Jun. 15, 2010 (Business Wire) -- A.M. Best Co. has revised the outlook to stable from negative and affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of “aa-” of the major life/health subsidiaries of Torchmark Corporation (Torchmark) (McKinney, TX) [NYSE: TMK]. A.M. Best also has revised the outlook to stable from negative and affirmed the FSR of A (Excellent) and ICR of “a” of Torchmark’s stand-alone rated subsidiary, United Investors Life Insurance Company (United Investors Life) (Birmingham, AL). Concurrently, A.M. Best has revised the outlook to stable from negative and affirmed the ICR of “a-”and all existing debt ratings of Torchmark. All companies are domiciled in Omaha, NE, unless otherwise specified. (See link below for a detailed list of the companies and ratings.)
These rating actions primarily reflect the significant improvement in Torchmark’s unrealized loss position within its fixed-income portfolio and a noticeable decline in below investment grade bonds over the most recent period. The company also maintains a favorable risk-adjusted capital position in each of its insurance operating entities. While A.M. Best notes that Torchmark’s relatively long duration fixed-income portfolio remains susceptible to large fluctuations in market value if interest rates should spike or if corporate credit spreads begin to widen again, the company’s large reserve concentration within the ordinary life line allows it to hold most of its investments to maturity. In addition, the company has sufficient liquidity to cover its short-term debt obligations. Torchmark also continues to maintain financial leverage and interest coverage ratios, which are well within the guidelines for its current ratings.
While overall premiums have been pressured by a decline in health insurance sales in recent years, due to competitive market conditions and a strategic decision to focus more on its core life insurance product lines, Torchmark continues to experience exceptional operating profitability due to strong earnings generated by its stable and highly profitable block of in-force life and health products. In addition, life insurance sales have increased noticeably in the group’s direct response company, Globe Life and Accident Insurance Company, and its labor union-focused insurance operating entity, American Income Life Insurance Company. A.M. Best notes that these two distribution channels generate just under two-thirds of the underwriting margin on a GAAP basis for the entire group. A.M. Best also believes that health insurance premiums may benefit over the near term from an increase in Medicare supplement sales in Torchmark’s health insurance subsidiary, United American Insurance Company.
The group’s operational focus is on the lower middle-to-middle income segment. It targets this underserved market through a diverse network of direct marketing, agencies and niche markets specific to each insurance company, where the brand identity of each company markets to various segments. Going forward, A.M. Best will continue to monitor Torchmark’s ability to increase top line growth while maintaining an adequate capital position in the current competitive market environment.
For a complete listing of Torchmark Corporation and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/061512torchmark.pdf.
The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
