Jim Sjoreen – SVP, Investor Relations Dennis R. Glass - President and CEO Randal J. Freitag - CFO.

Seth Weiss - Bank of America Merrill Lynch Steven Schwartz – Raymond James & Associates Jimmy Bhullar – JPMorgan Chase & Co. Suneet Kamath – UBS Tom Gallagher – Credit Suisse Randy Binner – FBR Capital Markets John Nadel – Sterne, Agee & Leach, Inc. .

Good morning and thank you for joining the Lincoln Financial Group's Third Quarter 2014 Earnings Conference Call. At this time all lines are in a listen-only mode. (Operator Instructions). At this time, I would like to turn the conference over to the Senior Vice President of Investors Relations, Jim Sjoreen. Please go ahead sir..

Thank you, operator. And good morning and welcome to Lincoln Financial's Third Quarter Earnings Call. Before we begin, I have an important reminder.

Any comments made during the call regarding future expectations, trends and market conditions, including comments about sales and deposits, income from operations and liquidity and capital resources are forward-looking statements under the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involve risks and uncertainties that could cause the actual results to differ materially from current expectations. These risks and uncertainties are described in the cautionary statement disclosures in our earnings release issued yesterday and our reports on Forms 8-K, 10-Q and 10-K filed with the SEC.

We appreciate your participation today and invite you to visit Lincoln's website, www.lincolnfinancial.com, where you can find our press release and statistical supplement, which include a full reconciliation of the non-GAAP measures used in the call, including income from operations and return on equity to the most comparable GAAP measures.

Presenting on today's call are Dennis Glass, President and Chief Executive Officer; and Randy Freitag, Chief Financial Officer. After their prepared remarks, we will move to the question-and-answer portion of the call. I would now like to turn the call over to Dennis..

Thank you, Jim and good morning everyone. Lincoln had another very good quarter. You read it in the news release but it is worth repeating that we achieved record operating earnings per share of $1.56 as well as record revenues up 9%. These results are being driven in large part by strong sales, positive net flows, and market lift.

Each business showed sequential earnings improvement in the third quarter, that being said our group protection business is still not where it should be but we continued to make progress particularly with pricing actions.

When analyzing our strong performance, it is clear that our results tie to the demonstrated ability over time to deliver on our core strategies.

Notable among them, maintaining a consistent presence in key markets which combined with distribution scale and a diversified product portfolio help us to grow sales where we want to grow them and on our terms.

A laser focus on repricing products were necessary to achieve acceptable return on capital, actively managing capital as evidenced in the third quarter by repurchasing another $150 million of shares as well as the 25% increase in our common stock dividend.

And finally sustaining our financial strength, which includes a healthy RBC ratio, high quality and diversified general account portfolio, and cash at the holding company. Further, our annual assumption review validated the DAC balances. In the past few weeks equity markets and interest rates have experienced significant volatility.

But we have a strong franchise and our job is to mitigate effects of capital market shifts, while at the same time growing earnings and ROE. We have a good record of responding to challenging conditions and our guidance on these issues as they affect Lincoln has been spot on.

We will share more detail on our overall strategy at the next months Investor Meeting, for now let me turn to the business segments starting with individual life. Our individual life product sales were up from a year ago. This favorable result reflects strong index universal life and variable universal life sales.

Growth was tempered somewhat by a 2% decline in MoneyGuard sales. The product actions we took earlier this year are gaining traction, which included updates to variable universal life, index universal life, and the launch of our MoneyGuard 2 product. Total MoneyGuard sales reached $43 million in the quarter, their highest level of the year.

The flex pay option which expanded our market reach by offering clients the opportunity to make periodic payments represented more than 40% of MoneyGuard sales.

We continue to focus on selling a diversified set of product solutions which gives us the flexibility to meet evolving consumer preferences and make new business less concentrated and returns in total less sensitive to interest rate volatility.

Our sales diversification coupled with returns on new business in the 12% to 15% range provides us with an impressive risk return position. We are taking steps to expand and enhance our offerings, furthering our position as a leader in this space.

We recently released our first ever survivorship indexed universal life and we will be implementing fourth quarter enhancements to our term products. Our profitable and broad portfolio solutions combined with the power of our distribution has us well positioned for the future.

Switching to our individual annuity business it was another quarter of great results. Total annuity sales of $3.5 billion drove positive net flows including $800 million from variable annuities. Sales were down slightly from the prior year quarter, when competitor dynamics resulted in elevated sales levels for Lincoln.

Our results in the quarter remained aligned with our objectives. We have seen a slowing of fixed indexed annuity sales due to the lower interest rate environment. We maintained our strategic focus on increasing variable annuity sales without living benefits with sales up 79% from a year ago.

