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

A.M. Best Co. has affirmed the financial strength rating of A+ (Superior) and issuer credit ratings (ICR) of "aa-” of Lincoln National Corporation’s (Lincoln) (Philadelphia, PA) (NYSE: LNC) key life/health subsidiaries. Concurrently, A.M. Best has affirmed the ICR of "a-” and existing debt ratings of Lincoln. The outlook for all ratings is negative. (Please see link below for a detailed listing of the companies and ratings.)

These rating actions reflect Lincoln’s well established brand, leading market position as a top tier provider of life and annuity products and some improvement in Lincoln’s operating performance during 2009, which has benefited from an equity market rebound and some normalization of the credit markets. While Lincoln’s operating profile is reasonably diversified, it has been modestly reduced from the recent divestitures of two non-core business lines. Moreover, A.M. Best remains concerned with the general economic climate and a number of issues facing the life insurance industry; specifically diminished top line revenue growth and an absence of capital market solutions for Regulation AXXX and ongoing credit losses. A.M. Best notes that Lincoln may be required to self-fund its Regulation AXXX reserves going forward, thus creating the potential for lower capitalization levels in the longer term. Nonetheless, A.M. Best believes that current capitalization levels are sound and that management will explore longer term Regulation AXXX solutions going forward.

A.M. Best notes that Lincoln recently completed a sizeable capital raise; however, there still exists the potential for capital erosion in the near term driven by investment losses, credit migration in the investment portfolio and the prospect of earnings compression should the equity markets reverse course. While credit risk remains a concern, Lincoln’s balance sheet has improved by the sizeable reduction of unrealized losses and is at a level commensurate with peers. However, A.M. Best notes the potential for accelerated commercial mortgage-backed securities and commercial mortgage write-downs along with ongoing defaults within corporate bonds, collateralized debt obligations and all classes of residential mortgage-backed securities (i.e., prime, subprime and Alt-A). Financial leverage remains adequate for the current ratings, though interest coverage is diminished from prior years due to capital losses. Going forward, A.M. Best will consider revising the outlook to stable, if Lincoln’s capital and earnings normalize and investment defaults remain sufficiently cushioned by its capital base and key performance indicators (capital, earnings, revenue and fund flows) exhibit sustained positive trends.

For a complete listing of Lincoln National Corporation’s FSRs, ICRs and debt ratings, please visit www.ambest.com/press/102107lincoln.pdf.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.