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) (headquartered in McKinney, TX) [NYSE: TMK]. Concurrently, A.M. Best has affirmed the ICR of “a-” and all existing issue ratings of Torchmark. The outlook for each rating is stable. (See below for a detailed listing of the companies and issue ratings.)

The ratings of Torchmark reflect the diversity of its product lines, its multi-channel distribution platform and its established market niche in the ordinary life insurance market. Torchmark has experienced sales growth in each of 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 also produced consistent positive cash flows and operating earnings on a statutory and GAAP basis. A.M. Best also notes that sales and operating earnings continue to increase for Family Heritage Life Insurance Company of America (Family Heritage) (Cleveland, OH), as recruiting efforts have led to increased agent counts in recent periods. Torchmark’s adjusted GAAP financial leverage has remained steady in recent periods at just under 25%, while interest coverage remains strong at over eleven 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, there was a sharp decline in premiums at United American Insurance Company (United American) (headquartered in McKinney, TX), Torchmark’s main provider of Medicare supplement insurance. The decline in premiums was partially driven by the planned lapse of a large block of Medicare Part D 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. While this exit will have a negative impact on United American’s overall revenue during 2016, A.M. Best expects operating results to remains favorable, as the Medicare Part D segment contributed only modestly to overall earnings in recent periods.

Although Torchmark’s risk-adjusted capitalization remains adequate, it has declined over the most recent period — to below targeted levels — due to downward ratings migration of fixed-income securities primarily within the energy sector and corresponding increase in C-1 asset risk charges and required capital 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 and its favorable liability profile and adequate liquidity throughout the organization.

The FSR of A+ (Superior) and the 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
  • First United American Life Insurance Company

The FSR of A (Excellent) and the ICR of “a+” have been affirmed with a stable outlook for Family Heritage Life Insurance Company of America, a life/health subsidiary of Torchmark Corporation.

The following issue ratings have been affirmed:

Torchmark Corporation—
-- AMB-1 on commercial paper

The following issue ratings 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 issue ratings 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 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 see A.M. Best’s Recent Rating Activity web page.

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