PDF 2017 ANNUAL REPORT TO SHAREHOLDERS

LINCOLN NATIONAL CORPORATION?

2017 ANNUAL REPORT TO SHAREHOLDERS

2017 Annual Letter to Shareholders

Dear Shareholders,

As a company with a 113-year history, we recognize that a focus on long-term value creation and purpose is what will keep us in the business of servicing our customers, employees, communities and shareholders for the next century and beyond. At our core, Lincoln Financial Group's purpose is to provide advice and solutions that help empower people to take charge of their financial lives with confidence and optimism. We continue to deliver on this mission and our promises, which enabled Lincoln to report record financial results and significant gains in shareholder value in 2017 including:

? Operating earnings per share of $7.79 were a record and up 20% for the full year1 ? Operating revenues of $14.6 billion reached a record level1 ? Positive consolidated net flows and favorable equity markets drove assets under management to $253 billion, another record ? Operating return on equity, excluding accumulated other comprehensive income ("AOCI"), was 13.1%1 ? Book value per share, excluding AOCI, increased to $65, a record and up 13%1 ? Statutory capital as of year-end exceeded $9 billion, again a record amount ? Capital returned to shareholders remained robust at nearly $1 billion ? Our share price closed the year at nearly $77, a 16% increase from one year ago

These results continue to highlight the strength of our business model and solid execution, which has enabled us to consistently deliver on key shareholder metrics. Over the past five years, we have grown income from operations per share at a 12% annual rate, improved our operating return on equity by 110 basis points, increased book value per share, excluding AOCI, at a 9% annual rate, and returned nearly $5 billion of capital to shareholders through share buybacks and dividends.1 We are proud that our strong results continue our multi-year track record of rewarding shareholders. Over the same five-year period, our stock has increased 197%, more than double the 80% gain of our peer group and the 87% increase in the Standard & Poor's ("S&P") 500 Index?.2

Looking forward, we are as excited about what lies ahead as we are about what we have accomplished. Our positive momentum coupled with our solid capital base affords us the opportunity to evolve and advance key business strategies aimed at driving long-term, sustainable growth in our four business segments: Life Insurance, Annuities, Retirement Plan Services ("RPS") and Group Protection. Key strategies where we will dedicate our attention include:

Leveraging our powerful distribution model, expanding customer solutions, and targeting attractive long-term growth opportunities. Lincoln's powerful retail franchise, based on industry-leading distribution, product breadth, brand and targeting the fastest growing segments is driving growth and is as strong as ever. For example, in 2017 we generated sales or deposit growth of 6 to 12% in every business segment. This includes an increase in Annuities sales for the first time since 2013, the highest level of Life Insurance sales in a decade, back-to-back years of sales growth in Group Protection and record RPS deposits. We are also positioning Lincoln to further capitalize on long-term opportunities, including annuities with fee-based compensation options, linked-benefit products, smaller face term insurance and employee-paid group benefits.

Utilizing digital to create a differentiated customer experience. In response to the rise of the "born digital" companies and their impact on customer service expectations, we are investing to enhance the customer experience. To ensure we achieve this objective, we have expanded our senior management team to include technology and digital leadership, and we are also making significant financial investments over the next several years. We expect our digital strategy to result in additional successes and further enhance our reputation as a premier provider of products that meet critical consumer needs unmet by other industries. In addition, we expect to increase our efficiency and ultimately see annual expense benefits of approximately $90 to $150 million, pre-tax.

Accelerating diversification in the company's risk profile. We have had a multi-year commitment to reduce the amount of long-term guarantees in our sales mix and increase the amount of earnings derived from products that have mortality and morbidity-based risk. We successfully achieved the sales mix target a few years back, and in 2017 only 20% of our sales included products with long-term guarantees, down from 50% in 2008. Subsequent to year-end, we accelerated our goal of increasing our mortality and morbidity sources of earnings as we signed an agreement to acquire Liberty Mutual's group benefits business. Beyond meeting a key strategic objective, we believe this is a perfect acquisition. Our business models are highly complementary, and post-closing we will have comprehensive product and service offerings across all size employers.

