SEC Company Response from LINCOLN NATIONAL CORP (LNC, LNC-PD) (CIK 0000059558) (LNC) — Aug 28, 2013
LINCOLN NATIONAL CORP (LNC, LNC-PD) (CIK 0000059558)
Date: Aug. 28, 2013 · CIK: 0000059558 · Accession: 0000059558-13-000142
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-06028
Letter
Securities and Exchange Commission Washington, D.C. 20549 Re: Lincoln National Corporation Form 10-K for the Year Ended December 31, 2012 File No. 001-06028
Dear Mr. Rosenberg:
This letter is in response to the staff of the Division of Corporation Finance’s (the “Staff”) letter of July 31, 2013, concerning Lincoln National Corporation’s (“LNC” or the “Company”) Form 10-K for the year ended December 31, 2012. Our reply refers to the specific comments in the Staff’s letter. In responding to the Staff’s comments, we acknowledge the following:
·
The Company is responsible for the adequacy and accuracy of the disclosure in the filing;
·
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and
·
The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The following are the Staff’s comments and our responses:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reinsurance page 97
1.
Please provide us the following information regarding your reinsurance counterparty risk:
·
The factors considered, manner and frequency in which you monitor the concentration and financial strength ratings of your principal reinsurers, with explanation as to the ratings;
·
The nature and general terms of collateral arrangements with your reinsurers; and
·
The name, rating and recoverable amount at December 31, 2012 for each of your principal reinsurers.
Page 2
Re: Lincoln National Corporation
Response:
We focus on obtaining reinsurance from a diverse group of reinsurers, and we monitor concentration risk with our largest reinsurers at least annually. We have established standards and criteria for our use and selection of reinsurers. In order for a new reinsurer to participate in our current program, we require the reinsurer to have an A.M. Best rating of A+ or greater or a Standard & Poor’s (“S&P”) rating of AA- or better. If the reinsurer does not have these ratings, we generally require them to post collateral; however, we may waive the collateral requirements based on the facts and circumstances. We discuss our counterparty risk with our reinsurers in “Item 1A. Risk Factors – Operational Matters – We face a risk of non-collectibility of reinsurance, which could materially affect our results of operations” on page 27 of our 2012 Form 10-K. We monitor all of our existing reinsurers’ financial strength ratings on a monthly basis. We also monitor our reinsurers’ financial health, statutory surplus, risk-based capital levels, statutory earnings and fluctuations, current claims payment aging and our reinsurers’ own reinsurers. In addition, we present at least annually information regarding our reinsurance exposures to the Finance Committee of our Board of Directors.
In order for a U.S. domestic life insurance company (a “ceding company”) to receive reserve credit for reinsurance ceded to a reinsurer, the reinsurer must either (i) be licensed, authorized, or accredited in the state of domicile of the ceding company (an “authorized reinsurer”) or (ii) post statutorily prescribed forms of collateral. The three primary forms of collateral are: (i) qualifying assets held in a reserve credit trust; (ii) irrevocable, unconditional, evergreen letters of credit issued by a qualified U.S. financial institution; and (iii) assets held by the ceding company in a segregated funds withheld account. Collateral must be maintained in accordance with the rules of the ceding company’s state of domicile and must be readily accessible by the ceding company to cover claims under the reinsurance agreement. Accordingly, our insurance subsidiaries require unauthorized reinsurers to post acceptable forms of collateral to support their reinsurance obligations to us. In addition to letters of credit, qualifying assets held as collateral generally consist of funds withheld assets, funded trusts by the reinsurers and other forms of collateral acceptable to the state of domicile, typically consisting of fixed maturity securities and cash and cash equivalents.
In addition, we may require collateral from an authorized reinsurer to mitigate credit/collectibility risk. Typically, in such cases, the reinsurer must either maintain minimum specified ratings and risk-based capital ratios or establish the specified quality and quantity of collateral. Similarly, we have also required collateral in connection with books of business sold pursuant to indemnity reinsurance agreements.
Page 3
Re: Lincoln National Corporation
The following provides the name, rating, and recoverable amount (in millions) as of December 31, 2012, for each of our principal reinsurers:
Financial
Strength Ratings
A.M.
