Fitch Affirms Torchmark Corporation's Ratings; Outlook Stable

CHICAGO--()--Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) of Torchmark Corporation (TMK) and the 'A+' Insurer Financial Strength (IFS) ratings assigned to TMK's insurance subsidiaries. The Rating Outlook is Stable. A complete list of rating actions appears at the end of this release.

KEY RATING DRIVERS

Fitch's ratings on TMK reflect the company's solid and stable operating profitability, reasonable financial leverage, and strong competitive position in its niche small face amount life and supplemental health insurance markets. The rating also reflect the company's adequate risk-adjusted capitalization and an above average allocation of investment grade bonds to NAIC Class 2 securities, which Fitch views as more likely to migrate to below investment grade in a credit downturn.

Fitch considers TMK's operating earnings and cash flow to be historically strong and stable. The company has generated return on equity (ROE) of between 13% and 15% consistently over the past decade. Through the first nine months of 2014, the company's pretax operating earnings were $551 million, essentially unchanged from the same period in 2013, and ROE was 14.8%, down modestly from 15.1% for the same period in 2013. This level of earnings resulted in interest coverage of 10.6x for the first nine months of 2014, which is in line with Fitch's expectations for the company's current rating category.

Fitch views TMK as having below-average exposure to interest rate-sensitive businesses. However, the company's ability to grow excess interest income margins will be constrained due to ongoing low interest rates.

TMK's financial leverage of 26% at Sept. 30, 2014 is considered modestly above expectations but is somewhat mitigated by the consistently strong operating performance of TMK's insurance subsidiaries, which provide the holding company with robust cash flow. TMK uses these cash flows mainly for debt service and share repurchase. The speed and level of TMK's financial leverage reduction and retained earnings growth will be largely influenced by the dedication of cash flow to TMK's share repurchase program.

Fitch views TMK's risk adjusted capitalization as adequate for its current 'A+' IFS rating. TMK's consolidated total adjusted capital (TAC) and NAIC Risk Based Capital (RBC) at year-end 2013 were $1.5 billion and 341%, respectively. The company's RBC was fairly stable from year-end 2012, and Fitch expects it to remain so for year-end 2014. However, due to the ownership of a portion of TMK's outstanding senior debt, Fitch believes the insurance subsidiaries quality of capital is modestly weaker than reported RBC would imply.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade include:

--A sustained statutory capital adequacy above 350% RBC and sustained or improved capital quality;

--Sustained financial leverage 20% or below and total financings commitments ratio below 0.40x;

--GAAP earnings based interest coverage ratio 13 times or above.

Key rating triggers that could lead to a downgrade include:

--Return on equity of 12% or less;

--A sustained statutory capital adequacy below 290% RBC and sustained or worsened capital quality;

--Sustained financial leverage above 25% or total financings commitments ratio above 0.55x;

--GAAP earnings based interest coverage ratio below eight times.

Fitch affirms the following ratings with a Stable Outlook:

Torchmark Corporation

--Long-term IDR at 'A-';

--Short-term IDR at 'F2';

--9.25% senior debentures due 2019 at 'BBB+';

--7.875% senior notes due 2023 at 'BBB+';

--3.8% senior notes due 2022 at 'BBB+';

--6.375% senior debentures due 2016 at 'BBB+';

--5.875% junior subordinated debentures due 2052 at 'BBB-';

--Commercial paper at 'F2'.

Liberty National Life Insurance Company

United American Insurance Company

Globe Life & Accident Insurance Company

American Income Life Insurance Company

--IFS at 'A+'.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (September 2014).

Applicable Criteria and Related Research:

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959255

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Contacts

Fitch Ratings
Primary Analyst
Bradley Ellis, CFA
Director
+1 312-368-2089
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA
Managing Director
+1 312-368-2061
or
Committee Chairperson
Douglas M. Pawlowski, CFA
Senior Director
+1 312-368-2054
or
Media Relations, New York
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Bradley Ellis, CFA
Director
+1 312-368-2089
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Douglas L. Meyer, CFA
Managing Director
+1 312-368-2061
or
Committee Chairperson
Douglas M. Pawlowski, CFA
Senior Director
+1 312-368-2054
or
Media Relations, New York
Brian Bertsch, +1 212-908-0549
brian.bertsch@fitchratings.com