Successfully responding to policy, regulatory, and economic uncertainty. We have a history of responding and successfully adapting to various political, regulatory and economic environments. We are constantly evolving to meet these changes in order to support long-term growth opportunities for our customers, employees and shareholders. A recent example relates to the Department of Labor ("DOL") Fiduciary Rule where we moved to refresh our core products and introduce new annuities that maintain invaluable guaranteed lifetime income benefits while providing compensation choice for advisors and consumers. As a result of these actions,

1 A reconciliation of non-GAAP measures to their most comparable GAAP measures appears below. 2 Lincoln defines its peer group as any company that was included in its proxy statements within the past five years and whose shares were publicly traded at both the beginning and end of the five-year period referenced. This includes AEGON N.V.; Ameriprise Financial, Inc.; Genworth Financial; Manulife Financial Corp.; MetLife, Inc.; Principal Financial Group, Inc.; Prudential Financial, Inc.; Sun Life Financial, Inc.; Torchmark Corp. and Unum Group.

Annuities sales increased 6% in 2017, compared to an 8% decrease for the industry. Over the course of the next several years, tax reform will have a measurable impact on us, and we will be monitoring any potential changes in consumer demand and behavior.

Actively managing capital. Capital generation and deployment remain key pillars to our story, and we are pleased that we continue to return a significant amount of capital to shareholders. In 2017, we returned nearly $1 billion to shareholders, including a 14% increase in our common stock dividend. With the announced acquisition of Liberty Mutual's group benefits business, we are also optimizing our balance sheet by using excess capital and leverage capacity not available for share repurchases. Looking forward, given strong capital generation, capital management will remain an important part of the Lincoln story.

Continuing to invest in our employees. Talent is a key driver at Lincoln. Since 2009, we have seen salaries for non-executives increase at a faster rate than the average wages for the United States population. Additionally, we are very proud that in recognition of achieving our best earnings performance in our history last year, we awarded 20 restricted stock units to all eligible employees who are not currently in equity compensation plans. As a result, these employees are invested in our long-term success. We couple this with a deep commitment to employee development and promotion opportunities, diversity and inclusion, and retirement planning. To these points, I am proud that we received perfect scores and Best Places to Work awards in both the Human Rights Campaign Corporate Equality Index and the Disability Equality Index. Additionally, I signed the CEO Action for Diversity and Inclusion pledge committing Lincoln to take additional action around diversity and inclusion in the workplace.

Committing to our communities and sustainability. We remain committed to our communities and environmental, social and governance ("ESG") matters. Lincoln's Foundation has donated approximately $10 million annually, and our employees have volunteered thousands of hours collectively to address challenges in local communities. We are also mindful that our ability to manage ESG matters is essential to sustainable growth, and we integrate these considerations into our assessments of risks and opportunities. We continually deepen our understanding and evolve our approaches through engagement with various thought leaders and stakeholders. We are pleased to be included on ESG indexes such as Dow Jones Sustainability Index and FTSE4Good, and we were recently included in Barron's first ever list of the 100 most sustainable companies.

In closing, on behalf of Lincoln's Board of Directors, management and all our employees, we would like to thank you for your continued trust and investment. We are pleased with what we achieved in 2017, and we could not be more excited about the opportunities that lie ahead.

Dennis R. Glass President and CEO

March 29, 2018

William H. Cunningham Chairman of the Board

Forward-Looking Statements ? Cautionary Language Statements in this letter that are not historical facts are forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements. See "Forward-Looking Statements ? Cautionary Language" beginning on page 35 and "Risk Factors" beginning on page 16.

Definitions of Non-GAAP Measures Income (loss) from operations, operating revenues and operating return on equity ("ROE") are financial measures we use to evaluate and assess our results. These financial measures are non-GAAP financial measures and do not replace GAAP revenues, net income (loss) and ROE, the most directly comparable GAAP measures.

