Last week, Moody's Investors Service of
) upgraded the financial and credit ratings of life insurer
Lincoln National Corp.
). The ratings were raised based on the life insurer's strong
business profile as well as the ability to withstand and recover
amid a fluctuating economic scenario.
Accordingly, Moody's elevated its credit rating on Lincoln's
senior debt to "Baa1" from "Baa2", whereas the financial strength
rating (FSR) of Lincoln and its subsidiaries was upped to "A1"
from "A2". Meanwhile, the short-term rating for commercial paper
was avowed at "P-2". The outlook for all ratings remained stable.
In May 2010, Moody's had revised its outlook on Lincoln and its
operating subsidiaries to stable from negative.
According to Moody's, Lincoln has come a long way since the
financial crisis and its strong capital and asset position
reflect a healthy recovery for the company. The ratings agency
also commended the company's superior risk management skills
through a well-placed hedging program in order to combat the
volatile equity markets and low interest rate environment,
thereby enhancing Lincoln's credit profile.
Additionally, operating growth has been strengthened by a
de-risked product portfolio, an expanded distribution network and
a shift away from capital-intensive and interest-sensitive
products. Diversification into individual life insurance,
annuities, retirement services and group protection products
further mitigates market risk and boosts the competitive edge for
Moody's also elucidated on Lincoln's improved financial
leverage, which stood at 23.5% at the end of Mar 2013, in line
with the expectations of the ratings agencies. The improved
financial leverage will likely continue to tread in the
low-to-mid 20% band in 2013. Moreover, the company remains
well-funded to redeem debt worth $200 million due Jul 2013 and
cover interest charges for more than a year. This should further
improve the financial leverage going ahead.
Moody's is concerned over Lincoln's relatively weak cash flow
coverage ratios. However, the rating agency is confident about
the company's resilient and proactive measures to deleverage its
balance sheet and deliver higher earnings, thereby improving its
cash flow coverage ratios and reserve levels over time.
We believe that Lincoln's comprehensive capital plan is firm
enough to mitigate credit and interest rate risks, while
providing liquidity to its growth strategy in the long run. The
company's consistently efficient capital deployment plans also
instill confidence among investors and ratings agencies.
While Lincoln carries a Zacks Rank #3 (Hold), Moody's holds a
Zacks Rank #2 (Buy). Other outperforming insurers include
Reinsurance Group of America Inc.
StanCorp Financial Group Inc.
). Both these stocks carry a Zacks Rank #2 (Buy).
LINCOLN NATL-IN (LNC): Free Stock Analysis
MOODYS CORP (MCO): Free Stock Analysis Report
REINSURANCE GRP (RGA): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
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