It turned out to be a tough week for Lincoln National Corp. (LNC) ratings. Fitch Ratings downgraded the ratings of Lincoln National Corp. (LNC) and Lincoln National Life Insurance Co. Fitch’s rating outlook is negative.

Also, The Wall Street Journal (WSJ) reports that Moody's Investors Service on Wednesday cut Lincoln National’s rating, and warned of further possible downgrades if the insurer's earnings continue to decline on investment losses.

Key downgrades from Fitch include:

• LNC issuer default rating to BBB+ from A

• LNC senior debt to BBB from A-

• LNC junior subordinated debt to BB+ from BBB+

• LNC Commercial Paper to F2 from F1

• Lincoln National Life Insurance insurer financial strength rating to A+ from AA-

All rating actions reflect the company's exposure to ongoing global capital market turmoil, which Fitch believes will likely result in additional investment losses and further downward pressure on the company's operating earnings as 2009 unfolds.

LNC's earnings declined in 2008 relative to previous years, and Fitch expects continued deterioration in the first quarter of 2009, driven primarily by realized losses and impairments of structured securities, corporate bonds and preferred stocks held in the general accounts of the company's insurance operating companies.

The negative outlook 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, and in more extreme scenarios, could potentially become liquidity constrained.

Moody’s downgrade reflects Lincoln National’s exposure to the stock markets, which have fallen sharply since last fall, with its large block of variable annuities with guarantees as well as its pension and asset management operations, according to WSJ. Moody's said another downgrade is likely if Lincoln National does not receive government funds under the Treasury Department's Troubled Asset Relief Program (TARP), now extended to life insurers. Lincoln National has purchased a bank-holding company to be eligible for the funds.

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