Income (Loss) from Operations

Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable: ? Realized gains and losses associated with the following ("excluded realized gain (loss)"):

Sales or disposals and impairments of securities; Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities; Changes in the fair value of the derivatives we own to hedge our guaranteed death benefit ("GDB") riders within our variable

annuities; Changes in the fair value of the embedded derivatives of our guaranteed living benefit ("GLB") riders reflected within variable

annuity net derivative results accounted for at fair value; Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative

results; and Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to

hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value; ? Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders; ? Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; ? Gains (losses) on early extinguishment of debt; ? Losses from the impairment of intangible assets; ? Income (loss) from discontinued operations; ? Acquisition and integration costs related to mergers and acquisitions; and ? Income (loss) from the initial adoption of new accounting standards, regulations, and policy changes including the net impact from the Tax Cuts and Jobs Act.

Operating Revenues

Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable: ? Excluded realized gain (loss); ? Revenue adjustments from the initial adoption of new accounting standards; ? Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and ? Amortization of deferred gains arising from reserve changes on business sold through reinsurance.

Operating ROE

Operating ROE measures how efficiently we generate profits from the resources provided by our net assets. Operating ROE as used herein is calculated by dividing income (loss) from operations by average equity, excluding AOCI.

Book Value Per Share Excluding AOCI

Book value per share excluding AOCI is calculated based upon a non-GAAP financial measure. It is calculated by dividing stockholders' equity excluding AOCI by common shares outstanding. We provide book value per share excluding AOCI to enable investors to analyze the amount of our net worth that is primarily attributable to our business operations. Management believes book value per share excluding AOCI is useful to investors because it eliminates the effect of items that can fluctuate significantly from period to period, primarily based on changes in interest rates. Book value per share is the most directly comparable GAAP measure.

A reconciliation of net income (loss) to income (loss) from operations (in millions of dollars, except per share data) is presented below:

Total Revenues Less:

Excluded realized gain (loss) Amortization of DFEL on benefit ratio unlocking Amortization of deferred gains arising from reserve

changes on business sold through reinsurance Total Operating Revenues

For the Years Ended December 31,

2017

2016

2012

$

14,257 $

13,330 $

11,535

(336)

(518)

(39)

3

1

2

1

3

3

$

14,589 $

13,844 $

11,569

Net Income (Loss) Available to Common

Stockholders ? Diluted

$

Less:

Preferred stock dividends and accretion of discount

Adjustment for deferred units of LNC stock in our deferred compensation plans (1)

Net Income (Loss) Less (2):

Excluded realized gain (loss)

Benefit ratio unlocking

Net impact from the Tax Cuts and Jobs Act

Income (loss) from reserve changes (net of related

amortization) on business sold through reinsurance

Gain (loss) on early extinguishment of debt

Impairment of intangibles

Income (loss) from discontinued operations

Income (Loss) from Operations

$

2,086 $

-

7 2,079

(218) 129 1,322

(3) (905) 1,754 $

1,192 $

-

1,192

(337) 28 -

2 (41)

1,540 $

1,313

-

1,313

(25) 25 -

3 (3) 2 27 1,284

Weighted-Average Shares ? Diluted

226.2

236.8

287.6

Earnings (Loss) Per Common Share ? Diluted Net income (loss) Income (loss) from operations (3)

$

9.22 $

5.03 $

4.56

7.79

6.50

4.47

Average Stockholders' Equity Average equity, including average AOCI Average AOCI

Average equity, excluding AOCI

$

15,796 $

15,237 $

14,080

2,454

2,427

3,348

$

13,342 $

12,810 $

10,732

ROE, Including AOCI Net income (loss)

13.2%

7.8%

8.9%

ROE, Excluding AOCI Income (loss) from operations

13.1%

12.0%

12.0%

(1) The numerator used in the calculation of our diluted EPS is adjusted to remove the mark-to-market adjustment for deferred units of LNC stock in our deferred compensation plans if the effect of equity classification would result in a more dilutive EPS.

(2) We use our prevailing federal income tax rate of 35%, where applicable, while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our non-GAAP measures to the most comparable GAAP measure.

(3) The compounded annual growth rate ("CAGR") for these periods was 12%.

A reconciliation of book value per share to book value per share excluding AOCI is presented below:

Book value per share, including AOCI Per share impact of AOCI Book value per share, excluding AOCI

As of December 31,

2017

2016

2012

$

79.43 $

63.97 $

55.14

14.81

6.92

14.03

64.62

57.05

41.11

CAGR 2017 to 2012

8%

9%

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