# Lincoln National Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Lincoln National Corp](/companies/lnc.md) (CIK 59558)
- Form: 10-Q
- Filed: 2023-11-02
- Accepted by EDGAR: Nov 2, 2023, 12:40 ET
- Period: 2023-09-30
- Accession: 0000059558-23-000058
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/59558/000005955823000058/lnc-20230930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/59558/000005955823000058/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $4.20bn | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $10.95bn | us-gaap:Revenues |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $181.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | −$17.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $853.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $483.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $4.79 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.40 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $4.82 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $2.43 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 170,890,502 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 170,625,444 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$206.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $229.0m | us-gaap:PaymentsOfDividendsCommonStock |
| Total assets | at 2023-09-30 | $338.41bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $335.21bn | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $3.20bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 172,667 characters.

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

|  | Page |
| --- | ---: |
| Forward-Looking Statements – Cautionary Language | 90 |
| Introduction | 91 |
| Executive Summary | 91 |
| Critical Accounting Policies and Estimates | 92 |
| Results of Consolidated Operations | 100 |
| Results of Annuities | 102 |
| Results of Life Insurance | 106 |
| Results of Group Protection | 111 |
| Results of Retirement Plan Services | 116 |
| Results of Other Operations | 121 |
| Consolidated Investments | 123 |
| Liquidity and Capital Resources | 135 |

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of September 30, 2023, compared with December 31, 2022, and the results of operations for the three and nine months ended September 30, 2023, compared with the corresponding periods in 2022 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 Annual Report on Form 10-K/A for the year ended December 31, 2022 (“2022 Form 10-K/A”), as updated by our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 22, 2023 (the “May 2023 Form 8-K”); and other reports filed with the 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 2022 Form 10-K/A.

On January 1, 2023, we adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts and related amendments (“ASU 2018-12”) with a transition date of January 1, 2021. ASU 2018-12 updated accounting and reporting requirements for long-duration contracts and certain investment contracts issued by insurance entities. We adopted ASU 2018-12 under the modified retrospective approach, except for market risk benefits (“MRBs”) for which we applied the full retrospective approach. For more information, see Note 3.

**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:

Weak general economic and business conditions that may affect demand for our products, account balances, 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 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;

The impact of new and emerging privacy regulations that may lead to increased compliance costs and reputation risk;

Increasing scrutiny and evolving expectations and regulations regarding environmental, social and governance (“ESG”) matters that may adversely affect our reputation and our investment portfolio;

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 and demand for our products;

Rapidly increasing interest rates causing policyholders to surrender life insurance and annuity policies, thereby causing realized investment losses;

The impact of the implementation of the provisions of the European Market Infrastructure Regulation 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; and an increase in liabilities related to guaranteed benefit riders, which are accounted for as MRBs, of our subsidiaries’ variable annuity products;

Ineffectiveness of our risk management policies and procedures, including our various hedging strategies;

A deviation in actual experience regarding future policyholder behavior, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products and in establishing related insurance reserves, which may reduce future earnings;

Changes in accounting principles that may affect our consolidated financial statements;

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;

Pandemics, acts of terrorism, war or other man-made and natural catastrophes that may adversely impact liabilities for policyholder claims, affect our businesses and increase 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 2022 Form 10-K/A 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 accumulation, wealth protection, group protection and retirement income products and solutions through our four business segments:

Annuities;

Life Insurance;

Group Protection; and

Retirement Plan Services

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 2022 Form 10-K/A 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 17. 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) 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, 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 2022 Form 10-K/A.

On May 2, 2023, we entered into a reinsurance agreement with Fortitude Reinsurance Company Ltd. (“Fortitude Re”) expected to reduce balance sheet risk, strengthen our capital position and improve free cash flow. For more information, see Note 8.

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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### Critical Accounting Policies and Estimates

We have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition. In applying these critical accounting policies in preparing our financial statements, management must use critical assumptions, estimates and judgments concerning future results or other developments, including the likelihood, timing or amount of one or more future events. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our assumptions, estimates and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances. For a detailed discussion of other significant accounting policies, see Note 1. The following information updates the “Critical Accounting Policies and Estimates” provided in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, and therefore, should be read in conjunction with that disclosure.

### DAC, VOBA, DSI and DFEL

#### Deferrals

Qualifying deferrable acquisition expenses are recorded as an asset on the Consolidated Balance Sheets as deferred acquisition costs (“DAC”) for products we sold during a period or value of business acquired (“VOBA”) for books of business we acquired during a period. DAC and VOBA when amortized increase commissions and other expenses on the Consolidated Statements of Comprehensive Income (Loss). In addition, we defer costs associated with deferred sales inducements (“DSI”) and revenues associated with deferred front-end loads (“DFEL”). DSI is an asset on the Consolidated Balance Sheets, and when amortized, increases interest credited on the Consolidated Statements of Comprehensive Income (Loss). DFEL is a liability on the Consolidated Balance Sheets, and when amortized, increases fee income on the Consolidated Statements of Comprehensive Income (Loss).

We incur certain costs that can be capitalized in the acquisition of insurance contracts. Only those costs incurred that result directly from and are essential to the successful acquisition of new or renewal insurance contracts may be capitalized as deferrable acquisition costs in the period they are incurred. This determination of deferability must be made on a contract-level basis. Some examples of acquisition costs that are subject to deferral include the following:

Employee, agent or broker commissions;

Wholesaler production bonuses;

Renewal commissions and bonuses to agents or brokers;

Medical and inspection fees;

Premium-related taxes and assessments; and

A portion of the salaries and benefits of certain employees involved in the underwriting, contract issuance and processing, medical and inspection and sales force contract selling functions.

All other acquisition-related costs, including costs incurred by the insurer for soliciting potential customers, market research, training, administration, management of distribution and underwriting functions, unsuccessful acquisition or renewal efforts and product development, are considered non-deferrable acquisition costs and must be expensed in the period incurred.

In addition, the following indirect costs are considered non-deferrable acquisition costs and must be charged to expense in the period incurred:

Administrative costs;

Rent;

Depreciation;

Occupancy costs;

Equipment costs (including data processing equipment dedicated to acquiring insurance contracts);

Trail commissions; and

Other general overhead.

#### Amortization

The amortization of DAC, VOBA, DSI and DFEL, associated with our long-duration insurance contracts and certain investment contracts, is based on assumptions consistent with those used in the development of the underlying contract reserves adjusted for emerging experience and expected trends. The amortization basis results in a constant level amortization pattern for the expected term of the related contracts by each reportable segment. When identifying the amortization basis we consider actuarial assumptions that are inputs to the models for establishing the expected term, including but not limited to, mortality, morbidity, lapse and surrenders. During the third quarter of each year, we conduct our comprehensive review of these actuarial assumptions and update these actuarial assumptions as needed. We may update these actuarial assumptions in other quarters as we become aware of information that warrants updating outside of our annual comprehensive review. Any updates are applied prospectively.

For a discussion of the amortization basis and periods over which we amortize our DAC, VOBA, DSI and DFEL, see “DAC, VOBA, DSI and DFEL” in Note 1.

### Investments

#### Investment Valuation

The following summarizes investments on the Consolidated Balance Sheets carried at fair value by pricing source and fair value hierarchy level (in millions) as of September 30, 2023:

|  | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Priced by third-party pricing services | $380 | $85,260 | $139 | $85,779 |
| Priced by independent broker quotations | - | - | 4,270 | 4,270 |
| Priced by matrices | - | 16,310 | - | 16,310 |
| Priced by other methods (1) | - | - | 246 | 246 |
| Total | $380 | $101,570 | $4,655 | $106,605 |
| Percent of total | 0% | 95% | 5% | 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 2022 Form 10-K/A as updated by the May 2023 Form 8-K and Note 14 herein.

### Derivatives

Derivatives are primarily used for hedging purposes. We hedge certain portions of our exposure to interest rate risk, foreign currency exchange risk, equity market risk, basis risk, commodity risk and credit risk by entering into derivative transactions. We also purchase and issue financial instruments that contain embedded derivative instruments. See “Policyholder Account Balances” below for information on embedded derivatives. Assessing the effectiveness of hedging and evaluating the carrying values of the related derivatives often involve a variety of assumptions and estimates.

We carry our derivative instruments at fair value, which we determine through valuation techniques or models that use market data inputs or independent broker quotations. The fair values fluctuate from period to period due to the volatility of the valuation inputs, including but not limited to swap interest rates, interest and equity volatility and equity index levels, foreign currency forward and spot rates, credit spreads and correlations, some of which are significantly affected by economic conditions. The effect to revenue is reported in realized gain (loss) and such amount along with the associated federal income taxes is excluded from income (loss) from operations of our segments.

For more information on derivatives, see Notes 1 and 6. For more information on market exposures associated with our derivatives, including sensitivities, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### Future Contract Benefits

Future contract benefits represent liability reserves that we have established and carry based on estimates of how much we will need to pay for future benefits and claims.

#### Liability for Future Policy Benefits

Liability for future policy benefits (“LFPB”) represents the reserve amounts associated with non-participating traditional life insurance contracts and limited payment life-contingent annuity contracts that are calculated to meet the various policy and contract obligations as they mature. Establishing adequate reserves for our obligations to policyholders requires assumptions to be made that are intended to represent an estimation of experience for the period that policy benefits are payable. If actual experience is better than or equal to the assumptions, then reserves should be adequate to provide for future benefits and expenses. If experience is worse than the assumptions, additional reserves may be required. Significant assumptions include mortality rates, morbidity and policyholder behavior (e.g., persistency) and withdrawals. During the third quarter of each year, we conduct our comprehensive review of the actuarial assumptions to best estimate future premium and benefit cash flows (“cash flow assumptions”) and projection models used in estimating these liabilities and update these assumptions as needed (excluding the claims settlement expense assumption that is locked-in at inception) in the calculation of the net premium ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. See “Annual Assumption Review” below for more information. In measuring our LFPB, we establish cohorts, which are groupings of long-duration contracts. On a quarterly basis, we retrospectively update the net premium ratio at the cohort level for actual experience. For all contract cohorts issued after January 1, 2021, interest is accrued on LFPB at the single-A interest rate on the contract cohort inception date. For contract cohorts issued prior to January 1, 2021, interest remains accruing at the original discount rate in effect on the contract cohort inception date due to the modified retrospective transition method. We also remeasure the LFPB using the single-A interest rate as of the end of each reporting period.

#### Liability for Future Claims

Future contract benefits include reserves for long-term life and disability claims associated with our Group Protection segment. These reserves use actuarial assumptions primarily based on claim termination rates, offsets for other insurance including social security and long-term disability incidence and severity assumptions. Such cash flow assumptions are subject to the comprehensive review process discussed above. We remeasure the liability for future claims using a single-A interest rate as of the end of each reporting period. See “Annual Assumption Review” below for more information.

#### Universal Life Insurance Products with Secondary Guarantees

We issue UL-type contracts where we provide a secondary guarantee to the policyholder. The policy can remain in force, even if the base policy account balance is zero, as long as contractual secondary guarantee requirements have been met. These guaranteed benefits require an additional liability that is calculated based on the application of a benefit ratio (calculated as the present value of total expected benefit payments over the life of the contract from inception divided by the present value of total expected assessments over the life of the contract). These secondary guarantees are reported within future contract benefits on the Consolidated Balance Sheets. The level and direction of the change in reserves will vary over time based on the emergence of the benefit ratio and the level of assessments associated with the contracts. Cash flow assumptions incorporated in a benefit ratio in measuring these additional liabilities for other insurance benefits include mortality rates, morbidity, policyholder behavior (e.g., persistency) and withdrawals based principally on generally accepted actuarial methods and assumptions. During the third quarter of each year, we conduct our comprehensive review of the cash flow assumptions and projection models used in estimating these liabilities and update these assumptions in the calculation of the benefit ratio. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. See “Annual Assumption Review” below for more information.

For additional information on future contract benefits, see Note 13.

### Market Risk Benefits

MRBs are contracts or contract features that provide protection to the policyholder from other-than-nominal capital market risk and expose us to other-than-nominal capital market risk upon the occurrence of a specific event or circumstance, such as death, annuitization or period withdrawal. An MRB can be in either an asset or a liability position. Our MRB assets and MRB liabilities are reported at fair value separately on the Consolidated Balance Sheet.

We issue variable and fixed annuity contracts that may include various types of guaranteed living benefit (“GLB”) and guaranteed death benefit (“GDB”) riders that we have accounted for as MRBs. For contracts that contain multiple riders that qualify as MRBs, the MRBs are valued on a combined basis using an integrated model. We have entered into reinsurance agreements to cede certain GLB and GDB riders where the reinsurance agreements themselves are accounted for as MRBs or contain MRBs. We therefore record ceded MRB assets and ceded MRB liabilities associated with these reinsurance agreements. We report ceded MRBs associated with these reinsurance agreements in other assets or other liabilities on the Consolidated Balance Sheets.

