adversely affect our business, results of operations and financial condition in the fourth quarter of 2022. We continue to monitor U.S. CDC reports related to COVID-19 and the potential impacts of the COVID-19 pandemic on our Life Insurance and Group Protection segments. See “Additional Information” within Results of Life Insurance and Results of Group Protection below for expected impacts of the COVID-19 pandemic in the fourth quarter of 2022.

The ultimate impact on our business, results of operations and financial condition depends on the severity and duration of the COVID-19 pandemic and related health, economic and business impacts and actions taken by governmental authorities and other third parties in response, each of which is uncertain, rapidly changing and difficult to predict. For more information on the risks related to the COVID-19 pandemic, see “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Interest Rate Environment

In light of substantial progress since 2020 in the labor markets, elevated inflation and geopolitical events, the Federal Reserve announced in March 2022 the first increase to the federal funds rate target range since December 2018. Subsequently, the Federal Reserve announced consecutive increases to the federal funds rate target range through September 2022. In November 2022, the Federal Reserve announced an additional 75 basis points increase, when it set the range at 3.75% to 4.00% and reiterated that it will implement policy as needed to combat inflation. Additionally, the Federal Reserve announced that it will continue the reduction it started in June 2022 of its holdings of Treasury securities, agency debt and agency mortgage-backed securities. As interest rates are rising, which impacts our portfolio yields, we continue to be proactive in our investment strategies, product designs, crediting rate strategies, expense management actions and overall asset-liability practices to mitigate the risk of unfavorable consequences in this interest rate environment.

We have provided disclosures around interest rate risk in “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals,” “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Annual Assumption Review – Long-Term New Money Investment Yield Sensitivity” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K.

Critical Accounting Policies and Estimates

The MD&A included in our 2021 Form 10-K contains a detailed discussion of our critical accounting policies and estimates. The following information updates the “Critical Accounting Policies and Estimates” provided in our 2021 Form 10-K, and therefore, should be read in conjunction with that disclosure.

DAC, VOBA, DSI and DFEL

Reversion to the Mean

As variable fund returns do not move in a systematic manner, we reset the baseline of account values from which EGPs are projected, which we refer to as our reversion to the mean (“RTM”) process, as discussed in our 2021 Form 10-K.

If we had unlocked our RTM assumption as of September 30, 2022, we would have recorded unfavorable unlocking of approximately $155 million, pre-tax, primarily within our Annuities segment.

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Investments

Investment Valuation

The following summarizes investments on our Consolidated Balance Sheets carried at fair value by pricing source and fair value hierarchy level (in millions) as of September 30, 2022:



		Quoted
		Prices
		in Active
	Markets for			Significant			Significant
		Identical		Observable			Unobservable
		Assets			Inputs			Inputs		Total
		(Level 1)			(Level 2)			(Level 3)		Fair Value
Priced by third-party pricing services		$	421		$	84,591		$	164	$	85,176
Priced by independent broker quotations			-			-			4,388		4,388
Priced by matrices			-			13,168			-		13,168
Priced by other methods ⁽¹⁾			-			-			2,925		2,925
Total		$	421		$	97,759		$	7,477	$	105,657

Percent of total			0%			93%			7%		100%

⁽¹⁾Represents primarily securities for which pricing models were used to compute fair value.

For more information about the valuation of our financial instruments carried at fair value, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Investments – Investment Valuation” in our 2021 Form 10-K and Note 14 herein.

Derivatives

For information on our accounting policies for derivatives, see Note 5 herein. For information on market exposures associated with our derivatives, including sensitivities, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K.

Future Contract Benefits

Guaranteed Living Benefits

Within our annuity business, we have certain products that contain guaranteed living benefit (“GLB”) features. The proportion of our variable annuity account values that contained GLB features to our total annuity account values, net of reinsurance, was 46% and 51% as of September 30, 2022 and 2021, respectively. Underperforming equity markets increase our exposure to potential benefits with the GLB features. A contract with a GLB feature is “in the money” if the contract holder’s account balance falls below the present value of guaranteed withdrawal or income benefits, assuming no lapses. As of September 30, 2022 and 2021, 72% and 9%, respectively, of all in-force contracts with a GLB feature were “in the money,” and our exposure, after reinsurance, as of September 30, 2022 and 2021, was $5.8 billion and $534 million, respectively. However, the only way the contract holder can realize the excess of the present value of benefits over the account value of the contract is through a series of withdrawals or income payments that do not exceed a maximum amount. If, after the series of withdrawals or income payments, the account value is exhausted, the contract holder will continue to receive a series of annuity payments. The account value can also fluctuate with equity market returns on a daily basis resulting in increases or decreases in the excess of the present value of benefits over account value.

For information on our variable annuity hedge program performance, see our discussion in “Realized Gain (Loss) – Variable Annuity Net Derivative Results” below. For information on our estimates of the potential instantaneous effect to net income (loss) that could result from sudden changes that may occur in equity markets, interest rates and implied market volatilities, see our discussion in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Future Contract Benefits – GLB” in our 2021 Form 10-K.

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Annual Assumption Review

During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used for our EGPs underlying the amortization of DAC, VOBA, DSI and DFEL as well as our reserves and embedded derivatives. For more information on our comprehensive review, see Note 1 in our 2021 Form 10-K. Details underlying the effect to net income (loss) from our annual assumption review (in millions) were as follows:



	For the Three
	Months Ended
	September 30,
	2022			2021
Income (loss) from operations:
Annuities	$	217		$	(5	)
Retirement Plan Services		6			-
Life Insurance		(2,197	)		(26	)
Group Protection		1			16
Excluded realized gain (loss)		(86	)		6
Net income (loss)	$	(2,059	)	$	(9	)

The impacts of our annual assumption review were driven primarily by the following:

2022

For Annuities, favorable unlocking was driven by increases to interest rate assumptions, partially offset by unfavorable updates to other items.

For Retirement Plan Services, favorable unlocking was driven by increases to interest rate assumptions and other items.

For Life Insurance, unfavorable unlocking was driven by updates to policyholder behavior assumptions related to universal life insurance (“UL”) products with secondary guarantees in the amount of $1.8 billion, after-tax, as well as updates to mortality, morbidity and reinsurance assumptions and other items.

For Group Protection, the favorable impact was driven by updates to life waiver assumptions and increases to interest rate assumptions, partially offset by unfavorable updates to long-term disability incidence and severity assumptions.

For excluded realized gain (loss), unfavorable unlocking was driven by updates to policyholder behavior assumptions that impacted ceded reserves, partially offset by favorable updates to expense and capital market assumptions.

2021

For Annuities, unfavorable unlocking was driven by updates to policyholder behavior and interest rate assumptions, partially offset by favorable updates to expense assumptions.

For Life Insurance, unfavorable unlocking was driven by updates to policyholder behavior and interest rate assumptions, partially offset by favorable updates to investment allocation assumptions.

For Group Protection, the favorable impact was driven by updates to long-term disability termination rate assumptions, partially offset by unfavorable updates to interest rate assumptions.

For excluded realized gain (loss), favorable unlocking was driven by updates to expense assumptions and other items, partially offset by unfavorable updates to policyholder behavior assumptions.

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.

The fair values of our reporting units 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.

We apply significant judgment when determining the estimated fair value of our reporting units. Factors that can influence the value of goodwill include the capital markets, competitive landscape, regulatory environment, consumer confidence and any items that can directly or indirectly affect new business future cash flows. Factors that could affect production levels and profitability of new business include mix of new business, pricing changes, customer acceptance of our products and distribution strength. Spread compression and related effects to profitability caused by lower interest rates affect the valuation of in-force business more significantly than the valuation of new

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business, as new business pricing assumptions reflect the current and anticipated future interest rate environment. Estimates of fair value are inherently uncertain and represent only management’s reasonable expectation regarding future developments.

As a result of the current capital market environment, including (i) declining equity markets and (ii) the impact of rising interest rates on our discount rate assumption, we accelerated our quantitative goodwill impairment test for our Life Insurance reporting unit as we concluded that there were indicators of impairment. Based on this quantitative test, which included updating our best estimate assumptions therein, we incurred an impairment during the third quarter of 2022 of the Life Insurance reporting unit goodwill of $634 million, which represents a write-off of the entire balance of goodwill for the reporting unit.

We concluded that, for the third quarter, there were not indicators of impairment for our remaining reporting units (Annuities, Retirement Plan Services and Group Protection). During the fourth quarter, we will perform our annual quantitative goodwill impairment test as of October 1, 2022, on these other reporting units. For more information on goodwill, see Note 7 herein and “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Goodwill and Other Intangible Assets” and Notes 1 and 9 in our 2021 Form 10-K.

Income Taxes

In August 2022, the Inflation Reduction Act of 2022 (“IRA”) was passed by the U.S. Congress and signed into law by President Biden. The IRA enacted a new corporate alternative minimum tax (“CAMT”), effective for tax years beginning after December 31, 2022. We are currently evaluating the impact of CAMT on our business, results of operations and financial condition.

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RESULTS OF CONSOLIDATED OPERATIONS

Details underlying the consolidated results, deposits, net flows and account values (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Income (Loss)
Income (loss) from operations:
Annuities	$	449		$	338		$	1,007		$	951
Retirement Plan Services		52			60			161			178
Life Insurance		(2,160	)		93			(1,988	)		455
Group Protection		37			(32	)		55			(12	)
Other Operations		(113	)		(152	)		(285	)		(307	)
Excluded realized gain (loss), after-tax		134			29			487			(193	)
Benefit ratio unlocking, after-tax		(339	)		(12	)		(1,036	)		119
Gain (loss) on modification or early extinguishment of debt, after-tax		-			(6	)		-			(6	)
Impairment of intangibles		(634	)		-			(634	)		-
Net income (loss)	$	(2,574	)	$	318		$	(2,233	)	$	1,185



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022		2021			2022			2021
Deposits
Annuities	$	3,262	$	2,707		$	8,669		$	8,729
Retirement Plan Services		2,799		2,411			9,109			7,839
Life Insurance		1,386		1,324			4,160			3,822
Total deposits	$	7,447	$	6,442		$	21,938		$	20,390

Net Flows
Annuities	$	319	$	(841	)	$	(551	)	$	(1,913	)
Retirement Plan Services		811		(21	)		2,670			843
Life Insurance		978		871			2,898			2,544
Total net flows	$	2,108	$	9		$	5,017		$	1,474



	As of September 30,
	2022		2021
Account Values
Annuities	$	138,780	$	166,347
Retirement Plan Services		84,344		95,606
Life Insurance		47,351		59,581
Total account values	$	270,475	$	321,534

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Comparison of the Three and Nine Months Ended September 30, 2022 to 2021

Net income decreased due primarily to the following:

The effect of our annual assumption review.

Goodwill impairment in our Life Insurance segment.

Negative performance on alternative investments in the third quarter of 2022 compared to investment income in 2021.

Lower fee income driven by lower average daily variable account values.

Unfavorable variable annuity net derivative results.

The decrease in net income was partially offset by the following:

Lower mortality claims in our Life Insurance and Group Protection segments.

Lower expenses driven by lower legal expenses, partially offset by elevated compensation-related expenses.

Growth in business in force.

For a discussion of the goodwill impairment, see “Introduction – Critical Accounting Policies and Estimates – Goodwill” above. For a discussion of the COVID-19 pandemic, see “Introduction – Executive Summary” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

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RESULTS OF ANNUITIES

Income (Loss) from Operations

Details underlying the results for Annuities (in millions) were as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022		2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	57		$	30	$	112	$	89
Fee income		590			690		1,860		2,022
Net investment income		379			371		1,076		1,052
Operating realized gain (loss) ⁽²⁾		52			49		157		152
Amortization of deferred gain on
business sold through reinsurance		6			7		19		19
Other revenues ⁽³⁾		99			120		359		386
Total operating revenues		1,183			1,267		3,583		3,720
Operating Expenses
Interest credited		224			210		646		608
Benefits⁽¹⁾		(56	)		135		275		411
Commissions and other expenses		481			519		1,482		1,568
Total operating expenses		649			864		2,403		2,587
Income (loss) from operations before taxes		534			403		1,180		1,133
Federal income tax expense (benefit)		85			65		173		182
Income (loss) from operations	$	449		$	338	$	1,007	$	951

⁽¹⁾Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include changes in income annuity reserves driven by premiums.

⁽²⁾See “Realized Gain (Loss)” below.

⁽³⁾Consists primarily of revenues attributable to broker-dealer services, which are subject to market volatility and the net settlement related to certain reinsurance transactions, which has a corresponding offset in net investment income and interest credited.

Comparison of the Three and Nine Months Ended September 30, 2022 to 2021

Income from operations for this segment increased due primarily to the following:

Lower benefits, net of changes in income annuity reserves, due to the effect of unlocking, partially offset by an increase in the growth in benefit reserves driven primarily by equity market performance.

Lower commissions and other expenses driven by lower trail commissions resulting from lower average daily variable account values and lower amortization expense as a result of lower actual gross profits.

The increase in income from operations was partially offset by the following:

Lower fee income driven by lower average daily variable account values.

