As a part of its yearly review exercise, rating agency A.M.
Best has affirmed the financial strength ratings (FSR) and the
issuer credit ratings (ICR) of
) and its subsidiaries. Torchmark's subsidiaries have been
affirmed with FSR of "A+" and ICR of "aa-," while Torchmark has
been affirmed with an ICR of "a-." All the existing debt ratings
have also been affirmed. All these ratings hold a stable
A.M. Best acknowledges Torchmark's solid market presence as
well as a broad product profile that offers annuities, whole and
term life insurance, accidental death insurance, health
insurance, Medicare supplements and long-term healthcare
policies. The rating agency views favorably positive contribution
made by Torchmark's subsidiaries, Liberty National Life, American
Income Life Insurance and Globe Life and Accident Insurance.
The rating agency has a positive view of the product
diversification benefit from the company's individual annuity and
supplemental health insurance lines of business.
The recent acquisition of privately-held supplemental health
insurer Family Heritage Life Insurance Company of America is also
viewed positively by the rating agency. The acquisition will be
accretive to the company's 2013 earnings.
Cost reduction measures adopted by the company, improved
persistency and agent recruitment at some of its major
subsidiaries contributed to the rating affirmation.
The rating agency views favorably Torchmark's business mix
which primarily consists of individual life insurance products.
These provide more stable earnings than the supplemental health
However, the rating agency views premium challenges in some
lines of businesses. The company's health insurance business
continues to be affected by the changes related to the Patient
Protection and Affordable Care Act. In response to the changes
required to be made as per the Act, the company has discontinued
selling some of the products in this segments, which has directly
hit contribution from this segment.
Torchmark also continues to faces issues relating to agents in
Liberty National. While the company has undertaken effort to
appoint and retain agents, these efforts have yielded only modest
results. The rating agency remains concerned with declining
contribution from Liberty National stemming from lower agent
In addition Torchmark's long-duration investment portfolio,
with a high concentration of fixed maturity assets, which may
cause market value to decline in the event of a rise in interest
rates from the current low levels, also proved to be an
offsetting factor to the ratings. The rating agency also notes
that the company has a high level of fixed assets, which are
rated "bbb". Both these features of the company's investment
portfolio would make it vulnerable to investment impairments, if
there is a downturn in the credit cycle.
A.M. Best also acknowledges Torchmark's moderate leverage
ratio which stood at roughly 24% level. Its debt servicing
capability is also strong which is witnessed by interest coverage
ratio of 9x.
A.M. Best stated that ratings will be subject to downgrade if
risk-adjusted capitalization deteriorates to a level that does
not support the ratings or if operating performance falls
markedly short of A.M. Best's expectations or credit risk
increases within the investment portfolio. .
Genworth Financial Inc.
Protective Life Corp.
) carries an investment grade rating from A.M. Best.
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TORCHMARK CORP (TMK): Free Stock Analysis
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