Net amount at risk (“NAR”) represents the amount of GLB or GDB in excess of a policyholder’s account balance at the balance sheet date. Underperforming markets increase our exposure to potential benefits with the GLB and GDB riders. A contract with a GDB rider is “in the money” if the policyholder’s account balance falls below the GDB. As of September 30, 2023 and 2022, 27% and 33%, respectively, of all in-force contracts with a GDB rider were “in the money.” A contract with a GLB rider is “in the money” if the policyholder’s account balance falls below the present value of GLB payments, assuming no full surrenders. As of September 30, 2023 and 2022, 33% and 72%, respectively, of all in-force contracts with a GLB rider were “in the money.” However, the only way the policyholder can realize the excess of the present value of benefits over the account balance 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 balance is exhausted, the policyholder will continue to receive a series of annuity payments. The account balance can also fluctuate with market returns on a daily basis resulting in increases or decreases in the excess of the present value of benefits over account balance.

Many policyholders have both a GLB or GDB present on the same policy. The total NAR represents the greater of GLB NAR and GDB NAR for each policy as only one benefit can be exercised in practice. Details underlying the NAR, net of reinsurance, (in millions) were as follows:

|  | Annuities As of September 30, 2023 | 2022 | Retirement Plan Services As of September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| GLB NAR | $2,929 | $4,803 | $2 | $5 |
| GDB NAR | 3,696 | 6,729 | 7 | 23 |
| Total NAR | 6,256 | 10,618 | 9 | 27 |

Change in the fair value of MRB assets and liabilities is reported in market risk benefit gain (loss) in the Consolidated Statements of Comprehensive Income (Loss), except for the portion attributable to the change in non-performance risk, which is recognized in OCI. Change in the fair value of ceded MRB assets and liabilities, including the changes in our counterparties’ non-performance risks, is reported in market risk benefit gain (loss) in the Consolidated Statements of Comprehensive Income (Loss).

MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our non-performance risk. Ceded MRBs are valued based on a stochastic projection of risk-neutral scenarios that incorporate a spread reflecting our counterparties’ non-performance risk. The scenario assumptions, at each valuation date, are those we view to be appropriate for a hypothetical market participant and include assumptions for capital markets, lapse, benefit utilization, mortality, risk margin and administrative expenses. These assumptions are based on a combination of historical data and actuarial judgments. The assumption for our own non-performance risk and our counterparties’ non-performance risk for MRBs and ceded MRBs, respectively, are determined at each valuation date and reflect our risk and our counterparties’ risks of not fulfilling the obligations of the underlying liability. The spread for the non-performance risk is added to the discount rates used in determining the fair value from the net cash flows. We believe these assumptions are consistent with those that would be used by a market participant; however, as the related markets develop, we will continue to reassess our assumptions. During the third quarter of each year, we conduct our comprehensive review of the assumptions used in calculating the fair value of these MRBs and update these assumptions on a prospective basis as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. For information on fair value inputs, see Note 14. See “Annual Assumption Review” below for more information.

For illustrative purposes, the following presents hypothetical effects to MRBs attributable to changes to key assumptions / inputs, assuming all other factors remain constant:

|  |  | Hypothetical | Hypothetical |  |
| --- | --- | --- | --- | --- |
|  | **Actual** | **Effect** | **Effect** |  |
| **Assumption / Input** | **Experience** | **to MRB Liability** | **to Net Income** | **Description of Assumption / Input** |
| Equity market return | Increase / (Decrease) | (Decrease) / Increase | Increase / (Decrease) | Equity market return input represents impact based on movements in equity markets. |
| Interest rate | Higher / Lower | (Decrease) / Increase | Increase / (Decrease) | Interest rate input represents impact based on movements in interest rates and impact to fixed-income assets. |
| Volatility | Increase / (Decrease) | Increase / (Decrease) | (Decrease) / Increase | Volatility assumption represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets. Volatility assumptions vary by fund due to the benchmarking of difference indices. |
| Mortality | Increase / (Decrease) | (Decrease) / Increase | Increase / (Decrease) | Mortality 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. |
| Mortality contracts with only GDB rider | Increase / (Decrease) | Increase / (Decrease) | (Decrease) / Increase | Mortality 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. |
| Lapse | Higher / Lower | (Decrease) / Increase | Increase / (Decrease) | Lapse assumption represents the estimated probability of a contract surrendering during a year, thereby forgoing any future benefits. |
| Benefit utilization | Higher / Lower | Increase / (Decrease) | (Decrease) / Increase | Benefit utilization assumption of guaranteed withdrawals represents the estimated percentage of policyholders that utilize the guaranteed withdrawal feature. |

We use derivative instruments to hedge our exposure to selected risk caused by changes in equity markets and interest rates associated with GLB and GDB riders that are available in our variable annuity products and accounted for as MRBs. Effective January 1, 2023, we revised our hedge program that continues to focus on generating sufficient assets to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. We utilize options and total return swaps on U.S.-based equity indices, and futures on U.S.-based and international equity indices, as well as interest rate futures, interest rate swaps and currency futures. For additional information on our derivatives, see Note 6.

As part of our hedge program, equity market and interest rate conditions are monitored on a daily basis. We rebalance our hedge positions based upon changes in these factors as needed. While we actively manage our hedge positions, these positions may not completely offset changes in the fair value of our GLB and GDB riders caused by movements in these factors 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, interest rates and market-implied volatilities, realized market volatility, policyholder behavior, divergence between the performance of the underlying funds and the hedging indices, divergence between the actual and expected performance of the hedge instruments or our ability to purchase hedging instruments at prices consistent with our desired risk and return trade-off.

The following table presents our after-tax estimates of the potential instantaneous effect to net income (loss) that could result from sudden changes that may occur in equity markets and interest rates (in millions) and excludes the net cost of operating the hedge program. The amounts represent the difference between the change in GLB and GDB riders and the change in the fair value of the underlying hedge instruments. These estimates are based upon the balance as of September 30, 2023, net of reinsurance, and the related hedge instruments in place as of that date.

The effects presented in the table below are not representative of the aggregate impacts that could result if a combination of such changes to equity market returns and interest rates occurred.

|  | In Force Sensitivities |  |
| --- | ---: | ---: |
| **Equity Market Return** | **-10%** | **+10%** |
| Hypothetical effect to net income | $(525) | $500 |
| **Interest Rates** | **-25 bps** | **+25 bps** |
| Hypothetical effect to net income | (425) | 400 |

The actual effects of the results illustrated in the table above could vary significantly depending on a variety of factors, many of which are out of our control, and consideration should be given to the following:

The analysis is only valid as of September 30, 2023, due to changing market conditions, policyholder activity, hedge positions and other factors;

The analysis assumes instantaneous shifts in the capital market factors and no ability to rebalance hedge positions prior to the market changes;

The analysis assumes constant exchange rates and implied dividend yields;

Assumptions regarding shifts in the market factors, such as assuming parallel shifts in interest rates, may be overly simplistic and not indicative of actual market behavior in stress scenarios;

It is very unlikely that one capital market sector (e.g., equity markets) will sustain such a large instantaneous movement without affecting other capital market sectors; and

The analysis assumes that there is no tracking or basis risk between the funds and/or indices affecting the GLB and GDB riders and the instruments utilized to hedge these exposures.

For additional information on MRBs, see Note 10.

### Policyholder Account Balances

Policyholder account balances include the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability includes UL and VUL and investment-type annuity products where account balances are equal to deposits plus interest credited less withdrawals, surrender charges, asset-based fees and policyholder administration charges (collectively known as “policyholder assessments”), as well as amounts representing the fair value of embedded derivative instruments associated with our IUL and indexed annuity products. During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models underlying our reserves and embedded derivatives and update assumptions as needed. We may also update these assumptions in other quarters as we become aware of information that is indicative of the need for such an update. See “Annual Assumption Review” below for more information.

Our indexed annuity and IUL contracts permit the holder to elect a fixed interest rate return or a return where interest credited to the contracts is linked to the performance of the S&P 500® Index or other indices. The value of the variable portion of the policyholder’s account balance varies with the performance of the underlying variable funds chosen by the policyholder. Policyholders may elect to rebalance among the various accounts within the product 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 different participation rates, caps, spreads or specified rates, subject to contractual guarantees. We purchase and sell index options that are highly correlated to the portfolio allocation decisions of our policyholders, such that we are economically hedged with respect to equity returns for the current reset period. The mark-to-market of the options held generally offsets the change in value of the embedded derivative within the contract, both of which are recorded as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). The Derivatives and Hedging and the Fair Value Measurements and Disclosures Topics of the FASB ASC require that we calculate fair values of index options we may purchase or sell in the future to hedge policyholder index allocations in future reset periods. These fair values represent an estimate of the cost of the options we will purchase or sell in the future, discounted back to the date of the balance sheet, using current market indicators of volatility and interest rates. Changes in the fair values of these liabilities are included as a component of realized gain (loss) on the Consolidated Statements of Comprehensive Income (Loss). For more information on indexed product net derivative results, see Note 17.

For additional information on the liability for policyholder account balances, see Note 12.

### Annual Assumption Review

During the third quarter of each year, we conduct our comprehensive review of the assumptions and projection models used in estimating DAC, VOBA, DSI, DFEL, MRBs, reserves and embedded derivatives. For more information on our comprehensive review, see Note 1.

Details underlying the effect to net income (loss) from our annual assumption review (in millions) were as follows:

| Income (loss) from operations: | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Annuities | $(12) | $1 |
| Life Insurance | (156) | (2,107) |
| Group Protection | 24 | (12) |
| Retirement Plan Services | - | - |
| Excluded from income (loss) from operations | (36) | 74 |
| Net income (loss) | $(180) | $(2,044) |

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

#### 2023

For Annuities, the unfavorable impact was driven by updates to mortality assumptions.

****For Life Insurance, the unfavorable impact was driven by updates to policyholder lapse behavior and mortality assumptions, partially offset by the favorable impact of a 50 basis points increase in our long-term new money investment yield assumption.

For Group Protection, the favorable impact was driven by updates to long-term disability and life waiver claim termination rate assumptions, partially offset by the unfavorable impact due to updates to long-term disability social security offset assumptions.

For excluded from income (loss) from operations, the unfavorable impact, related to net annuity product features, was driven by updates to mortality and policyholder lapse behavior assumptions and other items, partially offset by a favorable impact from updates to volatility and policyholder GLB utilization behavior assumptions.

#### 2022

****For Life Insurance, the unfavorable impact was driven by updates to the policyholder lapse behavior assumptions related to UL products with secondary guarantees in the amount of $1.9 billion, after-tax, as well as updates to mortality and morbidity assumptions and other items.

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

For excluded from income (loss) from operations, the favorable impact, related to net annuity product features, was driven by updates to policyholder benefit utilization behavior and fund mapping and volatility assumptions, partially offset by an unfavorable impact from updates to policyholder lapse behavior assumptions related to UL products with secondary guarantees that impacted ceded reserves.

### 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 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 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.

In the third quarter of 2022, as a result of the 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 represented the write-off of the entire balance of goodwill for the reporting unit.

We concluded that, for the third quarter of 2022, there were not indicators of impairment for our remaining reporting units (Annuities, Group Protection and Retirement Plan Services). As of October 1, 2022, we performed our annual quantitative goodwill impairment test for our other reporting units, and, as of such date, the fair value was in excess of the carrying value for each of the Annuities, Group Protection and Retirement Plan Services reporting units.

During the fourth quarter of 2023, we will perform our annual quantitative goodwill impairment test as of October 1, 2023, on all of our reporting units.

For more information on goodwill, see Notes 1 and 9 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 Note 9 in our 2022 Form 10-K/A.

### Income Taxes

Management uses certain assumptions and estimates in determining the income taxes payable or refundable for the current year, the deferred income tax assets and liabilities for items recognized differently in its financial statements from amounts shown on its income tax returns and the federal income tax expense. Determining these amounts requires analysis and interpretation of current tax laws and regulations. Management exercises judgment in evaluating the amount and timing of recognition of the resulting income tax assets and liabilities. These judgments and estimates are re-evaluated on a continual basis as regulatory and business factors change. Legislative changes to the Internal Revenue Code of 1986, as amended, modifications or new regulations, administrative rulings, or court decisions could increase or decrease our effective tax rate.