Lower net investment income, net of interest credited, driven by negative performance on alternative investments within our surplus portfolio in the third quarter of 2022 compared to investment income in 2021, and lower prepayment and bond make-whole premiums, partially offset by higher average fixed account values and impacts to portfolio yields from the current interest rate environment.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

For a discussion of the COVID-19 pandemic, see “Introduction – Executive Summary” above and “Part I – 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

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The other component of net flows relates to the retention of new business and account values. An important measure of retention is the reduction in account values caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average gross account values were 7% for the three and nine months ended September 30, 2022, and 8% for the corresponding periods in 2021.

Our fixed and indexed variable annuities have discretionary fixed and indexed crediting rates that reset on an annual or periodic basis and may be subject to surrender charges. Our ability to retain these annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Executive Summary” above.

Fee Income

Details underlying fee income, account values and net flows (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fee Income
Mortality, expense and other assessments	$	585		$	692		$	1,844		$	2,016
Surrender charges		6			3			18			7
DFEL:
Deferrals		(5	)		(6	)		(17	)		(20	)
Amortization, net of interest:
Amortization, net of interest, excluding unlocking		5			6			16			24
Unlocking		(1	)		(5	)		(1	)		(5	)
Total fee income	$	590		$	690		$	1,860		$	2,022



	As of or For the Three						As of or For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Variable Account Value Information
Variable annuity deposits ⁽¹⁾	$	727		$	1,345		$	2,727		$	3,732
Increases (decreases) in variable annuity account values:
Net flows ⁽¹⁾		(1,460	)		(1,471	)		(4,321	)		(4,830	)
Change in market value ⁽¹⁾		(4,740	)		(631	)		(28,908	)		10,694
Contract holder assessments ⁽¹⁾		(637	)		(722	)		(1,985	)		(2,111	)
Transfers to the variable portion of variable annuity
products from the fixed portion of variable
annuity products		120			171			373			440
Variable annuity account values ⁽¹⁾		101,944			132,422			101,944			132,422
Average daily variable annuity account values ⁽¹⁾		110,318			135,777			117,939			133,203
Average daily S&P 500^® Index ⁽²⁾		3,983			4,424			4,185			4,158

⁽¹⁾Excludes the fixed portion of variable.

⁽²⁾We generally use the S&P 500 Index as a benchmark for the performance of our variable account values. The account values of our variable annuity contracts are invested by our policyholders in a variety of investment options including, but not limited to, domestic and international equity securities and fixed income, which do not necessarily align with S&P 500 Index performance. See Note 8 for additional information.

We charge contract holders mortality and expense assessments on variable annuity accounts to cover insurance and administrative expenses. These assessments are a function of the rates priced into the product and the average daily variable account values. Average daily variable account values are driven by net flows and variable fund returns. Charges on GLB riders are assessed based on a contractual rate that is applied either to the account value or the guaranteed amount. We may collect surrender charges when our fixed and variable annuity contract holders surrender their contracts during the surrender charge period to protect us from premature withdrawals. Fee income includes charges on both our variable and fixed annuity products, but excludes the attributed fees on our GLB

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riders; see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Operating Realized Gain (Loss)” in our 2021 Form 10-K for discussion of these attributed fees.

Net Investment Income and Interest Credited

Details underlying net investment income, interest credited and fixed account values (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Investment Income
Fixed maturity AFS securities, mortgage loans on real estate
and other, net of investment expenses	$	352		$	302		$	948		$	866
Commercial mortgage loan prepayment and bond
make-whole premiums ⁽¹⁾		1			22			30			46
Surplus investments ⁽²⁾		26			47			98			140
Total net investment income	$	379		$	371		$	1,076		$	1,052

Interest Credited
Amount provided to contract holders	$	220		$	208		$	635		$	596
DSI deferrals		-			(1	)		(1	)		(2	)
Interest credited before DSI amortization		220			207			634			594
DSI amortization:
Amortization, excluding unlocking		5			4			13			15
Unlocking		(1	)		(1	)		(1	)		(1	)
Total interest credited	$	224		$	210		$	646		$	608

⁽¹⁾See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information.

⁽²⁾Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities. See “Consolidated Investments – Alternative Investments” below for more information on alternative investments.



	As of or For the Three						As of or For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed Account Value Information
Fixed annuity deposits ⁽¹⁾	$	2,535		$	1,362		$	5,942		$	4,997
Increases (decreases) in fixed annuity account values:
Net flows ⁽¹⁾		1,779			630			3,770			2,917
Contract holder assessments ⁽¹⁾		(11	)		(21	)		(40	)		(67	)
Transfers from the fixed portion of variable annuity
products to the variable portion of variable
annuity products		(120	)		(171	)		(373	)		(440	)
Reinvested interest credited ⁽¹⁾⁽³⁾		(186	)		145			(2,526	)		1,815
Fixed annuity account values ⁽¹⁾⁽²⁾		36,836			33,925			36,836			33,925
Average fixed account values ⁽¹⁾⁽²⁾		36,731			33,804			36,273			32,031

⁽¹⁾Includes the fixed portion of variable.

⁽²⁾Net of reinsurance ceded.

⁽³⁾Decrease in reinvested interest credited driven by the change in embedded derivatives on our indexed annuity products.

A portion of our investment income earned is credited to the contract holders of our deferred fixed annuity products, including the fixed portion of variable annuity contracts. We expect to earn a spread between what we earn on the underlying general account investments supporting the fixed annuity product line, including the fixed portion of variable annuity contracts, and what we credit to our fixed annuity contract holders’ accounts, including the fixed portion of variable annuity contracts. Changes in commercial mortgage loan prepayments and bond make-whole premiums, investment income on alternative investments and surplus investment income can vary

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significantly from period to period due to a number of factors and, therefore, may contribute to investment income results that are not indicative of the underlying trends.

Benefits

Benefits for this segment include changes in income annuity reserves driven by premiums, changes in benefit reserves and costs associated with the hedging of our benefit ratio unlocking on benefit reserves associated with our variable annuity GDB and GLB riders. For a corresponding offset of changes in income annuity reserves, see footnote 1 of “Income (Loss) from Operations” above.

Details underlying benefits (in millions) were as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022			2021
Benefits
Net death and other benefits	$	212		$	127	$	543		$	403
Unlocking		(268	)		8		(268	)		8
Total benefits	$	(56	)	$	135	$	275		$	411

Commissions and Other Expenses

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Commissions and Other Expenses
Commissions:
Deferrable	$	103		$	99		$	302		$	340
Non-deferrable		152			177			478			509
General and administrative expenses		107			105			306			321
Inter-segment reimbursement associated with reserve
financing and LOC expenses ⁽¹⁾		1			1			3			2
Taxes, licenses and fees		9			9			34			31
Total expenses incurred, excluding broker-dealer		372			391			1,123			1,203
DAC deferrals		(117	)		(113	)		(345	)		(384	)
Total pre-broker-dealer expenses incurred,
excluding amortization, net of interest		255			278			778			819
DAC and VOBA amortization, net of interest:
Amortization, net of interest, excluding unlocking		99			105			301			334
Unlocking		(7	)		(7	)		(7	)		(7	)
Broker-dealer expenses incurred		134			143			410			422
Total commissions and other expenses	$	481		$	519		$	1,482		$	1,568

DAC Deferrals
As a percentage of sales/deposits		3.6%			4.2%			4.0%			4.4%

⁽¹⁾Includes reimbursements to Annuities from the Life Insurance segment for reserve financing, net of expenses incurred by Annuities for its use of letters of credit (“LOCs”). The inter-segment amounts are not reported on our Consolidated Statements of Comprehensive Income (Loss).

Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized over the lives of the contracts in relation to EGPs. Certain types of commissions, such as trail commissions that are based on account values, are expensed as incurred rather than deferred and amortized. Broker-dealer expenses that vary with and are related to sales are expensed as incurred and not deferred and amortized. Fluctuations in these expenses correspond with fluctuations in other revenues. For more information, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” in our 2021 Form 10-K.

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RESULTS OF RETIREMENT PLAN SERVICES

Income (Loss) from Operations

Details underlying the results for Retirement Plan Services (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating Revenues
Fee income	$	64	$	75	$	199	$	220
Net investment income		244		245		723		742
Other revenues ⁽¹⁾		8		8		27		27
Total operating revenues		316		328		949		989
Operating Expenses
Interest credited		161		153		469		462
Benefits		1		1		2		2
Commissions and other expenses		94		102		291		309
Total operating expenses		256		256		762		773
Income (loss) from operations before taxes		60		72		187		216
Federal income tax expense (benefit)		8		12		26		38
Income (loss) from operations	$	52	$	60	$	161	$	178

⁽¹⁾Consists primarily of mutual fund account program revenues from mid to large employers.

Comparison of the Three and Nine Months Ended September 30, 2022 to 2021

Income from operations for this segment decreased due primarily to the following:

Lower fee income driven by lower average daily account values.

The decrease in income from operations was partially offset by lower commissions and other expenses driven by the effect of unlocking, lower trail commissions resulting from lower average account values and lower amortization as a result of lower actual gross profits.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

For a discussion of the COVID-19 pandemic, see “Introduction – Executive Summary” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

Net flows in this business fluctuate based on the timing of larger plans being implemented and terminating over the course of the year.

New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. The other component of net flows relates to the retention of the business. An important measure of retention is the reduction in account values caused by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account values were 9% for the three and nine months ended September 30, 2022, and 10% for the corresponding periods in 2021.

Our net flows are negatively affected by the continued net outflows from our oldest blocks of annuities business (as presented on our Net Flows By Market table below as “Multi-Fund^® and other”), which are among our higher margin product lines in this segment, due to the fact that they are mature blocks with low distribution and servicing costs. The proportion of these products to our total account values was 17% and 18% as of September 30, 2022 and 2021, respectively. Due to this overall shift in business mix toward products with lower returns, new deposit production continues to be necessary to maintain earnings at current levels.

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Our fixed annuity business includes products with discretionary and index-based crediting rates that are reset on either a quarterly or semi-annual basis. Our ability to retain quarterly or semi-annual reset annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Executive Summary” above.

Fee Income

Details underlying fee income, net flows and account values (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Fee Income
Annuity expense assessments	$	47	$	56	$	147	$	163
Mutual fund fees		17		19		52		57
Total fee income	$	64	$	75	$	199	$	220



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Flows By Market
Small market	$	157		$	(43	)	$	121		$	35
Mid – large market		906			423			3,329			1,858
Multi-Fund^® and other		(252	)		(401	)		(780	)		(1,050	)
Total net flows	$	811		$	(21	)	$	2,670		$	843



	As of or For the Three						As of or For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Variable Account Value Information
Variable annuity deposits ⁽¹⁾	$	484		$	490		$	1,843		$	1,624
Increases (decreases) in variable annuity account values:
Net flows ⁽¹⁾		29			(272	)		40			(513	)
Change in market value ⁽¹⁾		(811	)		(57	)		(4,847	)		1,999
Contract holder assessments ⁽¹⁾		(39	)		(47	)		(125	)		(137	)
Variable annuity account values ⁽¹⁾		15,861			20,010			15,861			20,010
Average daily variable annuity account values ⁽¹⁾		17,287			20,582			18,331			19,969
Average daily S&P 500^® Index		3,983			4,424			4,185			4,158

⁽¹⁾Excludes the fixed portion of variable.

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	As of or For the Three				As of or For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Mutual Fund Account Value Information
Mutual fund deposits	$	1,613	$	1,417	$	4,861	$	4,798
Mutual fund net flows		655		394		1,839		1,759
Mutual fund account values ⁽¹⁾		43,211		52,444		43,211		52,444

⁽¹⁾Mutual funds are not included in the separate accounts reported on our Consolidated Balance Sheets as we do not have any ownership interest in them.

Our fee income is primarily composed of expense assessments that we charge to cover insurance and administrative expenses, and mutual fund fees earned for services we provide to our mutual fund programs. Fee income is primarily based on average account values, both fixed and variable, which are driven by net flows and the equity markets. Fee income is also driven by non-account value-related items such as participant counts. We may collect surrender charges when our fixed and variable annuity contract holders surrender their contracts during the surrender charge period to protect us from premature withdrawals.

Net Investment Income and Interest Credited

Details underlying net investment income, interest credited and fixed account values (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net Investment Income
Fixed maturity AFS securities, mortgage loans on real estate
and other, net of investment expenses	$	228	$	206	$	647	$	622
Commercial mortgage loan prepayment and bond
make-whole premiums ⁽¹⁾		2		13		22		35
Surplus investments ⁽²⁾		14		26		54		85
Total net investment income	$	244	$	245	$	723	$	742

Interest Credited	$	161	$	153	$	469	$	462

⁽¹⁾See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information.



	As of or For the Three						As of or For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fixed Account Value Information
Fixed annuity deposits ⁽¹⁾	$	702		$	504		$	2,405		$	1,417
Increases (decreases) in fixed annuity account values:
Net flows ⁽¹⁾		127			(143	)		791			(403	)
Reinvested interest credited ⁽¹⁾		162			154			467			461
Contract holder assessments ⁽¹⁾		(3	)		(3	)		(10	)		(10	)
Fixed annuity account values ⁽¹⁾		25,272			23,152			25,272			23,152
Average fixed account values ⁽¹⁾		25,076			23,066			24,407			23,026

⁽¹⁾Includes the fixed portion of variable.

