As discussed in Note 2 to the consolidated financial statements, effective January 1, 2012 and retrospectively applied to all periods presented, the Corporation changed its method of accounting for costs relating to the acquisition of insurance contracts. Also as discussed in Note 2 to the consolidated financial statements, in 2010 the Corporation changed its method of accounting for the consolidation of variable interest entities.
The following summarizes the exposure of the CLN structures’ underlying collateral by industry and rating as of December 31, 2012:
For securities where we recorded an OTTI recognized in net income (loss) for the years ended December 31, 2012 and 2011, the recovery as a percentage of amortized cost was 90% and 98% for corporate bonds, respectively, and 90% and 0% for CDOs, respectively.
LNC and its subsidiaries are involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experiences of LNC in
For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
Our life insurance subsidiaries are currently being audited on behalf of multiple states’ treasury and controllers’ offices for compliance with laws and regulations concerning the identification, reporting and escheatment of unclaimed contract benefits or abandoned funds. The audits focus on insurance company processes and procedures for identifying unreported death claims, and their use of the Social Security Master Death File to identify deceased policy and contract holders. In addition, our life insurance subsidiaries are the subject of multiple regulatory inquiries and examinations with a similar focus on the handling of unreported claims and abandoned property. The audits and related examination activity may result in payments to beneficiaries, escheatment of funds deemed abandoned under state laws, administrative penalties and changes in our procedures for the identification of unreported claims and handling of escheatable property.
Total rental expense on operating leases for the years ended December 31, 2012, 2011 and 2010, was $43 million, $42 million and $46 million, respectively. Future minimum rental commitments (in millions) as of December 31, 2012, were as follows:
We currently target asset weightings as follows: for the U.S. Plan - Employees, domestic equity allocations (35%) are split into large cap (25%), small cap (5%) and hedge funds (5%); and for the U.S. Plan - Agents, domestic equity allocations (14%) are split into large cap (10%), small cap (2%) and hedge funds (2%). Fixed maturity securities represent core fixed income investments. The performance of the pension trust assets is monitored on a quarterly basis relative to the plans’ objectives.
The total fair value of options vested during the years ended December 31, 2012, 2011 and 2010, was $4 million, $7 million and $4 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010, was zero.
The decrease in statutory net income (loss) when comparing 2011to 2010 was primarily due to increased realized losses in invested assets, an increase in reserves on UL secondary guarantee products and prior year favorable tax items that did not repeat in the current year.
Amortization of deferred gains arising from the reserve changes on business sold through reinsurance.