AM Best Information Services

JULY 21, 2017 10:31 AM (EDT)

A.M. Best Affirms Credit Ratings of Torchmark Corp. and Subs; Upgrades Credit Ratings of Family Heritage Life Ins Co. of America

 Michael Adams
Senior Financial Analyst
+1 908 439 2200, ext. 5133

Joseph Zazzera, MBA
+1 908 439 2200, ext.5797

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - JULY 21, 2017 10:31 AM (EDT)
A.M. 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]. In addition, A.M. Best has upgraded the FSR to A+ (Superior) from A (Excellent) and the Long-Term ICR to “aa-” from “a+” for Family Heritage Life Insurance Company of America (Family Heritage) (Cleveland, OH).

Concurrently, A.M. Best has affirmed the Long-Term ICR of “a-” and all the Long- and Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of Torchmark. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the companies and Long- and Short-Term IRs.)

The ratings of Family Heritage reflect the increased level of premiums and earnings contributed to Torchmark over the past several years and its further integration into Torchmark, including its risk management practices and the management of its invested assets. A.M. Best also notes that sales have increased noticeably since its acquisition by Torchmark in 2012 due to the introduction of additional product offerings and as recruiting efforts have led to a steady increase in agent counts. Family Heritage also maintains a more-than-adequate level of risk-adjusted capital for its insurance and investment risks.

The ratings of Torchmark reflect its established market niches and its ability to consistently generate a significant level of positive cash flows from its insurance operating subsidiaries. Through its multichannel distribution platform, Torchmark specializes in providing life and supplemental health insurance to middle and lower-middle class Americans. Torchmark has experienced premium growth in its key subsidiaries, which 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 McKinney, TX), which provides individual whole life and term insurance to the middle and lower-middle income marketplace. Together, these companies have produced positive operating earnings on a statutory and GAAP basis with profit margins noticeably higher than industry averages. Torchmark’s adjusted GAAP financial leverage has declined somewhat in recent periods to approximately 22%, while interest coverage remains strong at over 10 times earnings. These ratios are well within A.M. Best’s guidelines for the organization’s current ratings.

While Torchmark has experienced increased premium growth in most of its key insurance subsidiaries, premiums have generally declined over the past five years at United American Insurance Company (United American) (headquartered in McKinney, TX), Torchmark’s main provider of Medicare supplement insurance. The decline in premiums in more recent periods can be attributable to United American’s withdrawal from its Medicare Part D prescription drug insurance business. In early 2016, the company announced that it would exit this line of business due to several factors, including deteriorating margins, increased competition and increased compliance requirements, which resulted in higher claims cost and elevated administrative expenses. In addition, United American novated an internal reinsurance agreement with an affiliated company in 2016, which had been providing the company with an increasing amount of life insurance premiums and earnings in recent periods. While the novation of this reinsurance agreement and the exit of Medicare Part D has had a negative impact on United American’s overall revenue and earnings, A.M. Best expects operating results to remains favorable over the near- to medium-term.

Although Torchmark’s overall risk-adjusted capitalization remains adequate on a consolidated basis, certain subsidiaries remain below target levels primarily due to the negative impact of downward ratings migration of fixed-income securities within the energy sector, which has increased the required capital needed to support this risk. While Torchmark’s risk-adjusted capitalization remains somewhat lower than some of its peers, this concern is mitigated by the group’s historical track record of generating strong operating cash flows on a consistent basis, its favorable liability profile and adequate liquidity throughout the organization. A.M. Best notes that risk-adjusted capitalization also has improved modestly over the most recent period.

The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed with a stable outlook 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

  • Globe Life Insurance Company of New York

The FSR has been upgraded to A+ (Superior) from A (Excellent) and the Long-Term ICR has been upgraded to “aa-” from “a+”, each with a stable outlook, for Family Heritage Life Insurance Company of America, a life/health subsidiary of Torchmark Corporation.

The following Short-Term IR has been affirmed:

Torchmark Corporation

— AMB-1 on commercial paper

The following Long-Term IRs have been affirmed with a stable outlook:

Torchmark Corporation

— “a-” on $300 million 9.25% senior unsecured notes, due 2019

—“a-” on $300 million 3.80% senior unsecured notes, due 2022

— “a-” on $200 million 7.875% senior unsecured notes, due 2023

— “bbb” on $125 million 5.875% junior subordinated debentures, due 2052

— “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 stable outlook:

Torchmark Corporation

— “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 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 see A.M. 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 A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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