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A portion of our investment income earned is credited to the contract holders of our fixed annuity products, including the fixed portion of variable annuity contracts. We expect to earn a spread between what we earn on the underlying general account investments supporting the fixed annuity product line, including the fixed portion of variable annuity contracts, and what we credit to our fixed annuity contract holders’ accounts, including the fixed portion of variable annuity contracts. Commercial mortgage loan prepayments and bond make-whole premiums, investment income on alternative investments and surplus investment income can vary significantly from period to period due to a number of factors and, therefore, may contribute to investment income results that are not indicative of the underlying trends.

Benefits

Benefits for this segment include changes in annuity benefit reserves.

Commissions and Other Expenses

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Commissions and Other Expenses
Commissions:
Deferrable	$	1		$	1		$	3		$	4
Non-deferrable		19			20			55			59
General and administrative expenses		79			74			224			223
Taxes, licenses and fees		3			4			13			13
Total expenses incurred		102			99			295			299
DAC deferrals		(6	)		(5	)		(15	)		(15	)
Total expenses recognized before amortization		96			94			280			284
DAC and VOBA amortization, net of interest:
Amortization, net of interest, excluding unlocking		5			8			18			25
Unlocking		(7	)		-			(7	)		-
Total commissions and other expenses	$	94		$	102		$	291		$	309

DAC Deferrals
As a percentage of annuity sales/deposits		0.5%			0.5%			0.4%			0.5%

Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized over the lives of the contracts in relation to EGPs. Certain types of commissions, such as trail commissions that are based on account values, are expensed as incurred rather than deferred and amortized. Distribution expenses associated with the sale of mutual fund products are expensed as incurred. For more information, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” in our 2021 Form 10-K.

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RESULTS OF LIFE INSURANCE

Income (Loss) from Operations

Details underlying the results for Life Insurance (in millions) were as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022			2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	289		$	256	$	849		$	767
Fee income		876			1,230		2,561			3,014
Net investment income		586			832		1,939			2,493
Operating realized gain (loss) ⁽²⁾		(3	)		-		(4	)		(4	)
Amortization of deferred gain on
business sold through reinsurance		12			3		37			8
Other revenues		2			4		5			15
Total operating revenues		1,762			2,325		5,387			6,293
Operating Expenses
Interest credited		329			375		982			1,117
Benefits		3,736			976		5,903			3,148
Commissions and other expenses		440			861		1,041			1,468
Total operating expenses		4,505			2,212		7,926			5,733
Income (loss) from operations before taxes		(2,743	)		113		(2,539	)		560
Federal income tax expense (benefit)		(583	)		20		(551	)		105
Income (loss) from operations	$	(2,160	)	$	93	$	(1,988	)	$	455

⁽¹⁾Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves.

⁽²⁾See “Realized Gain (Loss)” below.

Comparison of the Three and Nine Months Ended September 30, 2022 to 2021

Income from operations for this segment decreased due primarily to the following:

Higher benefits due to the effect of unlocking, partially offset by lower mortality claims.

Lower fee income due to the effect of unlocking and the impact of the fourth quarter 2021 reinsurance agreement.

Lower net investment income, net of interest credited, driven by negative performance on alternative investments in the third quarter of 2022 compared to investment income in 2021, and the impact of the fourth quarter 2021 reinsurance agreement.

The decrease in income from operations was partially offset by the following:

Lower commissions and other expenses due to the effect of unlocking.

Higher amortization of deferred gain on business sold through reinsurance as a result of the fourth quarter 2021 reinsurance agreement.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Additional Information

We expect an ongoing reduction in income from operations in future quarters of approximately $45 million per quarter as a result of the significantly unfavorable impact of the third quarter 2022 annual assumption review.

Effective October 1, 2021, we entered into a reinsurance agreement with Security Life of Denver Insurance Company (a subsidiary of Resolution Life that we refer to herein as “Resolution Life”) to reinsure liabilities under a block of in-force executive benefit and universal life policies. For more information, see Note 8 in our 2021 Form 10-K. We expect an ongoing reduction in income from operations in future periods as a result of this reinsurance agreement.

We expect COVID-19-related mortality to continue to follow U.S. death trends. For a discussion of the COVID-19 pandemic, see “Introduction – Executive Summary” above and “Part I – Item 1A. Risk Factors – Market Conditions – The impacts of the COVID-19 pandemic have adversely affected and are expected to continue to adversely affect our business and results of operations, and the future

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impacts of the COVID-19 pandemic on the company’s business, results of operations and financial condition remain uncertain” in our 2021 Form 10-K.

For information on interest rate spreads and interest rate risk, see “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease, impacting our profitability, and make it more challenging to meet certain statutory requirements, and changes in interest rates may also result in increased contract withdrawals” and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Executive Summary” above.

Insurance Premiums

Insurance premiums relate to traditional products and are a function of the rates priced into the product and insurance in force. Insurance in force, in turn, is driven by sales, persistency and mortality claims.

Fee Income

Details underlying fee income, sales, net flows, account values and in-force face amount (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Fee Income
Cost of insurance assessments	$	565		$	579		$	1,712		$	1,793
Expense assessments		385			370			1,138			1,086
Surrender charges		8			6			23			24
DFEL:
Deferrals		(268	)		(245	)		(783	)		(701	)
Amortization, net of interest:
Amortization, net of interest, excluding unlocking		137			128			422			420
Unlocking		49			392			49			392
Total fee income	$	876		$	1,230		$	2,561		$	3,014



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Sales by Product
IUL/UL	$	40		$	24		$	93		$	61
MoneyGuard^®		22			26			69			65
VUL		36			40			114			89
Term		47			42			138			106
Executive Benefits		26			34			104			85
Total sales	$	171		$	166		$	518		$	406

Net Flows
Deposits	$	1,386		$	1,324		$	4,160		$	3,822
Withdrawals and deaths		(408	)		(453	)		(1,262	)		(1,278	)
Net flows	$	978		$	871		$	2,898		$	2,544

Contract Holder Assessments	$	1,332		$	1,297		$	4,006		$	3,846

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	As of September 30,
	2022		2021
Account Values
General account ⁽¹⁾	$	32,168	$	37,349
Separate account ⁽¹⁾		15,183		22,232
Total account values ⁽¹⁾	$	47,351	$	59,581

In-Force Face Amount
UL and other	$	362,098	$	357,624
Term insurance		689,101		587,372
Total in-force face amount	$	1,051,199	$	944,996



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Average General Account Values ⁽¹⁾	$	32,637	$	37,761	$	32,753	$	37,800

⁽¹⁾ Net of reinsurance ceded.

Fee income relates only to interest-sensitive products and includes cost of insurance assessments, expense assessments and surrender charges. Both cost of insurance and expense assessments can have deferrals and amortization related to DFEL. Cost of insurance and expense assessments are deducted from our contract holders’ account values. These amounts are a function of the rates priced into the product and premiums received, face amount in force and account values.

Sales are not recorded as a component of revenues (other than for traditional products) and do not have a significant effect on current quarter income from operations but are indicators of future profitability. Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest. For more information on sales, see “Additional Information” above.

Sales in the table above and as discussed above were reported as follows:

UL, IUL and VUL – first-year commissionable premiums plus 5% of excess premiums received;

MoneyGuard^® linked-benefit products – MoneyGuard (UL), 15% of total expected premium deposits, and MoneyGuard Market Advantage^{SM (}VUL), 150% of commissionable premiums;

Executive Benefits – insurance and corporate-owned UL and VUL, first-year commissionable premiums plus 5% of excess premium received, and single premium bank-owned UL and VUL, 15% of single premium deposits; and

Term – 100% of annualized first-year premiums.

We monitor the business environment, including but not limited to the regulatory and interest rate environments, and make changes to our product offerings and in-force products as needed, and as permitted under the terms of the policies, to sustain the future profitability of our segment.

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Net Investment Income and Interest Credited

Details underlying net investment income and interest credited (in millions) were as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022		2021
Net Investment Income
Fixed maturity AFS securities, mortgage loans on real estate
and other, net of investment expenses	$	594		$	641	$	1,770	$	1,927
Commercial mortgage loan prepayment and bond
make-whole premiums ⁽¹⁾		10			16		31		32
Alternative investments ⁽²⁾		(51	)		144		38		437
Surplus investments ⁽³⁾		33			31		100		97
Total net investment income	$	586		$	832	$	1,939	$	2,493

Interest Credited	$	329		$	375	$	982	$	1,117

⁽¹⁾See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information.

⁽²⁾See “Consolidated Investments – Alternative Investments” below for additional information.

⁽³⁾Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.

A portion of the investment income earned for this segment is credited to contract holder accounts. Statutory reserves will typically grow at a faster rate than account values because of reserve requirements. Investments allocated to this segment are based upon the statutory reserve liabilities and are affected by various reserve adjustments, including financing transactions providing relief from reserve requirements. These financing transactions lead to a transfer of investments from this segment to Other Operations. We expect to earn a spread between what we earn on the underlying general account investments and what we credit to our contract holders’ accounts. We use our investment income to offset the earnings effect of the associated growth of our policy reserves for traditional products. Commercial mortgage loan prepayments and bond make-whole premiums and investment income on alternative investments can vary significantly from period to period due to a number of factors, and, therefore, may contribute to investment income results that are not indicative of the underlying trends.

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Benefits

Details underlying benefits (dollars in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Benefits
Death claims direct and assumed	$	1,278		$	1,531		$	4,171		$	4,372
Death claims ceded		(473	)		(615	)		(1,624	)		(1,683	)
Reserves released on death		(154	)		(174	)		(475	)		(547	)
Net death benefits		651			742			2,072			2,142
Change in secondary guarantee life insurance product
reserves:
Change in reserves, excluding unlocking		153			175			423			523
Unlocking		2,533			(190	)		2,533			(190	)
Change in MoneyGuard® reserves:
Change in reserves, excluding unlocking		144			137			431			406
Unlocking		157			33			157			33
Other benefits ⁽¹⁾		98			79			287			234
Total benefits	$	3,736		$	976		$	5,903		$	3,148

Death claims per $1,000 of in-force		2.51			3.17			2.73			3.11

⁽¹⁾Includes primarily changes in reserves and dividends on traditional and other products.

Benefits for this segment include claims incurred during the period in excess of the associated reserves for its interest-sensitive and traditional products. In addition, benefits include the change in secondary guarantee and linked-benefit life insurance product reserves. These reserves are affected by changes in expected future trends of assessments and benefits causing unlocking adjustments to these liabilities similar to DAC, VOBA and DFEL. Generally, we have higher mortality in the first quarter of the year due to the seasonality of claims.

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Commissions and Other Expenses

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Commissions and Other Expenses
Commissions	$	177		$	153		$	509		$	403
General and administrative expenses		150			139			416			414
Expenses associated with reserve financing		26			25			78			74
Taxes, licenses and fees		32			37			115			116
Total expenses incurred		385			354			1,118			1,007
DAC and VOBA deferrals		(202	)		(175	)		(588	)		(468	)
Total expenses recognized before amortization		183			179			530			539
DAC and VOBA amortization, net of interest:
Amortization, net of interest, excluding unlocking		113			101			365			346
Unlocking		143			580			143			580
Other intangible amortization		1			1			3			3
Total commissions and other expenses	$	440		$	861		$	1,041		$	1,468

DAC and VOBA Deferrals
As a percentage of sales		118.1%			105.4%			113.5%			115.3%

Commissions and costs that result directly from and are essential to successful acquisition of new or renewal business are deferred to the extent recoverable and for our interest-sensitive products are generally amortized over the life of the contracts in relation to EGPs. For our traditional products, DAC and VOBA are amortized on either a straight-line basis or as a level percent of premium of the related contracts, depending on the block of business. When comparing DAC and VOBA deferrals as a percentage of sales for the three and nine months ended September 30, 2022, to the corresponding periods in 2021, the fluctuations were primarily a result of changes in sales mix to products with different commission rates. For more information, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” in our 2021 Form 10-K.

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RESULTS OF GROUP PROTECTION

Income (Loss) from Operations

Details underlying the results for Group Protection (in millions) were as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022		2021			2022		2021
Operating Revenues
Insurance premiums	$	1,200	$	1,107		$	3,556	$	3,333
Net investment income		83		91			254		276
Other revenues ⁽¹⁾		50		45			149		134
Total operating revenues		1,333		1,243			3,959		3,743
Operating Expenses
Interest credited		1		1			4		4
Benefits		939		971			2,892		2,818
Commissions and other expenses		347		311			993		936
Total operating expenses		1,287		1,283			3,889		3,758
Income (loss) from operations before taxes		46		(40	)		70		(15	)
Federal income tax expense (benefit)		9		(8	)		15		(3	)
Income (loss) from operations	$	37	$	(32	)	$	55	$	(12	)

⁽¹⁾Consists of revenue from third parties for administrative services performed, which has a corresponding partial offset in commissions and other expenses.



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Income (Loss) from Operations by Product Line
Life	$	27		$	(80	)	$	(13	)	$	(150	)
Disability		11			50			69			145
Dental		(1	)		(2	)		(1	)		(7	)
Income (loss) from operations	$	37		$	(32	)	$	55		$	(12	)

Comparison of the Three Months Ended September 30, 2022 to 2021

Income from operations for this segment increased due primarily to the following:

Higher insurance premiums due to growth in business in force and favorable persistency.

Lower benefits driven by lower COVID-19-related incidence in our life business and lower incidence in our disability business, partially offset by less favorable reserve adjustments.