The application of GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance, if necessary, to reduce our deferred tax asset to an amount that is more likely than not to be realizable. Judgment and the use of estimates are required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance, we consider many factors, including: the nature and character of the deferred tax assets and liabilities; taxable income in prior carryback years; future reversals of existing temporary differences; the length of time carryovers can be utilized; and any future prudent and feasible tax planning strategies.

As of September 30, 2023, we had an approximate $2.1 billion deferred tax asset related to net unrealized losses on fixed maturity available-for-sale (“AFS”) securities. In the assessment of the future realizability of this deferred tax asset, management concluded that its tax planning strategy to hold these securities to recovery was prudent and feasible as these unrealized losses were caused by factors other than credit loss, and we have the intent and ability to hold these securities to recovery and collect all of the contractual cash flows. As of September 30, 2023, we had an approximate $840 million deferred tax asset related to the portfolio of investments anticipated to be sold in the Fortitude Re reinsurance transaction. See “Results of Consolidated Operations – Additional Information” below and Notes 4 and 8 for additional information. In the assessment of the future realizability of this deferred tax asset, management considered future tax planning strategies, including sales of certain appreciated fixed maturity securities, sales of certain investments in limited partnerships, sales of certain corporate assets and other investment management strategies. Such tax planning strategies are viewed by management as prudent and feasible, and one or a combination of these strategies may be implemented if necessary to realize the deferred tax asset.

We may experience an increased likelihood of recording a valuation allowance in the future based on the following factors:

Adverse global capital and credit market conditions that may impact the value of appreciated securities and the sale of certain corporate assets; and

Legislative, regulatory or tax changes that may impact the sale of certain corporate assets.

Additionally, as of September 30, 2023, we had a $257 million deferred tax asset related to net operating loss carryforwards and a $132 million deferred tax asset related to credit carryforwards that can be used to offset taxable income in future periods and reduce our income taxes payable in those future periods. The net operating loss carryforwards do not expire and can be carried forward indefinitely. The credit carryforwards expire in 10 and 20 years for foreign tax credits and general business credits, respectively.

Although realization is not assured, management believes it is more likely than not that the deferred tax assets, will be realized.

For risks related to establishing a valuation allowance against our deferred tax assets, see “Part I–Item1A. Risk Factors – Assumptions and Estimates – We may be required to recognize an impairment of our goodwill or to establish a valuation allowance against our deferred tax assets” in our 2022 Form 10-K/A.

For additional information on income taxes, see Note 19.

### RESULTS OF CONSOLIDATED OPERATIONS

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

| Net Income (Loss) Income (loss) from operations: | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Annuities | $248 | $275 | $794 | $886 |
| Life Insurance | (173) | (2,171) | (153) | (2,085) |
| Group Protection | 68 | 12 | 247 | 15 |
| Retirement Plan Services | 43 | 47 | 133 | 159 |
| Other Operations | (113) | (112) | (306) | (276) |
| Net annuity product features, after-tax | 1,045 | 893 | 850 | 2,591 |
| Net life insurance product features, after-tax | 85 | 20 | (133) | 16 |
| Credit loss-related adjustments, after-tax | (21) | (104) | (41) | (96) |
| Investment gains (losses), after-tax | (306) | 10 | (880) | 5 |
| Changes in the fair value of reinsurance-related |  |  |  |  |
| embedded derivatives, trading securities and |  |  |  |  |
| certain mortgage loans, after-tax | (23) | (12) | (21) | (36) |
| Impairment of intangibles | - | (634) | - | (634) |
| Transaction and integration costs related to mergers, |  |  |  |  |
| acquisitions and divestitures, after-tax | - | - | (7) | - |
| Net income (loss) | $853 | $(1,776) | $483 | $545 |

#### Comparison of the Three Months Ended September 30, 2023 to 2022

Net income increased due primarily to the following:

Less unfavorable impact from our annual assumption review.

Goodwill impairment in 2022 in our Life Insurance segment.

Higher gain in net annuity product features driven by favorable MRB-related impacts attributable to the impact of capital markets.

Investment income on alternative investments in 2023 compared to negative performance on alternative investments in 2022.

Lower total loss ratio in our Group Protection segment.

The increase in net income was partially offset by investment losses in 2023 compared to investment gains in 2022 driven primarily by a $369 million after-tax impairment on fixed maturity AFS securities in an unrealized loss position, resulting from our intent to sell these securities as part of the Fortitude Re reinsurance transaction.

#### Comparison of the Nine Months Ended September 30, 2023 to 2022

Net income decreased due primarily to the following:

Lower gain in net annuity product features driven by unfavorable changes in the fair value of GLB and GDB hedge instruments in 2023 compared to favorable changes in 2022 attributable to the impact of capital markets, partially offset by higher gains in MRB-related impacts due to the impact of capital markets.

Investment losses in 2023 compared to investment gains in 2022 driven by an $862 million after-tax impairment on fixed maturity AFS securities in an unrealized loss position, resulting from our intent to sell these securities as part of the Fortitude Re reinsurance transaction.

Loss in net life insurance product features in 2023 compared to gain in 2022 driven by mark-to-market losses on hedges associated with VUL products.

Higher compensation-related expenses and other costs pertaining to business operations.

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

Less unfavorable impact from our annual assumption review.

Goodwill impairment in 2022 in our Life Insurance segment.

Lower total loss ratio in our Group Protection segment.

#### Additional Information

Within the investment portfolio anticipated to be sold in the Fortitude Re reinsurance transaction discussed above, there are additional fixed maturity AFS securities in an unrealized gain position of approximately $164 million after-tax as of September 30, 2023. Pursuant to the applicable accounting guidance, the Company impaired the securities in a loss position down to fair market value upon entry into the agreement in the second quarter and recognized additional impairment of certain of these securities during the third quarter due to market fluctuations. The Company will recognize a gain for any securities in an unrealized gain position at the time when the transaction closes. For more information on the Fortitude Re reinsurance transaction, see Notes 4 and 8.

For a discussion of the goodwill impairment, see “Introduction – Critical Accounting Policies and Estimates – Goodwill” above.

### RESULTS OF ANNUITIES

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

| Operating Revenues | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Insurance premiums (1) | $24 | $57 | $116 | $112 |
| Fee income | 557 | 574 | 1,644 | 1,791 |
| Net investment income | 451 | 348 | 1,309 | 1,075 |
| Amortization of deferred gain on |  |  |  |  |
| business sold through reinsurance | 11 | 6 | 22 | 19 |
| Other revenues (2) | 154 | 128 | 437 | 359 |
| Total operating revenues | 1,197 | 1,113 | 3,528 | 3,356 |
| **Operating Expenses** |  |  |  |  |
| Benefits (1) | 45 | 79 | 177 | 179 |
| Interest credited | 330 | 224 | 914 | 646 |
| Policyholder liability remeasurement |  |  |  |  |
| (gain) loss | 19 | 1 | 17 | 3 |
| Commissions and other expenses | 521 | 496 | 1,528 | 1,501 |
| Total operating expenses | 915 | 800 | 2,636 | 2,329 |
| Income (loss) from operations before taxes | 282 | 313 | 892 | 1,027 |
| Federal income tax expense (benefit) | 34 | 38 | 98 | 141 |
| Income (loss) from operations | $248 | $275 | $794 | $886 |

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

(2) 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 Months Ended September 30, 2023 to 2022

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

Higher commissions and other expenses driven by higher compensation-related expenses and other costs pertaining to business operations.

Higher policyholder liability remeasurement loss driven by the impact from our annual assumption review.

Lower fee income driven by higher fees allocated to support the cost of hedging GLB and GDB riders.

#### Comparison of the Nine Months Ended September 30, 2023 to 2022

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

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

Lower net investment income, net of interest credited, driven by lower prepayment and bond make-whole premiums.

Higher commissions and other expenses driven by higher compensation-related expenses and other costs pertaining to business operations.

Higher policyholder liability remeasurement loss driven by the impact from our annual assumption review.

The decrease in income from operations was partially offset by lower federal income tax expense due to a more favorable tax return true-up driven by the separate account dividends-received deduction.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information on the impacts from our annual assumption review.

#### Additional Information

We expect an ongoing increase in income from operations in future quarters of approximately $5 million per quarter upon the closing of the reinsurance transaction announced in the second quarter of 2023. See Note 8 for more information on the transaction, which is expected to advance the Company’s enterprise strategic objectives by reducing balance sheet risk, strengthening our capital position and improving free cash flow.

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 new business and account balances. An important measure of retention is the reduction in account balances caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average gross account balances were 9% for the three and nine months ended September 30, 2023, and 7% for the corresponding periods in 2022. Our outflow rate increase in 2023 is due primarily to an increase in full surrenders as a result of the increased interest rate environment.

Our fixed annuities and indexed variable annuities, also referred to as registered index-linked 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 crediting 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 “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our 2022 Form 10-K/A; and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” below. For information on the interest rate environment, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### Fee Income

Details underlying fee income (in millions) were as follows:

| Fee Income | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Mortality, expense and other assessments (1) | $543 | $566 | $1,607 | $1,769 |
| Surrender charges | 12 | 6 | 32 | 18 |
| DFEL: |  |  |  |  |
| Deferrals | (5) | (5) | (15) | (17) |
| Amortization | 7 | 7 | 20 | 21 |
| Total fee income | $557 | $574 | $1,644 | $1,791 |

(1) Presented net of GLB and GDB hedge allowance.

We charge policyholders 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 balances. Average daily variable account balances 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 balance or the guaranteed amount. We allocate a portion of these fees to support the cost of hedging GLB and GDB riders. For more information, see Note 17. We may collect surrender charges when our fixed and variable annuity policyholders 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 and interest credited (in millions) were as follows:

| Net Investment Income Fixed maturity AFS securities, mortgage loans on | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| real estate and other, net of investment expenses | $416 | $321 | $1,206 | $948 |
| Commercial mortgage loan prepayment and bond |  |  |  |  |
| make-whole premiums (1) | - | 1 | 1 | 30 |
| Surplus investments (2) | 34 | 26 | 99 | 97 |
| Net investment income pertaining to broker-dealer services | 1 | - | 3 | - |
| Total net investment income | $451 | $348 | $1,309 | $1,075 |
| **Interest Credited** |  |  |  |  |
| Amount provided to policyholders | $328 | $220 | $906 | $635 |
| DSI deferrals | (2) | - | (3) | (1) |
| Interest credited before DSI amortization | 326 | 220 | 903 | 634 |
| DSI amortization | 4 | 4 | 11 | 12 |
| Total interest credited | $330 | $224 | $914 | $646 |

(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.

A portion of our investment income earned is credited to the policyholders 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 policyholders’ 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 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.

### Account Balances

Details underlying account balances (dollars in millions) were as follows:

| Variable Annuity Account Balance Information (1) | As of or For the Three Months Ended September 30, 2023 | 2022 | As of or For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Variable annuity deposits | $769 | $727 | $2,137 | $2,728 |
| Variable annuity net flows | (1,718) | (1,459) | (5,265) | (4,318) |
| Variable annuity account balances | 105,193 | 101,906 | 105,193 | 101,906 |
| Average daily variable annuity account balances | 109,765 | 110,275 | 108,840 | 117,893 |
| Average daily S&P 500® Index (2) | 4,456 | 3,983 | 4,222 | 4,185 |
| **Fixed Annuity Account Balance Information (3)** |  |  |  |  |
| Fixed annuity deposits | $1,968 | $2,505 | $6,324 | $5,907 |
| Fixed annuity net flows | 845 | 1,781 | 2,953 | 3,829 |
| Fixed annuity account balances (4) | 41,458 | 34,681 | 41,458 | 34,681 |
| Average fixed annuity account balances (4) | 41,547 | 34,583 | 39,773 | 34,115 |

(1) Excludes the fixed portion of variable annuities.

(2) We generally use the S&P 500® Index as a benchmark for the performance of our variable account balances. The account balances 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.

(3) Includes the fixed portion of variable annuities.

(4) Net of reinsurance.

