The advertising campaign was held during April and May in Scotland, using creative concepts adapted from Lincoln's corporate campaign in the U.S. Subsequent research indicated that awareness was raised throughout Scotland and that the campaign had a positive effect on product sales.
Lincoln Re also is charged with managing LNC's activities in several emerging markets, including LNC's joint venture, Seguros Serfin Lincoln, which sells insurance products through Banca Serfin, Mexico's oldest and third largest bank. Lincoln Re also maintains representative offices in China (Beijing, Shanghai, Guangzhou) and, in 1998, signed a letter of intent with Ping An, the largest private insurance company in the People's Republic of China with a national charter, to work toward creating a joint venture that will sell life insurance.
Lincoln Re's intellectual capital is critical to its success and its systems are used throughout the insurance industry. Its knowledge-based approach to reinsurance continues to distinguish itself as a leader in an increasingly competitive marketplace, allowing for customer retention and to build new relationships on a global basis.
Disability Income: The disability income business has proved to be one of the most difficult for the industry in this decade. Lincoln Life, the largest company in LNC's Life Insurance and Annuities segment, withdrew from the disability income market in 1996 and its block of business was transferred to Lincoln Re where it has been managed along with a block of reinsurance disability income business.
Retail Mutual Funds: The Investment Management segment's retail mutual fund and wrap fee assets totaled $26.6 billion at December 31, 1998, an 18% increase from $22.5 billion at December 31, 1997. Delaware offers 74 open-end retail mutual funds and 8 closed-end funds with assets under management of $13.2 billion, an increase of 7% over the $12.3 billion at December 31, 1997. The remaining $13.4 billion was from wrap-fee business and retail mutual funds managed by Lynch & Mayer and Vantage.
As of December 31, 1998 the status of projects that address readiness of high priority non-IT assets, is:100% of non-IT assets have been inventoried (Phase 1) and assessed (Phase 2); 72% of non-IT projects addressing remediation (Phase 3) have been completed and 23% of non-IT projects have completed the testing phase (Phase 4). LNC expects to have all phases related to high priority non-IT completed by the end of October 1999.
A worst case scenario might include LNC's inability to achieve Year 2000 readiness with respect to one or more of LNC's significant policyholder systems, resulting in a material disruption to LNC's operations. Specifically, LNC could experience an interruption in its ability to collect and process premiums or deposits,
As noted above, shareholders' equity includes net unrealized gain (loss) on securities available-for-sale. At December 31, 1998, the book value of $53.18 per share included $5.45 of unrealized gains on securities and at December 31, 1997, the book value of $49.27 per share included $4.31 of unrealized gains on securities.
Cash paid for Federal income taxes in 1998, 1997 and 1996 was $379,600,000, $158,000,000 and $143,800,000 respectively.
Premium deposit funds.................................. $20,171.9 $19,803.0 Undistributed earnings on participating business....... 142.8 79.8 Other.................................................. 438.4 180.6 --------- --------- Total............................................... $20,753.1 $20,063.4
LNC recognizes compensation expense for its stock option incentive plans using the intrinsic value based method of accounting (see note 1 on page 44) and provides the required pro forma information for stock options granted after December 31, 1994. Accordingly, no compensation expense has been recognized for stock option incentive plans. Had compensation expense for LNC's stock option incentive plans for options granted after December 31, 1994 been determined based on the estimated fair value at the grant dates for awards under those plans, LNC's pro forma net income and earnings per share for the last three years (1998, 1997 and 1996) would have been $500,984,000 ($4.93 per diluted share); $930,538,000 ($8.95 per diluted share) and $511,253,000 ($4.85 per diluted share), respectively (a decrease of $8,791,000 or $.09 per diluted share; $3,450,000 or $.03 per diluted share and $2,305,000 or $.02 per diluted share, respectively). These effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net income for future years due to factors such as the vesting period of the stock options and the potential for issuance of additional stock options in future years.
Certain LNC insurance companies assume insurance from other companies. At December 31, 1998, LNC's insurance companies have provided $228,800,000 of statutory surplus relief to other insurance companies under reinsurance transactions. Generally, such amounts are offset by corresponding receivables from the ceding company, which are secured by future profits on the reinsured business. However, LNC's insurance companies are subject to the risk that the ceding company may become insolvent and the right of offset would not be permitted.