The increase in income from operations was partially offset by the following:

Higher commissions and other expenses driven by investments in claims management to address higher claims volume and to improve ongoing operations, and higher incentive compensation as a result of production performance and higher persistency.

Lower net investment income, net of interest credited, driven by negative performance on alternative investments within our surplus portfolio in the third quarter of 2022, compared to investment income in 2021.

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Comparison of the Nine Months Ended September 30, 2022 to 2021

Income from operations for this segment increased due primarily to higher insurance premiums due to growth in business in force and favorable persistency.

The increase in income from operations was partially offset by the following:

Higher benefits driven by growth in the business and less favorable reserve adjustments, partially offset by lower COVID-19-related incidence in our life business.

Higher commissions and other expenses driven by investments in claims management to address higher claims volume and to improve ongoing operations.

Lower net investment income, net of interest credited, driven by lower investment income on alternative investments within our surplus portfolio.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information on our reserve adjustments.

Additional Information

The total loss ratio for the three and nine months ended September 30, 2022, decreased as compared to the three and nine months ended September 30, 2021, due primarily to lower COVID-19-related incidence and favorable reserve adjustments in our life business, partially offset by unfavorable reserve adjustments in our disability business in 2022 compared to favorable reserve adjustments in 2021. We expect COVID-19-related morbidity headwinds to lessen in our disability business and COVID-19-related mortality to continue to follow U.S. death trends in our life business. For a discussion of the COVID-19 pandemic, see “Introduction – Executive Summary” above.

For information about the effect of the loss ratio sensitivity on our income (loss) from operations, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Group Protection – Additional Information” in our 2021 Form 10-K.

For information on the effects of current interest rates on our long-term disability claim reserves, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” in our 2021 Form 10-K. For information on the current interest rate environment, see “Introduction – Executive Summary” above.

Insurance Premiums

Details underlying insurance premiums (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Insurance Premiums by Product Line
Life	$	455	$	413	$	1,344	$	1,238
Disability		695		638		2,063		1,923
Dental		50		56		149		172
Total insurance premiums	$	1,200	$	1,107	$	3,556	$	3,333

Sales by Product Line
Life	$	41	$	22	$	157	$	101
Disability		37		20		143		85
Dental		10		6		21		16
Total sales	$	88	$	48	$	321	$	202

Our cost of insurance and policy administration charges are embedded in the premiums charged to our customers. The premiums are a function of the rates priced into the product and our business in force. Business in force, in turn, is driven by sales and persistency experience.

Sales relate to new contract holders and new programs sold to existing contract holders. We believe that the trend in sales is an important indicator of development of business in force over time. Sales in the table above are the combined annualized premiums for our products.

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Net Investment Income

We use our investment income to offset the earnings effect of the associated build of our reserves, which are a function of our insurance premiums and the yields on our investments. Details underlying net investment income (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net Investment Income
Fixed maturity AFS securities, mortgage loans on real estate
and other, net of investment expenses	$	65	$	59	$	188	$	178
Commercial mortgage loan prepayment and bond
make-whole premiums ⁽¹⁾		1		3		6		10
Surplus investments ⁽²⁾		17		29		60		88
Total net investment income	$	83	$	91	$	254	$	276

⁽¹⁾See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information.

Benefits and Interest Credited

Details underlying benefits and interest credited (in millions) and loss ratios by product line were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Benefits and Interest Credited by Product Line
Life	$	326	$	434	$	1,088	$	1,179
Disability		578		495		1,699		1,509
Dental		36		43		109		134
Total benefits and interest credited	$	940	$	972	$	2,896	$	2,822

Loss Ratios by Product Line
Life		71.6%		105.1%		81.0%		95.2%
Disability		83.2%		77.7%		82.3%		78.5%
Dental		72.0%		75.7%		73.3%		78.0%
Total		78.3%		87.8%		81.4%		84.7%

Generally, we experience higher mortality in the first quarter of the year and higher disability claims in the fourth quarter of the year due to the seasonality of claims. For additional information on our loss ratios, see “Additional Information” above.

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Commissions and Other Expenses

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Commissions and Other Expenses
Commissions	$	101		$	88		$	291		$	266
General and administrative expenses		204			179			573			534
Taxes, licenses and fees		31			30			94			92
Total expenses incurred		336			297			958			892
DAC deferrals		(23	)		(19	)		(69	)		(61	)
Total expenses recognized before amortization		313			278			889			831
DAC and VOBA amortization, net of interest		26			26			80			81
Other intangible amortization		8			7			24			24
Total commissions and other expenses	$	347		$	311		$	993		$	936

DAC Deferrals
As a percentage of insurance premiums		1.9%			1.7%			1.9%			1.8%

Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized as a level percent of insurance premiums of the related contracts, depending on the block of business. Certain broker commissions that vary with and are related to paid premiums are expensed as incurred rather than deferred and amortized. For more information, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” in our 2021 Form 10-K

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RESULTS OF OTHER OPERATIONS

Income (Loss) from Operations

Details underlying the results for Other Operations (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Operating Revenues
Insurance premiums ⁽¹⁾	$	2		$	1		$	6		$	9
Net investment income		34			37			116			107
Other revenues		-			4			(11	)		9
Total operating revenues		36			42			111			125
Operating Expenses
Interest credited		9			10			30			32
Benefits		24			21			60			59
Other expenses		28			117			43			171
Interest and debt expense		71			66			205			196
Spark program expense		44			22			118			57
Total operating expenses		176			236			456			515
Income (loss) from operations before taxes		(140	)		(194	)		(345	)		(390	)
Federal income tax expense (benefit)		(27	)		(42	)		(60	)		(83	)
Income (loss) from operations	$	(113	)	$	(152	)	$	(285	)	$	(307	)

⁽¹⁾Includes our disability income business, which has a corresponding offset in benefits for changes in reserves.

Comparison of the Three and Nine Months Ended September 30, 2022 to 2021

Loss from operations for Other Operations decreased due primarily to lower other expenses attributable to a one-time legal expense incurred in the third quarter of 2021, and the effect of changes in our stock price on our deferred compensation plans, as our stock price decreased during the third quarter of 2022, compared to an increase during the third quarter of 2021.

The decrease in loss from operations was partially offset by the following:

Higher Spark program expense as part of our Spark Initiative.

Higher interest and debt expense driven by an increase in average interest rates.

Lower other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans, which decreased during the third quarter of 2022, compared to an increase during the third quarter of 2021.

The decrease in loss from operations for the nine months ended September 30, 2022, was also partially offset by the following:

Higher net investment income, net of interest credited, related to higher allocated investments driven by an increase in excess capital retained by Other Operations.

Less favorable income tax benefit driven by unfavorable market impacts on tax preferred investment income.

Additional Information

We expect to continue making investments as part of our Spark Initiative. For more information, see “Introduction – Executive Summary – Spark Initiative” above and “Introduction – Executive Summary – Significant Operational Matters – Spark and Strategic Digitization Initiatives” in our 2021 Form 10-K.

Net Investment Income and Interest Credited

We utilize an internal formula to determine the amount of capital that is allocated to our business segments. Investment income on capital in excess of the calculated amounts is reported in Other Operations. If our business segments require increases in statutory reserves, surplus or investments, the amount of excess capital that is retained by Other Operations would decrease and net investment income would be negatively affected.

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Write-downs for impairments decrease the recorded value of investments owned by the business segments. These write-downs are not included in the income from operations of our business segments. When impairment occurs, assets are transferred to the business segments’ portfolios and will reduce the future net investment income for Other Operations. Statutory reserve adjustments for our business segments can also cause allocations of investments between the business segments and Other Operations.

The majority of our interest credited relates to our reinsurance operations sold to Swiss Re Life & Health America, Inc. (“Swiss Re”) in 2001. A substantial amount of the business was sold through indemnity reinsurance transactions, which is still recorded in the consolidated financial statements. The interest credited corresponds to investment income earnings on the assets we continue to hold for this business. There is no effect to income or loss in Other Operations or on a consolidated basis for these amounts because interest earned on the blocks that continue to be reinsured is passed through to Swiss Re in the form of interest credited.

Benefits

Benefits are recognized when incurred for institutional pension products and disability income business.

Other Expenses

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



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
General and administrative expenses:
Legal	$	2		$	95		$	2		$	95
Branding		12			10			29			30
Other ⁽¹⁾		13			16			17			52
Total general and administrative expenses		27			121			48			177
Taxes, licenses and fees⁽²⁾		2			(3	)		(2	)		(5	)
Other ⁽³⁾		(1	)		(1	)		(3	)		(1	)
Total other expenses	$	28		$	117		$	43		$	171

⁽¹⁾Includes the portion of our deferred compensation plan expense attributable to participants’ selection of LNC stock as the measure for their investment return, expenses that are corporate in nature including charitable contributions and other expenses not allocated to our business segments.

⁽²⁾Includes state guaranty funds assessments to cover losses to contract holders of insolvent or rehabilitated insurance companies. Mandatory assessments may be partially recovered through a reduction in future premium taxes in some states.

⁽³⁾Consists primarily of reimbursements to Other Operations from the Life Insurance segment for the use of proceeds from certain issuances of senior notes that were used as long-term structured solutions, net of expenses incurred by Other Operations for its access to a financing facility and issuance of LOCs.

Interest and Debt Expense

Our current level of interest expense may not be indicative of the future due to, among other things, the timing of the use of cash, the availability of funds from our inter-company cash management program and the future cost of capital. For additional information on our financing activities, see “Liquidity and Capital Resources – Holding Company Sources and Uses of Liquidity and Capital – Debt” below.

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REALIZED GAIN (LOSS)

Details underlying realized gain (loss), after-DAC ⁽¹⁾ (in millions) were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Components of Realized Gain (Loss), Pre-Tax
Total operating realized gain (loss)	$	49		$	49		$	153		$	148
Total excluded realized gain (loss)		171			36			618			(245	)
Total realized gain (loss), pre-tax	$	220		$	85		$	771		$	(97	)

Components of Excluded Realized Gain (Loss),
After-Tax
Credit loss benefit (expense) on mortgage loans on
real estate	$	(7	)	$	28		$	-		$	53
Credit loss benefit (expense) on reinsurance-related assets		(103	)		(2	)		(107	)		(5	)
Credit loss benefit (expense) on other financial assets		(5	)		(7	)		(9	)		(8	)
Realized gain (loss) related to certain financial assets		(40	)		(4	)		(54	)		(9	)
Realized gain (loss) on equity securities		2			3			-			28
Realized gain (loss) on the mark-to-market on
certain instruments ⁽²⁾		48			8			40			26
Total realized gain (loss) related to financial instruments
and reinsurance-related assets		(105	)		26			(130	)		85
Variable annuity net derivative results:
Hedge program performance, including unlocking
for GLB reserves hedged and benefit ratio unlocking		(82	)		(4	)		(512	)		(32	)
GLB NPR component		(11	)		(2	)		81			(148	)
Total variable annuity net derivative results		(93	)		(6	)		(431	)		(180	)
Indexed annuity forward-starting option		2			(3	)		41			21
Excluded realized gain (loss) including benefit
ratio unlocking		(196	)		17			(520	)		(74	)
Less: benefit ratio unlocking on GDB
and GLB riders		(330	)		(12	)		(1,007	)		119
Total excluded realized gain (loss), after-tax	$	134		$	29		$	487		$	(193	)

⁽¹⁾DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance assets and liabilities.

⁽²⁾The modified coinsurance investment portfolio includes fixed maturity securities classified as available-for-sale (“AFS”) with changes in fair value recorded in other comprehensive income (loss) (“OCI”). Since the corresponding and offsetting changes in fair value of the embedded derivatives related to the modified coinsurance investment portfolio are recorded in realized gain (loss), volatility can occur within net income (loss). See Note 8 in our 2021 Form 10-K for more information regarding modified coinsurance.

Comparison of the Three Months Ended September 30, 2022 to 2021

We had realized losses compared to realized gains due primarily to the following:

An increase in the credit loss allowance for reinsurance-related assets in 2022 due to updates to policyholder behavior assumptions that impacted ceded reserves.

Unfavorable variable annuity net derivative results driven by unfavorable hedge program performance due to more volatile capital markets.

Losses related to an increase in the credit loss allowance for mortgage loans on real estate in 2022 compared to a decrease in 2021 due to changes in economic projections.

The realized losses were partially offset by higher gains on the mark-to-market on certain instruments driven by gains on derivatives and favorable changes in the fair value of embedded derivatives related to certain modified coinsurance arrangements, partially offset by declines in trading securities due to increases in interest rates.

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Comparison of the Nine Months Ended September 30, 2022 to 2021

We had higher realized losses due primarily to the following:

Unfavorable variable annuity net derivative results driven by unfavorable hedge program performance due to more volatile capital markets, partially offset by a favorable GLB NPR component due to credit spreads widening and our associated reserves increasing.

An increase in the credit loss allowance for reinsurance-related assets in 2022 due to updates to policyholder behavior assumptions that impacted ceded reserves.

Gains related to a decrease in the credit loss allowance on mortgage loans on real estate in 2021 due to changes in economic projections.

Unfavorable equity market performance in 2022 compared to favorable equity market performance in 2021.

