LNL’s investment portfolio continues to perform well and is considered a strength, incorporating the expectation for a minor shift in allocation to higher yielding assets. A.M. Best believes the organization’s exposure to riskier structured securities and commercial mortgages is manageable. Moreover, Lincoln currently maintains excess liquidity throughout, which acts as a buffer for any potential adverse experience.A.M. Best notes that overall direct premiums have declined over the most recent period due primarily to pricing actions in the ULSG and fixed indexed annuity product lines. Moreover, sales of its core MoneyGuard product also have moderated from the prior year. LNL continues to face ongoing challenges from competition in its core businesses in addition to market volatility due to its high proportion of interest and equity sensitive liabilities. Although LNL utilizes a robust hedging strategy, the legacy books of ULSG and variable annuities continue to provide a source of risk with respect to ongoing reserve funding and overall operating volatility. LNL also retains a substantial amount of life insurance and annuity account values with credited rates that are currently close to or at minimum guarantees. As with some of Lincoln’s publicly-traded peers, the organization relies on the use of captives to fund Regulation XXX and Guideline AXXX (AG38) reserves and to help smooth earnings volatility driven by its hedging activity. Lincoln’s leverage and coverage ratios remain within A.M. Best’s expectations for its current ratings and its overall financial flexibility is good. A.M. Best notes that the persistent low rate environment continues to negatively impact pretax operating earnings, but this headwind is somewhat mitigated by the current level of excess cash maintained at the holding company (approximately $600 million at September 30, 2012). A.M. Best believes Lincoln and its subsidiaries are well positioned at their current rating level. Negative rating actions could result from a material decline in risk-adjusted capital within the group, deteriorating operating results due to negative market impacts on spreads and/or minimum guarantees or a material increase in overall investment risk.