### Commissions and Other Expenses

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

| Commissions and Other Expenses Commissions: | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Deferrable | $86 | $103 | $259 | $302 |
| Non-deferrable | 152 | 151 | 460 | 475 |
| General and administrative expenses | 124 | 107 | 353 | 306 |
| Expenses associated with reserve financing |  |  |  |  |
| and LOC expenses | 3 | 1 | 9 | 3 |
| Taxes, licenses and fees | 14 | 9 | 31 | 29 |
| Total expenses incurred, excluding broker-dealer | 379 | 371 | 1,112 | 1,115 |
| DAC deferrals | (102) | (117) | (300) | (346) |
| Total pre-broker-dealer expenses incurred, |  |  |  |  |
| excluding amortization | 277 | 254 | 812 | 769 |
| DAC and VOBA amortization: |  |  |  |  |
| Amortization | 111 | 109 | 326 | 323 |
| Impact from annual assumption review | (2) | (1) | (2) | (1) |
| Broker-dealer expenses incurred | 135 | 134 | 392 | 410 |
| Total commissions and other expenses | $521 | $496 | $1,528 | $1,501 |
| **DAC Deferrals** |  |  |  |  |
| As a percentage of sales/deposits | 3.7% | 3.6% | 3.5% | 4.0% |

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 on a constant level basis over the expected term of the related contracts using the groupings and actuarial assumptions consistent with those used for calculating the related policyholder liability balances. Certain types of commissions, such as trail commissions that are based on account balances, 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 “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” above.

### RESULTS OF LIFE INSURANCE

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

| Operating Revenues | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Insurance premiums (1) | $289 | $289 | $867 | $849 |
| Fee income | 739 | 745 | 2,269 | 2,260 |
| Net investment income | 689 | 585 | 2,083 | 1,937 |
| Operating realized gain (loss) | (2) | (2) | (5) | (5) |
| Amortization of deferred gain on |  |  |  |  |
| business sold through reinsurance | 4 | 4 | 12 | 13 |
| Other revenues | 4 | 2 | 15 | 5 |
| Total operating revenues | 1,723 | 1,623 | 5,241 | 5,059 |
| **Operating Expenses** |  |  |  |  |
| Benefits | 1,129 | 1,041 | 3,354 | 2,992 |
| Interest credited | 325 | 329 | 978 | 984 |
| Policyholder liability remeasurement |  |  |  |  |
| (gain) loss | 183 | 2,708 | 183 | 2,855 |
| Commissions and other expenses | 315 | 303 | 943 | 890 |
| Total operating expenses | 1,952 | 4,381 | 5,458 | 7,721 |
| Income (loss) from operations before taxes | (229) | (2,758) | (217) | (2,662) |
| Federal income tax expense (benefit) | (56) | (587) | (64) | (577) |
| Income (loss) from operations | $(173) | $(2,171) | $(153) | $(2,085) |

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

#### Comparison of the Three and Nine Months Ended September 30, 2023 to 2022

Loss from operations for this segment decreased due primarily to lower policyholder liability remeasurement (gain) loss driven by less unfavorable impacts from the annual assumption review, partially offset by higher benefits due to growth in reserves.

The decrease in loss from operations was partially offset by higher commissions and other expenses due to higher compensation-related expenses and other costs pertaining to business operations.

Additionally, for the three months ended September 30, 2023, the decrease in loss from operations was driven by higher net investment income, net of interest credited, driven by investment income on alternative investments compared to negative performance on alternative investments in the third quarter of 2022 and growth in investments, partially offset by lower prepayment and bond make-whole premiums.

Additionally, for the nine months ended September 30, 2023, the decrease in loss from operations was driven by higher net investment income, net of interest credited, driven by higher investment income on alternative investments and growth in investments, and higher insurance premiums due to growth in business in force, partially offset by lower prepayment and bond make-whole premiums.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” above for information on the impacts from our annual assumption review.

#### Additional Information

We expect an ongoing reduction in income from operations in future quarters of approximately $25 million to $30 million per quarter upon the closing of the reinsurance transaction announced in the second quarter of 2023. See Note 8 for more information on the transaction, which is expected to advance the Company’s enterprise strategic objectives by reducing balance sheet risk, strengthening our capital position and improving free cash flow.

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 “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our 2022 Form 10-K/A; and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” below. For information on the interest rate environment, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### 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 balances and in-force face amount (in millions) were as follows:

| Fee Income | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Cost of insurance assessments | $558 | $565 | $1,734 | $1,711 |
| Expense assessments | 379 | 384 | 1,119 | 1,137 |
| Surrender charges | 7 | 8 | 22 | 23 |
| DFEL: |  |  |  |  |
| Deferrals | (272) | (268) | (799) | (782) |
| Amortization | 67 | 60 | 193 | 175 |
| Impact from annual assumption review | - | (4) | - | (4) |
| Total fee income | $739 | $745 | $2,269 | $2,260 |

| Sales by Product | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| IUL/UL | $23 | $40 | $85 | $93 |
| MoneyGuard® | 27 | 22 | 71 | 69 |
| VUL | 29 | 36 | 93 | 114 |
| Term | 23 | 47 | 79 | 138 |
| Executive Benefits | 42 | 26 | 69 | 104 |
| Total sales | $144 | $171 | $397 | $518 |
| **Net Flows** |  |  |  |  |
| Deposits | $1,272 | $1,406 | $3,927 | $4,216 |
| Withdrawals and deaths | (451) | (404) | (1,322) | (1,242) |
| Net flows | $821 | $1,002 | $2,605 | $2,974 |
| **Policyholder Assessments** | $1,362 | $1,359 | $4,087 | $4,051 |

107

| Account Balances (1) | As of September 30, 2023 2022 |  |
| --- | ---: | --- |
| General account | $31,714 $32,116 |  |
| Separate account | 18,010 15,173 |  |
| Total account balances | $49,724 $47,289 |  |
| **In-Force Face Amount** |  |  |
| UL and other | $364,586 $362,098 |  |
| Term insurance | 721,927 689,101 |  |
| Total in-force face amount | $1,086,513 $1,051,199 |  |
|  | **For the Three** | **For the Nine** |
|  | **Months Ended** | **Months Ended** |
|  | **September 30,** | **September 30,** |
|  | **2023** **2022** | **2023** **2022** |
| **Average General Account Balances (1)** | $31,823 $32,163 | $31,955 $32,337 |

(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 policyholders’ account balances. These amounts are a function of the rates priced into the product and premiums received, face amount in force and account balances.

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.

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.

### Net Investment Income and Interest Credited

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

| Net Investment Income Fixed maturity AFS securities, mortgage loans on real estate | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| and other, net of investment expenses | $603 | $594 | $1,797 | $1,770 |
| Commercial mortgage loan prepayment |  |  |  |  |
| and bond make-whole premiums (1) | - | 10 | 3 | 31 |
| Alternative investments (2) | 45 | (52) | 159 | 38 |
| Surplus investments (3) | 41 | 33 | 124 | 98 |
| Total net investment income | $689 | $585 | $2,083 | $1,937 |
| **Interest Credited** | $325 | $329 | $978 | $984 |

(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 policyholder accounts. Statutory reserves will typically grow at a faster rate than account balances 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 policyholders’ accounts. Investment income partially offsets the earnings effect of the associated growth of our policy reserves. 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.

### Benefits and Policyholder Remeasurement (Gain) Loss

Details underlying benefits and policyholder remeasurement (gain) loss (dollars in millions) were as follows:

| Benefits and Policyholder Remeasurement (Gain) Loss | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Death claims direct and assumed | $1,311 | $1,278 | $4,100 | $4,171 |
| Death claims ceded | (500) | (473) | (1,604) | (1,624) |
| Reserves released on death | (158) | (154) | (470) | (475) |
| Net death benefits | 653 | 651 | 2,026 | 2,072 |
| Change in secondary guarantee life insurance product |  |  |  |  |
| reserves: |  |  |  |  |
| Change in reserves | 204 | 214 | 593 | 482 |
| Impact from annual assumption review | 172 | 2,438 | 172 | 2,438 |
| Change in MoneyGuard® reserves: |  |  |  |  |
| Change in reserves | 143 | 111 | 392 | 333 |
| Impact from annual assumption review | 37 | 167 | 37 | 167 |
| Change in traditional product reserves: |  |  |  |  |
| Change in reserves | 47 | 52 | 164 | 139 |
| Impact from annual assumption review | (11) | 62 | (11) | 62 |
| Other benefits (1) | 67 | 54 | 164 | 154 |
| Total benefits and policyholder remeasurement |  |  |  |  |
| (gain) loss | $1,312 | $3,749 | $3,537 | $5,847 |
| Death claims per $1,000 of in-force | 2.41 | 2.51 | 2.50 | 2.73 |

(1) Includes primarily long-term care claims and life surrender benefits.

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, linked-benefit and term life insurance product reserves. These reserves are affected by changes in expected future trends of assessments and benefits causing remeasurements. Generally, we experience higher mortality in the first quarter of the year due to the seasonality of claims. We expect COVID-19-related mortality to continue to follow U.S. death trends.

### Commissions and Other Expenses

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

| Commissions and Other Expenses | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Commissions | $129 | $177 | $421 | $509 |
| General and administrative expenses | 154 | 149 | 457 | 416 |
| Expenses associated with reserve financing | 25 | 26 | 76 | 78 |
| Taxes, licenses and fees | 36 | 33 | 114 | 115 |
| Total expenses incurred | 344 | 385 | 1,068 | 1,118 |
| DAC and VOBA deferrals | (152) | (202) | (496) | (588) |
| Total expenses recognized before amortization | 192 | 183 | 572 | 530 |
| DAC and VOBA amortization: |  |  |  |  |
| Amortization | 122 | 123 | 368 | 361 |
| Impact from annual assumption review | - | (4) | - | (4) |
| Other intangible amortization | 1 | 1 | 3 | 3 |
| Total commissions and other expenses | $315 | $303 | $943 | $890 |
| **DAC and VOBA Deferrals** |  |  |  |  |
| As a percentage of sales | 105.6% | 118.1% | 124.9% | 113.5% |

Commissions and other expenses that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable. For our interest-sensitive and traditional products, DAC and VOBA are amortized on a constant level basis over the expected term of the related contracts using the groupings and actuarial assumptions consistent with those used for calculating the related policyholder liability balances. For more information, see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” above.

### RESULTS OF GROUP PROTECTION

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

| Operating Revenues | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Insurance premiums | $1,251 | $1,200 | $3,765 | $3,556 |
| Net investment income | 84 | 83 | 254 | 253 |
| Other revenues (1) | 53 | 50 | 157 | 149 |
| Total operating revenues | 1,388 | 1,333 | 4,176 | 3,958 |
| **Operating Expenses** |  |  |  |  |
| Benefits | 979 | 994 | 3,036 | 3,003 |
| Interest credited | 1 | 1 | 4 | 4 |
| Policyholder liability remeasurement |  |  |  |  |
| (gain) loss | (39) | (22) | (260) | (55) |
| Commissions and other expenses | 361 | 345 | 1,083 | 987 |
| Total operating expenses | 1,302 | 1,318 | 3,863 | 3,939 |
| Income (loss) from operations before taxes | 86 | 15 | 313 | 19 |
| Federal income tax expense (benefit) | 18 | 3 | 66 | 4 |
| Income (loss) from operations | $68 | $12 | $247 | $15 |

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

111

| Income (Loss) from Operations by Product Line | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Life | $8 | $27 | $28 | $(10) |
| Disability | 64 | (14) | 228 | 26 |
| Dental | (4) | (1) | (9) | (1) |
| Income (loss) from operations | $68 | $12 | $247 | $15 |

#### Comparison of the Three Months Ended September 30, 2023 to 2022

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

Higher insurance premiums due to growth in business in force.

Lower total benefits and policyholder liability remeasurement (gain) loss driven by lower disability incidence, new life claim incurrals and the impact from our annual assumption review, partially offset by higher life and disability claims severity.

The increase in income from operations was partially offset by higher commissions and other expenses driven by higher compensation-related expenses and other operating costs pertaining to business operations and higher commissions due to growth in business in force.

#### Comparison of the Nine Months Ended September 30, 2023 to 2022

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

Higher insurance premiums due to growth in business in force.

Lower total benefits and policyholder liability remeasurement (gain) loss driven by more favorable discount rate impacts on new claims and the impact from our annual assumption review, partially offset by growth in business in force.

The increase in income from operations was partially offset by higher commissions and other expenses driven by higher compensation-related expenses and other operating costs pertaining to business operations and higher commissions due to growth in business in force.

See “Critical Accounting Policies and Estimates – Annual Assumption Review” for information on the impacts from our annual assumption review.

#### Additional Information

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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

For information on the effects of current interest rates on our long-term disability claim reserves, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” below. For information on the interest rate environment, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### Insurance Premiums

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

| Insurance Premiums by Product Line | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Life | $487 | $455 | $1,452 | $1,344 |
| Disability | 719 | 695 | 2,175 | 2,063 |
| Dental | 45 | 50 | 138 | 149 |
| Total insurance premiums | $1,251 | $1,200 | $3,765 | $3,556 |
| **Sales by Product Line** |  |  |  |  |
| Life | $30 | $41 | $167 | $157 |
| Disability | 32 | 37 | 107 | 143 |
| Dental | 9 | 10 | 21 | 21 |
| Total sales | $71 | $88 | $295 | $321 |

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 policyholders and new coverages sold to existing policyholders. 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. Generally, we have higher sales during the fourth quarter of the year.