Reinsurance
Best
S&P
Recoverable
Swiss Re Ltd
A+
AA-
$
3,105
HSBC Holdings plc.
A+
Not rated
Metropolitan Life Insurance Company
A+
AA-
Scottish Re Group Ltd
Not rated
Not rated
RGA Reinsurance Company
A
A-
SCOR SE (Transamerica)
A+
AA-
Munich American Reassurance Company
Not rated
AA-
Protective Life and Annuity Insurance Company
B++
Not rated
SCOR SE (SCOR SE)
A
A
Various other
Various
Various
Total reinsurance recoverable
6,449
Collateral posted by reinsurers (held by LNC)
4,268
Total reinsurance recoverable, net of collateral
$
2,181
Scottish Re Group Ltd (“Scottish Re”) has been in runoff mode for several years and is no longer rated by A.M. Best or S&P. Nonetheless, because Scottish Re has continued to meet its obligations faithfully, we currently expect to receive full recovery on our reinsurance agreements with Scottish Re.
Liquidity and Capital Resources, page 98
2.
You disclose that changes in equity markets could affect the capital position of your captive reinsurance subsidiaries and that you could decide to reallocate available capital between your insurance subsidiaries and captives. You state that you analyze the use of your existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and your current hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of your life insurance subsidiaries. Please tell us:
·
The nature and the business purpose of transactions with captives. Explain whether and if so, how you reinsure with these captives including whether, and if so, to what extent, captives assume reinsurance from third parties to whom you ceded policies.
·
The amount of captives’ obligations and the nature and amount of assets, guarantees, letters of credit or promises that secure the captives’ obligations. Tell us the nature and amount of the parent holding company’s assets, guarantees, letters of credit or promises securing the captives’ obligations.
·
The effects in your GAAP consolidated financial statements of transacting with captives directly and, if applicable, indirectly through third parties.
·
Your consideration of disclosing the risks of employing your captive’s strategy.
Page 4
Re: Lincoln National Corporation
·
Any uncertainties associated with the continued use of this strategy and the expected effects on your financial position and results of operations if you discontinue this strategy.
Response:
By way of background, we would like to inform the Staff that captive insurance companies are a long-standing and heavily regulated mechanism for legitimate reinsurance risk transfer in the insurance industry. The life insurance industry uses captives to reinsure well over $100 billion of risk. These captive arrangements require actual risk transfer and accessible assets and must be approved by the cedent company’s domicile state insurance regulator and the captive domicile’s regulator. Captive reinsurers are typically special purpose entities that either by statute or by restriction in their licensing orders may only reinsure business from our insurance affiliates. Accordingly, our captives are not party to reinsurance transactions with third parties. We do have an entity that reinsures liabilities from both affiliates and non-affiliates. However, this entity is not a captive reinsurance entity, and our response herein is limited to our captive reinsurance entities.
We utilize inter-company reinsurance arrangements with our captives primarily to manage risk and statutory capital. Specifically, captives help us mitigate the capital impact of The Valuation of Life Insurance Policies Model Regulation (“XXX”) and Actuarial Guideline 38 (“AG38”) reserving guidelines. XXX requires insurers to use reserving assumptions that result in statutory reserves for term life insurance policies with long-term premium guarantees and universal life insurance (“UL”) policies with secondary guarantees greater than we expect to need to support these policies. AG38 clarifies the application of XXX with respect to certain UL policies with secondary guarantees.