The higher realized losses were partially offset by higher gains related to the indexed annuity forward-starting option driven by an increase in discount rates and a decrease in projected index interest credited as a result of equity market performance and the effect of unlocking.

The above components of excluded realized gain (loss) are described including benefit ratio unlocking, after-tax.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information about unlocking.

Operating Realized Gain (Loss)

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Operating Realized Gain (Loss)” in our 2021 Form 10-K for a discussion of our operating realized gain (loss).

Realized Gain (Loss) Related to Financial Instruments

For information on realized gain (loss) related to financial instruments, see Note 13.

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Realized Gain (Loss) on the Mark-to-Market on Certain Instruments” in our 2021 Form 10-K for a discussion of the mark-to-market on certain instruments. We also recognize the mark-to-market on certain mortgage loans on real estate for which we have elected the fair value option. See Note 14 for additional information.

Variable Annuity Net Derivative Results

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Variable Annuity Net Derivative Results” in our 2021 Form 10-K for a discussion of our variable annuity net derivative results and how our NPR adjustment is determined.

Details underlying our variable annuity hedging program (dollars in millions) were as follows:



		As of				As of				As of				As of				As of
	September 30,				June 30,				March 31,				December 31,				September 30,
		2022				2022				2022				2021				2021
Variable annuity hedge program assets (liabilities)		$	1,952			$	1,623			$	625			$	721			$	1,090

Variable annuity reserves – asset (liability):
Embedded derivative reserves, pre-NPR ⁽¹⁾		$	1,180			$	1,136			$	1,699			$	1,818			$	1,511
NPR			145				164				46				17				94
Embedded derivative reserves			1,325				1,300				1,745				1,835				1,605
Insurance benefit reserves			(2,668	)			(2,349	)			(1,547	)			(1,231	)			(1,254	)
Total variable annuity reserves – asset (liability)		$	(1,343	)		$	(1,049	)		$	198			$	604			$	351

10-year CDS spread			2.10%				2.05%				1.44%				1.15%				1.18%
NPR factor related to 10-year CDS spread			1.47%				1.33%				0.99%				0.70%				0.74%

⁽¹⁾Embedded derivative reserves in an asset (liability) position indicate we estimate the present value of future benefits to be less (greater) than the present value of future net valuation premiums.

For information about the effect of changes in the NPR factor on our net income (loss), see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Variable Annuity Net Derivative Results” in our 2021 Form 10-K.

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For additional information about our guaranteed benefits, see “Critical Accounting Policies and Estimates – Future Contract Benefits – Guaranteed Living Benefits” above.

Indexed Annuity Forward-Starting Option

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) – Indexed Annuity Forward-Starting Option” in our 2021 Form 10-K for a discussion of our indexed annuity forward-starting option.

CONSOLIDATED INVESTMENTS

Details underlying our consolidated investment balances (in millions) were as follows:



								Percentage of
								Total Investments
		As of			As of		As of		As of
	September 30,			December 31,			September 30,		December 31,
		2022			2021			2022		2021
Investments
Fixed maturity AFS securities		$	97,572		$	118,746		75.4%		77.3%
Trading securities			3,580			4,482		2.8%		2.9%
Equity securities			427			318		0.3%		0.2%
Mortgage loans on real estate			18,066			17,991		14.0%		11.7%
Policy loans			2,347			2,364		1.8%		1.5%
Derivative investments			3,681			5,437		2.8%		3.6%
Alternative investments			2,900			2,666		2.2%		1.7%
Other investments			920			1,626		0.7%		1.1%
Total investments		$	129,493		$	153,630		100.0%		100.0%

Investment Objective

Investments are an integral part of our operations. We follow a balanced approach to investing for both current income and prudent risk management, with an emphasis on generating sufficient current income, net of income tax, to meet our obligations to customers, as well as other general liabilities. This balanced approach requires the evaluation of expected return and risk of each asset class utilized, while still meeting our income objectives. This approach is important to our asset-liability management because decisions can be made based upon both the economic and current investment income considerations affecting assets and liabilities. For a discussion of our risk management process, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K.

Investment Portfolio Composition and Diversification

Fundamental to our investment policy is diversification across asset classes. Our investment portfolio, excluding cash and invested cash, is composed of fixed maturity securities, mortgage loans on real estate, real estate (either wholly-owned or in joint ventures) and other long-term investments. We purchase investments for our segmented portfolios that have yield, duration and other characteristics that take into account the liabilities of the products being supported.

We have the ability to maintain our investment holdings throughout credit cycles because of our capital position, the long-term nature of our liabilities and the matching of our portfolios of investment assets with the liabilities of our various products.

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Fixed Maturity and Equity Securities Portfolios

Fixed maturity securities consist of portfolios classified as AFS and trading. Details underlying our fixed maturity AFS securities by industry classification (in millions) are presented in the tables below. These tables agree in total with the presentation of fixed maturity AFS securities in Note 4; however, the categories below represent a more detailed breakout of the fixed maturity AFS portfolio. Therefore, the investment classifications listed below do not agree to the investment categories provided in Note 4.



	As of September 30, 2022
	Net								%
	Amortized		Gross Unrealized				Fair		Fair
	Cost ⁽¹⁾		Gains		Losses		Value		Value
Fixed Maturity AFS Securities
Industry corporate bonds:
Financial services	$	17,676	$	99	$	2,232	$	15,543	15.9%
Basic industry		4,371		35		564		3,842	3.9%
Capital goods		7,440		49		1,012		6,477	6.6%
Communications		4,237		59		599		3,697	3.8%
Consumer cyclical		6,082		32		830		5,284	5.4%
Consumer non-cyclical		17,161		148		2,636		14,673	15.0%
Energy		4,869		36		596		4,309	4.4%
Technology		5,562		16		773		4,805	4.9%
Transportation		3,583		18		441		3,160	3.2%
Industrial other		2,251		4		429		1,826	1.9%
Utilities		14,072		86		1,916		12,242	12.6%
Government-related entities		1,801		29		242		1,588	1.6%
Collateralized mortgage and other obligations ("CMOs"):
Agency backed		1,462		4		159		1,307	1.4%
Non-agency backed		372		23		14		381	0.4%
Mortgage pass through securities ("MPTS"):
Agency backed		405		1		46		360	0.4%
Commercial mortgage-backed securities ("CMBS"):
Agency backed		27		-		1		26	0.0%
Non-agency backed		1,762		-		239		1,523	1.6%
Asset-backed securities ("ABS"):
Collateralized loan obligations ("CLOs")		8,242		-		799		7,443	7.6%
Credit card		85		6		2		89	0.1%
Home equity		203		26		4		225	0.2%
Other		2,806		2		218		2,590	2.7%
Municipals:
Taxable		5,321		187		501		5,007	5.1%
Tax-exempt		91		1		10		82	0.1%
Government:
United States		410		6		32		384	0.4%
Foreign		377		16		55		338	0.4%
Hybrid and redeemable preferred securities		372		29		30		371	0.4%
Total fixed maturity AFS securities		111,040		912		14,380		97,572	100.0%
Trading Securities ⁽²⁾		3,978		44		442		3,580
Equity Securities		395		107		75		427
Total fixed maturity AFS, trading and equity securities	$	115,413	$	1,063	$	14,897	$	101,579

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	As of December 31, 2021
	Net								%
	Amortized		Gross Unrealized				Fair		Fair
	Cost ⁽¹⁾		Gains		Losses		Value		Value
Fixed Maturity AFS Securities
Industry corporate bonds:
Financial services	$	16,438	$	1,981	$	81	$	18,338	15.4%
Basic industry		4,436		741		11		5,166	4.4%
Capital goods		7,316		1,040		31		8,325	7.0%
Communications		4,124		734		7		4,851	4.1%
Consumer cyclical		5,811		616		22		6,405	5.4%
Consumer non-cyclical		16,905		2,565		83		19,387	16.3%
Energy		4,932		728		13		5,647	4.8%
Technology		5,173		546		34		5,685	4.8%
Transportation		3,414		423		11		3,826	3.2%
Industrial other		2,159		174		11		2,322	2.0%
Utilities		13,785		2,250		38		15,997	13.5%
Government-related entities		1,863		315		7		2,171	1.8%
CMOs:
Agency backed		1,544		123		1		1,666	1.4%
Non-agency backed		360		52		1		411	0.3%
MPTS:
Agency backed		429		21		2		448	0.4%
CMBS:
Agency backed		20		-		-		20	0.0%
Non-agency backed		1,532		61		14		1,579	1.3%
ABS:
CLOs		6,356		11		49		6,318	5.3%
Credit card		82		24		1		105	0.1%
Home equity		236		54		-		290	0.2%
Other		1,765		38		4		1,799	1.5%
Municipals:
Taxable		5,250		1,290		12		6,528	5.5%
Tax-exempt		72		21		-		93	0.1%
Government:
United States		375		60		2		433	0.4%
Foreign		373		64		5		432	0.4%
Hybrid and redeemable preferred securities		408		107		11		504	0.4%
Total fixed maturity AFS securities		105,158		14,039		451		118,746	100.0%
Trading Securities ⁽²⁾		4,170		343		31		4,482
Equity Securities		285		55		22		318
Total fixed maturity AFS, trading and equity securities	$	109,613	$	14,437	$	504	$	123,546

⁽¹⁾Represents amortized cost, net of the allowance for credit losses.

⁽²⁾Certain of our trading securities support our reinsurance funds withheld and modified coinsurance agreements and the investment results are passed directly to the reinsurers. See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Investments – Fixed Maturity and Equity Securities Portfolios – Trading Securities” in our 2021 Form 10-K for further details.
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Fixed Maturity AFS Securities

In accordance with the fixed maturity AFS accounting guidance, we reflect stockholders’ equity as if unrealized gains and losses were actually recognized and consider all related accounting adjustments that would occur upon such a hypothetical recognition of unrealized gains and losses. Such related balance sheet effects include adjustments to the balances of DAC, VOBA, DFEL, future contract benefits, other contract holder funds and deferred income taxes. Adjustments to each of these balances are charged or credited to accumulated other comprehensive income (loss) (“AOCI”). For instance, DAC is adjusted upon the recognition of unrealized gains or losses because the amortization of DAC is based upon an assumed emergence of gross profits on certain insurance business. Deferred income tax balances are also adjusted because unrealized gains or losses do not affect actual taxes currently paid.

The quality of our fixed maturity AFS securities portfolio, as measured at estimated fair value and by the percentage of fixed maturity AFS securities invested in various ratings categories, relative to the entire fixed maturity AFS security portfolio (in millions) was as follows:



		As of September 30, 2022					As of December 31, 2021
	Rating Agency	Net					Net
NAIC	Equivalent	Amortized		Fair		% of	Amortized		Fair		% of
Designation ⁽¹⁾	Designation ⁽¹⁾	Cost		Value		Total	Cost		Value		Total

Investment Grade Securities
1	AAA / AA / A	$	63,105	$	55,576	57.0%	$	58,542	$	66,571	56.1%
2	BBB		44,086		38,397	39.3%		42,797		48,130	40.5%
Total investment grade securities			107,191		93,973	96.3%		101,339		114,701	96.6%

Below Investment Grade Securities
3	BB		2,203		2,001	2.1%		2,278		2,492	2.1%
4	B		1,597		1,551	1.6%		1,424		1,441	1.2%
5	CCC and lower		47		44	0.0%		51		53	0.0%
6	In or near default		2		3	0.0%		66		59	0.1%
Total below investment grade securities			3,849		3,599	3.7%		3,819		4,045	3.4%
Total fixed maturity AFS securities		$	111,040	$	97,572	100.0%	$	105,158	$	118,746	100.0%

Total securities below investment
grade as a percentage of total
fixed maturity AFS securities			3.5%		3.7%			3.6%		3.4%

⁽¹⁾Based upon the rating designations determined and provided by the National Association of Insurance Commissioners (“NAIC”) or the major credit rating agencies (Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and S&P Global Ratings (“S&P”)). For securities where the ratings assigned by the major credit rating agencies are not equivalent, the second lowest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings. The average credit quality was A- as of September 30, 2022.

Comparisons between the NAIC designations and rating agency designations are published by the NAIC. The NAIC assigns securities quality designations and uniform valuations, which are used by insurers when preparing their annual statements. The NAIC designations are similar to the rating agency designations of the Nationally Recognized Statistical Rating Organizations for marketable bonds. NAIC designations 1 and 2 include bonds generally considered investment grade (rated Baa3 or higher by Moody’s, or rated BBB- or higher by S&P and Fitch) by such ratings organizations. However, securities designated NAIC 1 and 2 could be deemed below investment grade by the rating agencies as a result of the current risk-based capital (“RBC”) rules for residential mortgage-backed securities (“RMBS”) and CMBS for statutory reporting. NAIC designations 3 through 6 include bonds generally considered below investment grade (rated Ba1 or lower by Moody’s, or rated BB+ or lower by S&P and Fitch).

As of September 30, 2022, and December 31, 2021, 97% and 94%, respectively, of the total fixed maturity AFS securities in an unrealized loss position were investment grade. Our gross unrealized losses recognized in OCI on fixed maturity AFS securities as of September 30, 2022, increased by $13.9 billion since December 31, 2021. For further information on our unrealized losses on fixed maturity AFS securities, see “Composition by Industry Categories of our Unrealized Losses on Fixed Maturity AFS Securities” below.