The reach of our distribution, the size and quality of our whole selling force, and our product portfolio expansion all combined to advances toward achieving our organic goal of 30% of DA sales without a living benefit. When factoring in the benefit of the reinsurance transaction, 56% of DA sales in the third quarter had no living benefits.

Supporting this key strategy we launched in June our investment focused DA product Investor Advantage. It has achieved an impressive $100 million of sales in the first 100 days which is a testament to the strength of our distribution and the demand for this type of product in today’s market.

As we move forward our view of the annuity business remains unchanged, the right volume of sales and the profitability and risk profile of new business continue to make the annuity business very attractive. Group protection; in group protection we are taking the right steps to improve profitability and to position our business for long-term success.

As I’ve stated before, we started implementing price increases in mid 2013 aimed primarily at our employer paid life and disability business. These pricing actions are achieving mid to upper single-digit increases in both new sales and renewals this year and we are again resting up our pricing targets as we renew 2015 business.

Additionally we are investing in programs to improve our disability claims management effectiveness which should further enhance our profit improvement. Although success maybe uneven from quarter-to-quarter and it will take time, we believe our profit improvement trajectory is positive.

New business levels were lower than last year for the third quarter and for year-to-date although our pricing actions are a factor, industry sales are also down through mid year. An important element of our strategy is to capitalize on the growth of the more profitable employee paid market.

We continued to advance our strategy with 49% of year-to-date sales coming from the employee paid segment up from 46% in the prior year. We are pleased that our total earned premium is up 7% for the quarter and up more than 9% year-to-date with our growth being fueled by higher margin in new business and increased pricing on renewals.

In summary we are confident that we had the right programs in place to restore profitability and to sustain long-term profitable growth. Moving to retirement plan services, it was another strong quarter with continued stable earnings benefitting from the 11% growth in average account values.

Total deposits were down 13% from a year ago, attributable to lower new sales in the mid large market which can be uneven from time to time. With respect to the lumpiness of the business we were recently notified of a case termination due to an M&A transaction which will occur by the end of the year.

The combined case size total was 4 billion of size where we choose not to compete aggressively. Approximately 600 million outflows were likely lead to negative flows in the fourth quarter but with little impact on earnings. We have a strong pipeline in the mid to large segment and we expect to return to positive net flows in the first quarter.

Our small market strategy continues to take hold and we are seeing the results. Total deposits were up 24% from a year ago. In part these results were driven by the expansion of our small market sales force which is up 29% from a year ago.

Equally as important as new sales is the growth we are seeing across all markets in recurring deposits which were up 8% compared to the prior year. The driver of this growth is our focus on the participant through our high touch model which is increasing participation in contribution rates.

The number of participants contributing in the quarter was up 4% from a year ago and average contributions per participant were up 3%. Also aiding our recurring deposits was a strong overall retention in the third quarter, withdrawals at 8 percentage of average assets were down 2% as compared to a year ago.

This will remain a focus for us going forward. We are happy with the overall progress in our retirement business and looking ahead we expect to see continued growth. Distribution had another strong quarter.

Our retail, wholesale, and worksite teams continued to deliver outstanding results driving our core strategies to grow sales on our terms and shift our mix when necessary.

In Lincoln financial distributors we expanded our individual life sales organization by 12% enabling us to deliver above industry sales growth and again to drive the diverse mix of sales that I mentioned earlier. Selling additional products through our strong producer base of more than 64,000 is a key strategy.

The number of producers selling more than one Lincoln product is up 16% and we are seeing good traction in several areas. Most notably, one third of both small market RPS and MoneyGuard sales are driven by our strategic partners where we have multiple products on their platforms and cross sell programs in place.

Shifting to Lincoln financial network, our affiliated advisory network help steady at more than 8400. Of note for the quarter total sales were up 3% delivering more Lincoln sales than any other firm.

Retail distribution is a key component of our product strategies and we are investing in capabilities to enhance our value proposition to advisors and their clients. Our group distribution continues to be a valuable business asset beyond just sales with its strong performance and supporting the placement of higher price renewals.

Currently our combined group sales rep and enrollers count exceeds 350. You’ve heard me say this before, we’ll continue to invest in our already deep and powerful distribution with an eye on expanding our industry leading franchise of more than 1400 wholesale, retail, and work side professionals.

Turning to investment management, we continued to achieve strong new money yields in light of the low interest rate environment investing $2.5 billion at 4.3% which is 180 basis points over the average 10 year treasury during the quarter.

Our disciplined AOM driven investment strategy has delivered a fixed income portfolio yield of 5.1% and about $7 billion of unrealized gains. Additionally, the flexibility from our yield enhancing debt program continues to help offset the low rate headwinds contributing 25 basis points in the third quarter to our new money yields.

Although the 10 year treasury had declined 20 basis points in the month of October, our new money yield have held at 4.3% benefitting primarily from spread widening.

