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A.M. Best Downgrades Issuer Credit and Debt Ratings of Lincoln Financial Corporation and Its Subsidiaries

Posted on 23 Feb 2009

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OLDWICK, N.J. February 20 (BestWire) — A.M. Best Co. has downgraded the issuer credit ratings (ICR) to “aa-” from “aa” of Lincoln National Corporation’s (Lincoln) (Philadelphia, PA) [NYSE: LNC] key life/health subsidiaries. A.M. Best also has downgraded the ICR to “a-” from “a” and the existing debt ratings of Lincoln. Concurrently, A.M. Best has affirmed the financial strength rating of A+ (Superior) for Lincoln’s key life/health subsidiaries. The outlook for all ratings has been revised to negative from stable. (Please see link below for a detailed listing of the companies and ratings.)

These rating actions reflect Lincoln’s diminished 2008 operating performance, due in part to the current economic climate and the deterioration of the equity and credit markets. The rating actions also reflect the decline in Lincoln’s fixed charge coverage, lower levels of retail and institutional net flows within its investment management segment and a moderate decline in individual life sales. Additionally, A.M. Best notes that Lincoln’s business and operating profile has contracted somewhat as a result of a decline in assets under management within its institutional investment management business and the divestiture of the majority of its media operations. A.M. Best remains concerned regarding Lincoln’s future earnings trends, given its relatively high correlation to the equity markets. While Lincoln’s balance sheet remains strong overall, A.M. Best notes its high level of intangible assets relative to stockholders’ equity, as well as the potential for future goodwill impairments should current market conditions persist.

Other areas of concern include heightened credit risk within Lincoln’s investment portfolio—most notably; commercial mortgage-backed securities (CMBS), direct commercial mortgages, residential mortgage-backed securities (RMBS) secured by Alt-A and subprime collateral, and collateralized debt obligation (CDO) investments. While credit risk remains elevated and is increasing across the industry, A.M. Best notes that Lincoln’s significant unrealized loss position is comparable to its peers. Additionally, given the dislocation within the capital markets, Lincoln may need to self-fund its Regulation AXXX reserves going forward, which may strain statutory capitalization levels in the near term. A.M. Best believes Lincoln’s current risk-adjusted capital position is sound and that management will continue to maintain prudent capitalization levels going forward.

The current ratings reflect the organization’s prominent position in the U.S. individual retirement savings market, its sizeable individual life block, consistent earnings from its group protection business, effective enterprise risk management practices and the overall stability of its defined contribution retirement business. The ratings also recognize Lincoln’s reasonably stable investment spreads on interest-sensitive products and positive net flows within its individual variable annuity business, despite significant equity market volatility in recent quarters. Additionally, A.M. Best notes the ongoing stability within Lincoln’s retail distribution channel (Lincoln Financial Network) and growth within its wholesale distribution channel (Lincoln Financial Distributors).

For a complete listing of Lincoln National Corporation’s FSRs, ICRs and debt ratings, please visit

The principal methodologies used in determining these ratings, including any additional methodologies and factors, which may have been considered, can be found at BN-NJ-02-20-2009 1407 ET #