Rating agency Fitch Ratings has confirmed the insurer default
rating (IDR) at 'A-' and insurer financial strength (IFS)
at 'A+' of
) and its insurance subsidiaries. The ratings were given a stable
outlook, up from the previous negative outlook.
Fitch's rating affirmation acknowledges Torchmark's strong
capital position and solid cash flow. Strong operating
performance of its subsidiaries ensures consistent operating cash
flow to the parent. Used for debt repayment and share
repurchases, it has strengthened the parent's capital and
Fitch also reviewed Torchmark's profitability, taking into
account its Return on Assets (ROA), which stood at 4.1% at the
end of fourth quarter 2012. Its debt service capability, as
measured by interest coverage ratio, also stood at 10.1x. Fitch
noted that both these metrics were in line with the historical
average of 4-5% and 10x-13x for ROA and interest coverage
respectively, and it fared relatively better than peers with 1.4x
and 8.0x for similar metrics.
The affirmation of Torchmark's IFS ratings comes on the back
of its adequate risk-based capital levels. According to Fitch,
the company's current risk based capital and adjusted capital
stands at 330% to 340% and $1.3 to 1.4 billion,
respectively, which aligns with the 325% limit for risk-based
capital set by the company itself.
One of the factors offsetting the strong ratings was
Torchmark's enhanced financial leverage, which stood at 28.1%.
However, the rating agency views this as a temporary
phenomenon driven by issuance of new debt for the acquisition of
Family Heritage Life.
On the positive side, the rating agency, however, notes that
Torchmark has a strong capital profile, which will enable it to
fulfill its commitments reflected through its total financing and
commitment ratio of 0.45x as of Dec 31, 2012. This is stronger
than most of its peers and within the comfort range of 0.55x set
by Fitch Ratings.
The rating agency also laid out the factors, which may cause
an uptick in ratings. These include maintenance of risk based
capital of more than 350%, sustained financial leverage of 20% or
below, total financing commitments ratio below 0.40x and GAAP
earnings based interest coverage ratio 13x or more.
The rating agency could take a reverse action if the company
incurs more-than-expected losses in its investment portfolio; the
risk based capital falls below 290%, financial leverage is higher
than 25%, total financing and commitment ratio breaches the
maximum limit of 0.55x and interest coverage ratio drops below
Other players from the same industry
Genworth Financial Inc.
StanCorp Financial Corp.
) carry an investment grade rating from leading rating
ASSURANT INC (AIZ): Free Stock Analysis
GENWORTH FINL (GNW): Free Stock Analysis
STANCORP FNL CP (SFG): Free Stock Analysis
TORCHMARK CORP (TMK): Free Stock Analysis
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