AM Best has downgraded the Financial Strength Rating
(FSR) to A (Excellent) from A+ (Superior) and the Long-Term Issuer
Credit Ratings (Long-Term ICR) to “a+” (Excellent) from “aa-”
(Superior) of The Lincoln National Life Insurance Company and its
wholly owned subsidiary, Lincoln Life & Annuity Company of New
York (Syracuse, NY). These companies are the key life/health
insurance subsidiaries of Lincoln National Corporation (LNC)
(headquartered in Radnor, PA) [NYSE: LNC] and are referred to
collectively as Lincoln Financial Group (Lincoln). The outlook of
the Long-Term ICR has been revised to negative from stable, while
the outlook of the FSR is stable.
Additionally, AM Best has downgraded the Long-Term ICR to “bbb+”
(Good) from “a-” (Excellent) of LNC. The outlook of these ratings
has been revised to negative from stable.
Lastly, AM Best has downgraded the Long-Term ICR to “a”
(Excellent) from “a+” (Excellent) and affirmed the FSR of A
(Excellent) of First Penn-Pacific Life Insurance Company (FPP). The
outlook of these ratings was revised to negative from stable.
(Please see below for a detailed listing of the Long-and Short-Term
IRs.)
The ratings of Lincoln reflect its balance sheet strength, which
AM Best currently assesses as very strong, as well as its strong
operating performance, favorable business profile and appropriate
enterprise risk management (ERM).
The ratings downgrade of Lincoln reflects a reduction in its ERM
assessment to appropriate from very strong due to the recent
volatility in capital, as well as the reactive nature of the
company’s capital maintenance initiatives. AM Best believes that
the revised ERM assessment is indicative of the company’s elevated
risk profile, which requires an enhanced level of risk management
capabilities. AM Best notes that Lincoln continues to maintain an
extensive risk management framework with a focus on stress testing
and operational risks and will be upgrading its hedging program to
better protect statutory capital during stressed market
environments.
The negative outlook reflects pressure on Lincoln’s balance
sheet strength position due to a change in assumptions in the
company’s universal life (UL) insurance block of business; this
resulted in a significant GAAP unlocking charge in third-quarter
2022 and a goodwill write-down of approximately $634 million
related to its variable UL block of business. In addition,
risk-adjusted capital, as measured by Best’s Capital Adequacy Ratio
(BCAR), has declined due to an expected statutory capital charge of
approximately $550 million to be recorded during fourth-quarter
2022 as part of the company’s UL assumption update. In addition,
risk-adjusted capital was negatively impacted from equity market
volatility over the past year.
AM Best will continue to monitor Lincoln’s ability to execute on
its capital management initiatives designed to rebuild its capital
position. These initiatives include several opportunities such as a
potential block reinsurance transaction, indefinitely pausing its
share-buyback program, as well as a preferred equity capital raise.
A failure to execute on these initiatives may result in a negative
rating action.
Lincoln’s operating performance remains within the strong
assessment category and AM Best notes that the unlocking charge
also adversely impacted earnings, resulting in a significant
third-quarter operating loss. The company has experienced favorable
premium growth in recent periods and earnings are expected to
benefit from a rising interest rate environment. However, earnings
may continue to be pressured by a volatile equity market, which has
reduced the level of fee income from assets under management in
recent periods. The ratings of FPP reflect its balance sheet
strength, which AM Best assesses as very strong, as well as its
adequate operating performance, limited business profile, its
appropriate ERM and the benefits it receives as a subsidiary of
LNC. The downgrade and negative outlook reflect the reduced
financial strength of its parent. AM Best notes that FPP’s
liability profile primarily consists of term life and current
assumption UL policies and believes that FPP will continue to
contribute a moderate amount of earnings to Lincoln over the near
to medium-term as it continues to operate in run-off.
