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22 Jun 2011
Approximately $6 billion of securities affected
New York, June 22, 2011 -- Moody's Investors Service has changed the outlook of Lincoln National
Corporation's (LNC; NYSE:LNC) long term credit ratings to positive
from stable. Moody's also assigned a Baa2 debt rating to
LNC's $300 million, 10 year issuance of fixed rate
senior unsecured notes. The rating agency expects LNC to use the
proceeds from the $300 million issuance to call its retail 6.75%
coupon preferred securities, which will improve its earnings and
cashflow coverage. The notes are a drawdown from a shelf registration
filed in March, 2009.
The change in LNC's rating outlook to positive reflects improving
trends in the company's financial profile, specifically its financial
flexibility, profitability, and general account investment
The rating agency expects further reductions in LNC's financial
leverage to the low 20% range over the next 18 months and continued
improvement in the company's earnings coverage, driven both
by lower interest expense and stronger GAAP and statutory earnings.
Moody's Vice President Ann Perry added: "The improvement
in LNC's earnings and capital generation has been driven largely
by improved investment performance coupled with stronger fee income in
the asset accumulation business lines."
According to Moody's, LNC benefits from its strong market
position in individual life insurance, as well as good earnings
diversification among its core businesses. The holding company
liquidity position is strong with ample capacity to fund an upcoming $250
million December 2011 debt maturity, as well as a year of interest
expense. In addition, LNC has made steady progress in finding
long-term solutions for a large part of its current and future
regulatory reserve requirements (e.g. AXXX and XXX reserves).
According to Moody's, the company's strengths are tempered
by its major challenge of managing significant blocks of liabilities with
interest rate sensitivity (e.g., universal life insurance
with no lapse guarantees and fixed annuities) and equity market exposure
(variable annuities with guaranteed living benefits). The asset
liability management for the variable annuity liabilities requires complex
hedging programs which necessitate frequent rebalancing, contain
basis risk, and incorporate assumptions that can result in over
or under hedged positions. In a stress scenario involving sharply
dropping equity markets or sustained low interest rates, LNC would
experience pressure on profitability and capital adequacy.
Moody's said that the following would place upward pressure on LNC's rating:
1) adjusted financial leverage of less than 25%; 3) improved
organic capital generation and expected GAAP return-on-capital
(ROC) consistently above 8%; and 4) cashflow coverage and
earnings coverage sustained above 4 times and 8 times, respectively.
Conversely, the following could result in a return of the outlook
back to stable: 1) investment losses exceeding $300 million
pre-tax in 2011; 2) organic capital generation diminishes
and GAAP ROC consistently falling below 8%; 3) financial leverage
rising above 25%; 4) cashflow coverage and earnings coverage
consistently remain below 4 times and 8 times, respectively.
The following ratings were affirmed and the outlook changed to positive
Lincoln National Corporation -- senior unsecured debt at
Baa2, senior unsecured shelf at (P)Baa2; subordinated shelf
at (P)Baa3; junior subordinate shelf at (P)Baa3; junior subordinate
debt (hybrid with mandatory deferral features) at Ba1(hyb), preferred
stock shelf at (P)Ba1;
Lincoln National Life Insurance Company -- insurance financial
strength rating at A2;
Lincoln Life & Annuity Company of NY -- insurance financial
strength rating at A2;
First Penn-Pacific Life Insurance Company -- insurance
financial strength rating at A2;
Lincoln National Capital VI -- backed preferred stock at
Lincoln National Capital VII, VIII, & IX --
preferred shelf at (P)Baa3;
General Repackaging ACES SPC 2006-1, General Repackaging
ACES SPC 2007-1 -- funding agreement-backed
senior secured debt rating at A2.
The following rating was affirmed with a stable outlook:
Lincoln National Corporation -- short-term rating
for commercial paper at Prime-2.
Lincoln National--through its businesses in wealth accumulation,
retirement income, and wealth protection--provides
annuities, life insurance, 401(k) and 403(b) plans,
savings plans, institutional investments, and comprehensive
financial planning and advisory services. On March 31, 2011,
the company reported total consolidated assets of approximately $198
billion and consolidated shareholders' equity of $13.1 billion.
Lincoln National is headquartered in Radnor, PA.
The principal methodology used in this rating was Moody's Global Rating
Methodology for Life Insurers published in May 2010.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, confidential and proprietary Moody's Investors
Service information, and confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
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validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
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and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
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Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Ann G. Perry
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
MD - Insurance
Financial Institutions Group
Moody's Investors Service, Inc.
Moody's Investors Service, Inc.
Moody's changes Lincoln National's outlook to positive; rates senior notes Baa2
250 Greenwich Street
New York, NY 10007
No Related Data.
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