A.M. Best Affirms Ratings of Lincoln National Corporation's Subsidiaries.

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

The ratings reflect the organization's prominent position in the wealth management and asset accumulation marketplace, strong operating and business profile, prudent approach to enterprise risk management as well as its diversified sources of revenue, earnings and cash flows. Lincoln's trends in variable annuity net flows continue to be favorable, and operating results from its life insurance and employer markets remain strong. Additionally, the company is on track to realize $90 million pre-tax savings in the first year after closing the Jefferson-Pilot (JP) merger and to achieve integration goals for consolidation of administrative systems and legal entities. Moreover, Lincoln's creditworthiness is enhanced by its investment management and broadcasting businesses, which are steady sources of earnings and unregulated cash flows to the holding company.

These strengths are partially offset by Lincoln's elevated intangibles relative to its consolidated GAAP capital base, as well as its higher financial leverage and projected slight decline in fixed charge coverage over the near to medium term. A.M. Best expects these measures to improve upon completion of the remaining integration tasks and future realization of expense synergies. Furthermore, while Lincoln continues to grow its Employer Markets segment, A.M. Best believes its business profile is still developing as it faces significant competition from other major players in this arena. Current capitalization is sound but is likely to level off going forward as organic earnings growth will be utilized for significant share buybacks. The company recently repurchased approximately $500 million of common shares and has authority to repurchase an additional $2.1 billion in securities over the next three years.

As a top-five seller of variable annuities, Lincoln's earnings profile is highly correlated to equity market performance, though overall equity market volatility has been reduced with the addition of JP. Additionally, while Lincoln's asset management business remains a competitive strength, both its retail and institutional businesses recently experienced a decline in net flow, due partially to popular investment funds reaching capacity. Finally, consistent with several of its peers, a significant portion of Lincoln's fixed annuity block is rolling off as multi-year guarantees expire. A.M. Best believes the impact on the group's overall liquidity and earnings profile will be immaterial.

For a complete listing of Lincoln National Corporation's FSRs, ICRs and debt ratings, please visit www.ambest.com/press/032802lincolnnational.pdf.

Founded in 1899, A.M. Best Company is a full-service credit rating organization dedicated to serving the financial services industries, including the banking and insurance sectors. For more information, visit www.ambest.com.