### 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:

| Net Investment Income Fixed maturity AFS securities, mortgage loans on real estate and other, | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| net of investment expenses | $66 | $65 | $200 | $188 |
| Commercial mortgage loan prepayment |  |  |  |  |
| and bond make-whole premiums (1) | - | 1 | 1 | 6 |
| Surplus investments (2) | 18 | 17 | 53 | 59 |
| Total net investment income | $84 | $83 | $254 | $253 |

(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.

### Benefits, Interest Credited and Policyholder Liability Remeasurement (Gain) Loss

Details underlying benefits, interest credited (in millions), policyholder liability remeasurement (gain) loss and loss ratios by product line were as follows:

| Benefits, Interest Credited and Policyholder Liability Remeasurement (Gain) Loss by Product Line | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Life | $374 | $327 | $1,107 | $1,089 |
| Disability | 533 | 610 | 1,568 | 1,754 |
| Dental | 34 | 36 | 105 | 109 |
| Total benefits, interest credited and |  |  |  |  |
| policyholder liability remeasurement |  |  |  |  |
| (gain) loss | $941 | $973 | $2,780 | $2,952 |
| **Loss Ratios by Product Line** |  |  |  |  |
| Life | 76.8% | 71.8% | 76.3% | 81.1% |
| Disability | 74.1% | 87.7% | 72.1% | 85.0% |
| Dental | 75.9% | 72.0% | 76.4% | 73.3% |
| Total | 75.2% | 81.0% | 73.8% | 83.0% |

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. We expect COVID-19-related mortality to continue to follow U.S. death trends. For additional information on our loss ratios, see “Additional Information” above.

### Commissions and Other Expenses

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

| Commissions and Other Expenses | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Commissions | $109 | $101 | $327 | $291 |
| General and administrative expenses | 212 | 204 | 635 | 574 |
| Taxes, licenses and fees | 33 | 31 | 102 | 95 |
| Total expenses incurred | 354 | 336 | 1,064 | 960 |
| DAC deferrals | (26) | (23) | (79) | (70) |
| Total expenses recognized before amortization | 328 | 313 | 985 | 890 |
| DAC amortization | 25 | 24 | 73 | 73 |
| Other intangible amortization | 8 | 8 | 25 | 24 |
| Total commissions and other expenses | $361 | $345 | $1,083 | $987 |
| **DAC Deferrals** |  |  |  |  |
| As a percentage of insurance premiums | 2.1% | 1.9% | 2.1% | 2.0% |

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 on a constant level basis over the expected term of the related contracts using the groupings and actuarial assumptions consistent with those used for calculating the related policyholder liability balances. 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 “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” above.

### RESULTS OF RETIREMENT PLAN SERVICES

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

| Operating Revenues | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Fee income | $66 | $64 | $195 | $199 |
| Net investment income | 251 | 244 | 765 | 723 |
| Other revenues (1) | 10 | 8 | 28 | 27 |
| Total operating revenues | 327 | 316 | 988 | 949 |
| **Operating Expenses** |  |  |  |  |
| Interest credited | 165 | 161 | 501 | 469 |
| Commissions and other expenses | 112 | 102 | 330 | 294 |
| Total operating expenses | 277 | 263 | 831 | 763 |
| Income (loss) from operations before taxes | 50 | 53 | 157 | 186 |
| Federal income tax expense (benefit) | 7 | 6 | 24 | 27 |
| Income (loss) from operations | $43 | $47 | $133 | $159 |

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

#### Comparison of the Three Months Ended September 30, 2023 to 2022

Income from operations for this segment decreased due primarily to higher commissions and other expenses driven by higher compensation-related expenses and other costs pertaining to business operations and trail commissions resulting from higher average account balances.

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

Higher fee income driven by higher average account balances.

Higher net investment income, net of interest credited, driven by investment income in 2023 compared to negative performance in 2022 on alternative investments within our surplus portfolio and impacts to portfolio yields from the current interest rate environment, partially offset by lower average fixed account balances and lower investment income on prepayment and bond make-whole premiums.

#### Comparison of the Nine Months Ended September 30, 2023 to 2022

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

Higher commissions and other expenses driven by compensation-related expenses and other costs pertaining to business operations and trail commissions resulting from higher average fixed account balances.

Lower fee income driven by lower average account balances.

The decrease in income from operations was partially offset by higher net investment income, net of interest credited, driven by impacts to portfolio yields from the current interest rate environment, higher average fixed account balances and higher investment income on alternative investments within our surplus portfolio, partially offset by lower investment income on prepayment and bond make-whole premiums.

#### Additional Information

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 balances caused by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account balances were 12% for the three and nine months ended September 30, 2023, and 10% and 11%, respectively, for the corresponding periods in 2022.

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 balances was 16% and 17% as of September 30, 2023 and 2022, 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.

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 crediting 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 “Part I – Item 1A. Risk Factors – Market Conditions – Increases in interest rates may negatively affect our profitability, capital position and the value of our investment portfolio and may also result in increased contract withdrawals” in our 2022 Form 10-K/A; and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K and “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” below. For information on the interest rate environment, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

### Fee Income

Details underlying fee income (in millions) were as follows:

| Fee Income | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Annuity expense assessments | $49 | $47 | $142 | $147 |
| Mutual fund fees | 16 | 17 | 52 | 52 |
| Total expense assessments | 65 | 64 | 194 | 199 |
| Surrender charges | 1 | - | 1 | - |
| Total fee income | $66 | $64 | $195 | $199 |

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 balances, both fixed and variable, which are driven by net flows and the equity markets. Fee income is also driven by non-account balance-related items such as participant counts. We may collect surrender charges when our fixed and variable annuity policyholders 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 and interest credited (in millions) were as follows:

| Net Investment Income Fixed maturity AFS securities, mortgage loans on real estate | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| and other, net of investment expenses | $231 | $228 | $707 | $647 |
| Commercial mortgage loan prepayment and |  |  |  |  |
| bond make-whole premiums (1) | - | 2 | 1 | 22 |
| Surplus investments (2) | 20 | 14 | 57 | 54 |
| Total net investment income | $251 | $244 | $765 | $723 |
| **Interest Credited** | $165 | $161 | $501 | $469 |

(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.

A portion of our investment income earned is credited to the policyholders 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 policyholders’ 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.

### Account Balances

Details underlying account balances (dollars in millions) were as follows:

| Variable Account Balance Information (1) | As of or For the Three Months Ended September 30, 2023 | 2022 | As of or For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Variable annuity deposits | $476 | $484 | $1,655 | $1,843 |
| Variable annuity net flows | (192) | 29 | (129) | 41 |
| Variable annuity account balances | 17,908 | 15,854 | 17,908 | 15,854 |
| Average daily variable annuity account balances | 18,686 | 17,287 | 18,097 | 18,331 |
| Average daily S&P 500® Index | 4,456 | 3,983 | 4,222 | 4,185 |
| **Fixed Account Balance Information (2)** |  |  |  |  |
| Fixed annuity deposits | $709 | $994 | $2,026 | $3,225 |
| Fixed annuity net flows | (459) | 121 | (1,236) | 766 |
| Fixed annuity account balances | 24,099 | 25,276 | 24,099 | 25,276 |
| Average fixed account balances | 24,268 | 25,077 | 24,711 | 24,390 |
| **Mutual Fund Account Balance Information** |  |  |  |  |
| Mutual fund deposits | $1,515 | $1,613 | $5,125 | $4,861 |
| Mutual fund net flows | 379 | 655 | 1,829 | 1,839 |
| Mutual fund account balances (3) | 51,926 | 43,211 | 51,926 | 43,211 |

(1) Excludes the fixed portion of variable annuities.

(2) Includes the fixed portion of variable annuities.

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

| Net Flows By Market | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Small market | $21 | $157 | $267 | $121 |
| Mid – large market | 83 | 899 | 1,202 | 3,303 |
| Multi-Fund® and other | (376) | (251) | (1,005) | (779) |
| Total net flows | $(272) | $805 | $464 | $2,645 |

For more information on account balances, see Notes 10 and 11.

### Commissions and Other Expenses

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

| Commissions and Other Expenses Commissions: | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Deferrable | $1 | $1 | $3 | $3 |
| Non-deferrable | 21 | 19 | 62 | 55 |
| General and administrative expenses | 86 | 80 | 253 | 224 |
| Taxes, licenses and fees | 4 | 3 | 14 | 13 |
| Total expenses incurred | 112 | 103 | 332 | 295 |
| DAC deferrals | (5) | (6) | (15) | (15) |
| Total expenses recognized before amortization | 107 | 97 | 317 | 280 |
| DAC amortization | 5 | 5 | 13 | 14 |
| Total commissions and other expenses | $112 | $102 | $330 | $294 |
| **DAC Deferrals** |  |  |  |  |
| As a percentage of annuity sales/deposits | 0.4% | 0.4% | 0.4% | 0.3% |

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 on a constant level basis over the expected term of the related contracts using the groupings and actuarial assumptions consistent with those used for calculating the related policyholder liability balances. Certain types of commissions, such as trail commissions that are based on account balances, 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 “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” above.

### RESULTS OF OTHER OPERATIONS

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

| Operating Revenues | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Insurance premiums (1) | $1 | $2 | $8 | $6 |
| Net investment income | 37 | 35 | 110 | 117 |
| Other revenues | - | (1) | 9 | (12) |
| Total operating revenues | 38 | 36 | 127 | 111 |
| **Operating Expenses** |  |  |  |  |
| Benefits | 17 | 20 | 53 | 47 |
| Interest credited | 9 | 9 | 27 | 30 |
| Policyholder liability remeasurement |  |  |  |  |
| (gain) loss | (5) | - | (3) | 2 |
| Other expenses | 39 | 28 | 84 | 44 |
| Interest and debt expense | 84 | 71 | 250 | 205 |
| Spark program expense | 36 | 44 | 101 | 118 |
| Total operating expenses | 180 | 172 | 512 | 446 |
| Income (loss) from operations before taxes | (142) | (136) | (385) | (335) |
| Federal income tax expense (benefit) | (29) | (24) | (79) | (59) |
| Income (loss) from operations | $(113) | $(112) | $(306) | $(276) |

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

#### Comparison of the Three Months Ended September 30, 2023 to 2022

Loss from operations for Other Operations increased due primarily to the following:

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

Higher other expenses driven by higher compensation-related expenses and other costs pertaining to business operations.

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

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

Lower benefits, net of policyholder liability remeasurement (gain) loss, driven by favorable reserve adjustments in our institutional pension and run-off disability income businesses.

#### Comparison of the Nine Months Ended September 30, 2023 to 2022

Loss from operations for Other Operations increased due primarily to the following:

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

Higher other expenses due to the effect of changes in our stock price on our deferred compensation plans, as our stock price decreased during the nine months ended September 30, 2023, compared to a more significant decrease during the corresponding period in 2022, and higher compensation-related expenses.

Lower net investment income, net of interest credited, related to lower allocated investments driven by a decrease in excess capital retained by Other Operations.

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

Higher other revenues due to the effect of market fluctuations on assets held as part of certain compensation plans, which increased during the nine months ended September 30, 2023, compared to a decrease during the corresponding period in 2022.

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

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

#### Additional Information

We expect to continue making investments as part of our Spark Initiative. For more information, see “Introduction – Executive Summary – Significant Operational Matters – Spark Initiative” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-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.

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:

| General and administrative expenses: | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Legal | $3 | $2 | $(1) | $2 |
| Branding | 10 | 12 | 34 | 29 |
| Other (1) | 20 | 12 | 49 | 16 |
| Total general and administrative expenses | 33 | 26 | 82 | 47 |
| Taxes, licenses and fees (2) | 7 | 3 | 4 | (1) |
| Other (3) | (1) | (1) | (2) | (2) |
| Total other expenses | $39 | $28 | $84 | $44 |

(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 policyholders 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 letters of credit (“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.

### CONSOLIDATED INVESTMENTS

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

| Investments | As of September 30, 2023 | As of December 31, 2022 | Percentage of Total Investments As of September 30, 2023 | As of December 31, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Fixed maturity AFS securities | $97,804 | $99,736 | 73.8% | 75.8% |
| Trading securities | 2,788 | 3,498 | 2.1% | 2.7% |
| Equity securities | 383 | 427 | 0.3% | 0.3% |
| Mortgage loans on real estate | 18,751 | 18,301 | 14.2% | 13.9% |
| Policy loans | 2,428 | 2,359 | 1.7% | 1.8% |
| Derivative investments | 5,790 | 3,594 | 4.4% | 2.7% |
| Alternative investments | 3,290 | 3,021 | 2.5% | 2.3% |
| Other investments | 1,261 | 718 | 1.0% | 0.5% |
| Total investments | $132,495 | $131,654 | 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-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.

