A.M. Best Affirms Ratings of Lincoln National Corporation and Its Key
OLDWICK, N.J. -- November 30, 2012
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of the key life/health
subsidiaries of Lincoln National Corporation (Lincoln) (headquartered in
Radnor, PA) [NYSE: LNC], consisting of The Lincoln National Life Insurance
Company and its wholly owned subsidiary, Lincoln Life & Annuity Company of New
York (New York, NY) (together known as LNL). Concurrently, A.M. Best has
affirmed the ICR of “a-” as well as the existing debt ratings of Lincoln.
Additionally, A.M. Best has downgraded the FSR to A (Excellent) from A+
(Superior) and ICR to “a+” from “aa-” of Lincoln’s stand-alone subsidiary,
First Penn-Pacific Life Insurance Company. The rating downgrades reflect the
company’s limited new business profile while incorporating its continued
relevance to Lincoln and LNL. The outlook for all ratings is stable. All
companies are domiciled in Fort Wayne, IN, unless otherwise specified. (See
link below for a detailed listing of the companies and ratings.)
The ratings of LNL primarily reflect its leadership position across various
lines of business, diverse distribution channels, improved investment
performance and solid level of risk-adjusted capital. A.M. Best notes LNL’s
proactive efforts in managing both its universal life with secondary
guarantees (ULSG) and variable annuity living benefit liabilities. A.M. Best
believes that enterprise risk management is a core strength for Lincoln that
is further evidenced by active interest rate management across its product
lines and investment portfolio. Overall, A.M. Best believes LNL’s capital
level adequately supports its current balance sheet risks under most stress
Operating earnings have benefitted from improved underwriting, lower but solid
investment returns and a significant decline in credit impairments. In
addition, operating results have been supported by an increase in separate
accounts during 2012, driven by positive net flows from both the individual
variable annuity and group retirement businesses, along with generally
favorable performance of the U.S. equity markets. LNL has successfully enacted
a pivot strategy to adjust to changing market dynamics and has relied on its
strong and diversified distribution platform to record favorable sales results
throughout the period. Additionally, the company has continued to implement
price and benefit changes to its products to maintain competitiveness while
reducing overall risk.
LNL’s investment portfolio continues to perform well and is considered a
strength, incorporating the expectation for a minor shift in allocation to
higher yielding assets. A.M. Best believes the organization’s exposure to
riskier structured securities and commercial mortgages is manageable.
Moreover, Lincoln currently maintains excess liquidity throughout, which acts
as a buffer for any potential adverse experience.
A.M. Best notes that overall direct premiums have declined over the most
recent period due primarily to pricing actions in the ULSG and fixed indexed
annuity product lines. Moreover, sales of its core MoneyGuard product also
have moderated from the prior year. LNL continues to face ongoing challenges
from competition in its core businesses in addition to market volatility due
to its high proportion of interest and equity sensitive liabilities. Although
LNL utilizes a robust hedging strategy, the legacy books of ULSG and variable
annuities continue to provide a source of risk with respect to ongoing reserve
funding and overall operating volatility. LNL also retains a substantial
amount of life insurance and annuity account values with credited rates that
are currently close to or at minimum guarantees. As with some of Lincoln’s
publicly-traded peers, the organization relies on the use of captives to fund
Regulation XXX and Guideline AXXX (AG38) reserves and to help smooth earnings
volatility driven by its hedging activity.
Lincoln’s leverage and coverage ratios remain within A.M. Best’s expectations
for its current ratings and its overall financial flexibility is good. A.M.
Best notes that the persistent low rate environment continues to negatively
impact pretax operating earnings, but this headwind is somewhat mitigated by
the current level of excess cash maintained at the holding company
(approximately $600 million at September 30, 2012).
A.M. Best believes Lincoln and its subsidiaries are well positioned at their
current rating level. Negative rating actions could result from a material
decline in risk-adjusted capital within the group, deteriorating operating
results due to negative market impacts on spreads and/or minimum guarantees or
a material increase in overall investment risk.
For a complete listing of Lincoln National Corporation and its subsidiaries’
FSRs, ICRs and debt ratings, please visit
The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
A.M. Best Company, Inc.
Michael Adams, 908-439-2200, ext. 5133
Senior Financial Analyst
Ken Johnson, CFA, CTP, 908-439-2200, ext. 5056
Managing Senior Financial Analyst
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
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