Our strategy of growing the alternative investment program is also contributing solid results with net investment income of $46 million during the quarter and 16% asset growth from the prior year.

We continued to achieve consistent investment results, grow our yield enhancing strategy, and improved diversification while maintaining a high quality portfolio. As I close my remarks let me say again that Lincoln had a very good quarter.

Our strong performance came as direct result of our ability to deliver unclear and consistent strategies and I am confident we are taking the steps necessary to finish out the year on a strong note. I will now turn the call over to Randy..

Thank you, Dennis. Last night we reported income from operations of $414 million or $1.56 per share for the third quarter, up 16% from the prior year period. The quarter’s earnings that was yet another record driven by strong performance in the annuity, life, and retirement businesses.

As noted in the press release we had normalizing adjustment of 12 million or $0.05 per share in the quarter primarily attributable to our annual review of DAC assumptions. Similar to last year, the DAC unlocking process had a net positive impact on the results.

In total this year’s DAC unlocking resulted in a positive impact of $31 million with $6 million of the impact reflected in operating income, while $25 million occurs below the line in net income.

These results underscore the quality of the DAC asset on our balance sheet and reflect the rigor applied to establishing the underlying assumptions in the respective businesses. The performance of other key financial measures remained strong including operating revenues up 9% to a record $3.4 billion while G&A net of capitalized expenses grew 4.3%.

Book value per share excluding AOCI growing 9% to $48.23 and return on equity which increased to 13.4%. The investment portfolio produced excellent results in the quarter. Returns on alternative investments were particularly strong this quarter with our $1.2 billion portfolio earning an annualized return of 16%.

This contributed $10 million above our expected levels to the quarters result. Income from bond and mortgage prepayments was again stronger in the quarter however, as I noted on our last call that is expected in the current environment.

Net income for the quarter of $439 million benefitted from a few positive items including the unlocking I mentioned earlier that more than offset $60 million of net realized losses. These strong net income results continue a trend that we have seen over the last few years with net income averaging 97% of operating income since the beginning of 2012.

Turning to segment results and starting with annuities. Reported earnings for the quarter came in at $245 million which produced an ROE of 27% for the quarter. Operating revenues increased 12% from the prior year quarter on a very strong 21% increase in fees on assets under management.

Sequential quarters of positive net flows and strong equity markets drove a 14% increase in average account values. The only item of note impacting annuity earnings for the quarter was the favorable $12 million coming from the annual assumption review.

This is another great result and is a testament to both the quality of our annuity business and the assumption that underlie its valuation. We believe the results are reflective of a theme that you have heard us talk about before.

That is a theme of consistency, a consistent presence in the market place with a well designed product portfolio, a consistent approach to risk management that you see in the results of our hedge program, and a consistent and rigorous process to the establishment and review of assumptions.

I would also note that as we have gone through the assumption review process we have relied not just on our own experience but have brought in leading outside consultants to ensure that our assumption reflect the best data available. In retirement plan services we reported earnings of $40 million compared to $33 million in the prior year quarter.

Revenues were up 1% year-over-year on higher fee revenue which increased 5% while net investment income remained flat reflecting the spread compression that the retirement business has been experiencing. Average account values of $54 billion increased 11% from the prior year period.

Both the return on assets of 30 basis points and pretax margin of 35.5% improved from the year ago period and remained at the high end of our expectations.

The retirement business has been posting steady and consistent results with the underlying story remaining unchanged, that is the growth in earnings from new business managing to offset the ongoing spread compression and producing a very attractive return on equity in excess of 16%.

The life insurance segment reported earnings in the quarter of $150 million compared to $140 million in the prior year. We saw yet another quarter of consistent growth in the life segments earnings drivers with average account balances up almost 7%, the life insurance in force increased 4% to $635 billion.

This growth in earnings driver is allowing the life business to overcome spread compression that is running at about 8 to 12 basis points per year in today’s interest rate environment. Mortality was in line with expectations and the segment benefitted from 7 million of the alternative net investment income that I noted earlier.

The results of the DAC assumption review for life was similar to what we saw in the other segments. A series of incremental adjustments with some pluses and minuses that in the case of the life segment netted to a negative $6 million. This negative unlocking impact was completely offset by other small favorable items.

Overall it was a very good quarter for the life segments with underlying growth driven by profitable new business overcoming any headwind that low interest rates are creating. The group protection segment reported earnings of $8 million in the quarter down from $23 million in the year ago quarter.

But up from the $2 million that we reported in the second quarter of this year. While it is encouraging that we saw loss ratio improvement across all product lines relative to the second quarter, earnings continue to be affected by adverse claim cost and long-term disability.

As a result, group earnings will fall short of the guidance we provided at the beginning of the year. Specific to LTD, metrics were mixed in the quarter with recoveries driving the majority of the unfavorable experience of incidence performed in line with expectations.