### 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.

| Fixed Maturity AFS Securities Industry corporate bonds: | As of September 30, 2023 Net% Amortized Cost (1) | Gross Unrealized Gains | Losses | Fair Value | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: |
| Financial services | $16,954 | $76 | $2,192 | $14,838 | 15.3% |
| Basic industry | 4,173 | 29 | 543 | 3,659 | 3.7% |
| Capital goods | 7,082 | 40 | 967 | 6,155 | 6.3% |
| Communications | 4,331 | 41 | 612 | 3,760 | 3.8% |
| Consumer cyclical | 5,948 | 25 | 785 | 5,188 | 5.3% |
| Consumer non-cyclical | 17,395 | 109 | 2,830 | 14,674 | 15.0% |
| Energy | 4,518 | 34 | 514 | 4,038 | 4.1% |
| Technology | 5,713 | 16 | 770 | 4,959 | 5.1% |
| Transportation | 3,729 | 12 | 501 | 3,240 | 3.3% |
| Industrial other | 2,301 | 3 | 501 | 1,803 | 1.8% |
| Utilities | 14,375 | 49 | 2,290 | 12,134 | 12.4% |
| Government-related entities | 1,798 | 13 | 258 | 1,553 | 1.6% |
| Collateralized mortgage and other obligations ("CMOs"): |  |  |  |  |  |
| Agency backed | 1,415 | - | 207 | 1,208 | 1.2% |
| Non-agency backed | 350 | 18 | 15 | 353 | 0.4% |
| Mortgage pass through securities ("MPTS"): |  |  |  |  |  |
| Agency backed | 389 | - | 53 | 336 | 0.3% |
| Non-agency backed | 32 | - | 1 | 31 | 0.0% |
| Commercial mortgage-backed securities ("CMBS"): |  |  |  |  |  |
| Agency backed | 2 | - | - | 2 | 0.0% |
| Non-agency backed | 1,961 | - | 262 | 1,699 | 1.7% |
| Asset-backed securities ("ABS"): |  |  |  |  |  |
| Collateralized loan obligations ("CLOs") | 9,216 | 11 | 588 | 8,639 | 8.8% |
| Credit card | 78 | 2 | 1 | 79 | 0.1% |
| Home equity | 179 | 22 | 4 | 197 | 0.2% |
| Other | 3,723 | 2 | 247 | 3,478 | 3.6% |
| Municipals: |  |  |  |  |  |
| Taxable | 5,166 | 67 | 538 | 4,695 | 4.8% |
| Tax-exempt | 81 | - | 6 | 75 | 0.1% |
| Government: |  |  |  |  |  |
| United States | 418 | 3 | 48 | 373 | 0.4% |
| Foreign | 326 | 9 | 62 | 273 | 0.3% |
| Hybrid and redeemable preferred securities | 360 | 25 | 20 | 365 | 0.4% |
| Total fixed maturity AFS securities | 112,013 | 606 | 14,815 | 97,804 | 100.0% |
| **Trading Securities (2)** | 3,126 | 25 | 363 | 2,788 |  |
| **Equity Securities** | 360 | 89 | 66 | 383 |  |
| Total fixed maturity AFS, trading and equity securities | $115,499 | $720 | $15,244 | $100,975 |  |

124

| Fixed Maturity AFS Securities Industry corporate bonds: | As of December 31, 2022 Net% Amortized Cost (1) | Gross Unrealized Gains | Losses | Fair Value | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: |
| Financial services | $17,762 | $133 | $1,998 | $15,897 | 15.9% |
| Basic industry | 4,352 | 45 | 478 | 3,919 | 3.9% |
| Capital goods | 7,374 | 63 | 884 | 6,553 | 6.6% |
| Communications | 4,239 | 72 | 519 | 3,792 | 3.8% |
| Consumer cyclical | 6,056 | 40 | 698 | 5,398 | 5.4% |
| Consumer non-cyclical | 17,080 | 184 | 2,395 | 14,869 | 14.9% |
| Energy | 4,776 | 53 | 485 | 4,344 | 4.4% |
| Technology | 5,581 | 27 | 675 | 4,933 | 4.9% |
| Transportation | 3,666 | 19 | 421 | 3,264 | 3.3% |
| Industrial other | 2,330 | 3 | 416 | 1,917 | 1.9% |
| Utilities | 14,204 | 111 | 1,822 | 12,493 | 12.5% |
| Government-related entities | 1,820 | 37 | 213 | 1,644 | 1.6% |
| CMOs: |  |  |  |  |  |
| Agency backed | 1,451 | 3 | 166 | 1,288 | 1.3% |
| Non-agency backed | 364 | 18 | 14 | 368 | 0.4% |
| MPTS: |  |  |  |  |  |
| Agency backed | 394 | 1 | 42 | 353 | 0.4% |
| CMBS: |  |  |  |  |  |
| Agency backed | 15 | - | - | 15 | 0.0% |
| Non-agency backed | 1,902 | 3 | 246 | 1,659 | 1.7% |
| ABS: |  |  |  |  |  |
| CLOs | 8,497 | 1 | 671 | 7,827 | 7.8% |
| Credit card | 85 | 6 | 1 | 90 | 0.1% |
| Home equity | 196 | 27 | 4 | 219 | 0.2% |
| Other | 3,014 | 4 | 250 | 2,768 | 2.8% |
| Municipals: |  |  |  |  |  |
| Taxable | 5,319 | 171 | 506 | 4,984 | 5.0% |
| Tax-exempt | 91 | 1 | 6 | 86 | 0.1% |
| Government: |  |  |  |  |  |
| United States | 405 | 5 | 31 | 379 | 0.4% |
| Foreign | 348 | 17 | 47 | 318 | 0.3% |
| Hybrid and redeemable preferred securities | 364 | 25 | 30 | 359 | 0.4% |
| Total fixed maturity AFS securities | 111,685 | 1,069 | 13,018 | 99,736 | 100.0% |
| **Trading Securities (2)** | 3,833 | 44 | 379 | 3,498 |  |
| **Equity Securities** | 383 | 104 | 60 | 427 |  |
| Total fixed maturity AFS, trading and equity securities | $115,901 | $1,217 | $13,457 | $103,661 |  |

(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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, for further details.

#### 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 future contract benefits, policyholder account balances and deferred income taxes. Adjustments to each of these balances are charged or credited to accumulated other comprehensive income (loss) (“AOCI”). For instance, deferred income tax balances are 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:

| Rating Agency NAIC Equivalent Designation (1) Designation (1) Investment Grade Securities | As of September 30, 2023 Net Amortized Cost | Fair Value | % of Total | As of December 31, 2022 Net Amortized Cost | Fair Value | % of Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| 1 AAA / AA / A | $65,770 | $57,192 | 58.5% | $63,741 | $56,892 | 57.0% |
| 2 BBB | 42,792 | 37,358 | 38.2% | 44,103 | 39,230 | 39.4% |
| Total investment grade securities | 108,562 | 94,550 | 96.7% | 107,844 | 96,122 | 96.4% |
| **Below Investment Grade Securities** |  |  |  |  |  |  |
| 3 BB | 1,602 | 1,457 | 1.5% | 2,101 | 1,938 | 1.9% |
| 4 B | 1,735 | 1,693 | 1.7% | 1,679 | 1,620 | 1.6% |
| 5 CCC and lower | 98 | 91 | 0.1% | 59 | 53 | 0.1% |
| 6 In or near default | 16 | 13 | 0.0% | 2 | 3 | 0.0% |
| Total below investment grade securities | 3,451 | 3,254 | 3.3% | 3,841 | 3,614 | 3.6% |
| Total fixed maturity AFS securities | $112,013 | $97,804 | 100.0% | $111,685 | $99,736 | 100.0% |
| Total securities below investment |  |  |  |  |  |  |
| grade as a percentage of total |  |  |  |  |  |  |
| fixed maturity AFS securities | 3.1% | 3.3% |  | 3.4% | 3.6% |  |

(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, 2023.

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, 2023, and December 31, 2022, 97% 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, 2023, increased by $1.8 billion since December 31, 2022. 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.

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. Other than with respect to those certain fixed maturity AFS securities intended to be sold as part of the previously announced Fortitude Re reinsurance transaction, we do not believe the unrealized loss position as of September 30, 2023, required 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. For additional information related to the intent to sell impairments, see Note 4. 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 annuity contracts and life insurance policies;

The capital risk limits approved by management; and

Our current financial condition and liquidity demands.

We recognized $(1) million and $(17) million of credit loss benefit (expense) on our fixed maturity AFS securities for the three and nine months ended September 30, 2023, and $(5) million and $(11) million for the corresponding periods in 2022. 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 1, 4 and 17 herein.

As reported on the Consolidated Balance Sheets, we had $141.1 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 $135.0 billion as of September 30, 2023. 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 $12.8 billion as of September 30, 2023, 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, 2023, and December 31, 2022, the estimated fair value for all private placement securities was $19.2 billion and $19.0 billion, respectively, representing 14% of total investments.

#### 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, for a discussion of our mortgage-backed securities.

The market value of fixed maturity AFS and trading securities backed by subprime loans was $172 million and represented less than 1% of our total investment portfolio as of September 30, 2023. Fixed maturity AFS securities represented $165 million, or 96%, and trading securities represented $7 million, or 4%, of the subprime exposure as of September 30, 2023. The table below summarizes our investments in fixed maturity AFS securities backed by pools of residential mortgages (in millions) as of September 30, 2023:

| Subprime/ Agency Prime Alt-A Option ARM (1) Net Net Net Net Amortized Fair Amortized Fair Amortized Fair Amortized Fair Cost Value Cost Value Cost Value Cost Value Type | Total Net Amortized Cost | Fair Value |
| --- | ---: | ---: |
| RMBS $1,803 $1,544 $226 $215 $58 $63 $99 $106 | $2,186 | $1,928 |
| ABS home equity 1 1 17 17 14 20 147 159 | 179 | 197 |
| Total by type (2)(3) $1,804 $1,545 $243 $232 $72 $83 $246 $265 | $2,365 | $2,125 |
| **Rating** |  |  |
| AAA $1,768 $1,517 $120 $114 $1 $1 $6 $6 | $1,895 | $1,638 |
| AA 36 28 33 32 3 3 2 2 | 74 | 65 |
| A - - - - 1 1 6 6 | 7 | 7 |
| BBB - - 31 26 2 2 5 5 | 38 | 33 |
| BB and below - - 59 60 65 76 227 246 | 351 | 382 |
| Total by rating (2)(3)(4) $1,804 $1,545 $243 $232 $72 $83 $246 $265 | $2,365 | $2,125 |
| **Origination Year** |  |  |
| 2013 and prior $411 $386 $78 $77 $72 $83 $246 $265 | $807 | $811 |
| 2014 50 44 - - - - - - | 50 | 44 |
| 2015 144 124 15 14 - - - - | 159 | 138 |
| 2016 445 361 - - - - - - | 445 | 361 |
| 2017 202 173 - - - - - - | 202 | 173 |
| 2018 170 153 - - - - - - | 170 | 153 |
| 2019 158 121 - - - - - - | 158 | 121 |
| 2020 64 49 3 3 - - - - | 67 | 52 |
| 2021 109 87 33 27 - - - - | 142 | 114 |
| 2022 50 46 68 66 - - - - | 118 | 112 |
| 2023 1 1 46 45 - - - - | 47 | 46 |
| Total by origination |  |  |
| year (2)(3) $1,804 $1,545 $243 $232 $72 $83 $246 $265 | $2,365 | $2,125 |
| Total fixed maturity AFS securities backed by pools of |  |  |
| residential mortgages as a percentage of total fixed maturity AFS securities | 2.1% | 2.2% |
| 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 $94 million and $100 million, respectively.

(2) Does not include the amortized cost of trading securities totaling $85 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 $85 million in trading securities consisted of $76 million prime, $1 million Alt-A and $8 million subprime.

(3) Does not include the fair value of trading securities totaling $71 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 $71 million in trading securities consisted of $63 million prime, $1 million Alt-A and $7 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.

