Fitch Upgrades Lincoln National Corp.’s Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has upgraded the long-term ratings of Lincoln National Corporation (LNC) and removed them from Rating Watch Positive. Fitch has also assigned a Stable Outlook and withdrawn its rating on LNC's perpetual preferred securities. Key actions are as follows with a full list of rating actions and ratings at the end of this release:

Fitch has upgraded the following LNC ratings:

-- Issuer Default Rating (IDR) to 'A-' from 'BBB+';

-- Senior debt to 'BBB+' from 'BBB';

-- Junior subordinated debt to 'BBB-' from 'BB+'.

In addition, Fitch has withdrawn the following:

-- $950 million perpetual preferred securities 'BB+'.

Today's ratings actions follow LNC's announcement that it has repurchased all of the $950 million of preferred shares issued to the U.S. Treasury under its Capital Purchase Program (CPP) in June 2009. LNC used proceeds from its recent equity and debt offerings, as well as existing cash, for the repurchase. On June 3, 2010, Fitch placed LNC's long-term holding company ratings on Rating Watch Positive. At that time, Fitch said it would resolve the Rating Watch Positive and consider a return to standard notching between the holding company IDR rating and the insurance company IFS rating once LNC repays outstanding CPP funding.

Overall, Fitch views the replacement of CPP funds with more permanent capital market financing as marginally positive in that it demonstrates an overall improved financial position and increased access to capital markets. Although having the CPP capital on hand provided LNC an additional capital cushion for near-term uncertainties, ultimately, repayment should favorably reduce the potential negative impact to LNC's business position, franchise value and management team that are concerns for companies that operate long-term under federal government support and related restrictions.

Fitch's ratings and Stable Outlook reflect its view that LNC has taken important steps to enhance financial flexibility and reduce liquidity concerns at the holding company. Concerns about LNC's liquidity and financial flexibility were a major factor behind Fitch's expanded holding company notching in April 2009 and arguably LNC's $950 million participation in CPP.

While LNC continues to face challenges, primarily related to asset risk, refinancing risk and operating performance, Fitch believes they are manageable within the context of the ratings. However, LNC's ratings could be under pressure if the company were unable to meet certain rating expectations including, but not limited to:

-- A traditional financial leverage ratio at or below 25% (1Q'10 leverage was 20%);

-- The preservation of holding company cash in the range of 12-18 months of annual interest, common stock dividends and debt maturities;

-- The ability to execute on long-term solutions for life insurance reserve financing;

-- A minimum RBC of 400% at the insurance company during normal economic cycles;

-- Investment losses within Fitch's base case loss expectations; and

-- The maintenance of solid operating performance and competitive positions.

Lincoln National Corp., headquartered in Radnor, PA, markets a broad range of insurance and asset accumulation products and financial advisory services primarily to the affluent market segment. The company's consolidated assets were $181.6 billion, and common equity was $12.4 billion at March 31, 2010.

Fitch upgrades the following ratings of LNC with a Stable Outlook:

Lincoln National Corporation

-- Long-term IDR to 'A-' from 'BBB+';

-- 6.2% senior notes due Dec. 15, 2011 to 'BBB+' from 'BBB';

-- 5.65% senior notes due Aug. 27, 2012 to 'BBB+' from 'BBB';

-- 4.75% senior notes due Jan. 27, 2014 to 'BBB+' from 'BBB';

-- 4.75% senior notes due Feb. 15, 2014 to 'BBB+' from 'BBB';

-- 4.3% senior notes due June 2015 to 'BBB+' from 'BBB';

-- 7% senior notes due March 15, 2018 to 'BBB+' from 'BBB';

-- 8.75% senior notes due July 1, 2019 to 'BBB+' from 'BBB';

-- 6.25% senior notes due Feb. 15, 2020 to 'BBB+' from 'BBB';

-- 6.15% senior notes due April 7, 2036 to 'BBB+' from 'BBB';

-- 6.3% senior notes due Oct. 9, 2037 to 'BBB+' from 'BBB';

-- 7% senior notes due June 2040 to 'BBB+' from 'BBB';

-- 6.75% junior subordinated debentures due April 20, 2066 to 'BBB-' from 'BB+';

-- 7% junior subordinated debentures due May 17, 2066 to 'BBB-' from 'BB+';

-- 6.05% junior subordinated debentures due April 20, 2067 to 'BBB-' from 'BB+'.

Lincoln National Capital VI

-- Trust preferred securities to 'BBB-' from 'BB+'.

Fitch withdraws the following rating:

Lincoln National Corporation

-- Cumulative Perpetual Preferred Stock (CPP) 'BB+'.

Fitch's current short-term ratings for LNC are as follows:

Lincoln National Corporation

-- Short-term IDR 'F2';

-- CP 'F2'.

Fitch's current ratings for LNC's insurance subsidiaries are as follows with a Stable Outlook:

Lincoln National Life Insurance Company

Lincoln Life & Annuity Company of New York

First Penn-Pacific Life Insurance Company

-- Insurer Financial Strength 'A+'.

This rating action reflects the application of Fitch's current criteria which is available on Fitch's website at 'www.fitchratings.com' and specifically includes:

-- 'Insurance Rating Methodology', dated Dec. 29, 2009;

-- 'Life Insurance Ratings Criteria', dated March 24, 2010;

-- 'Insurance Industry: Global Notching Methodology and Recovery Analysis', dated Dec. 29, 2009

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings
Brian Bertsch, +1-212-908-0549 (New York)
[email protected]
Lauren Kalinowksi, CPA, +1-212-908-0524 (New York)
Bradley Ellis, CFA, +1-312-368-2089 (Chicago)

Source: Fitch Ratings