Claims management will impact the LTD loss ratios that we report on a quarterly basis. To minimize the potential volatility that it creates, we continue to invest in the claims function, adding staff as needed, providing the training necessary to properly adjudicate the claims, and recently installing a new claims management system.

We are pleased with the market acceptance of our mid to upper single digit price increases on new and renewing business this year. And we are now targeting low double-digit increases for renewing business in 2015.

The combination of improvements in claims management, price increases, and premium growth which was 7% this quarter that will improve profitability overtime. All that being said we will not be surprised by quarterly volatility consistent with what you’ve seen from other leading group insurers.

The bottom line for the group business is that earnings improvement will not be linear but with the actions we are undertaking we expect group protection to be a positive lever to Lincoln’s long-term earnings growth.

Turning to capital activities, we refer just 150 million of our shares during the quarter moving us to 450 million for the first nine months of the year, and announce a 25% increase in our shareholder dividend taking our annualized cash outlay for shareholder dividend to approximately 200 million.

Statutory capital grew approximately $80 million over the quarter to $8.3 billion with RBC coming in at 507%. Statutory results are benefiting from the mix in our sales to let capital intensive products especially in the life business.

In fact I estimate that this mix shift is costing approximately 100 million less of annual new business strength than the mix of business that we were selling just a few years ago. During the quarter we sent $175 million of dividends for the holding companies and ended the quarter with $572 million of cash.

Looking ahead to the fourth quarter we expect the strong statutory performance in balance sheet towards in a very good position to exceed our full year guidance for 500 million to 550 million of share buybacks.

To recap some key points, the statutory and GAAP balance sheets are both in a very strong position as evidence by record level of statutory capital, strong RBC and holding company cash positions, and no negative impact from the annual assumption review process.

We are selling profitable business with each and every business earning 12 plus percent IRRs on new business except for the annuity business for a new business IRRs are in the 20% range. We are selling less capital intensive business which is favorably impacting statutory income.

We are producing positive annualized net flows that total better than 3% of our comp balances, and the group business or earnings are still well below our long-term expectations is showing steady premium growth and gradually improving results.

With these items along with others such as the strength of the equity markets over the past few years combining together to swamp 2% the 3% headwind to earnings growth that low interest rates are causing. With that let’s move to Q&A. Operator..

(Operator Instructions). And our first question comes from the line of Seth Weiss from Bank of America, your line is now open..

Thank You. I am curious on commentary regarding the decision not to unlock GAAP for equity market reversions to mean assumptions and as of the second quarter I believe the buffer on the DAC asset or the amount that you would have released had you unlocked DAC was over $400 million.

I suspect that when you disclose this number in the third quarter 10-Q at this level is going to look quite similar.

As I believe this is the largest buffer in the last five years and with that as a backdrop maybe you could help us think through what level this needs to reach to trigger a positive unlock?.

Yes, Seth, the buffer remained largely the same in total across all the businesses that is roughly $350 million right now. That’s really in line with where it’s been for the last few periods or really not a big change in the level of buffer, it moves up some quarters, moves down some quarters.

Really it is the thought that I have been talking about for some time now which is that we have a corridor process. We still remain inside that corridor and so there really was not an obvious reason to unlock the return assumption.

Still very comfortable, both with our long-term return assumptions and with the reversion to the mean process that we have, the immediate reversion to mean process that we have. So very comfortable with where we are and that was the thought process that we went through Seth. .

Okay, great, and just to clarify on the corridor I know you have two different corridors.

When you say you are within, do you mean the wider corridor or still within even the narrow corridor?.

We are towards the inside corridor, pretty close to inside corridor but [ethically] [Ph] still slightly inside [Inaudible]..

Great. Thank you. .

You bet..

Our next question comes from the line of Steve Schwartz from Raymond James, please proceed..

Hey, good morning everybody. First, Dennis you go in a little too fast for me, can you go back over the case that was lost.

I think that was retirement plan services, what those numbers were?.

The net negative flow in the fourth quarter will be about $600 million, Steve, and I said that it have minimal earnings impact because inside of that net number we have retained the stable value assets which offset -- and the fees on that offset the loss of record keeping revenue..

Okay, so this was a -- what was the total size of it?.

The total size it was an M&A deal so it was one of the situations where we have talked about sort of a market fact that’s going on, is that a lot of the health companies are merging.

And so the two health companies’ plans assets in total were about $4 billion and that is the segment of the market because it’s been pricing to begin with and because oftentimes at that size you have to make specific changes to your activities that are costly. So we don’t aggressively participate in that market.

Again we are south of that in target that we go forward this mid to large. So that’s the answer..

