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A.M. Best Revises Outlooks to Negative for Torchmark Corporation and Its Subsidiaries
[July 11, 2018]

A.M. Best Revises Outlooks to Negative for Torchmark Corporation and Its Subsidiaries


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 Compay (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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