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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 a credit allowance. We believe the unrealized loss position as of September 30, 2022, 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. This conclusion is consistent with our asset-liability management process. Management considered 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.

We recognized $(5) million and $(11) million of credit loss benefit (expense) on our fixed maturity AFS securities for the three and nine months ended September 30, 2022, respectively. In order to determine the amount of credit loss, we calculated the recovery value by performing a discounted cash flow analysis based on the current cash flows and future cash flows we expect to recover. To determine the recoverability, we considered 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.

For information on credit loss impairment on fixed maturity AFS securities, see Notes 4 and 13 herein and Note 1 to the Consolidated Financial Statements in our 2021 Form 10-K.

As reported on our Consolidated Balance Sheets, we had $139.8 billion of liabilities for future obligations under insurance policies and contracts, net of amounts recoverable from reinsurers, which exceeded investments and cash and invested cash, which totaled $131.0 billion as of September 30, 2022. If it were necessary to liquidate fixed maturity AFS securities prior to maturity or call to meet cash flow needs, we would first look to those fixed maturity AFS securities that are in an unrealized gain position, which had a fair value of $14.2 billion as of September 30, 2022, rather than selling fixed maturity AFS securities in an unrealized loss position. The amount of cash that we have on hand at any point in time takes into account our liquidity needs in the future, other sources of cash, such as the maturities of investments, interest and dividends we earn on our investments and the ongoing cash flows from new and existing business. For additional information, see “Liquidity and Capital Resources” below.

As of September 30, 2022, and December 31, 2021, the estimated fair value for all private placement securities was $18.4 billion and $20.7 billion, respectively, representing 14% and 13% of total investments, respectively.

Mortgage-Backed Securities (Included in Fixed Maturity AFS and Trading Securities)

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Investments – Mortgage-Backed Securities” in our 2021 Form 10-K for a discussion of our mortgage-backed securities.

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The market value of fixed maturity AFS and trading securities backed by subprime loans was $197 million and represented less than 1% of our total investment portfolio as of September 30, 2022. Fixed maturity AFS securities represented $188 million, or 96%, and trading securities represented $9 million, or 4%, of the subprime exposure as of September 30, 2022. The table below summarizes our investments in fixed maturity AFS securities backed by pools of residential mortgages (in millions) as of September 30, 2022:



																Subprime/
	Agency					Prime					Alt-A					Option ARM ⁽¹⁾					Total
	Net					Net					Net					Net					Net
	Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair			Amortized		Fair
	Cost			Value		Cost			Value		Cost			Value		Cost			Value		Cost			Value
Type
RMBS	$	1,867		$	1,667	$	189		$	182	$	68		$	74	$	115		$	125	$	2,239		$	2,048
ABS home equity		1			1		19			19		19			27		164			178		203			225
Total by type ⁽²⁾⁽³⁾	$	1,868		$	1,668	$	208		$	201	$	87		$	101	$	279		$	303	$	2,442		$	2,273

Rating
AAA	$	1,515		$	1,356	$	100		$	96	$	-		$	-	$	-		$	-	$	1,615		$	1,452
AA		347			306		8			8		4			4		8			8		367			326
A		6			6		1			1		2			1		12			12		21			20
BBB		-			-		31			26		6			6		5			5		42			37
BB and below		-			-		68			70		75			90		254			278		397			438
Total by rating ^(2)(3)(4)	$	1,868		$	1,668	$	208		$	201	$	87		$	101	$	279		$	303	$	2,442		$	2,273

Origination Year
2012 and prior	$	354		$	351	$	88		$	90	$	87		$	101	$	279		$	303	$	808		$	845
2013		112			101		-			-		-			-		-			-		112			101
2014		49			45		1			1		-			-		-			-		50			46
2015		145			128		15			14		-			-		-			-		160			142
2016		460			391		-			-		-			-		-			-		460			391
2017		223			198		-			-		-			-		-			-		223			198
2018		182			169		-			-		-			-		-			-		182			169
2019		157			132		-			-		-			-		-			-		157			132
2020		69			56		1			1		-			-		-			-		70			57
2021		91			73		33			27		-			-		-			-		124			100
2022		26			24		70			68		-			-		-			-		96			92
Total by origination
year ⁽²⁾⁽³⁾	$	1,868		$	1,668	$	208		$	201	$	87		$	101	$	279		$	303	$	2,442		$	2,273

Total fixed maturity AFS securities backed by pools of
residential mortgages as a percentage of total fixed maturity AFS securities																						2.2%			2.3%

Total prime, Alt-A and subprime/option ARM as a percentage of total fixed maturity AFS securities																						0.5%			0.6%

⁽¹⁾Includes the net amortized cost and fair value of option adjustable rate mortgages (“ARM”) within RMBS, totaling $105 million and $115 million, respectively.

⁽²⁾Does not include the amortized cost of trading securities totaling $122 million that primarily support our reinsurance funds withheld and modified coinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $122 million in trading securities consisted of $111 million prime, $1 million Alt-A and $10 million subprime.

⁽³⁾Does not include the fair value of trading securities totaling $106 million that primarily support our reinsurance funds withheld and modified coinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $106 million in trading securities consisted of $97 million prime, $1 million Alt-A and $8 million subprime.

⁽⁴⁾Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit rating agencies are not equivalent, the second lowest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.

None of these investments included any direct investments in subprime lenders or mortgages. We are not aware of material exposure to subprime loans in our alternative investment portfolio.

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The following summarizes our investments in fixed maturity AFS securities backed by pools of commercial mortgages (in millions) as of September 30, 2022:



	Multiple Property				Single Property				Total
	Net				Net				Net
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
Type
CMBS ⁽¹⁾⁽²⁾	$	1,711	$	1,486	$	78	$	63	$	1,789	$	1,549

Rating
AAA	$	1,268	$	1,125	$	16	$	14	$	1,284	$	1,139
AA		443		361		57		45		500		406
A		-		-		5		4		5		4
Total by rating ^(1)(2)(3)	$	1,711	$	1,486	$	78	$	63	$	1,789	$	1,549

Origination Year
2012 and prior	$	12	$	12	$	11	$	10	$	23	$	22
2013		88		88		-		-		88		88
2014		15		14		-		-		15		14
2015		28		26		-		-		28		26
2016		111		100		4		4		115		104
2017		338		309		-		-		338		309
2018		179		166		-		-		179		166
2019		311		268		-		-		311		268
2020		243		189		5		4		248		193
2021		220		167		44		33		264		200
2022		166		147		14		12		180		159
Total by origination year ⁽¹⁾⁽²⁾	$	1,711	$	1,486	$	78	$	63	$	1,789	$	1,549

Total fixed maturity AFS securities backed by pools of
commercial mortgages as a percentage of total fixed maturity AFS securities										1.6%		1.6%

⁽¹⁾Does not include the amortized cost of trading securities totaling $186 million that primarily support our reinsurance funds withheld and modified coinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $186 million in trading securities consisted of $122 million of multiple property CMBS and $64 million of single property CMBS.

⁽²⁾Does not include the fair value of trading securities totaling $165 million that primarily support our reinsurance funds withheld and modified coinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $165 million in trading securities consisted of $105 million of multiple property CMBS and $60 million of single property CMBS.

⁽³⁾Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit rating agencies are not equivalent, the second lowest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.

As of September 30, 2022, the net amortized cost and fair value of our fixed maturity AFS exposure to monoline insurers was $307 million and $291 million, respectively.

Composition by Industry Categories of our Unrealized Losses on Fixed Maturity AFS Securities

When considering unrealized gain and loss information, it is important to recognize that the information relates to the position of securities at a particular point in time and may not be indicative of the position of our investment portfolios subsequent to the balance sheet date. Further, because the timing of the recognition of realized investment gains and losses through the selection of which securities are sold is largely at management’s discretion, it is important to consider the information provided below within the context of the overall unrealized gain or loss position of our investment portfolios. These are important considerations that should be included in any evaluation of the potential effect of securities in an unrealized loss position on our future earnings.

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The composition by industry categories of all fixed maturity AFS securities in an unrealized loss position (in millions) as of September 30, 2022, was as follows:



			%			%
	Net		Net	Gross		Gross			%
	Amortized		Amortized	Unrealized		Unrealized	Fair		Fair
	Cost		Cost	Losses		Losses	Value		Value
Healthcare	$	6,149	6.3%	$	1,281	8.9%	$	4,868	5.8%
Electric		8,404	8.6%		1,268	8.8%		7,136	8.6%
ABS		10,490	10.7%		1,006	7.0%		9,484	11.4%
Banking		7,082	7.2%		880	6.1%		6,202	7.4%
Technology		5,157	5.3%		773	5.4%		4,384	5.3%
Food and beverage		4,411	4.5%		694	4.8%		3,717	4.5%
Local authorities		2,686	2.7%		515	3.6%		2,171	2.6%
Manufacturing		3,166	3.2%		485	3.4%		2,681	3.2%
Industrial – other		2,128	2.2%		435	3.0%		1,693	2.0%
Pharmaceuticals		2,858	2.9%		395	2.7%		2,463	3.0%
Chemicals		2,328	2.4%		348	2.4%		1,980	2.4%
Natural gas		1,986	2.0%		332	2.3%		1,654	2.0%
Retail		2,045	2.1%		329	2.3%		1,716	2.1%
Brokerage asset management		2,059	2.1%		312	2.2%		1,747	2.1%
Property and casualty		1,927	2.0%		295	2.1%		1,632	2.0%
Life		1,755	1.8%		286	2.0%		1,469	1.8%
Midstream		2,014	2.1%		278	1.9%		1,736	2.1%
Transportation services		2,209	2.3%		270	1.9%		1,939	2.3%
Aerospace and defense		1,530	1.6%		243	1.7%		1,287	1.4%
Non-agency CMBS		1,769	1.8%		240	1.7%		1,529	1.8%
Automotive		1,584	1.6%		205	1.4%		1,379	1.7%
Wireless		1,187	1.2%		204	1.4%		983	1.2%
Utility – other		1,130	1.2%		203	1.4%		927	1.1%
Consumer products		1,293	1.3%		198	1.4%		1,095	1.3%
Integrated		997	1.0%		164	1.1%		833	1.0%
Railroads		925	0.9%		160	1.1%		765	0.9%
Wirelines		917	0.9%		157	1.1%		760	0.9%
Metals and mining		1,058	1.1%		146	1.0%		912	1.1%
Government sponsored		563	0.6%		136	0.9%		427	0.4%
Entertainment		866	0.9%		125	0.9%		741	0.9%
Project finance		1,003	1.0%		116	0.8%		887	1.1%
Leisure		695	0.7%		114	0.8%		581	0.7%
Cable – satellite		636	0.7%		113	0.8%		523	0.6%
Building materials		850	0.9%		113	0.8%		737	0.9%
Health insurance		688	0.7%		102	0.7%		586	0.7%
Independent		771	0.8%		102	0.7%		669	0.8%
Industries with unrealized losses								-
less than $100 million		10,447	10.7%		1,357	9.5%		9,090	10.9%
Total by industry	$	97,763	100.0%	$	14,380	100.0%	$	83,383	100.0%

Total by industry as a percentage of
total fixed maturity AFS securities		88.0%			100.0%			85.5%

As of September 30, 2022, the net amortized cost and fair value of securities subject to enhanced analysis and monitoring for potential changes in unrealized loss position was $51 million and $47 million, respectively.

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Mortgage Loans on Real Estate

The following tables summarize key information on mortgage loans on real estate (in millions):



	As of September 30, 2022
	Commercial			Residential			Total			%
Credit Quality Indicator
Current	$	16,864		$	1,264		$	18,128		99.9%
Delinquent ⁽¹⁾		-			9			9		0.0%
Foreclosure ⁽²⁾		-			20			20		0.1%
Total mortgage loans on real estate before allowance		16,864			1,293			18,157		100.0%
Allowance for credit losses		(80	)		(11	)		(91	)
Total mortgage loans on real estate	$	16,784		$	1,282		$	18,066


	As of December 31, 2021
	Commercial			Residential			Total			%
Credit Quality Indicator
Current	$	17,168		$	889		$	18,057		99.8%
Delinquent ⁽¹⁾		-			14			14		0.1%
Foreclosure ⁽²⁾		-			16			16		0.1%
Total mortgage loans on real estate before allowance		17,168			919			18,087		100.0%
Allowance for credit losses		(79	)		(17	)		(96	)
Total mortgage loans on real estate	$	17,089		$	902		$	17,991

⁽¹⁾As of September 30, 2022, no commercial mortgage loans and 22 residential mortgage loans were delinquent. As of December 31, 2021, 2 commercial mortgage loans and 31 residential mortgage loans were delinquent.

⁽²⁾As of September 30, 2022, no commercial mortgage loans and 42 residential loans were in foreclosure. As of December 31, 2021, no commercial mortgage loans and 34 residential mortgage loans were in foreclosure.

As of September 30, 2022, there were 3 specifically identified impaired commercial mortgage loans on real estate with an aggregate carrying value of $1 million and 36 specifically identified impaired residential mortgage loans on real estate with an aggregate carrying value of $14 million. As of December 31, 2021, there were 4 specifically identified impaired commercial mortgage loans on real estate with an aggregate carrying value of $1 million and 50 specifically identified impaired residential mortgage loans on real estate with an aggregate carrying value of $22 million.