Okay, the $600 million is what you expect out from that just one case, so that’s not your expectation for total outflow for the fourth quarter?.

It is pretty close to where do we expect to be in total but it is specifically the outcome..

Okay, great.

And then if I can a couple of one offs that I am interested in, particularly with regards to you, is - the treasury I mean just a few days ago approved the use of annuities and target date funds and of course you’re a large annuity provider and you have RPS and I am wondering how you think about this?.

The product inside the retirement plan is slightly different then the individual product with respect to living benefits. And we will need to manage in total our living benefit exposure and it’s not an earnings mix issue, it’s more about the balance sheet capability to have handled living benefits.

So we think it’s a good development, specifically the one that you are talking about. We have a product to participate in that marketplace and we’ll manage the overall mix of our living benefit book of business. .

And then one more if I can.

I am not sure it matters any more given the change of your life sales mix but thoughts on direct to report and the potentiality of AG47, Dennis?.

Yes, so you’re referring specifically to the progress that’s being made in the discussion of the use of captives on a go forward basis..

Yes, that’s right..

Lincoln has taken the lead with a couple of other life companies in discussing this with the regulators. My first point would be that there is firm agreement that any changes will only be perspective changes with respect to captives, and so the industry's existing captive arrangements will remain in place.

To your point, the change in our mix reduces the need for us to do additional captive financings but remember we do them both on term business and guaranteed universal life. So we will be increasing our terms sales a little bit more. But in total we don’t have as much need for the captive arrangements as we’ve had in the past.

Having said that I think even the new rules that will apply to captives once they are put in place will benefit -– we will be benefitted by using captives to again even though it will be a smaller amount than we’ve done in the past..

Okay, thanks, Dennis very much..

Our next question comes from the line of Jimmy Bhullar from JP Morgan. Please proceed..

Hi, first on the retirement business.

Overall obviously your results are pretty strong but retirement flows were weak, so just wondering if you could talk about whether this is just an aberration and a normal volatility in the business or is it related to the competitive environment especially in the large - mid to large case markets? And then secondly on your actuarial review, can you just talk about what your interest rate assumptions are that are better than your accounts and how whether or not you changed them this quarter?.

Okay, I’ll take the first question. Let me emphasize the positives first and then come back to the mid to large which is more neutral. We did see significant growth in small case sales. We saw a significant growth in the recurring deposits in both the large case -- mid to large and small case so that’s all positive going in the right direction.

We had said in the past and it continues to be the case that the mid to large case marketplace is a bit more competitive than small case market. And so it’s tougher to win.

Having said that I’d also take you back a couple of quarters and remind you that we upgraded substantially our technology but while we are in that phase of installing a new administrative platform, the consultants -- I don’t want to say put us in a -- took us off the list completely but they didn’t advocate Lincoln as much when you were in a transition from one administrative platform as we were in that transition to a new administrative platform.

So just in the last 15 to 18 months, the consultant community which is where you get your mid to large case business has put us on the list more often and I think that our position in the market is growing, the recognition of Lincoln is growing, and that we’ll see better results in the mid to large case market over time.

Having said that, it’s still a very competitive market. We have as I mentioned in my notes, we have a pretty significant pipeline of sales but we have to get out and win that business to convert it into real sales.

So dynamics are different but we are optimistic that the steps that we are taking, the investments that we are making will move sales and that [goes] [ph] up over the next several years..

Jimmy, its Randy on your second question. Point out that there are two aspects for the interest rate assumption. First, there is the process we go through every year where we reset the beginning rates and what’s other taker to the current interest rate environment. And we did that, we do that every year, and we did that again this year.

That was a modest negative impact inside of the overall unlocking process. So of course we did that. Second component is the longer-term interest rate assumption, 575 for life insurance, 525 in the annuity business in our case, and we did not change that. We are still very comfortable with that long-term assumption.

I remind you that we agreed to that assumption over a period of many years 6 or 7 years I believe. So Dennis mentioned we currently are investing money at 430 and when you think about our blending of 525, 575 you are really talking about our rate increase expected over the next 6 years of 125 basis points or so.

You know that’s really not that dramatic an increase its inline with a lot of expectations I see whether I’m talking to our asset managers whether I am looking at expectations in Federal Reserve or for what the treasure rates may ultimately do or whether I am looking at the forward curve. So very comfortable with long term rates.

We did not change them this year..

And then the increase in rates assumed is that gradual overtime or is it more front end of back end both?.

It’s a linear rate..

Okay, that’s helpful, thank you..

Thank you..

Our next question comes from the line of Suneet Kamath from UBS, please proceed. Suneet Kamath – UBS Great, thanks. Good morning. Just a quick follow up on the corridor for Randy.

I think in your answer to Seth’s question you’d said 350 million is the mean reversion but I believe that’s just for the annuity business and if there is another bit in retirement and life bringing the total to 425 is that right?.

