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In what must have appeared as insult added to injury for Lincoln National ( LNC), Standard & Poor's forecasts that the next year and a half will be the toughest for U.S. life insurers because of losses on commercial mortgage-backed securities, commercial mortgages and bonds.

Moody's mirrored this gloomy picture for Lincoln National by announcing downgrades of senior debt and the financial strength ratings of subsidiaries Lincoln National Life Insurance Co. and Lincoln Life & Annuity Co. of New York from "A1" to "A2." Fitch followed with its own rating cut Friday.

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Lincoln National spokeswoman Lauren Sammerson said the company's Troubled Asset Relief Program application is still going through the process.

According to SNL Financial, there are 18 companies that potentially qualify for TARP funding, including the mother of all bailouts, American International Group ( AIG). Six of the 18 have applied for TARP funding, including Ameriprise Financial ( AMP), Hartford Financial Services Group ( HIG) and Prudential Financial ( PRU). Most of them have suffered declines in their risk-based capital coverage, the amount of money an insurance company is required to maintain relative to its risk exposure.

Despite Lincoln National's protestations that it's not planning on receiving any TARP funding, the insurer needs the funding -- if Standard & Poor's is right about the stress to be faced by life insurers. Moody's believes there is high risk.

Lincoln National said it has repaid $500 million in debt and will repay $200 million in commercial paper from dividends paid by subsidiary insurance and reinsurance companies. All this despite $219 million in losses through 2008.

The company's cash and liquid bonds as a percentage of liabilities is 44%, high compared with Ameriprise's 36%, Hartford's 26% and Prudential's 38%.

Lincoln National's stock has repelled almost all investors. It has fallen 82% over the past 12 months, almost twice that of the SNL Insurance underwriter index's 46% decline.

Progress in reversing the financial losses and strengthening the balance sheet in the first quarter would take the sting out of concerns that the deterioration will get worse. The results will be published May 5.

Short-term debt is expected to be about $450 million, at or below previous years after repayment of the $200 million, according to analysts. Additionally, Lincoln National has intercompany credit lines of $1 billion and a separate $1 billion undrawn facility, a dependence that was part of Fitch's reason for downgrading the insurer last week.

Lincoln National's liquidity has improved and its risk-based capital coverage of 393% at year-end compares with MetLife's ( MET) 389% and Hartford's 447%, according to SNL Financial. AIG has 236% of coverage. Lincoln National said it has released capital through a $240 million reinsurance transaction for Lincoln National Life Insurance Co.

There's no compelling reason not to believe that Lincoln National can survive, with or without TARP funding. The insurer's stock is rated C, or "hold," by TheStreet.com Ratings.

TheStreet.com Ratings, recently cited for Best Stock Selection from October 2007 through February 2009 , is an independent research provider that combines fundamental and technical analysis to offer investors tremendous value in volatile times. To see how your portfolio can use this research, click here now!

Gavin Magor joined TheStreet.com Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.

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