The following summarizes our investments in fixed maturity AFS securities backed by pools of commercial mortgages (in millions) as of September 30, 2023:

| Multiple Property Single Property Net Net Amortized Fair Amortized Fair Cost Value Cost Value Type | Total Net Amortized Cost | Fair Value |
| --- | ---: | ---: |
| CMBS (1)(2) $1,887 $1,640 $76 $61 | $1,963 | $1,701 |
| **Rating** |  |  |
| AAA $1,371 $1,233 $20 $18 | $1,391 | $1,251 |
| AA 512 403 52 39 | 564 | 442 |
| A 4 4 4 4 | 8 | 8 |
| Total by rating (1)(2)(3) $1,887 $1,640 $76 $61 | $1,963 | $1,701 |
| **Origination Year** |  |  |
| 2013 and prior $14 $14 $10 $9 | $24 | $23 |
| 2014 15 14 - - | 15 | 14 |
| 2015 27 24 - - | 27 | 24 |
| 2016 107 99 4 4 | 111 | 103 |
| 2017 344 324 - - | 344 | 324 |
| 2018 206 194 - - | 206 | 194 |
| 2019 353 305 - - | 353 | 305 |
| 2020 257 198 5 4 | 262 | 202 |
| 2021 246 180 39 29 | 285 | 209 |
| 2022 205 180 14 11 | 219 | 191 |
| 2023 113 108 4 4 | 117 | 112 |
| Total by origination year (1)(2) $1,887 $1,640 $76 $61 | $1,963 | $1,701 |
| Total fixed maturity AFS securities backed by pools of |  |  |
| commercial mortgages as a percentage of total fixed maturity AFS securities | 1.8% | 1.7% |

(1) Does not include the amortized cost of trading securities totaling $142 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 $142 million in trading securities consisted of $102 million of multiple property CMBS and $40 million of single property CMBS.

(2) Does not include the fair value of trading securities totaling $116 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 $116 million in trading securities consisted of $82 million of multiple property CMBS and $34 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, 2023, the net amortized cost and fair value of our fixed maturity AFS exposure to monoline insurers was $288 million and $270 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.

The composition by industry categories of all fixed maturity AFS securities in an unrealized loss position (in millions) as of September 30, 2023, was as follows:

|  | Net Amortized Cost | %% Net Amortized Cost | Gross Unrealized Losses | Gross% Unrealized Losses | Fair Value | Fair Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Electric | $9,118 | 9.1% | $1,566 | 10.7% | $7,552 | 8.9% |
| Healthcare | 6,721 | 6.7% | 1,481 | 10.0% | 5,240 | 6.2% |
| ABS | 10,537 | 10.6% | 821 | 5.5% | 9,716 | 11.4% |
| Banking | 6,453 | 6.5% | 781 | 5.3% | 5,672 | 6.7% |
| Technology | 5,313 | 5.3% | 770 | 5.2% | 4,543 | 5.3% |
| Food and beverage | 4,458 | 4.5% | 695 | 4.7% | 3,763 | 4.4% |
| Local authorities | 3,594 | 3.6% | 550 | 3.7% | 3,044 | 3.6% |
| Industrial – other | 2,195 | 2.2% | 507 | 3.4% | 1,688 | 2.0% |
| Diversified manufacturing | 2,895 | 2.9% | 436 | 2.9% | 2,459 | 2.9% |
| Pharmaceuticals | 2,765 | 2.8% | 384 | 2.6% | 2,381 | 2.8% |
| Natural gas | 2,133 | 2.1% | 363 | 2.5% | 1,770 | 2.1% |
| Chemicals | 2,321 | 2.3% | 358 | 2.4% | 1,963 | 2.3% |
| Brokerage asset management | 2,080 | 2.1% | 348 | 2.3% | 1,732 | 2.0% |
| Retail | 1,986 | 2.0% | 333 | 2.2% | 1,653 | 1.9% |
| Transportation services | 2,395 | 2.4% | 312 | 2.1% | 2,083 | 2.4% |
| Property and casualty | 1,954 | 2.0% | 303 | 2.0% | 1,651 | 1.9% |
| Life insurance | 1,692 | 1.7% | 285 | 1.9% | 1,407 | 1.7% |
| Non-agency CMBS | 1,945 | 1.9% | 262 | 1.8% | 1,683 | 2.0% |
| Midstream | 1,931 | 1.9% | 248 | 1.7% | 1,683 | 2.0% |
| Aerospace and defense | 1,570 | 1.6% | 241 | 1.6% | 1,329 | 1.6% |
| Utility – other | 1,156 | 1.2% | 228 | 1.5% | 928 | 1.1% |
| Consumer products | 1,297 | 1.3% | 209 | 1.4% | 1,088 | 1.3% |
| Wirelines | 1,227 | 1.2% | 205 | 1.4% | 1,022 | 1.2% |
| Railroads | 978 | 1.0% | 183 | 1.2% | 795 | 0.9% |
| Automotive | 1,590 | 1.6% | 182 | 1.2% | 1,408 | 1.7% |
| Wireless | 938 | 0.9% | 165 | 1.1% | 773 | 0.9% |
| Government sponsored | 716 | 0.7% | 153 | 1.0% | 563 | 0.7% |
| Integrated | 920 | 0.9% | 146 | 1.0% | 774 | 0.9% |
| Project finance | 998 | 1.0% | 135 | 0.9% | 863 | 1.0% |
| Other real estate investment trust | 823 | 0.8% | 126 | 0.9% | 697 | 0.8% |
| Entertainment | 916 | 0.9% | 126 | 0.9% | 790 | 0.9% |
| Industries with unrealized losses |  |  |  |  |  |  |
| less than $125 million | 14,238 | 14.3% | 1,913 | 13.0% | 12,325 | 14.5% |
| Total by industry | $99,853 | 100.0% | $14,815 | 100.0% | $85,038 | 100.0% |
| Total by industry as a percentage of |  |  |  |  |  |  |
| total fixed maturity AFS securities | 89.1% |  | 100.0% |  | 86.9% |  |

As of September 30, 2023, the net amortized cost and fair value of securities subject to enhanced analysis and monitoring for potential changes in unrealized loss position was $54 million and $46 million, respectively.

### Mortgage Loans on Real Estate

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

| Credit Quality Indicator | As of September 30, 2023 Commercial | Residential | Total% |  |
| --- | ---: | ---: | ---: | ---: |
| Current | $17,187 | $1,631 | $18,818 | 99.7% |
| Delinquent (1) | - | 14 | 14 | 0.1% |
| Foreclosure (2) | - | 32 | 32 | 0.2% |
| Total mortgage loans on real estate before allowance | 17,187 | 1,677 | 18,864 | 100.0% |
| Allowance for credit losses | (89) | (24) | (113) |  |
| Total mortgage loans on real estate | $17,098 | $1,653 | $18,751 |  |

| Credit Quality Indicator | As of December 31, 2022 Commercial | Residential | Total% |  |
| --- | ---: | ---: | ---: | ---: |
| Current | $16,987 | $1,379 | $18,366 | 99.8% |
| Delinquent (1) | - | 13 | 13 | 0.1% |
| Foreclosure (2) | - | 21 | 21 | 0.1% |
| Total mortgage loans on real estate before allowance | 16,987 | 1,413 | 18,400 | 100.0% |
| Allowance for credit losses | (84) | (15) | (99) |  |
| Total mortgage loans on real estate | $16,903 | $1,398 | $18,301 |  |

(1) As of September 30, 2023, and December 31, 2022, no commercial mortgage loans and 21 and 24 residential mortgage loans, respectively, were delinquent.

(2) As of September 30, 2023, and December 31, 2022, no commercial mortgage loans and 66 and 49 residential mortgage loans, respectively, were in foreclosure.

As of September 30, 2023, there were 3 specifically identified impaired commercial mortgage loans on real estate with an aggregate carrying value of $3 million and 67 specifically identified impaired residential mortgage loans on real estate with an aggregate carrying value of $34 million. As of December 31, 2022, there were 2 specifically identified impaired commercial mortgage loans on real estate with an aggregate carrying value of less than $1 million and 37 specifically identified impaired residential mortgage loans on real estate with an aggregate carrying value of $16 million.

The total outstanding principal and interest on commercial mortgage loans on real estate that were two or more payments delinquent, excluding foreclosures, as of September 30, 2023, and December 31, 2022, was less than $1 million. The total outstanding principal and interest on residential mortgage loans on real estate that were three or more payments delinquent, excluding foreclosures, as of September 30, 2023, and December 31, 2022, was $15 million and $13 million, respectively.

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

| Segment | As of September 30, 2023 | As of December 31, 2022 |
| --- | ---: | ---: |
| Annuities | $7,466 | $7,008 |
| Life Insurance | 3,448 | 3,536 |
| Group Protection | 1,434 | 1,417 |
| Retirement Plan Services | 4,142 | 4,253 |
| Other Operations | 2,261 | 2,087 |
| Total mortgage loans on real estate | $18,751 | $18,301 |

131

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

| Property Type | As of September 30, 2023 Carrying Value% |  | State | As of September 30, 2023 Carrying Value% |  |
| --- | ---: | ---: | --- | ---: | ---: |
| Apartment | $5,562 | 32.6% | CA | $4,722 | 27.6% |
| Industrial | 4,406 | 25.8% | TX | 1,614 | 9.4% |
| Office building | 3,478 | 20.3% | FL | 917 | 5.4% |
| Retail | 2,571 | 15.0% | NY | 873 | 5.0% |
| Other commercial | 763 | 4.5% | PA | 829 | 4.8% |
| Mixed use | 176 | 1.0% | MD | 715 | 4.2% |
| Hotel/motel | 142 | 0.8% | AZ | 702 | 4.1% |
| Total | $17,098 | 100.0% | GA | 685 | 4.0% |
| **Geographic Region** |  |  | WA | 661 | 3.9% |
| Pacific | $5,706 | 33.4% | TN | 556 | 3.3% |
| South Atlantic | 3,600 | 21.1% | OH | 426 | 2.5% |
| Middle Atlantic | 1,991 | 11.6% | NC | 388 | 2.3% |
| West South Central | 1,756 | 10.2% | VA | 388 | 2.3% |
| Mountain | 1,315 | 7.7% | WI | 345 | 2.0% |
| East North Central | 1,203 | 7.0% | OR | 323 | 1.9% |
| East South Central | 678 | 4.0% | SC | 301 | 1.8% |
| West North Central | 461 | 2.7% | IL | 296 | 1.7% |
| New England | 359 | 2.1% | Non U.S. | 29 | 0.2% |
| Non U.S. | 29 | 0.2% | All other states | 2,328 | 13.6% |
| Total | $17,098 | 100.0% | Total | $17,098 | 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:

| Principal Repayment Year | As of September 30, 2023 Commercial | Residential | Total% |  |
| --- | ---: | ---: | ---: | ---: |
| 2023 | $185 | $5 | $190 | 1.1% |
| 2024 | 907 | 20 | 927 | 4.9% |
| 2025 | 1,041 | 21 | 1,062 | 5.6% |
| 2026 | 1,412 | 22 | 1,434 | 7.6% |
| 2027 | 1,735 | 24 | 1,759 | 9.3% |
| 2028 and thereafter | 11,941 | 1,544 | 13,485 | 71.5% |
| Total | $17,221 | $1,636 | $18,857 | 100.0% |

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

### Alternative Investments

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

| Segment | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Annuities | $4 | $(4) | $13 | $6 |
| Life Insurance | 44 | (51) | 158 | 38 |
| Group Protection | 2 | (2) | 7 | 4 |
| Retirement Plan Services | 2 | (2) | 7 | 4 |
| Other Operations | - | (1) | - | 1 |
| Total (1) | $52 | $(60) | $185 | $53 |

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

As of September 30, 2023, and December 31, 2022, alternative investments included investments in 348 and 337 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 the Consolidated Balance Sheets.

### Non-Income Producing Investments

As of September 30, 2023, and December 31, 2022, the carrying amount of fixed maturity securities, mortgage loans on real estate and real estate that were non-income producing was $74 million and $11 million, respectively.

### Net Investment Income

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

| Net Investment Income | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Fixed maturity AFS securities | $1,237 | $1,131 | $3,659 | $3,279 |
| Trading securities | 40 | 48 | 123 | 134 |
| Equity securities | 3 | 4 | 9 | 9 |
| Mortgage loans on real estate | 188 | 173 | 553 | 511 |
| Policy loans | 27 | 26 | 79 | 76 |
| Cash and invested cash | 39 | 5 | 100 | 7 |
| Commercial mortgage loan prepayment |  |  |  |  |
| and bond make-whole premiums (1) | 1 | 14 | 6 | 96 |
| Alternative investments (2) | 52 | (60) | 185 | 53 |
| Consent fees | - | 2 | 3 | 4 |
| Other investments | (14) | 7 | (24) | 76 |
| Investment income | 1,573 | 1,350 | 4,693 | 4,245 |
| Investment expense | (79) | (55) | (225) | (140) |
| Net investment income | $1,494 | $1,295 | $4,468 | $4,105 |

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

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

| Interest Rate Yield Fixed maturity AFS securities, mortgage loans on | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| real estate and other, net of investment expenses | 4.08% | 3.88% | 4.05% | 3.84% |
| Commercial mortgage loan prepayment and |  |  |  |  |
| bond make-whole premiums | 0.00% | 0.04% | 0.01% | 0.10% |
| Alternative investments | 0.15% | -0.18% | 0.18% | 0.05% |
| Net investment income yield on invested assets | 4.23% | 3.74% | 4.24% | 3.99% |

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 policyholder on our average fixed account balances, 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.