No, the 350 is in total but it’s roughly 280 in the annuity business and 70 million in the other two businesses. .

Okay, because I am just looking at the page 46 of your Q from last quarter and I say 350 pretax annuities, are we doing pretax versus after tax, is that the difference?.

No, I am talking pretax. Those are the actual numbers this quarter. You got to remember that we go through in the unlocking process and everything and those impacts can change modestly overtime. 350 total..

Okay, got it. And then on your comment about the strain, the 100 million less of strain. Frankly it’s good to see that finally coming through.

Is that in the quarter or that’s for the full year and is that a pretax or after tax kind of number?.

It’s an after tax annualized impact and simply that -- you remember in years past I’ve been very clear that the strain on new business, life insurance new business is roughly a dollar for each dollar of sales. When you look at what was the mix of business we are selling today, it’s roughly $0.85.

So $0.15 of less strain for $1 sales and if you look at the level of life sales we have you get to $100 million of less annual strains. I would also note that you really see in that and the results also. So if you look at our DAC operating earnings year-to-date we are right about $750 million.

We were at $250 million in the third quarter and that’s up over previous year. So you are really seeing that impact in our results. .

And are you expecting that 100 million as we look forward over the next couple of years, how much is -- how significant of a change are we going to see to that number or you kind of that’s your base line at this point?.

I am not going to go beyond saying that we have 100 million right now. I mean the mix of business that we sell going forward we’ll be what it is. But we’ve talked about the repricing of the products, the fact that our mix today is less capital intensive, lower level of GUR (ph) sales being the primary driver there.

Dennis talked about, we will see term sales continuing about a little bit but I don’t think you are going to see a dramatic change..

Okay, that’s helpful. And then just the last one on the re-pricing, you know, Dennis I think you’ve talked about 12% to 15% unlevered returns for most of your businesses, ex annuities, can you give us a sense of what interest rate assumption is sort of embedded in that 12% to 15% pricing return..

Let me come at it in a different way. And say that the 12% to 15% of course is a curve in it and it has periodic payments in the pricing. Even if you took today’s yield curve, we’d still be in that range that I talked about..

Okay, but I guess if we are assuming a rising rate environment eventually at some point down the road, if you kind of pricing for current rates then obviously there should be some upside potential to that 12% to 15% unlevered return?.

Yes..

Yes, you said yes, right?.

Yes, I am sorry I moved away from the speaker there. .

That’s alright, thanks very much..

Our next question comes from the line of Tom Gallagher from Credit Suisse, please proceed..

Good morning, few questions first one, Randy within your separate accounts is the mix rate within durable annuities, is the mix now roughly half equities, half fixed income, and balanced funds is that about right or can you tell me what it is if it’s not?.

Tom, I don’t know the exact mix that way. What I do know there is that our overall equity mix inside of all the funds they were as managed or directly chosen by the client is in the 65% range. Then the balance would be in long-term bond funds or have some alternative investment options in there..

Got you, so 65 equities and 35….

Roughly. .

Roughly, okay. And to circle back to the whole review process and future assumptions.

I guess the one that I still struggle with and maybe you could just help me think through philosophically where your head is at on this, is assume separate account returns and the fact that I think Lincoln is one of the few companies that hasn’t reset the fixed income, assume return component just given where rates are, and I believe you’re still at 8 for a blended average long-term return assumption.

So how are you thinking about balancing out where we are with interest rates and why that assumption hasn’t been reset?.

Well, it hasn’t been reset because we are very comfortable with our long-term earn rate assumption. And I am not going to dig down into the pieces of fixed income or equity but overall our long-term rate assumption for the various cohorts of business range from 7% to 9%. 7% for the more recent business, 9% for the older business.

Weighted average of those is 8.2%, when you factor in the 14% immediate reversion to the mean that brings the overall average down to 7.4%. So very comfortable with those levels.

In fact I’d looked at some recent proprietary information, return information from across the industry and those numbers Tom are really not out of lack with any of our major peer companies. So I am very comfortable, it seems that they are right in line with the industry.

When I look at a high level and try not to get down into the weeds of this component there or that components this. So once again very comfortable and it is consistent with what I see across the industry. .

Understood. Another question I had, that’s been coming up recently is several European insurers and reinsurers who have big U.S. operations have had mortality issues whether it’s embedded value or specific accounting charges. There has been I would say significant weakness here.

And now you all just went through an annual review process and you didn’t find any issues, can you help shed some light on what you think might be different for Lincoln versus some of these other competitors of yours?.

Well you know that in the first quarter this year we had elevated mortality talking specifically in – business individualized business. Last two quarters mortality comes right along with their expectations.

