As a part of its yearly review exercise, rating agency Moody's
has confirmed the insurer financial strength ("IFS") rating of 'A1'
) subsidiary Liberty National Life Insurance Company. The company's
senior debt rating has also been affirmed at 'Baa1.' All the
ratings carry a stable outlook.
Moody's rating affirmation acknowledges Torchmark's strong
capital position and solid cash flow. Torchmark had $16.7 billion
in assets and $3.8 billion in shareholder equity as of March 31,
The rating agency also acknowledges Torchmark's performance in
maintaining its life insurance premiums and underwriting
profitability through underwriting discipline, despite the soft
insurance market and an overall sluggish U.S. economy. The rating
affirmation of Torchmark's subsidiary Liberty National comes on the
back of its strong operating profitability and capital
However, dwindling sales at the company's health insurance
business is one of the factors that offset the ratings. Health
premium declined 6% in 2011, 3% in 2010 and 10% in 2009. The
decreases in both the years were the result of de-emphasis and
discontinuation of sales of limited-benefit hospital-surgical
health products as well as decline in agent counts in the
distribution units that market health products.
These factors have caused reduction in net sales of health
products, which have consequently limited premium growth. Though
Medicare Supplement remains the largest contributor to total health
premium, increased competition has dampened the sales of this
product in recent years, resulting in premium declines in each
successive year. Weakening sales at Torchmark's life insurance
business is also a cause of concern.
The rating agency also outlined the factors, which may cause an
uptick in ratings. These include maintenance of risk-based capital
of at least 375% and successful mitigation of its agent related
The rating agency may take a reverse action if risk-based
capital falls below 325%, financial leverage is higher than 30%,
total adjusted leverage breaches 30% and cash coverage ratio drops
below 4-6x. The agency also requires Torchmark to reduce its
exposure to below investment grade securities to a level consistent
with its other "A" rated peers.
Torchmark also scores strongly with other rating agencies. Fitch
Ratings has recently confirmed the IFS rating of 'A+' and long-term
issuer credit rating ("ICR") of 'A-' for Torchmark Corp. and its
insurance subsidiaries. All the ratings carry a stable outlook.
A.M. Best also affirmed Torchmark subsidiaries' financial
strength rating (FSR) of "A+" and ICR of "aa-," while the parent
has been assigned an ICR of "a-," along with its existing debt
ratings. All the ratings hold a stable outlook.
Torchmark, which competes with
W.R. Berkley Corp.
), currently retains a Zacks #3 Rank corresponding to a short-term
Hold rating. We are also maintaining our long-term Neutral
recommendation on its shares.
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