Standard & Poor's Corp. last week downgraded all industrial revenue issues guaranteed by Phoenix Mutual Life Insurance Co. and Lincoln National Corp., affecting $458 million in municipal debt.

In all, 58 deals were taken down one notch. The 35 issues guaranteed by Phoenix Mutual were downgraded, to AA from AA-plus, while the 23 Lincoln National revenue deals were revised to A-plus from AA-minus.

For both guarantors, real estate and asset quality problems led Standard & Poor's to discount the creditworthiness of their bond insurance policies. The companies' insurance policies act exactly like regular bond insurance, guaranteeing the timely payment of principal and interest.

Phoenix Mutual's one-notch downgrade was due to a change in the life insurer's risk profile, according to Timothy Clark, ratings analyst at Standard & Poor's. "It's related to the commercial mortgage portfolio," Mr. Clark said. "We've been tracking the loans on their books, and we see some deterioration in the [portfolio's] performance."

Although the erosion in the company's loans is "inconsistent" with the former AA-plus rating, "it remains an excellent company," he said. Phoenix is not experiencing any of the severe image problems that led policyholders to swamp Executive Life Insurance Co. and Mutual Benefit Life Insurance Co. with surrenders and drain assets, Mr. Clark emphasized.

Lincoln National Corp., a property/casualty and life insurer, was downgraded due to its mortgage lending, according to Karen Knoller, analyst at Standard & Poor's. The insurer's short-term rating was dropped to A1 from A1-plus.

Ms. Knoller reported Lincoln National's insurance subsidiary, Lincoln National Life Insurance Co. could lose up to $50 million annually for the next several years. Offsetting that forecast, however, is the support of its parent company. Lincoln National Corp. is expected to contribute $100 million in the future, which, along with declining capital needs, should mitigate the foreseen losses.

Lincoln National Life "will be challenged to internally generate the surplus necessary to support growth, parental dividend needs, and potential asset write-offs while maintaining solid capital strength," Ms. Knoller wrote in a report.

Standard & Poor's looks skeptically on Lincoln National's decision to leave one of its core businesses -- group life and health insurance coverage. Ms. Knoller asserted the move could result in "near-term performance fluctuations and longer-term, possibly reduced earnings."

In the firm's favor, Ms. Knoller noted, was a high-quality investment portfolio which assists the insurer's liquidity position. The portfolio "can readily handle maturing guaranteed investment contracts, and annuity products are structured to to preclude losses on early surrenders," she wrote.

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