So, we invest pretty consistent with what we see historically, typically the fourth quarter, if you want to use history as your reference it would typically be a little better quarter for mortality. So that’s -- our experience has been in line with what we’ve experienced in years past.

Inside of the assumption review, once again I didn’t talk about assumption by assumption by assumption its particular impact. We reset our mortality consistent with what our experience are these days. And in total I talked about what the overall impact of the unlocking were.

So we haven’t seen a dramatic change in our mortality and I am not really familiar with what you are referring to in terms of what the European insurers are seeing. But we’ve updated our DAC assumption for our experience today and the impacts are what I just talked about. .

The Europeans having been flagging late 90s to mid 2000s issues in particular some guarantee -- some 10 year level term resets and adverse experience there and then they have also flagged incidence of increased suicides, I’ve heard some of them have flagged. So I don’t know if any of those issues you’ve noticed anything on any of those fronts..

Tom what makes it difficult for us to comment on your question is that we don’t know what mortality assumptions they had themselves in place at that time. You recall there was a period of time where the direct writers were reinsuring a 100% of their -- almost a 100% of their mortality because the reinsurers were so aggressive.

It’s just very hard for us to comment on somebody else's experience because I believe it has an element of what they thought it should have been right..

Dennis that’s a very fair point and then that’s a good segue into my last question which is I know I think this is several years ago you all had put out some information that showed your actual to expected for mortality was exceptional.

I think it was in the 70% to 80% range and that could very well explain why you are not having issues because your accounting was very conservatively looking at that issue.

Do you have an update on where that stands actual to expected mortality?.

Actual to expected mortality experience of course it is going to bounce around year-to-year but there hasn’t been a material change from where we were two three years ago Tom..

So it is in -- Randy, would you say in that 70% to 80% range, its broad but is that directionally right?.

Tom I think somewhere along the way we recast the denominator, so expect a level for the older business. I mean talking about the really old business. So I think factually if you look at those numbers it’s more like the mid 80s. .

Mid 80s, okay. Thanks a lot..

You bet..

And our next question comes from the line of Randy Binner from FBR Capital Markets, please proceed..

Thank you very much. I wanted to just kind of dig into the group piece and just get some color or updates on a few items. I guess one is just on the continued elevation of claims if you can kind of share with us whether that’s an incident or recovery or other item.

I think mainly between those two items that claims have been bouncing around kind of three last four quarters.

So maybe we could start there and just get a feel for how those items are evolving as you continue to address this block?.

Randy, I think consistent with my comments that you continue to see some volatility from quarter-to-quarter.

This particular quarter as I mentioned the LTD experience on the downside was driven by recoveries that were little lower than we have been experiencing but on the other hand incidents that came right in line with our a longer term expectations. I’ve got sort of the opposite of what you saw last quarter.

So you are seeing some volatility quarter-to-quarter. The other thing I mentioned is just around claims management. You think about what our core mission in claims management is, it is too properly pay claims and then help people get back to work. And as I mentioned we continue to do the things we need to do to make sure we can do that, right.

We are growing as a company so we need to keep adding staff. The nature of claims change all the time so we need to make sure we’re giving our staff the proper training they need to properly adjudicate clients. And then we need to make sure they have the best tools available so, we just invested in new claims management system.

So you are going to see quarter-to-quarter volatility but I think we are doing things we need to do overtime to make sure that we are getting the best outcome..

Is there a way, I mean, I guess your business is growing you mentioned that’s why you are adding claims staff, is there a way to kind of quantify how much bigger the staff is on a per claim basis or per unit basis versus where it was before?.

You know Randy, I wouldn’t look much different then what our premium gross was 7% in the quarter, 9% year-to-date I believe. And as we grow, we’ll have more claims and we would need more staff to manage those claims. .

Okay, I was reading it as more like a build out of the staff but I guess you are saying it’s increasing with the size of the book?.

Absolutely..

Okay and then last I guess – I think that low double-digit price increases were expected there going forward. I guess to me that seems a little bit higher than what we’d expect and what we are seeing from others.

Can I just get a -- get more color on how that’s going to phase in and how you think that might match up versus competitors?.

Sure, as a reminder what I was talking about we have a big renewal book that comes in the first quarter of 2015, right. So first quarter is our biggest part of the year.

And when you think about renewals, so when we are looking at renewals for that period we are now targeting low double-digit price increases for that renewal book as opposed to the mid-to-upper single digit price increases that we have been targeting this year. So that’s what I am referring to when I talk about low double-digit increases.

And I guess it’s pretty obvious but it depends when you are trying to compare that against what the other competitors are saying, where they are starting from in terms of the need to increase prices. Were they higher than us to begin with so again I think it’s something that’s very hard to mathematically compare. .

Right..

I’d never said any price increase is easy but in total I believe you described the market as broad, sweet, accepting of the price increases that we are putting in the marketplace and that we are not seeing large swing and persistent difference..

