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Statutory Information and Restrictions | 12 Months Ended
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Dec. 31, 2017
Statutory Information and Restrictions [Abstract] |
Statutory Information and Restrictions | ﻿ 19. Statutory Information and Restrictions The Company’s domestic life insurance subsidiaries prepare financial statements in accordance with statutory accounting principles (“SAP”) prescribed or permitted by the insurance departments of their states of domicile, which may vary materially from GAAP. ﻿ Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (“NAIC”) as well as state laws, regulations and administrative rules. Permitted SAP encompasses all accounting practices not so prescribed. The principal differences between statutory financial statements and financial statements prepared in accordance with GAAP are that statutory financial statements do not reflect DAC, some bond portfolios may be carried at amortized cost, assets and liabilities are presented net of reinsurance, contract holder liabilities are generally valued using more conservative assumptions and certain assets are non-admitted. ﻿ Our insurance subsidiaries are subject to the applicable laws and regulations of their respective states. Changes in these laws and regulations could change capital levels or capital requirements for our insurance subsidiaries. ﻿ Statutory capital and surplus, net gain (loss) from operations, after-tax, net income (loss) and dividends to the LNC holding company amounts (in millions) below consist of all or a combination of the following entities: LNL, First Penn-Pacific Life Insurance Company (“FPP”), Lincoln Reinsurance Company of South Carolina, LLANY, Lincoln Reinsurance Company of Vermont I, Lincoln Reinsurance Company of Vermont III, Lincoln Reinsurance Company of Vermont IV, Lincoln Reinsurance Company of Vermont V, Lincoln Reinsurance Company of Vermont VI and Lincoln Reinsurance Company of Vermont VII. ﻿ ﻿ ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ | As of December 31, |
﻿ | 2017 |  | 2016 |
﻿U.S. capital and surplus | $ | 8,263 |  | $ | 8,218 |
﻿ ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ | For the Years Ended December 31, |
﻿ | 2017 |  | 2016 |  | 2015 |
﻿U.S. net gain (loss) from operations, after-tax | $ | 1,329 |  | $ | 1,111 |  | $ | 635 |
﻿U.S. net income (loss) |  | 1,468 |  |  | 1,002 |  |  | 838 |
﻿U.S. dividends to LNC holding company |  | 974 |  |  | 970 |  |  | 1,175 |
﻿ Comparison of 2017 to 2016 ﻿ Statutory net income (loss) increased due primarily to higher dividends from affiliates, higher realized gains on investments, and increased other revenue, partially offset by unfavorable reserve strain on certain products. ﻿ Comparison of 201 6 to 201 5 ﻿ Statutory net income (loss) increased due primarily to changes in estimate on reserves for certain products and gains related to reinsurance transactions, partially offset by lower realized gains on investments. ﻿ The states of domicile of the Company’s insurance subsidiaries have adopted certain prescribed accounting practices that differ from those found in NAIC SAP. These prescribed practices are the use of continuous Commissioners Annuity Reserve Valuation Method (“CARVM”) in the calculation of reserves as prescribed by the state of New York, the calculation of reserves on universal life policies based on the Indiana universal life method as prescribed by the state of Indiana for policies issued before January 1, 2006, and the use of a more conservative valuation interest rate on certain annuities prescribed by the states of Indiana and New York. The Vermont reinsurance subsidiaries also have certain accounting practices permitted by the state of Vermont that differ from those found in NAIC SAP. One permitted practice involves accounting for the lesser of the face amount of all amounts outstanding under an LOC and the value of the Valuation of Life Insurance Policies Model Regulation (“XXX”) additional statutory reserves as an admitted asset and a form of surplus as of December 31, 2017 and 2016. Another permitted practice involves the acquisition of an LLC note in exchange for a variable value surplus note that is recognized as an admitted asset and a form of surplus as of December 31, 2017. Lastly, the state of Vermont has permitted a practice to account for certain excess of loss reinsurance treaties with unaffiliated reinsurers as an asset and form of surplus as of December 31, 2017. These permitted practices are related to structures that continue to be allowed in accordance with the grandfathered structures under the provisions of Actuarial Guideline 48 (“AG48”). ﻿ The favorable (unfavorable) effects on statutory surplus compared to NAIC statutory surplus from the use of these prescribed and permitted practices (in millions) were as follows: ﻿ ﻿
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﻿ |  |  |  |  |  |
﻿ | As of December 31, |
﻿ | 2017 |  | 2016 |
﻿ |  |  |  |  |  |
﻿State Prescribed Practices |  |  |  |  |  |
﻿Calculation of reserves using the Indiana universal life method | $ | 54 |  | $ | 79 |
﻿Conservative valuation rate on certain annuities |  | (50 | ) |  | (49 | )
﻿Vermont Subsidiaries Permitted Practices(1) |  |  |  |  |  |
﻿Lesser of LOC and XXX additional reserve as surplus |  | 1,965 |  |  | 2,855 |
﻿LLC notes and variable value surplus notes |  | 1,585 |  |  | - |
﻿Excess of loss reinsurance treaties |  | 185 |  |  | - |
﻿
| (1) |  | The se permitted practice s are related to structures that continue to be allowed in accordance with the grandfathered structures under the provisions of AG48.
