A.M. Best Revises Outlooks to Negative for Torchmark Corporation and Its Subsidiaries
July 11 2018 - 05:51PM
Business Wire
A.M. Best has revised the outlooks to negative from
stable and 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, A.M. Best revised the outlook to negative from
stable and affirmed the Long-Term ICR of “a-” and the Long- and
Short-Term Issue Credit Ratings (Long-Term IR; Short-Term IR) of
Torchmark. (See below for a detailed listing of these companies and
ratings)
The Credit Ratings (ratings) of the life insurance subsidiaries
of Torchmark reflect the balance sheet strength, which A.M. Best
categorizes as strong, as well as its very strong operating
performance, favorable business profile and appropriate enterprise
risk management.
The outlook revisions to negative reflect the gradual decline in
balance sheet strength over the past several years, including a
decline in risk-adjusted capitalization on a consolidated and
entity level basis. A.M. Best notes that several core subsidiaries
remain below A.M Best’s target levels primarily due the above
average level of NAIC class two securities in its general account
investment portfolio and the relatively long duration of these
assets, which can result in an increase in unrealized losses if
interest rates continue to rise or if credit spreads widen.
Risk-adjusted capitalization for 2017 also was impacted by tax
reform. While Torchmark’s risk-adjusted capitalization remains
lower than some of its similarly rated peers, this concern is
somewhat 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. However, Torchmark’s current level of risk-adjusted
capitalization leaves little room for sudden or unforeseen stress
scenarios at its currently strong balance sheet assessment.
Torchmark maintains a multichannel distribution platform through
which it specializes in providing a diversified portfolio of life
and supplemental health insurance products to middle and lower
middle class Americans. In addition, Torchmark has established
several market niches and demonstrated the ability to generate
consistently a significant level of positive cash flows from its
insurance operating subsidiaries. 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 20%, while interest coverage
remains very strong at over 10 times earnings. Both ratios are well
within A.M. Best’s guidelines for the organization’s current
ratings.
Torchmark also 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; 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; and Family Heritage
Life Insurance Company of America (Family Heritage) (Cleveland,
OH), which offers supplemental limited-benefit health insurance to
middle and lower middle income families. Overall premium growth is
attributable to the successful recruitment and retention of agents
in its exclusive career distribution channels. However, A.M. notes
that the company experienced a decline in sales at Globe Life as it
focuses more on the profitability of this business and exited
certain geographic markets that were not as profitable.
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 is 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.
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:
- Globe Life And Accident Insurance
Company
- American Income Life Insurance
Company
- National Income Life Insurance
Company
- Liberty National Life Insurance
Company
- Family Heritage Life Insurance
Company of America
- United American Insurance
Company
- Globe Life Insurance Company of New
York
The following Short-Term Issue Credit Rating has been
affirmed:
Torchmark Corporation—-- AMB-1 on commercial paper
The following Long-Term IRs have been affirmed with a negative
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 $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:
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.
A.M. Best is the world’s oldest and most authoritative
insurance rating and information source. For more information,
visit www.ambest.com.
Copyright © 2018 by A.M. Best Rating
Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.
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version on businesswire.com: https://www.businesswire.com/news/home/20180711005862/en/
A.M. BestMichael Adams, +1-908-439-2200, ext.
5133Senior Financial
Analystmichael.adams@ambest.comorWilliam Pargeans,
+1-908-439-2200, ext.
5359Directorwilliam.pargeans@ambest.comorChristopher
Sharkey, +1-908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy,
+1-908-439-2200, ext. 5644Director, Public
Relationsjames.peavy@ambest.com
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