The following Long-Term IRs have been downgraded with the
outlooks revised to negative from stable:
Lincoln National Corporation— — to “bbb” (Good) from “bbb+”
(Good) on $562,034,000 million LIBOR + 236 bps subordinated notes,
due 2066 — to “bbb” (Good) from “bbb+” (Good) on $432,743,000
million LIBOR + 204 bps subordinated notes, due 2067
The following Long-Term IRs have been downgraded with the
outlooks revised to negative from stable:
Lincoln National Corporation— — to “bbb+” (Good) from “a-”
(Excellent) on $500 million 4.00% senior unsecured notes, due 2023
— to “bbb+” (Good) from “a-” (Excellent) on $300 million 3.35%
senior unsecured notes, due 2025 — to “bbb+” (Good) from “a-”
(Excellent) on $400 million 3.625% senior unsecured notes, due 2026
— to “bbb+” (Good) from “a-” (Excellent) on $500 million 3.8%
senior unsecured notes, due 2028 — to “bbb+” (Good) from “a-”
(Excellent) on $500 million 3.05% senior unsecured notes, due 2030
— to “bbb+” (Good) from “a-” (Excellent) on $500 million 3.40%
senior unsecured notes, due 2031 — to “bbb+” (Good) from “a-”
(Excellent) on $300 million 3.40% senior unsecured notes, due 2032
— to “bbb+” (Good) from “a-” (Excellent) on $500 million 6.15%
senior unsecured notes, due 2036 — to “bbb+” (Good) from “a-”
(Excellent) on $375 million 6.30% senior unsecured notes, due 2037
— to “bbb+” (Good) from “a-” (Excellent) on $500 million 7.00%
senior unsecured notes, due 2040 — to “bbb+” (Good) from “a-”
(Excellent) on $450 million 4.35% senior unsecured notes, due 2048
— to “bbb+” (Good) from “a-” (Excellent) on $300 million 4.375%
senior unsecured notes, due 2050 — to “bbb-” (Good) from “bbb”
(Good) on $800 million LIBOR + 236 bps junior subordinated capital
securities, due 2066 ($160 million outstanding) — to “bbb-” (Good)
from “bbb” (Good) on $500 million LIBOR + 204 bps junior
subordinated capital securities, due 2067 ($58 million
outstanding)
The following Short-Term IR has been downgraded:
Lincoln National Corporation— — to AMB-2 (Satisfactory) from
AMB-1 (Outstanding) on commercial paper
The following indicative Long-Term IRs on securities available
under a universal shelf registration have been downgraded with the
outlooks revised to negative from stable:
Lincoln National Corporation— — to “bbb+” (Good) from “a-”
(Excellent) on senior unsecured notes — to “bbb” (Good) from “bbb+”
(Good) on subordinated notes — to “bbb-” (Good) from “bbb” (Good)
on preferred stock — to “bbb-” (Good) from “bbb” (Good) on junior
subordinated notes
This press release relates to Credit Ratings that have been
published on AM 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 see AM Best’s Recent
Rating Activity web page. For additional information
regarding the use and limitations of Credit Rating opinions, please
view Guide to Best's Credit Ratings. For information
on the proper use of Best’s Credit Ratings, Best’s Performance
Assessments, Best’s Preliminary Credit Assessments and AM Best
press releases, please view Guide to Proper Use of Best’s
Ratings & Assessments.
AM Best is a global credit rating agency, news publisher and
data analytics provider specializing in the insurance industry.
Headquartered in the United States, the company does business in
over 100 countries with regional offices in London, Amsterdam,
Dubai, Hong Kong, Singapore and Mexico City. For more information,
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Shauna Nelson Senior Financial Analyst +1 908
439 2200, ext. 5365 shauna.nelson@ambest.com
Michael Adams Associate Director +1 908 439
2200, ext. 5133 michael.adams@ambest.com
Christopher Sharkey Manager, Public Relations
+1 908 439 2200, ext. 5159
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Al Slavin Communications Specialist +1 908 439
2200, ext. 5098 al.slavin@ambest.com
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