OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit ratings (ICR) of “aa-” of the key life/health subsidiaries of Torchmark Corporation (Torchmark) (McKinney, TX) [NYSE:TMK]. Concurrently, A.M. Best has affirmed the ICR of “a-” and all existing debt ratings of Torchmark. The outlook for all ratings is stable. (See below for a detailed listing of the companies and debt ratings.)
The ratings reflect Torchmark’s status as a niche provider of ordinary life insurance, its overall direct premium growth and its diversified and consistent operating earnings. The organization specializes in providing life and supplemental health insurance to middle-class Americans through multiple distribution channels. Key subsidiaries of Torchmark include: Globe Life and Accident Insurance Company (Globe Life) (headquartered in Oklahoma City, OK), which is one of the largest writers of juvenile direct mail life insurance in the United States; American Income Life Insurance Company (American Income) (headquartered in Waco, TX), which focuses on labor unions; and Liberty National Life Insurance Company (Liberty National) (headquartered in Birmingham, AL), which provides individual whole life and term insurance to the middle and lower-middle income marketplace. Together, these companies have produced consistent individual life insurance sales and earnings for Torchmark.
Additionally, A.M. Best notes that the 2012 acquisition of Family Heritage Life Insurance Company of America (Family Heritage) (headquartered in Cleveland, OH), has also contributed to Torchmark’s premium and earnings growth. While Torchmark’s life insurance products generate the majority of the organization’s earnings, its individual annuity and supplemental health insurance lines of business continue to provide material earnings diversification. A.M. Best views favorably that the majority of Torchmark’s earnings and premiums are derived from individual life insurance, which is seen as generally more creditworthy than annuity and health insurance products. Consistent premium growth, improved persistency and ongoing expense management continue to be the key drivers of Torchmark’s success in the individual life market.
A.M. Best also notes that Torchmark’s adjusted GAAP financial leverage is approximately 25%, while interest coverage remains strong at over eleven times earnings. Both ratios are well within A.M. Best’s guidelines for the organization’s current ratings.
While the organization currently maintains adequate risk-adjusted capital on a consolidated basis, two of its core subsidiaries are below Torchmark’s consolidated targeted regulatory capital level. A.M. Best also notes that Torchmark has been active in increasing the capitalization levels of both companies in recent years through inter-company, co-insurance transactions and the issuance of an internal surplus note. Additionally, A.M. Best notes the long average duration of Torchmark’s fixed income portfolio and to the fact that roughly a quarter of the portfolio consists of financial sector bonds. While the organization maintains a manageable level of below investment grade bonds, it has an elevated exposure to Class 2 securities within its fixed income portfolio, which remains susceptible to large fluctuations in market value should interest rates start to rise. Given the characteristics of its investment portfolio, A.M. Best believes a significant downturn in the credit cycle could result in sizeable realized and unrealized losses for Torchmark, which would likely then stress its targeted level of risk-adjusted capitalization. However, this risk is mitigated by Torchmark’s liability profile, which is weighted toward non-interest sensitive products, as well as by its financial flexibility and strong earnings capacity, which would allow it to quickly restore lost capital under most scenarios.
A.M. Best believes the potential for positive rating actions on Torchmark is unlikely in the near term due to management’s current capitalization strategy. Factors that could lead to negative rating actions include the organization's capitalization falling below targeted levels, a material decline in operating earnings or a significant decrease in net premiums in Torchmark’s core lines of business.
The FSR of A+ (Superior) and the ICRs of “aa-” have been affirmed for the following life/health subsidiaries of Torchmark Corporation:
- Globe Life And Accident Insurance Company
- American Income Life Insurance Company
- National Income Life Insurance Company
- Liberty National Life Insurance Company
- United American Insurance Company
- First United American Life Insurance Company
The FSR of A (Excellent) and ICR of “a+” have been affirmed for Family Heritage Life Insurance Company of America, a life/health subsidiary of Torchmark Corporation.
The following debt ratings have been affirmed:
-- AMB-1 on commercial paper
-- “a-” on $250 million 6.375% senior unsecured notes, due 2016
-- “a-” on $300 million 9.25% senior unsecured notes, due 2019 ($293 million remains outstanding)
-- “a-” on $300 million 3.80% senior unsecured notes, due 2022
-- “a-” on $200 million 7.875% senior unsecured notes, due 2023 ($166 million remains outstanding)
-- “bbb” on $125 million 5.875% junior subordinated debentures, due 2052
The following indicative debt ratings available under the shelf registration have been affirmed:
-- “a-” on senior unsecured debt
-- “bbb+” on subordinated debt
-- “bbb” on preferred stock
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- A.M. Best’s Liquidity Model for U.S. Life Insurers
- Analyzing Insurance Holding Company Liquidity
- Equity Credit for Hybrid Securities
- Evaluating Country Risk
- Evaluating U.S. Surplus Notes
- Insurance Holding Company and Debt Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.
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