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FOR IMMEDIATE RELEASE
OLDWICK - JULY 03, 2019 10:41 AM (EDT)
AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the key life/health subsidiaries of Torchmark Corporation (Torchmark) (headquartered in McKinney, TX) [NYSE: TMK]. Concurrently, AM Best has affirmed the Long-Term ICR of “a-” and the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Torchmark. The outlook of the Credit Ratings (ratings) remains negative. (See below for a detailed listing of these companies and ratings).
The ratings of the life/health insurance subsidiaries of Torchmark reflect their balance sheet strength, which AM Best categorizes as strong, as well as their very strong operating performance, favorable business profile and appropriate enterprise risk management.
The negative outlooks reflect the lack of a sustained growth in capital and surplus on a consolidated and entity level basis over the past several years due to sizeable stockholder dividends paid to its parent, which have primarily been used for share repurchases. AM Best does acknowledge that Torchmark’s capital and surplus increased by approximately 10% in 2018 due to higher retained earnings and a capital contribution from its parent. In addition, risk-adjusted capitalization has been impacted by a considerable increase in NAIC Class 2 securities in its general account investment portfolio, as well as the relatively long duration of these assets, which can result in an increase in unrealized losses in an increasing interest rate environment or if credit spreads widen. AM Best further notes that Torchmark’s consolidated NAIC risk-based capital ratio has remained flat over the last several years. AM Best believes that the current capital levels leave little room for sudden or unforeseen stress scenarios at its current strong balance sheet assessment.
Offsetting these negative rating factors are Torchmark’s historical track record of generating strong operating cash flows on a consistent basis, its favorable liability profile and adequate liquidity throughout the organization. Torchmark has experienced increased premium growth in most of its key insurance subsidiaries; however, overall premium growth has been impacted negatively by Torchmark’s exit from its Medicare Part D prescription drug business and a decline in sales within its direct-to-consumer sales channel due to the exiting of certain geographic markets that were not as profitable. Torchmark continues to generate very strong earnings on its core inforce life and health businesses, with profitability measures substantially higher than industry peers.
The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed with a negative outlook for the following life/health subsidiaries of Torchmark Corporation:
The following Short-Term IR has been affirmed:
— AMB-1 on commercial paper
The following Long-Term IRs have been affirmed with a negative outlook:
— “a-” on $300 million 3.80% senior unsecured notes, due 2022
— “a-” on $200 million 7.875% senior unsecured notes, due 2023
— “a-” on $550 million 4.55% senior unsecured notes, due 2028
— “bbb” on $300 million 6.125% junior subordinated debentures, due 2056
The following indicative Long-Term IRs available under the shelf registration have been affirmed with a negative outlook:
— “a-” on senior unsecured debt
— “bbb+” on subordinated debt
— “bbb” on preferred stock
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global rating agency and information provider with a unique focus on the insurance industry.