Press Release - DECEMBER 11, 2014

A.M. Best Affirms Ratings of Lincoln National Corporation and Its Key Subsidiaries

Keith Behrmann
Financial Analyst
(908) 439-2200, ext. 5733

Rosemarie Mirabella
Assistant Vice President
(908) 439-2200, ext. 5892

Christopher Sharkey
Manager, Public Relations
(908) 439-2200, ext. 5159

Jim Peavy
Assistant Vice President, Public Relations
(908) 439-2200, ext. 5644


A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of "aa-" of The Lincoln National Life Insurance Company (LNL) and its wholly owned subsidiary, Lincoln Life & Annuity Company of New York (LLANY) (Syracuse, NY), which are viewed as the key life/health insurance subsidiaries of Lincoln National Corporation (LNC) (headquartered in Radnor, PA) [NYSE: LNC] and are marketed as the Lincoln Financial Group (LFG). Concurrently, A.M. Best has affirmed the ICR of "a-" and all existing shelf and debt ratings of LNC.

Additionally, A.M. Best has affirmed the FSR of A (Excellent) and ICR of "a+" of LNC's wholly owned subsidiary, First Penn-Pacific Life Insurance Company (FPP). All companies are domiciled in Fort Wayne, IN unless otherwise specified. The outlook for all ratings is stable. (Please see link below for a detailed listing of the companies and ratings).

The ratings reflect LFG's leading market position within its core business segments, strong operating performance and favorable levels of risk-adjusted capitalization, along with prudent capital and underwriting management. Additionally, A.M. Best recognizes LFG's initiatives to improve its risk profile by reducing the sales of products with longer-term guarantees and reducing its exposure to equity market volatility. The ratings also recognize progress made in securing reserve financing for redundant reserves in recent years, along with reinsurance capacity, for new sales of variable annuities with living benefit guarantees. Furthermore, the ratings reflect diversification in earnings between investment spreads, fees and mortality risk and progress in repricing LFG's existing in-force life and annuity business to reflect current mortality and interest rate assumptions. Finally, LFG continues to have strong risk management practices with respect to active equity and interest rate management across its product lines and its investment portfolio.

While LFG has revamped its product offerings to moderate sales of its universal life policies with secondary guarantees (SGUL) and reduced the percentage of variable annuities sold with living benefit riders, the in-force blocks are sizable, exposing the company to long-dated interest rate risk and equity market volatility. Moreover, a substantial portion of LFG's in-force life and retirement plan account values have crediting rates that are at or close to relatively high minimum guarantees, and a significant portion of its general account annuities lack surrender charge protection. Additionally, LFG faces ongoing challenges with respect to profitability in its Group Protection business, which has experienced higher levels of long-term disability incidence, resulting in the need to reprice a substantial portion of group premiums over the next two years. Finally, LFG faces increased competition within its Group Protection and Retirement Plan Services. While this provides some diversification, these businesses continue to make relatively modest contributions to consolidated earnings. The ratings also acknowledge the recent announcement to divest LFG's media operations, which historically did not meaningfully contribute to earnings.

Financial leverage and interest coverage ratios at the holding company remain within A.M. Best's guidelines for the current ratings, and its overall financial flexibility remains sound. LNC maintains an adequate cash position, targeting roughly $500 million at any given time to cover holding company needs, with only one near-term debt maturity of $250 million scheduled for June 2015.

Positive rating action is unlikely in the near to medium term. Factors that could lead to negative rating actions include unfavorable trends in operating performance, increased in-force growth of market and/or interest sensitive product lines and a material decline in risk-adjusted capitalization.

For a complete listing of Lincoln National Corporation and its subsidiaries' FSRs, ICRs and debt ratings, please visit Lincoln National Corporation.

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

Key insurance criteria reports utilized:

  • A.M. Best's Liquidity Model for U.S. Life Insurers

  • A.M. Best's Perspective on Operating Leverage

  • Analyzing Insurance Holding Company Liquidity

  • Equity Credit for Hybrid Securities

  • Insurance Holding Company and Debt Ratings

  • Rating Members of Insurance Groups

  • Rating Run-Off Insurers and Specialists

  • Risk Management and the Rating Process for Insurance Companies

  • Understanding BCAR for U.S. and Canadian Life/Health Insurers

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center .

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source.

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For information about each company, including the Best's Credit Reports, group members (where applicable) and news stories, click on the company name. An additional purchase may be required.