JUNE 11, 2012 12:00 AM (EDT)
A.M. Best Affirms Ratings of Torchmark Corporation and Its Subsidiaries
Senior Financial Analyst
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Assistant Vice President
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Senior Manager, Public Relations
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Assistant Vice President, Public Relations
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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 11, 2012 12:00 AM (EDT)
A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of aa- of the 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 ratings.)
The ratings reflect Torchmarks status as a niche provider of life insurance, its consistently favorable earnings and improved investment results. The organization specializes in providing life and supplemental health insurance to middle class Americans through multiple distribution channels. Key subsidiaries of Torchmark include American Income Life Insurance Company (American Income), which focuses on labor unions; Liberty National Life Insurance Company (Liberty National), which provides individual whole life and term insurance to the middle and lower-middle income marketplace; and Globe Life and Accident Insurance Company (Globe Life), which remains one of the largest writers of juvenile direct mail life insurance in the country. These companies have produced consistent individual life insurance premiums and earnings for Torchmark.
While Torchmarks life insurance products generate the majority of the organizations earnings, its individual annuity and supplemental health insurance lines of business continue to provide earnings diversification. Ongoing expense management, improved persistency and agent growth within some of its subsidiaries are key drivers to Torchmarks future growth. Additionally, A.M. Best notes the improved performance of the groups investment portfolio, which was in a net unrealized gain position of nearly $900 million as of March 31, 2012.
Offsetting these positives are the ongoing premium challenges within some of Torchmarks product lines and the impact it will have on its future growth. Although the agent count has improved within American Incomes distribution force, Liberty National and United American Insurance Company (United American), continue to have challenges recruiting and maintaining agents. A.M. Best notes that the company has implemented programs to improve the retention and the quality of its agency force. However, if the agent count deteriorates, Torchmark is likely to continue to experience declining sales in several product lines at Liberty National and United American.
Additionally, A.M. Best remains concerned about the long duration of Torchmarks fixed income portfolio and its considerablealbeit reducedexposure to financial sector bonds. While the organization maintains a manageable level of below investment grade bonds, it has an elevated exposure to bbb category securities within its fixed income portfolio that 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 would result in sizeable unrealized losses for Torchmark, which would likely stress its targeted level of risk-adjusted capitalization. A.M. Best notes that while the organization currently maintains adequate risk-adjusted capital on a consolidated basis, two of its core subsidiaries are below Torchmarks targeted regulatory capital level due partially to the reclassification of certain bank hybrid securities in 2011.
A.M. Best believes that Torchmark and its subsidiaries are well positioned at their current ratings. Factors that could lead to negative rating actions include a notable reduction in the groups risk-adjusted capital, a declining trend in net premiums within Torchmarks core lines of business or a weakening in investment performance.
The FSRs of A+ (Superior) and ICR of aa- have been affirmed for the following life/health subsidiaries of Torchmark Corporation:
- Liberty National Life Insurance Company
- Globe Life and Accident Insurance Company
- United American Insurance Company
- First United American Life Insurance Company
- American Income Life Insurance Company
- National Income Life Insurance Company
The following debt ratings have been affirmed:
- AMB-1 on commercial paper
- a- on $100 million 7.375% senior unsecured notes, due 2013
- a- on $250 million 6.375% senior unsecured notes, due 2016
- a- on $300 million 9.25% senior unsecured notes, due 2019
- a- on $200 million 7.875% senior unsecured notes, due 2023
Torchmark Capital Trust III
- bbb on $120 million 7.10% trust preferred securities, backed by junior subordinated debentures, due 2046
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
Torchmark Capital Trust IV and V
- bbb on trust preferreds
The methodology used in determining these ratings is Bests Credit Rating Methodology, which provides a comprehensive explanation of A.M. Bests rating process and contains the different rating criteria employed in the rating process. Bests Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
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