AM Best Comments on Credit Ratings of Lincoln National Corporation and Its Subsidiaries Following Reinsurance Agreement Announcement

AM Best has commented that the Credit Ratings (ratings) of Lincoln National Corporation (LNC) (headquartered in Radnor, PA) and its subsidiaries remain unchanged following the May 2, 2023, announcement that the company has entered into an agreement to reinsure a portion of its secondary guaranteed universal life (SGUL), fixed annuities (FA) and MoneyGuard (MG) blocks of business to Fortitude Reinsurance Company Ltd., a Bermuda-based reinsurer. The transaction reinsures 40% of in-force SGUL business, 40% of in-force FA business and 80% of in-force MG business. The reinsurance deal is expected to close during second-quarter 2023.

The transaction is in line with LNC’s previously announced strategy to rebuild capital by pausing share buybacks, raising capital through preferred equity issuances and a potential block reinsurance transaction.

In November 2022, AM Best downgraded the ratings of LNC and its life/health subsidiaries and revised the outlooks to negative from stable (see related press release) due to a significant change in assumptions in the company’s universal life (UL) insurance block of business that resulted in a significant GAAP unlocking charge 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), declined due to a statutory capital charge of approximately $300 million that was recorded during fourth-quarter 2022 as part of the company’s UL assumption update. Risk-adjusted capital also was impacted negatively from equity market volatility in 2022.

AM Best believes that LNC’s reinsurance agreement with Fortitude Re is a positive development as it continues to demonstrate the company’s commitment to executing its strategy and goal to improve its capital position for the long term. The transaction is expected to improve risk-based capital (RBC), increase free cash flow and reduce risks associated with long-term assumptions, specifically within the SGUL block of business. However, the transaction will cause a reduction in GAAP net income in the early years with the adverse impacts expected to turn positive longer term. AM Best will continue to monitor the progression of LNC, including its overall capitalization as measured by BCAR, as well as its RBC ratio.

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.

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