Okay and another detailed question, I may have missed this in the call but variable income or your non-core income from investments I think was higher in the quarter.

Did you quantify what that was, kind of above plan for the quarter for the overall complex?.

First off I wouldn’t describe it as non-core, alright. So it’s part of what we do. We have about $1.2 billion alternative investment book which is split between private equity and hedge funds that we’ve talked about, a longer term strategy to grow about a little bit maybe another couple hundred million dollars over the next couple of years.

So it is core to what we do. It added $10 million to the bottom-line in the quarter..

$10 million above what you would normally expect from that alternative book?.

Exactly right. I should have clarified that, above what we would normally expect. .

Yes, I know this is noncore but alternative is definitely the right word, that’s what I was looking for, thanks so much..

You bet..

And our next question comes from the line of John Nadel from Sterne, Agee, please proceed with your question..

Hi, good morning everybody. I had two questions one, I just want to talk about indexed universal life for a few minutes or at least get your thoughts on this, and it seems like this has become a much greater percentage UL that is of overall industry wide retail life insurance sales over the last couple of years.

And we’ve heard that regulators are starting to take a closer look at this product as a result and maybe some of the sales illustrations and practices now that it’s reached that level.

I know it’s not as big a percentage of your life sales but I am just wondering whether you are hearing that same thing and how you think Lincoln is prepared in handling some of the investment returns that are being illustrated?.

Let me sort of paint a broad picture. Index universal life is a good product and by and large the illustration industry wide has been reasonably responsible, but there is some outliers.

And importantly I think the illustration generalizing here that illustration that are being used today don’t produce much more upside than what the customers have actually seen over the last decade or two in this product. Again I am being very general.

With the changes in the capital markets and how index UL is crediting your rate mechanism is being reviewed and is in fact it’s being looked at for the last three years.

And so it’s probably true that well, let me say it differently what’s come out of this three year review is suggesting some guard rails here, there, and yonder to be more clear with the customer the range of outcomes that you might get from this crediting rate mechanism. So I think it’s healthy for the industry to go through this.

There is some tug and pull between parts of the industry on what the guard rails should actually be.

But this is in my view a positive discussion from the perspective that we want to make sure industry wide that all of the illustration, whether it’s for index universal life or whole life policies provides the customer with a range of expectations about the future that are appropriate, and again that there is appropriate guard rail so that the industry in total is illustrating in a way that’s good for the consumer..

Got it, okay and guard rails I assume Dennis that you mean you know limitations on the upper boundary on illustrated investment returns?.

Yes, that’s exactly right and this is all very technical but over the last couple of years if a particular portfolio of investments produced much higher returns than the S&P 500 and a particular company happen to have that as their base in what they conveyed to their customers, what the customers got maybe exactly what was illustrated.

But I think in general, the view is that we should sort of tighten the guard rails so that there is not sort of a unique situation that for a short period of time produced above expectation that over a long period of time you might otherwise see..

Very helpful, thank you and then you also mentioned Dennis up front in your commentary a recent volatility in the markets and obviously managing Lincoln through periods like this.

I was thinking about the volatility over the last couple of weeks you know really related to some of the volatility managed funds and you guys have seen a good inflow of assets into your introduced volatility managed funds and I think the industry has as well.

I am just wondering more color than anything else over the last few weeks, how have you seen those funds performing, are they doing what you expect them to do such that you don’t need to have the hedging program as robust outside of the funds?.

I think the answer to that is generally yes, but protected funds overlay on the underlying sub accounts is performing according to expectations. And I would add to that the protective funds is volatility overlay is really a very long term concept.

And so in any particular quarter if the overlay produced better or worse results then you might expect, that’s just a quarter. And it is just, as we’ve looked at and believe me we are looking at this very closely, we are satisfied that the overlay is doing what it should do. Again we look at it over a full market cycle, not a two or three week period.

And the answer to your other question, the overall hedge program is still robust and it is less costly because of the overlay to Lincoln..

And certainly I’m not trying to draw any conclusions from a couple of weeks but these types of products seem to be relatively early in their life cycle. So just wondering how they performed, what really was the most volatile period we’ve had in probably about a year so. John Nadel – Sterne, Agee & Leach, Inc. Thank you..

At this time we have no further questions in the queue and I would like to turn the call back over to Jim Sjoreen for closing remarks. Please go ahead sir..

Thank you, operator. We want to thank you for joining us this morning. And hope you will join us again at our conference or analyst, investors, and bankers on the morning of November 20th. The conference will be available via live webcast as will the conference material on the day of the event.

Again thank you and we will be available for any follow-up calls. Have a good day. .

Ladies and gentlemen, thank you for attending today’s conference. This does conclude today's program, you may all disconnect and have a wonderful day..