### 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 and may adversely affect 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. We believe we have adequate capital to operate our business as we replenish statutory capital back to our targeted levels. For more information, see “Subsidiaries’ Capital” 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 2022 Form 10-K/A 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 or other types of securities and policyholder 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 common and preferred stockholders, to repurchase our common stock and to repay debt. Our operating activities provided (used) cash of $(206) million and $3.0 billion for the nine months ended September 30, 2023 and 2022, 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 and preferred stock dividends, common stock repurchases, interest and debt service, funding of callable securities, acquisitions and investment in core businesses.

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

| Dividends from Subsidiaries | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| LNL | $105 | $275 | $365 | $580 |
| Lincoln Investment Management Company | - | - | - | 16 |
| Lincoln National Management Corporation | - | - | - | 7 |
| Lincoln National Reinsurance Company (Barbados) Limited | 50 | - | 150 | 85 |
| Total dividends from subsidiaries | $155 | $275 | $515 | $688 |
| **Interest from Subsidiaries** |  |  |  |  |
| Interest on inter-company notes | $39 | $31 | $111 | $87 |

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, issuance of preferred stock, 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

#### Subsidiaries’ Capital

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 additional information on RBC ratios, see “Part I – Item 1. Business – Regulatory – Insurance Regulation – Risk-Based Capital” in our 2022 Form 10-K/A.

Our insurance subsidiaries’ regulatory capital levels are affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. For instance, our term products and UL products containing secondary guarantees require reserves calculated pursuant to the Valuation of Life Insurance Policies Model Regulation (“XXX”) and Actuarial Guideline XXXVIII (“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, 2023, was $1.8 billion of long-dated LOCs issued to support inter-company reinsurance agreements for UL products containing secondary guarantees. For information on the LOCs, see the credit facilities table in Note 12 in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-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 associated with our term and UL products with secondary guarantees as of September 30, 2023; 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-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 guaranteed benefit riders are sensitive to changes in the equity markets and interest rates and are affected by the level of account balances 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. Our insurance subsidiaries’ cede a portion of the guaranteed benefit riders to Lincoln National Reinsurance Company (Barbados) Limited (“LNBAR”) through a modified coinsurance agreement. Our variable annuity hedge program mitigates the risk to LNBAR from guaranteed benefit riders and continues to focus on generating sufficient assets to fund future claims with a goal of maximizing distributable earnings and explicitly protecting capital. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and supporting derivatives. In December 2022, LNC issued a long-term note to a non-affiliated variable interest entity in exchange for notes of like principal and duration classified as AFS securities. LNC contributed the securities to LNBAR to address asset value volatility based on market conditions. Under the current terms of the note facility, the maximum permissible principal amount of the note is $1.25 billion, the full amount of which was outstanding as of September 30, 2023. There are no impacts to the LNC Consolidated Balance Sheets based on the set-off right provided in the note facility. For more information, see Note 3 in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

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 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 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. On May 2, 2023, we entered into a reinsurance agreement with Fortitude Re expected to reduce balance sheet risk, strengthen our capital position and improve free cash flow. For more information, see Note 8.

#### Debt

Although our subsidiaries currently generate adequate cash flow to meet the needs of our normal operations, periodically LNC may issue debt 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, 2023, were as follows:

| Short-Term Debt | Beginning Balance | Issuance | Maturities, Repayments and Refinancing | Change in Fair Value Hedges | Other Changes (1) | Ending Balance |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Current maturities of long-term debt (2) | $500 | $- | $(500) | $- | $- | $- |
| **Long-Term Debt** |  |  |  |  |  |  |
| Senior notes | $4,497 | $- | $- | $(41) | $(9) | $4,447 |
| Term loans | 250 | - | - | - | - | 250 |
| Subordinated notes (3) | 995 | - | - | - | - | 995 |
| Capital securities (3) | 213 | - | - | - | - | 213 |
| Total long-term debt | $5,955 | $- | $- | $(41) | $(9) | $5,905 |

(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) Consisted of $500 million principal amount of our 4.00% Senior Notes that was repaid 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.

LNC made interest payments to service debt of $75 million and $246 million for the three and nine months ended September 30, 2023, respectively, compared to $73 million and $216 million, respectively, for the corresponding periods in 2022.

For additional information about our short-term and long-term debt and our credit facilities, see Note 12 in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

#### Preferred Stock

In November 2022, we raised approximately $1 billion through the issuance of preferred stock, $780 million of which was contributed to The Lincoln National Life Insurance Company (“LNL”) in the fourth quarter of 2022 to strengthen LNL’s statutory capital. We used the remaining proceeds to fund part of the repayment upon maturity of our 4.00% Senior Notes due September 1, 2023.

Details underlying preferred stock dividends paid (in millions) were as follows:

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Series C preferred stock dividends | $23 | $- | $36 | $- |
| Series D preferred stock dividends | 11 | - | 35 | - |
| Total preferred stock dividends | $34 | $- | $71 | $- |

#### Capital Contributions to Subsidiaries

LNC made capital contributions to subsidiaries of zero and $5 million for the three and nine months ended September 30, 2023, respectively, compared to $80 million and $145 million for the corresponding periods in 2022.

#### 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 dividends from our subsidiaries and an evaluation of the costs and benefits associated with alternative uses of capital. For additional information regarding share repurchases, see “Part II – Item 2(c)” below.

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

|  | For the Three Months Ended September 30, 2023 | 2022 | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Dividends to common stockholders | $76 | $77 | $229 | $234 |
| Repurchase and cancellation of common stock warrants | - | - | - | - |
| Repurchase of common stock | - | 50 | - | 550 |
| Total cash returned to common stockholders | $76 | $127 | $229 | $784 |
| Number of shares repurchased | - | 1.0 | - | 8.7 |

### Alternative Sources of Liquidity

#### Inter-Company Cash Management Program

To promote effective short-term cash management strategies, we utilize an inter-company cash management program between LNC and participating subsidiaries where each entity can lend to or borrow from the holding company to meet short-term borrowing needs. As of September 30, 2023, the holding company had a net receivable of $344 million due from certain subsidiaries in the inter-company cash

management program. 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 a minimum threshold (which was $2.75 billion as of September 30, 2023, and is 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-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, 2023, LNL had an estimated maximum borrowing capacity of $7.0 billion under the FHLBI facility and maximum available borrowing based on qualifying assets of $5.1 billion. As of September 30, 2023, LNL had outstanding borrowings of $2.9 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, 2023, 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, 2023, our insurance subsidiaries had securities pledged under securities lending agreements with a carrying value of $290 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, 2023. 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.

#### 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, 2023, we were in a net collateral payable position of $4.3 billion compared to $3.1 billion as of December 31, 2022. 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 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 6.

### Ratings

#### Financial Strength Ratings

See “Part I – Item 1. Business – Financial Strength Ratings” in our 2022 Form 10-K/A 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 2022 Form 10-K/A 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 BBB+/Baa1 (S&P/Moody’s) as of September 30, 2023. On October 9, 2023, Moody’s downgraded LNC’s long-term issuer credit rating to Baa2 (9th highest of 21) and downgraded the financial strength ratings of LNL, LLANY and FPP from A1 to A2 (6th highest of 21), due in part to a decrease in our capital from the third quarter 2022 annual assumption review, and revised its ratings outlook from negative to stable for LNC and its insurance subsidiaries. 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 2022 Form 10-K/A for more information.

## Market risk

As filed, 4,441 characters.

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. The MD&A included in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, contains a detailed discussion of our quantitative and qualitative disclosures about market risk. Set forth below are material updates to the disclosure contained in “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K, which should be read in conjunction with that disclosure.

### Market Risk Related to Certain Variable Annuity and Fixed Indexed Annuity Products

Our variable annuity and fixed indexed annuity contracts are exposed to market risks related to changes in the assumptions used in the original pricing of these products, including equity market, interest rate, and non-market actuarial assumptions. For additional information, see Note 10. We manage our exposure to market risks created by these fluctuations through a combination of product design elements and our hedge program. In addition, we utilize reinsurance to mitigate risk. For additional information, see Note 10 and “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Reinsurance” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K. Certain variable annuity GLB and GDB riders are accounted for as MRBs and recorded at fair value. For more information on the market risk sensitivities associated with MRBs, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Market Risk Benefits.”

### Interest Rate Risk

Interest rate risk is the risk of financial loss due to adverse changes in the value of assets and liabilities due to movements in interest rates. We are exposed to interest rate risk arising from our fixed maturity securities and interest rate sensitive liabilities.

With respect to accumulation and investment-oriented products, we seek to earn a stable and profitable spread, or margin, between investment income we earn on our investments and interest credited to the account balances of our policyholders. If we have adverse experience on investments that cannot be passed on to customers, our spreads are reduced. The combination of a probable range of interest rate changes over the next 12 months, asset-liability management strategies, flexibility in adjusting policy crediting rate levels and protection afforded by policy surrender charges all work together to mitigate this risk. The interest rate scenarios of concern are those in which there is a substantial, relatively prolonged decrease in interest rates that is sustained over a long period or a rapid increase in interest rates. For additional information, see “Part II – Item 7A. Quantitative and Qualitive Disclosures About Market Risk – Interest Rate Risk” in our 2022 Form 10-K/A, as updated by the May 2023 Form 8-K.

#### Effect of Interest Rate Sensitivity

The following table presents our estimate of the effect on income (loss) from operations by segment (in millions) for the next 12-month period if the level of interest rates were to instantaneously increase or decrease by 1% and remain at those levels immediately after September 30, 2023, relative to interest rates remaining flat.

|  |  |  |
| --- | ---: | ---: |
|  | **1%** | **1%** |
|  | **Increase** | **Decrease** |
| **Segment** |  |  |
| Annuities (1) | $(21) | $21 |
| Life Insurance | 7 | (7) |
| Group Protection | 6 | (5) |
| Retirement Plan Services | (3) | (3) |
| Other Operations | (7) | 7 |
| Income (loss) from operations | $(18) | $13 |

(1) Includes the impact on bond funds in our separate accounts, which move in the opposite direction of interest rates.

We have updated estimated impacts to income (loss) from operations for changes primarily related to new money rates. For purposes of this estimate, we assumed asset purchases are made at prevailing new money rates and exclude the impact of new business, persistency, hedge program performance or customer behavior caused by the interest rate changes.

## Controls and procedures

As filed, 4,075 characters.

### 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 were ineffective as of September 30, 2023, as a result of the material weakness disclosed in our 2022 Form 10-K/A.

### Remediation Plan for Previously Reported Material Weakness

Since identifying the material weakness related to management’s review controls over significant reinsurance transactions, management has taken the following steps towards remediating the material weakness:

The formation of a technical review committee comprising cross-functional accounting, business, legal, and risk personnel that is in place and operating with a dedicated charter in overseeing the technical accounting and reporting implications of complex significant transactions;

The establishment of protocols that are in place and operating, enabling the involvement of external subject matter experts providing support and insights to management from third party firms;

Formalization of the documentation and review of key considerations and critical decision matters resulting from significant reinsurance transactions by the aforementioned technical review committee; and

Communication across the organization to reinforce the steps taken to strengthen the control environment related to significant reinsurance transactions.

Our management has monitored the effectiveness of these and other processes, procedures and controls and these controls have functioned or are functioning now as part of the reinsurance transaction with Fortitude Re described in Note 8 and announced on May 2, 2023. The material weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are on track with our plan to complete our testing procedures and complete remediation of this material weakness prior to the end of 2023.

### Changes in Internal Control Over Financial Reporting

Except for the implementation of the remediation steps described above, there have not been any material changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s 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 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.

## Risk factors

As filed, 719 characters.

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 2022 Form 10-K/A. 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.

Filed Nov 2, 2023.
Source: SEC EDGAR, the filing index for accession 0000059558-23-000058. Last ingested by Listed: Nov 11, 2026, 01:05 ET. No prices; not investment advice.