The total outstanding principal and interest on commercial mortgage loans on real estate that were two or more payments delinquent as of September 30, 2022, and December 31, 2021, was less than $1 million. The total outstanding principal and interest on the residential mortgage loans on real estate that were three or more payments delinquent as of September 30, 2022, and December 31, 2021, was $9 million and $14 million, respectively.

The carrying value of mortgage loans on real estate by business segment (in millions) was as follows:



		As of			As of
	September 30,			December 31,
		2022			2021
Segment
Annuities		$	6,701		$	6,732
Retirement Plan Services			4,260			4,326
Life Insurance			3,636			3,890
Group Protection			1,436			1,435
Other Operations			2,033			1,608
Total mortgage loans on real estate		$	18,066		$	17,991

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The composition of commercial mortgage loans (in millions) by property type, geographic region and state is shown below:



	As of September 30, 2022				As of September 30, 2022
	Carrying				Carrying
	Value		%		Value		%
Property Type				State
Apartment	$	5,273	31.4%	CA	$	4,575	27.3%
Industrial		4,072	24.3%	TX		1,498	8.9%
Office building		3,701	22.1%	NY		1,063	6.3%
Retail		2,562	15.3%	PA		861	5.1%
Other commercial		743	4.4%	FL		811	4.8%
Hotel/motel		226	1.3%	MD		705	4.2%
Mixed use		207	1.2%	WA		664	4.0%
Total	$	16,784	100.0%	GA		631	3.8%
Geographic Region				TN		556	3.3%
Pacific		5,532	33.0%	AZ		556	3.3%
South Atlantic		3,489	20.8%	OH		432	2.6%
Middle Atlantic		2,198	13.1%	VA		423	2.5%
West South Central		1,636	9.7%	NC		407	2.4%
East North Central		1,201	7.2%	WI		328	2.0%
Mountain		1,177	7.0%	SC		309	1.8%
East South Central		677	4.0%	IL		306	1.8%
West North Central		469	2.8%	UT		299	1.8%
New England		374	2.2%	Non U.S.		31	0.2%
Non U.S.		31	0.2%	All other states		2,329	13.9%
Total	$	16,784	100.0%	Total	$	16,784	100.0%

The following table shows the principal amount (in millions) of our commercial and residential mortgage loans by year in which the principal is contractually obligated to be repaid:


	As of September 30, 2022
	Commercial		Residential		Total		%
Principal Repayment Year
2022	$	228	$	4	$	232	1.3%
2023		851		17		868	4.8%
2024		955		17		972	5.3%
2025		1,066		18		1,084	6.0%
2026		1,403		19		1,422	7.8%
2027 and thereafter		12,391		1,184		13,575	74.8%
Total	$	16,894	$	1,259	$	18,153	100.0%

See Note 4 for information regarding our loan-to-value and debt-service coverage ratios and our allowance for credit losses.

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Alternative Investments

Investment income (loss) on alternative investments by business segment (in millions) was as follows:



	For the Three					For the Nine
	Months Ended					Months Ended
	September 30,					September 30,
	2022			2021		2022		2021
Annuities	$	(4	)	$	18	$	6	$	55
Retirement Plan Services		(2	)		10		4		33
Life Insurance		(51	)		144		38		437
Group Protection		(2	)		12		4		36
Other Operations		(1	)		4		1		13
Total ⁽¹⁾	$	(60	)	$	188	$	53	$	574

⁽¹⁾Includes net investment income on the alternative investments supporting the required statutory surplus of our insurance businesses.

As of September 30, 2022, and December 31, 2021, alternative investments included investments in 332 and 311 different partnerships, respectively, and the portfolio represented approximately 2% of total investments. The partnerships do not represent off-balance sheet financing and generally involve several third-party partners. Some of our partnerships contain capital calls, which require us to contribute capital upon notification by the general partner. These capital calls are contemplated during the initial investment decision and are planned for well in advance of the call date. The capital calls are not material in size and are not material to our liquidity. Alternative investments are accounted for using the equity method of accounting and are included in other investments on our Consolidated Balance Sheets.

Non-Income Producing Investments

As of September 30, 2022, and December 31, 2021, the carrying amount of fixed maturity securities, mortgage loans on real estate and real estate that were non-income producing was $8 million and $14 million, respectively.

Net Investment Income

Details underlying net investment income (in millions) and our investment yield were as follows:



	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
Net Investment Income
Fixed maturity AFS securities	$	1,131		$	1,099		$	3,279		$	3,300
Trading securities		48			44			134			128
Equity securities		4			1			9			2
Mortgage loans on real estate		173			170			511			510
Policy loans		26			30			76			90
Cash and invested cash		5			-			7			-
Commercial mortgage loan prepayment
and bond make-whole premiums ⁽¹⁾		14			56			96			129
Alternative investments ⁽²⁾		(60	)		188			53			574
Consent fees		2			4			4			7
Other investments		37			25			76			44
Investment income		1,380			1,617			4,245			4,784
Investment expense		(54	)		(41	)		(137	)		(114	)
Net investment income	$	1,326		$	1,576		$	4,108		$	4,670

⁽¹⁾See “Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information.

⁽²⁾See “Alternative Investments” above for additional information.

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	For the Three		For the Nine
	Months Ended		Months Ended
	September 30,		September 30,
	2022	2021	2022	2021
Interest Rate Yield
Fixed maturity AFS securities, mortgage loans on
real estate and other, net of investment expenses	3.96%	3.93%	3.84%	3.94%
Commercial mortgage loan prepayment and
bond make-whole premiums	0.04%	0.17%	0.10%	0.13%
Alternative investments	-0.18%	0.55%	0.05%	0.57%
Net investment income yield on invested assets	3.82%	4.65%	3.99%	4.64%

We earn investment income on our general account assets supporting fixed annuity, term life, whole life, UL, interest-sensitive whole life and the fixed portion of retirement plan and VUL products. The profitability of our fixed annuity and life insurance products is affected by our ability to achieve target spreads, or margins, between the interest income earned on the general account assets and the interest credited to the contract holder on our average fixed account values, including the fixed portion of variable. Net investment income and the interest rate yield table each include commercial mortgage loan prepayments and bond make-whole premiums, alternative investments and contingent interest and standby real estate equity commitments. These items can vary significantly from period to period due to a number of factors and, therefore, can provide results that are not indicative of the underlying trends.

Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums

Prepayment and make-whole premiums are collected when borrowers elect to call or prepay their debt prior to the stated maturity. A prepayment or make-whole premium allows investors to attain the same yield as if the borrower made all scheduled interest payments until maturity. These premiums are designed to make investors indifferent to prepayment.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

Liquidity

Liquidity refers to our ability to generate adequate amounts of cash from our normal operations to meet cash requirements with a prudent margin of safety. Our ability to generate and maintain sufficient liquidity depends on the profitability of our businesses, general economic conditions and access to the capital markets and other sources of liquidity and capital as described below.

When considering our liquidity, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, LNC. As a holding company with no operations of its own, LNC is largely dependent upon the dividend capacity of its insurance subsidiaries as well as their ability to advance or repay funds to it through inter-company borrowing arrangements, which may be affected by factors influencing the insurance subsidiaries’ RBC and statutory earnings performance. Based on the sources of liquidity available to us as discussed below, we currently expect to be able to meet the holding company’s ongoing cash needs.

Capital

Capital refers to our long-term financial resources to support the operations of our businesses, to fund long-term growth strategies and to support our operations during adverse conditions. Our ability to generate and maintain sufficient capital depends on the profitability of our businesses, general economic conditions and access to the capital markets and other sources of liquidity and capital as described below. Disruptions, uncertainty or volatility in the capital and credit markets may materially affect our business operations and results of operations. These poor market conditions may reduce our insurance subsidiaries’ statutory surplus and RBC.

Reductions to our subsidiaries’ statutory surplus and RBC may cause them to retain more capital, which may pressure their ability to pay dividends to LNC, which may lead us to take steps to preserve or raise additional capital. As a result of this quarter’s annual assumption review, we expect an estimated $550 million statutory capital impact in the fourth quarter of 2022. We believe we have adequate capital to operate our business as we replenish statutory capital back to our targeted levels. For more information, see “Insurance Subsidiaries’ Statutory Capital and Surplus” below.

For factors that could cause actual results to differ materially from those set forth in this section and that could affect our expectations for liquidity and capital, see “Part I – Item 1A. Risk Factors” in our 2021 Form 10-K and “Forward-Looking Statements – Cautionary Language” above.

Consolidated Sources and Uses of Liquidity and Capital

Our primary sources of liquidity and capital are insurance premiums and fees, investment income, maturities and sales of investments, issuance of debt and contract holder deposits. We also have access to alternative sources of liquidity as discussed below. Our primary uses are to pay policy claims and benefits, to fund commissions and other general operating expenses, to purchase investments, to fund policy surrenders and withdrawals, to pay dividends to our stockholders, to repurchase our stock and to repay debt. Our operating activities provided (used) cash of $3.4 billion and $108 million for the nine months ended September 30, 2022 and 2021, respectively.

Holding Company Sources and Uses of Liquidity and Capital

The primary sources of liquidity and capital at the holding company level are dividends and interest payments from subsidiaries, augmented by holding company short-term investments, bank lines of credit and the ongoing availability of long-term public financing under an effective shelf registration statement, which allows us to issue, in unlimited amounts, securities, including debt securities, preferred stock, common stock, warrants, stock purchase contracts, stock purchase units and depository shares. These sources support the general corporate needs of the holding company, including its common stock dividends, common stock repurchases, interest and debt service, funding of callable securities, acquisitions and investment in core businesses.

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Details underlying the primary sources of the holding company’s liquidity (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Dividends from Subsidiaries
LNL	$	275	$	300	$	580	$	795
Lincoln Investment Management Company		-		20		16		20
Lincoln National Management Corporation		-		-		7		-
Lincoln National Reinsurance Company (Barbados) Limited		-		-		85		75
Total dividends from subsidiaries	$	275	$	320	$	688	$	890

Interest from Subsidiaries
Interest on inter-company notes	$	31	$	29	$	87	$	84

The table above focuses on significant and recurring cash flow items and excludes the effects of certain financing activities, including the periodic issuance and retirement of debt, cash flows related to our inter-company cash management program and certain investing activities, including capital contributions to subsidiaries. These activities are discussed below. Taxes have been eliminated from the analysis due to a tax sharing agreement among our primary subsidiaries resulting in a modest effect on net cash flows at the holding company. Also excluded from this analysis is the modest amount of investment income on short-term investments of the holding company and employee stock exercise activity related to our stock-based incentive compensation plans. See “Part IV – Item 15(a)(2) Financial Statement Schedules – Schedule II – Condensed Financial Information of Registrant” in our 2021 Form 10-K for the holding company cash flow statement. For information regarding limits on the dividends that our insurance subsidiaries may pay without prior approval, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Holding Company Sources and Uses of Liquidity and Capital – Restrictions on Subsidiaries’ Dividends” in our 2021 Form 10-K.

Insurance Subsidiaries’ Statutory Capital and Surplus

Our insurance subsidiaries must maintain certain regulatory capital levels. We utilize the RBC ratio as a primary measure of the capital adequacy of our insurance subsidiaries. The RBC ratio is an important factor in the determination of the credit and financial strength ratings of LNC and its subsidiaries, as a reduction in our insurance subsidiaries’ surplus will affect their RBC ratios and dividend-paying capacity. For a discussion of RBC ratios, see “Part I – Item 1. Business – Regulatory – Insurance Regulation – Risk-Based Capital” in our 2021 Form 10-K.

Our regulatory capital levels are also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. Our term products and UL products containing secondary guarantees require reserves calculated pursuant to XXX and AG38, respectively. Our insurance subsidiaries employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the business to reinsurance captives. Our captive reinsurance and reinsurance subsidiaries provide a mechanism for financing a portion of the excess reserve amounts in a more efficient manner and free up capital the insurance subsidiaries can use for any number of purposes, including paying dividends to the holding company. We use long-dated LOCs and debt financing as well as other financing strategies to finance those reserves. Included in the LOCs issued as of September 30, 2022, was $2.1 billion of long-dated LOCs issued to support inter-company reinsurance arrangements for UL products containing secondary guarantees. For information on the LOCs, see the credit facilities table in Note 12 in our 2021 Form 10-K. Our captive reinsurance and reinsurance subsidiaries have also issued long-term notes of $3.9 billion to finance a portion of the excess reserves as of September 30, 2022; of this amount, $3.1 billion involve exposure to variable interest entities. For information on these long-term notes issued by our captive reinsurance and reinsurance subsidiaries, see Note 3 in our 2021 Form 10-K. We have also used the proceeds from senior note issuances of $875 million to execute long-term structured solutions primarily supporting reinsurance of UL products containing secondary guarantees. LOCs and related capital market solutions lower the capital effect of term products and UL products containing secondary guarantees.

Statutory reserves established for variable annuity contracts and riders are sensitive to changes in the equity markets and interest rates and are affected by the level of account values relative to the level of any guarantees, product design and reinsurance arrangements. As a result, the relationship between reserve changes and equity market performance is non-linear during any given reporting period. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and derivative assets hedging these reserves. We also utilize inter-company reinsurance arrangements to manage our hedge program for variable annuity guarantees.