The following summarizes asset and liability information (in millions) for our captives, which do not have an effect on our GAAP consolidated financial statements as the amounts eliminate in consolidation:
Assets
Investments
$
1,026
Cash and invested cash
Deferred acquisition costs
Reinsurance related embedded derivatives
Funds withheld reinsurance assets
1,278
Other assets
Total assets
$
3,135
Liabilities
Future contract benefits
$
1,459
Long-term debt
Deferred gain on business sold through reinsurance
Federal current and deferred income taxes
Other liabilities
Total liabilities
$
2,723
Page 5
Re: Lincoln National Corporation
As disclosed in Note 12 of our 2012 Form 10-K, we have letters of credit (“LOCs”) that support our inter-company captive reinsurance arrangements. As of December 31, 2012, the expiration dates, maximum available and amounts issued for these LOCs (in millions) were as follows:
Maximum
LOCs
Available
Issued
March 2023
$
$
August 2031
October 2031
$
2,605
$
2,553
As disclosed in Note 12 of our 2012 Form 10-K, the agreements associated with our LOCs each contain customary terms and conditions, including early termination fees, covenants restricting the ability of the subsidiaries to incur liens, merge or consolidate with another entity and dispose of all or substantially all of their assets. If we decide to terminate the LOC agreements prior to their stated termination dates, then the agreements require the immediate payment of all or a portion of the present value of the future LOC fees that would have otherwise been paid, which would have amounted to approximately $510 million if we would have terminated as of December 31, 2012. Further, the agreements contain customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default. The events of default include payment defaults, covenant defaults, material inaccuracies in representations and warranties, bankruptcy and liquidation proceedings and other customary defaults. As of December 31, 2012, we were in compliance with all of the LOC covenants. We consider these arrangements to be ordinary course transactions.
The effect of our captives on our consolidated financial statements is limited to fees associated with these LOCs, as transactions with captives do not qualify for reinsurance accounting under U.S. GAAP. These fees were $39 million, pre-tax, for 2012. For some transactions, our parent holding company is jointly and severally liable with our captives with respect to the LOC fees.
As discussed below, in our 2012 Form 10-K, we discuss the risks associated with employing our captive strategy, the uncertainties associated with the continued use of this strategy and the expected effects on our financial position and results of operations if we were to discontinue this strategy.
We provide the following risk factor disclosures:
On page 19 – Attempts to mitigate the impact of Regulation XXX and Actuarial Guideline 38 may fail in whole or in part resulting in an adverse effect on our financial condition and results of operations.
The Valuation of Life Insurance Policies Model Regulation (“XXX”) requires insurers to establish additional statutory reserves for term life insurance policies with long-term premium guarantees and UL policies with secondary guarantees. In addition, Actuarial Guideline 38 (“AG38”), commonly known as “AXXX,” clarifies the application of XXX with respect to certain UL insurance policies with secondary guarantees. Virtually all of our newly issued term and the majority of our newly issued UL insurance products are affected by XXX and AG38. The application of both AG38 and XXX involve numerous interpretations. If state insurance departments do not agree with our interpretations, we may have to increase reserves related to such policies.
Page 6
Re: Lincoln National Corporation
We have implemented, and plan to continue to implement, reinsurance and capital management transactions to mitigate the capital impact of XXX and AG38, including the use of letters of credit to support the reinsurance provided by captive reinsurance subsidiaries. These arrangements are subject to review by state insurance regulators and rating agencies. For example, a National Association of Insurance Commissioners (“NAIC”) subgroup has been studying the use of captives and special purpose vehicles to transfer insurance risk in relation to existing state laws and regulations. Therefore, we cannot provide assurance regarding what, if any, actions regulators, rating agencies, or others may take in response to the transactions we have executed to date or the impact of any such potential actions.
Likewise, we also cannot provide assurance that we will be able to continue to implement transactions or take other actions to mitigate the impact of XXX or AG38 on future sales of term and UL insurance products. If we are unable to continue to implement such solutions for any reason, we may have lower returns on such products sold than we currently anticipate and/or reduce our sales of these products.
On page 23 – Because we are a holding company with no direct operations, the inability of our subsidiaries to pay dividends to us in sufficient amounts would harm our ability to meet our obligations.