﻿ During the third quarter of 2013, the New York State Department of Financial Services announced that it would not recognize the NAIC revisions to Actuarial Guideline 38 in applying the New York law governing the reserves to be held for UL and VUL products containing secondary guarantees. The change, which was effective as of December 31, 2013, impacts our New York-domiciled insurance subsidiary, LLANY. Although LLANY discontinued the sale of these products in early 2013, the change affected those policies previously sold. We began phasing in the increase in reserves in 2013 at $90 million per year over five years. As of December 31, 2017, we completed the phased in increase in reserves over five years, for a total of $450 million. The NAIC has adopted RBC requirements for life insurance companies to evaluate the adequacy of statutory capital and surplus in relation to investment and insurance risks. The requirements provide a means of measuring the minimum amount of statutory surplus appropriate for an insurance company to support its overall business operations based on its size and risk profile. Under RBC requirements, regulatory compliance is determined by the ratio of a company’s total adjusted capital, as defined by the NAIC, to its company action level of RBC (known as the “RBC ratio”), also as defined by the NAIC. The company action level may be triggered if the RBC ratio is between 75% and 100%, which would require the insurer to submit a plan to the regulator detailing corrective action it proposes to und ertake. As of December 31, 2017, the combined RBC ratio of LNL, LLANY and FPP reported to their respective states of domicile and the NAIC was nearly five times the aforementioned company action level. ﻿ Our insurance subsidiaries are subject to certain insurance department regulatory restrictions as to the transfer of funds and payment of dividends to the holding company. Under Indiana laws and regulations, our Indiana insurance subsidiaries, including our primary insurance subsidiary, LNL, may pay dividends to LNC without prior approval of the Indiana Insurance Commissioner (the “Commissioner”), only from unassigned surplus and must receive prior approval of the Commissioner to pay a dividend if such dividend, along with all other dividends paid within the preceding 12 consecutive months, would exceed the statutory limitation. The current statutory limitation is the greater of 10% of the insurer’s contract holders’ surplus, as shown on its last annual statement on file with the Commissioner or the insurer’s statutory net gain from operations for the previous 12 months, but in no event to exceed statutory unassigned surplus. Indiana law gives the Commissioner broad discretion to disapprove requests for dividends in excess of these limits. LNL’s subsidiary, LLANY, a New York domiciled insurance company, is bound by similar restrictions, under New York law, with the applicable statutory limitation on dividends equal to the lesser of 10% of surplus to contract holders as of the immediately preceding calendar year or net gain from operations for the immediately preceding calendar year, not including realized capital gains. We expect our domestic insurance subsidiaries could pay dividends of approximately $1.3 billion in 2018 without prior approval from the respective state commissioners. ﻿ All payments of principal and interest on surplus notes between LNC and our insurance subsidiaries must be approved by the respective Commissioner of Insurance.

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- Definition Tabular disclosure of how the entity's reporting under GAAP as of the balance sheet date differs from the results based on prescribed and permitted accounting practices of the state or country of domicile in which a relevant statutory filing is made, or differences in results based on the National Association of Insurance Commissioners (NAIC) prescribed practices, or a combination thereof. Describes the accounting practices used and the related monetary effect on statutory surplus, net income, and risk-based capital. If an insurance enterprise's risk-based capital would have triggered a regulatory event had it not used a permitted practice, that fact is disclosed in the financial statements. Permitted statutory accounting practices include practices not prescribed but allowed by the domiciliary state insurance department regulatory authority. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 505 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6486098&loc=d3e24746-158529 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 210 -Section S99 -Paragraph 1 -Subparagraph (SX 210.7-03.23(c)) -URI http://asc.fasb.org/extlink&oid=6879938&loc=d3e572229-122910 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 505 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6486098&loc=d3e24790-158529 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 505 -Section 55 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=82848697&loc=d3e24938-158530 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 505 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6486098&loc=d3e24708-158529 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -SubTopic 505 -Section 55 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=82848697&loc=d3e24959-158530 + Details
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