Changes in equity markets may also affect the capital position of our insurance subsidiaries. We may decide to reallocate available capital among our insurance subsidiaries, including our captive reinsurance subsidiaries, which would result in different RBC ratios for our insurance subsidiaries. In addition, changes in the equity markets can affect the value of our variable annuity and variable universal life insurance separate accounts. When the market value of our separate account assets increases, the statutory surplus within our insurance subsidiaries also increases. Contrarily, when the market value of our separate account assets decreases, the statutory surplus within our

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insurance subsidiaries may also decrease, which will affect RBC ratios, and in the case of our separate account assets becoming less than the related product liabilities, we must allocate additional capital to fund the difference.

We continue to analyze the use of our existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and our current hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of our life insurance subsidiaries.

Debt

Although our subsidiaries currently generate adequate cash flow to meet the needs of our normal operations, periodically LNC may issue debt, or other types of securities, to maintain ratings and increase liquidity, as well as to fund internal growth, acquisitions and the retirement of its debt.

Details underlying our debt activities (in millions) for the nine months ended September 30, 2022, were as follows:



					Maturities,				Change
					Repayments				in Fair
	Beginning				and				Value				Other			Ending
	Balance		Issuance		Refinancing				Hedges			Changes ⁽¹⁾				Balance
Short-Term Debt
Current maturities of long-term debt ⁽²⁾	$	300	$	-		$	(300	)	$	-			$	500		$	500

Long-Term Debt
Senior notes	$	4,867	$	300		$	-		$	(154	)		$	(512	)	$	4,501
Term loans		250		-			-			-				-			250
Subordinated notes ⁽³⁾		995		-			-			-				-			995
Capital securities ⁽³⁾		213		-			-			-				-			213
Total long-term debt	$	6,325	$	300		$	-		$	(154	)		$	(512	)	$	5,959

⁽¹⁾Includes the non-cash reclassification of long-term debt to current maturities of long-term debt, accretion (amortization) of discounts and premiums, amortization of debt issuance costs and amortization of adjustments from discontinued hedges, as applicable.

⁽²⁾As of September 30, 2022, consisted of $500 million 4.00% senior notes that mature on September 1, 2023.

⁽³⁾To hedge the variability in rates, we purchased interest rate swaps to lock in a fixed rate of approximately 5% over the remaining terms of the subordinated notes and capital securities.

On March 1, 2022, we completed the issuance and sale of $300 million aggregate principal amount of our 3.40% senior notes due 2032. We intend to use the net proceeds from the offering for general corporate purposes, which may include the repayment of debt on or prior to its maturity.

LNC made interest payments to service debt of $73 million and $216 million for the three and nine months ended September 30, 2022, respectively, compared to $70 million and $214 million, respectively, for the corresponding periods in 2021.

For additional information about our short-term and long-term debt, see Note 12 in our 2021 Form 10-K and Note 10 herein.

Capital Contributions to Subsidiaries

LNC made capital contributions to subsidiaries of $80 million and $145 million for the three and nine months ended September 30, 2022, respectively, compared to zero and $65 million, respectively, for the corresponding periods in 2021.

Return of Capital to Common Stockholders

One of our primary goals is to provide a return to our common stockholders through share price accretion, dividends and stock repurchases. In determining dividends, the Board of Directors takes into consideration items such as current and expected earnings, capital needs, rating agency considerations and requirements for financial flexibility. The amount and timing of share repurchases depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. Free cash flow for the holding company generally represents the amount of dividends and interest received from subsidiaries less interest paid on debt. We paused our common stock repurchases under our buyback program beginning in the fourth quarter of 2022. For additional information regarding share repurchases, see “Part II – Item 2(c)” below.

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Details underlying return of capital to common stockholders (in millions) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Dividends to common stockholders	$	77	$	79	$	234	$	240
Repurchase of common stock		50		200		550		455
Total cash returned to common stockholders	$	127	$	279	$	784	$	695

Number of shares repurchased		1.0		3.1		8.7		7.2

Alternative Sources of Liquidity

Inter-Company Cash Management Program

In order to manage our capital more efficiently, we have an inter-company cash management program where certain subsidiaries can lend to or borrow from the holding company to meet short-term borrowing needs. The cash management program is essentially a series of demand loans between LNC and participating subsidiaries that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs. As of September 30, 2022, the holding company had a net outstanding receivable (payable) of $411 million from (to) certain subsidiaries resulting from loans made by subsidiaries in excess of amounts placed (borrowed) by the holding company and subsidiaries in the inter-company cash management account. Any change in holding company cash management program balances is offset by the immediate and equal change in holding company cash and invested cash. Loans under the cash management program are permitted under applicable insurance laws subject to certain restrictions. For our Indiana-domiciled insurance subsidiary, the borrowing and lending limit is currently 3% of the insurance company’s admitted assets as of its most recent year end. For our New York-domiciled insurance subsidiary, it may borrow from LNC less than 2% of its admitted assets as of its most recent year end but may not lend any amounts to LNC.

Facility Agreement for Senior Notes Issuance

LNC entered into a facility agreement in 2020 with a Delaware trust that gives LNC the right over a 10-year period to issue, from time to time, up to $500 million of 2.330% senior notes to the trust in exchange for a corresponding amount of U.S. Treasury securities held by the trust. By agreeing to purchase the 2.330% senior notes in exchange for U.S. Treasury securities upon exercise of the issuance right, the trust will provide a source of liquid assets for the Company. The issuance right will be exercised automatically in full upon our failure to make certain payments to the trust, if the failure to pay is not cured within 30 days, or upon certain bankruptcy events involving LNC. We are also required to exercise the issuance right in full if our consolidated stockholders’ equity (excluding AOCI) falls below $2.75 billion, subject to adjustment from time to time in certain cases, and upon certain other events described in the facility agreement. For additional information, see Note 12 in our 2021 Form 10-K.

Federal Home Loan Bank

Our primary insurance subsidiary, LNL, is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis (“FHLBI”). Membership allows LNL access to the FHLBI’s financial services, including the ability to obtain loans and to issue funding agreements as an alternative source of liquidity that are collateralized by qualifying mortgage-related assets, agency securities or U.S. Treasury securities. Borrowings under this facility are subject to the FHLBI’s discretion and require the availability of qualifying assets at LNL. As of September 30, 2022, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of $6.1 billion. As of September 30, 2022, LNL had outstanding borrowings of $3.1 billion under this facility reported within payables for collateral on investments on the Consolidated Balance Sheets. Lincoln Life & Annuity Company of New York (“LLANY”) is a member of the Federal Home Loan Bank of New York (“FHLBNY”) with an estimated maximum borrowing capacity of $750 million. Borrowings under this facility are subject to the FHLBNY’s discretion and require the availability of qualifying assets at LLANY. As of September 30, 2022, LLANY had no outstanding borrowings under this facility. For additional information, see “Payables for Collateral on Investments” in Note 4.

Securities Lending Programs and Repurchase Agreements

Our insurance subsidiaries, by virtue of their general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. As of September 30, 2022, our insurance subsidiaries had securities pledged under securities lending agreements with a carrying value of $300 million. In addition, our insurance and reinsurance subsidiaries had access to $2.25 billion through committed repurchase agreements, of which $25 million was utilized as of September 30, 2022. The cash received in our securities lending programs and repurchase agreements is typically invested in cash and invested cash or fixed maturity AFS securities. For additional information, see “Payables for Collateral on Investments” in Note 4.

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Collateral on Derivative Contracts

Our cash flows associated with collateral received from counterparties (when we are in a net collateral payable position) and posted with counterparties (when we are in a net collateral receivable position) change as the market value of the underlying derivative contract changes. The net collateral position depends on changes in interest rates and equity markets related to the amount of the exposures hedged. As of September 30, 2022, we were in a net collateral payable position of $3.2 billion compared to $4.9 billion as of December 31, 2021. In the event of adverse changes in fair value of our derivative instruments, we may need to post collateral with a counterparty. If we do not have sufficient high-quality securities or cash and invested cash to provide as collateral, we have committed liquidity sources through facilities that can provide up to $1.25 billion of additional liquidity to help meet collateral needs. Access to such facilities is contingent upon interest rates having achieved certain threshold levels. In addition to these facilities, we have the facility agreement for senior notes issuance, the FHLB facilities and the repurchase agreements discussed above as well as the five-year revolving credit facility discussed in Note 12 in our 2021 Form 10-K to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 5.

Ratings

Financial Strength Ratings

See “Part I – Item 1. Business – Financial Strength Ratings” in our 2021 Form 10-K for information on our financial strength ratings.

Credit Ratings

See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Ratings” in our 2021 Form 10-K for information on our credit ratings.

If our current financial strength ratings or credit ratings were downgraded in the future, terms in our derivative agreements may be triggered, which could negatively affect overall liquidity. For the majority of our derivative counterparties, there is a termination event with respect to LNC if its long-term senior debt ratings drop below BBB-/Baa3 (S&P/Moody’s); or with respect to LNL if its financial strength ratings drop below BBB-/Baa3 (S&P/Moody’s). Our long-term senior debt held a rating of A-/Baa1 (S&P/Moody’s) as of September 30, 2022. In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products. See “Part I – Item 1A. Risk Factors – Covenants and Ratings – A downgrade in our financial strength or credit ratings could limit our ability to market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors” in our 2021 Form 10-K for more information.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, in an integrated asset-liability management process that considers diversification. We have exposures to several market risks including interest rate risk, equity market risk, credit risk and, to a lesser extent, foreign currency exchange risk. For information on these market risks, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2021 Form 10-K. See also “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” above.

Item 4. Controls and Procedures

Conclusions Regarding Disclosure Controls and Procedures

We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period required by this report, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance

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that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to In re: Lincoln National COI Litigation, previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”). On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion.

Reference is made to In re: Lincoln National 2017 COI Rate Litigation, previously disclosed in our 2021 Form 10-K. On August 9, 2022, the court denied plaintiffs’ motion for class certification. Plaintiffs have indicated their intent to file a new class certification motion.

Reference is made to Angus v. The Lincoln National Life Insurance Company, previously disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2022 (“Second Quarter 2022 Form 10-Q”). On August, 26, 2022, LNL filed a motion to dismiss this case.

Reference is made to Andrew Nitkewicz v. Lincoln Life & Annuity Company of New York, previously disclosed in our 2021 Form 10-K and Second Quarter 2022 Form 10-Q. On September 26, 2022, the U.S. Court of Appeals for the Second Circuit reserved its decision with respect to plaintiff’s appeal of the July 2021 decision granting LLANY’s motion to dismiss, and certified a question to the New York Court of Appeals. On October 20, 2022, the New York Court of Appeals accepted the question, and has set a briefing schedule.

See Note 11 in “Part I – Item 1. Financial Statements” for further discussion regarding these matters and other contingencies.

Item 1A. Risk Factors

In addition to the factors set forth in “Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Forward-Looking Statements – Cautionary Language,” you should carefully consider the risks described under “Part I – Item 1A. Risk Factors” in our Form 10-K for the year ended December 31, 2021. Such risks and uncertainties are not the only ones facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these risks actually occur, our business, financial condition and results of operations could be materially affected. In that case, the value of our securities could decline substantially.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) The following summarizes purchases of equity securities by the Company during the quarter ended September 30, 2022 (dollars in millions, except per share data):



					(c) Total Number		(d) Approximate Dollar
	(a) Total				of Shares		Value of Shares
	Number		(b) Average		Purchased as Part of		that May Yet Be
	of Shares		Price Paid		Publicly Announced		Purchased Under the
Period	Purchased ⁽¹⁾		per Share		Plans or Programs ⁽²⁾		Plans or Programs ⁽²⁾
7/1/22 – 7/31/22		-	$	-		-	$	764

8/1/22 – 8/31/22		1,019,675		49.06		1,019,675		714

9/1/22 – 9/30/22		-		-		-		714

⁽¹⁾Of the total number of shares purchased, no shares were received in connection with the exercise of stock options and related taxes. For the quarter ended September 30, 2022, there were 1,019,675 shares purchased as part of publicly announced plans or programs.

⁽²⁾On November 10, 2021, our Board of Directors authorized an increase in our securities repurchase authorization, bringing the total aggregate repurchase authorization to $1.5 billion. As of September 30, 2022, our remaining security repurchase authorization was $714 million. The security repurchase authorization does not have an expiration date. The amount and timing of share repurchases depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. Our stock repurchases may be effected from time to time through open market purchases or in privately negotiated transactions and may be made pursuant to an accelerated share repurchase agreement or Rule 10b5-1 plan.

Item 6. Exhibits

The Exhibits included in this report are listed in the Exhibit Index beginning on page 102, which is incorporated herein by reference.

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LINCOLN NATIONAL CORPORATION

Exhibit Index for the Report on Form 10-Q

For the Quarter Ended September 30, 2022



31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		LINCOLN NATIONAL CORPORATION

	By:	/s/ Randal J. Freitag
		Randal J. Freitag Executive Vice President and Chief Financial Officer

	By:	/s/ Adam Cohen
		Adam Cohen Senior Vice President and Chief Accounting Officer
Dated: November 3, 2022

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Negative
Uncertain
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Legalese
Litigous
Readability	H.S. freshman Avg

Lincoln National (LNC) 10-Q2022 Q3 Quarterly report

Content analysis

Goodwill

Income Taxes

Insurance Premiums