Lincoln National Corp.

The stable outlook reflects S&P Global Ratings' expectation that the group will maintain very strong capital and its strong competitive position. We could lower the ratings on LFG within the next two years if: Capital adequacy deteriorates to a level we expect will remain deficient at 'AA', per our risk-based capital model; The group experiences material sales declines or persistent net outflows, signaling competitive position has weakened; or Funding structure, as measured by financial leverage and fixed-charge coverage ratios, no longer supports the current ratings. We do not expect to raise the ratings on LFG within the next two years because we believe its capital is currently marginally redundant at the 'AA' level, per our RBC model, and, thus, its

...Following Lincoln Financial Group's (LFG) recent downgrade, we expect it will improve its profitability to a level commensurate with its similarly rated, more diverse peers. LFG's closest peers have asset management operations and/or international presence, both of which aided their profitability in recent years and both of which Lincoln lacks. Despite recent profitability challenges, we expect Lincoln's operating performance, measured in terms of return on both equity and assets, will rebound to a level commensurate with life insurers rated 'A+'. We believe a return to consistently positive profitability could be increasingly difficult for LFG under the new generally accepted accounting principles (GAAP) long-duration targeted improvements (LDTI) rules, particularly given its choice to set its hedge targets on statutory, as opposed to GAAP, metrics. The management team at LFG has committed to lowering financial leverage and improving fixed-charge coverage, both of which are crucial to...

Full Report