We are a holding company and we have no direct operations. Our principal asset is the capital stock of our insurance subsidiaries. Our ability to meet our obligations for payment of interest and principal on outstanding debt obligations and to pay dividends to shareholders, repurchase our securities and pay corporate expenses depends primarily on the ability of our subsidiaries to pay dividends or to advance or repay funds to us. Under Indiana laws and regulations, our Indiana insurance subsidiaries, including LNL, our primary insurance subsidiary, may pay dividends to us without prior approval of the Commissioner up to a certain threshold, or 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 exceed the statutory limitation. The current Indiana 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 prior ca
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CORRESP
1
filename1.htm
correspondence.htm
Lincoln National Corporation
150 N. Radnor-Chester Road
Radnor, PA 19087
phone 484-583-1430
August 28, 2013
Mr. Jim B. Rosenberg
Senior Assistant Chief Accountant
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Re: Lincoln National Corporation
Form 10-K for the Year Ended December 31, 2012
File No. 001-06028
Dear Mr. Rosenberg:
This letter is in response to the staff of the Division of Corporation Finance’s (the “Staff”) letter of July 31, 2013, concerning Lincoln National Corporation’s (“LNC” or the “Company”) Form 10-K for the year ended December 31, 2012. Our reply refers to the specific comments in the Staff’s letter. In responding to the Staff’s comments, we acknowledge the following:
·
The Company is responsible for the adequacy and accuracy of the disclosure in the filing;
·
Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the filing; and
·
The Company may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
The following are the Staff’s comments and our responses:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reinsurance page 97
1.
Please provide us the following information regarding your reinsurance counterparty risk:
·
The factors considered, manner and frequency in which you monitor the concentration and financial strength ratings of your principal reinsurers, with explanation as to the ratings;
·
The nature and general terms of collateral arrangements with your reinsurers; and
·
The name, rating and recoverable amount at December 31, 2012 for each of your principal reinsurers.
Page 2
Re: Lincoln National Corporation
Response:
We focus on obtaining reinsurance from a diverse group of reinsurers, and we monitor concentration risk with our largest reinsurers at least annually. We have established standards and criteria for our use and selection of reinsurers. In order for a new reinsurer to participate in our current program, we require the reinsurer to have an A.M. Best rating of A+ or greater or a Standard & Poor’s (“S&P”) rating of AA- or better. If the reinsurer does not have these ratings, we generally require them to post collateral; however, we may waive the collateral requirements based on the facts and circumstances. We discuss our counterparty risk with our reinsurers in “Item 1A. Risk Factors – Operational Matters – We face a risk of non-collectibility of reinsurance, which could materially affect our results of operations” on page 27 of our 2012 Form 10-K. We monitor all of our existing reinsurers’ financial strength ratings on a monthly basis. We also monitor our reinsurers’ financial health, statutory surplus, risk-based capital levels, statutory earnings and fluctuations, current claims payment aging and our reinsurers’ own reinsurers. In addition, we present at least annually information regarding our reinsurance exposures to the Finance Committee of our Board of Directors.
In order for a U.S. domestic life insurance company (a “ceding company”) to receive reserve credit for reinsurance ceded to a reinsurer, the reinsurer must either (i) be licensed, authorized, or accredited in the state of domicile of the ceding company (an “authorized reinsurer”) or (ii) post statutorily prescribed forms of collateral. The three primary forms of collateral are: (i) qualifying assets held in a reserve credit trust; (ii) irrevocable, unconditional, evergreen letters of credit issued by a qualified U.S. financial institution; and (iii) assets held by the ceding company in a segregated funds withheld account. Collateral must be maintained in accordance with the rules of the ceding company’s state of domicile and must be readily accessible by the ceding company to cover claims under the reinsurance agreement. Accordingly, our insurance subsidiaries require unauthorized reinsurers to post acceptable forms of collateral to support their reinsurance obligations to us. In addition to letters of credit, qualifying assets held as collateral generally consist of funds withheld assets, funded trusts by the reinsurers and other forms of collateral acceptable to the state of domicile, typically consisting of fixed maturity securities and cash and cash equivalents.
In addition, we may require collateral from an authorized reinsurer to mitigate credit/collectibility risk. Typically, in such cases, the reinsurer must either maintain minimum specified ratings and risk-based capital ratios or establish the specified quality and quantity of collateral. Similarly, we have also required collateral in connection with books of business sold pursuant to indemnity reinsurance agreements.
Page 3
Re: Lincoln National Corporation
The following provides the name, rating, and recoverable amount (in millions) as of December 31, 2012, for each of our principal reinsurers:
Financial
Strength Ratings
A.M.
Reinsurance
Best
S&P
Recoverable
Swiss Re Ltd
A+
AA-
$
3,105
HSBC Holdings plc.
