Lincoln National Corp.
) edged up 0.42% to $50.69 on Nov 25, following the reiteration
of the credit and financial strength ratings (FSR) by the ratings
agency - A.M. Best, on Nov 22. This reflects the company's
sustained operating leverage along with improved liquidity and
book value per share.
Accordingly, A.M. Best affirmed its issuer credit ratings
(ICR) of "aa-" and FSR of "A+" for the major subsidiaries of
Lincoln, and avowed an "a-" on the holding company's long-term
debt. The rating agency also asserted the ICR and FSR of
Lincoln's separate subsidiary - First Penn-Pacific Life Insurance
Co. - to "a+" and "A", respectively. These were downgraded by one
notch in Dec 2012. Meanwhile, the outlook for all ratings remains
Rationale Behind Affirmation
Overall, the ratings validate Lincoln's strong and diverse
business profile that benefits from improved pricing and
distribution channels, along with steady asset-liability
management amid the ongoing volatile economic state.
The company has also been able to enhance its operating
profitability, while maintaining a modest financial leverage,
return on equity (ROE) and excess liquidity of about $500
million, after prepayment of debt that was due in 2014.
Lincoln National's strict interest rate management is actively
mitigating risks and reflects favorable interest coverage ratios
within the investment portfolio. These factors have also
strengthened Lincoln's risk-adjusted capitalization and along
with its competitive leverage in the peer group.
The latest 33% dividend hike further reflects its capital
adequacy and minimal balance sheet risks, thereby infusing
value-added confidence among investors. Lincoln National is
expected to further improve its financial leverage in the next
12-18 months, given its prudent enterprise management.
However, A.M. Best's optimistic outlook is partially mitigated
by some concerns over moderate results from core MoneyGuard
products and heightened mortality rate that adversely affects
life insurance profits. Furthermore, a high fraction of interest
and equity-sensitive liabilities raise caution. Alongside, the
persistent low interest rate environment has been hampering
investment returns and the spread-based business.
Nevertheless, the rating agency believes that the company's
hedging program is well-placed and an improvement in interest
rates and equity markets should enhance its financials. It will
facilitate a shift toward higher return businesses, which will
further boost the company's clientele and add new synergies to
its business operations.
Lincoln National presently carries a Zacks Rank #3 (Hold).
However, other better-ranked stocks in the insurance sector
American Equity Investment Life Holding Co.
Manulife Financial Corporation
StanCorp Financial Group Inc.
). While StanCorp Financialsports a Zacks Rank #1 (Strong Buy),
both American Equity and Manulife Financial hold a Zacks Rank #2
AMER EQUITY INV (AEL): Free Stock Analysis
LINCOLN NATL-IN (LNC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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