Fitch Affirms Lincoln National Corp. On Planned Capital Initiatives.

CHICAGO -- Following the company's announcement yesterday of an asset sale and several capital raising initiatives over the next several weeks, Fitch Ratings has affirmed the ratings of Lincoln National Corp. (LNC) and its operating subsidiaries. Fitch also has assigned a 'BBB' rating to the company's proposed issuance of up to $500 million in new senior unsecured notes. The Rating Outlook remains Negative. A full list of ratings follows at the end of this release.

The capital raising initiatives include the issuance of $600 million in new common equity, up to $500 million in new senior unsecured debt, and approximately $950 million in new preferred stock issued under the U.S. Treasury's Capital Purchase Program (CPP). While LNC continues to face considerable challenges, primarily related to the impact capital market turmoil has had on the company's capital position and operating performance, Fitch takes a positive view on initiatives management has taken thus far to bolster capital and adjust to the current uncertain operating environment.

In addition, LNC announced yesterday that it has signed a definitive agreement to sell its Gloucester, England-based life insurance and retirement product operations (Lincoln UK) to SLF of Canada UK Limited, a subsidiary of Sun Life Assurance Company of Canada, for expected net proceeds of between $280 million and $300 million. Assuming regulatory approval, the transaction is expected to close near Sept. 30, 2009. Currently, LNC does not carry any goodwill associated with its UK operations on its balance sheet. However, the company is expected to record a GAAP loss on the transaction of between $170 million and $190 million.

Fitch believes that CPP eligibility enhances near-term financial flexibility in a period of challenging capital markets access, and could ultimately help stabilize ratings. While Fitch believes that LNC will buttress capital through its use of CPP and other recently announced initiatives, Fitch expects the effect of the ongoing recession and capital market turmoil to continue to pressure LNC and its peers, and the company's ratings are being affirmed at their current levels to reflect these ongoing risks.

Fitch downgraded LNC's deferrable capital securities to 'BB+' on April 16, 2009, reflecting an increasing likelihood that LNC would trigger the alternative coupon satisfaction mechanism (ACSM) associated with these securities due in part to a goodwill write-down the company was expected to record in the first quarter of 2009. Assuming LNC is successful in its recently announced capital raising initiatives, the potential for triggering the ACSM will become significantly more remote. However, Fitch believes the receipt of deferrable government capital increases the risk of deferral for all deferrable securities in LNC's capital structure. Therefore, Fitch is maintaining the additional notching between LNC's senior unsecured debt and hybrid securities to reflect this risk.

The Negative Outlook on the LNC's ratings reflects Fitch's view that near-term adverse financial market and recessionary economic conditions will likely continue for an extended period. As a result, Fitch believes LNC could experience higher-than-expected volatility in financial results and capital.

Fitch's ratings on LNC are supported by the company's longstanding strong competitive position in the life insurance and annuity market, strong and diverse distribution network, strong management team and historically solid operating performance. These positives are tempered somewhat by the current weak economic and capital market conditions, as well as challenges LNC faces with respect to strong competition in the life insurance and asset accumulation sectors, particularly in the affluent market segment that LNC has targeted, and the degree to which the company's earnings continue to be leveraged to the equity markets.

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. On March 31, 2009, the company reported consolidated assets of $157.4 billion and common equity of $7.3 billion.

Fitch assigns a rating of 'BBB' to the following issuance with a Negative Outlook:

--up to $500 million in senior unsecured notes.

Fitch affirms the following ratings:

Lincoln National Corporation 

--Issuer Default Rating (IDR) at 'BBB+';

--Short-term IDR at 'F-2';

--Commercial paper at 'F-2';

--Floating-rate senior notes due April 20, 2010 at 'BBB';

--6.2% senior notes due Dec. 15, 2011 at 'BBB';

--5.65% senior notes due Aug. 27, 2012 at 'BBB';

--4.75% senior notes due Jan. 27, 2014, at 'BBB';

--4.75% senior notes due Feb. 15, 2014 at 'BBB';

--7% senior notes due March 15, 2018 at 'BBB';

--6.15% senior notes due April 7, 2036 at 'BBB';

--6.3% senior notes due Oct. 9, 2037 at 'BBB';

--6.75% junior subordinated debentures due April 20, 2066 at 'BB+';

--7% junior subordinated debentures due May 17, 2066 at 'BB+';

--6.05% junior subordinated debentures due April 20, 2067 at 'BB+'.

Lincoln National Capital VI

--Trust preferred securities at 'BB+'.

Lincoln National Life Insurance Company

--Insurer Financial Strength (IFS) at 'A+'.

Lincoln Life & Annuity Company of New York 

--IFS at 'A+'.

First Penn-Pacific Life Insurance Company

--IFS at 'A+'.

The Outlook for all the ratings is Negative.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.