A+
Not rated
734
Metropolitan Life Insurance Company
A+
AA-
410
Scottish Re Group Ltd
Not rated
Not rated
375
RGA Reinsurance Company
A
A-
354
SCOR SE (Transamerica)
A+
AA-
264
Munich American Reassurance Company
Not rated
AA-
221
Protective Life and Annuity Insurance Company
B++
Not rated
206
SCOR SE (SCOR SE)
A
A
126
Various other
Various
Various
654
Total reinsurance recoverable
6,449
Collateral posted by reinsurers (held by LNC)
4,268
Total reinsurance recoverable, net of collateral
$
2,181
Scottish Re Group Ltd (“Scottish Re”) has been in runoff mode for several years and is no longer rated by A.M. Best or S&P. Nonetheless, because Scottish Re has continued to meet its obligations faithfully, we currently expect to receive full recovery on our reinsurance agreements with Scottish Re.
Liquidity and Capital Resources, page 98
2.
You disclose that changes in equity markets could affect the capital position of your captive reinsurance subsidiaries and that you could decide to reallocate available capital between your insurance subsidiaries and captives. You state that you analyze the use of your existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and your current hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of your life insurance subsidiaries. Please tell us:
·
The nature and the business purpose of transactions with captives. Explain whether and if so, how you reinsure with these captives including whether, and if so, to what extent, captives assume reinsurance from third parties to whom you ceded policies.
·
The amount of captives’ obligations and the nature and amount of assets, guarantees, letters of credit or promises that secure the captives’ obligations. Tell us the nature and amount of the parent holding company’s assets, guarantees, letters of credit or promises securing the captives’ obligations.
·
The effects in your GAAP consolidated financial statements of transacting with captives directly and, if applicable, indirectly through third parties.
·
Your consideration of disclosing the risks of employing your captive’s strategy.
Page 4
Re: Lincoln National Corporation
·
Any uncertainties associated with the continued use of this strategy and the expected effects on your financial position and results of operations if you discontinue this strategy.
Response:
By way of background, we would like to inform the Staff that captive insurance companies are a long-standing and heavily regulated mechanism for legitimate reinsurance risk transfer in the insurance industry. The life insurance industry uses captives to reinsure well over $100 billion of risk. These captive arrangements require actual risk transfer and accessible assets and must be approved by the cedent company’s domicile state insurance regulator and the captive domicile’s regulator. Captive reinsurers are typically special purpose entities that either by statute or by restriction in their licensing orders may only reinsure business from our insurance affiliates. Accordingly, our captives are not party to reinsurance transactions with third parties. We do have an entity that reinsures liabilities from both affiliates and non-affiliates. However, this entity is not a captive reinsurance entity, and our response herein is limited to our captive reinsurance entities.
We utilize inter-company reinsurance arrangements with our captives primarily to manage risk and statutory capital. Specifically, captives help us mitigate the capital impact of The Valuation of Life Insurance Policies Model Regulation (“XXX”) and Actuarial Guideline 38 (“AG38”) reserving guidelines. XXX requires insurers to use reserving assumptions that result in statutory reserves for term life insurance policies with long-term premium guarantees and universal life insurance (“UL”) policies with secondary guarantees greater than we expect to need to support these policies. AG38 clarifies the application of XXX with respect to certain UL policies with secondary guarantees.
The following summarizes asset and liability information (in millions) for our captives, which do not have an effect on our GAAP consolidated financial statements as the amounts eliminate in consolidation:
Assets
Investments
$
1,026
Cash and invested cash
215
Deferred acquisition costs
437
Reinsurance related embedded derivatives
158
Funds withheld reinsurance assets
1,278
Other assets
21
Total assets
$
3,135
Liabilities
Future contract benefits
$
1,459
Long-term debt
375
Deferred gain on business sold through reinsurance
207
Federal current and deferred income taxes
644
Other liabilities
38
Total liabilities
$
2,723
Page 5
Re: Lincoln National Corporation
As disclosed in Note 12 of our 2012 Form 10-K, we have letters of credit (“LOCs”) that support our inter-company captive reinsurance arrangements. As of December 31, 2012, the expiration dates, maximum available and amounts issued for these LOCs (in millions) were as follows:
Maximum
LOCs
Available
Issued
March 2023
$
857
$
857
August 2031
781
759
October 2031
967
937
$
2,605
$
2,553
As disclosed in Note 12 of our 2012 Form 10-K, the agreements associated with our LOCs each contain customary terms and conditions, including early termination fees, covenants restricting the ability of the subsidiaries to incur liens, merge or consolidate with another entity and dispose of all or substantially all of their assets. If we decide to terminate the LOC agreements prior to their stated termination dates, then the agreements require the immediate payment of all or a portion of the present value of the future LOC fees that would have otherwise been paid, which would have amounted to approximately $510 million if we would have terminated as of December 31, 2012. Further, the agreements contain customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default. The events of default include payment defaults, covenant defaults, material inaccuracies in representations and warranties, bankruptcy and liquidation proceedings and other customary defaults. As of December 31, 2012, we were in compliance with all of the LOC covenants. We consider these arrangements to be ordinary course transactions.
The effect of our captives on our consolidated financial statements is limited to fees associated with these LOCs, as transactions with captives do not qualify for reinsurance accounting under U.S. GAAP. These fees were $39 million, pre-tax, for 2012. For some transactions, our parent holding company is jointly and severally liable with our captives with respect to the LOC fees.
As discussed below, in our 2012 Form 10-K, we discuss the risks associated with employing our captive strategy, the uncertainties associated with the continued use of this strategy and the expected effects on our financial position and results of operations if we were to discontinue this strategy.
We provide the following risk factor disclosures:
On page 19 – Attempts to mitigate the impact of Regulation XXX and Actuarial Guideline 38 may fail in whole or in part resulting in an adverse effect on our financial condition and results of operations.
The Valuation of Life Insurance Policies Model Regulation (“XXX”) requires insurers to establish additional statutory reserves for term life insurance policies with long-term premium guarantees and UL policies with secondary guarantees. In addition, Actuarial Guideline 38 (“AG38”), commonly known as “AXXX,” clarifies the application of XXX with respect to certain UL insurance policies with secondary guarantees. Virtually all of our newly issued term and the majority of our newly issued UL insurance products are affected by XXX and AG38. The application of both AG38 and XXX involve numerous interpretations. If state insurance departments do not agree with our interpretations, we may have to increase reserves related to such policies.
Page 6
Re: Lincoln National Corporation
We have implemented, and plan to continue to implement, reinsurance and capital management transactions to mitigate the capital impact of XXX and AG38, including the use of letters of credit to support the reinsurance provided by captive reinsurance subsidiaries. These arrangements are subject to review by state insurance regulators and rating agencies. For example, a National Association of Insurance Commissioners (“NAIC”) subgroup has been studying the use of captives and special purpose vehicles to transfer insurance risk in relation to existing state laws and regulations. Therefore, we cannot provide assurance regarding what, if any, actions regulators, rating agencies, or others may take in response to the transactions we have executed to date or the impact of any such potential actions.
Likewise, we also cannot provide assurance that we will be able to continue to implement transactions or take other actions to mitigate the impact of XXX or AG38 on future sales of term and UL insurance products. If we are unable to continue to implement such solutions for any reason, we may have lower returns on such products sold than we currently anticipate and/or reduce our sales of these products.
On page 23 – Because we are a holding company with no direct operations, the inability of our subsidiaries to pay dividends to us in sufficient amounts would harm our ability to meet our obligations.
We are a holding company and we have no direct operations. Our principal asset is the capital stock of our insurance subsidiaries. Our ability to meet our obligations for payment of interest and principal on outstanding debt obligations and to pay dividends to shareholders, repurchase our securities and pay corporate expenses depends primarily on the ability of our subsidiaries to pay dividends or to advance or repay funds to us. Under Indiana laws and regulations, our Indiana insurance subsidiaries, including LNL, our primary insurance subsidiary, may pay dividends to us without prior approval of the Commissioner up to a certain threshold, or 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 exceed the statutory limitation. The current Indiana 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 prior ca