Close

Fitch Affirms Torchmark Corporation's Ratings; Outlook Stable

December 2, 2016 4:53 PM EST

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings has affirmed Torchmark Corporation's (TMK) Issuer Default Rating (IDR) at 'A-' and the Insurer Financial Strength (IFS) ratings for TMK's insurance subsidiaries at 'A+'. The Rating Outlook is Stable. A complete list of rating actions follows at the end of this release.

KEY RATING DRIVERS

Fitch's ratings on TMK reflect the company's very strong and stable operating profitability, strong competitive position in its niche small-face-amount life and supplemental health insurance markets, reasonable financial leverage and below-average exposure to interest rate risk. The ratings also reflect the quality of the statutory capitalization of TMK's insurance subsidiaries, which is negatively affected by the companies' investment in parent company senior debt and preferred stock.

Fitch considers TMK's operating earnings and cash flow to be very strong and stable. The company has consistently generated return on equity (ROE) of between 13% and 15% over the past decade. Through the first nine months of 2016, the company's pre-tax operating earnings were approximately $609 million and ROE was 14.7%, which is stable from the same period in 2015. This level of earnings resulted in interest coverage of 10.7x for the first nine months of 2016, which is down from 11.8x for the same period in 2015 due to a temporary elevation of financial leverage, but is in line with Fitch's expectations for the company's current rating category.

TMK maintains a strong competitive position marketing individual life and supplemental health insurance in a number of niche markets such as union and credit union members, juvenile and senior life insurance consumers, and active and retired military officers. Its competitive position benefits from distinct distribution channels that target these specific niches.

Fitch views TMK as having below-average exposure to interest rate-sensitive businesses given the company's focus on protection oriented life and health insurance businesses. However, the company's ability to grow excess interest income margins continues to be constrained due to ongoing low interest rates.

Fitch considers TMK's financial leverage to be reasonable for its operating profile and within expectations for its current rating category. Financial leverage was 27% at Sept. 30, 2016, which is up slightly from 25% at year-end 2015 due to $400 million in new debt during second quarter 2016 partially offset by a $250 million bond maturity. Fitch considers TMK's debt service to be strong, supported by the consistently strong operating performance of TMK's insurance subsidiaries, which provide the holding company with robust cash flow. TMK uses these cash flows mainly for debt service and significant share repurchases.

Fitch views TMK's Prism score of 'Strong' to be reasonable for the company's current 'A+' IFS rating given the stability of its earnings and cash flow. The company's consolidated total adjusted capital (TAC) and NAIC RBC at year-end 2015 were $1.4 billion and 317%, respectively. The company's RBC was down from 327% year-end 2014, and is currently modestly below management's target RBC of 325. Due to the ownership of a portion of TMK's outstanding senior debt and preferred stock, Fitch believes the insurance subsidiaries' quality of capital is weaker than reported RBC would imply. These parent company investments are taken into consideration in the company's Prism score.

RATING SENSITIVITIES

Key rating triggers that could lead to an upgrade include:

--Improved capital adequacy that results in a Prism score approaching 'Very Strong', or an RBC ratio above 350% with sustained or improved capital quality;

--Financial leverage of 20% or below and total financings commitments ratio below 0.40x;

--GAAP earnings-based interest coverage ratio 13 times or above.

Key rating triggers that could lead to a downgrade include:

--Return on equity of 12% or less;

--A reduction in capitalization that results in a Prism score of 'Adequate' or an RBC ratio below 290% with sustained or worsened capital quality;

--Financial leverage above 30% or total financings commitments ratio above 0.55x;

--GAAP earnings-based interest coverage ratio below 8x.

FULL LIST OF RATING ACTIONS

Fitch has affirmed the following ratings:

Torchmark Corporation

--Long-term IDR at 'A-';

--Short-term IDR at 'F2';

--9.25% senior debentures due 2019 at 'BBB+';

--7.875% senior notes due 2023 at 'BBB+';

--3.8% senior notes due 2022 at 'BBB+';

--5.875% junior subordinated debentures due 2052 at 'BBB-';

--6.125% junior subordinated debentures due 2056 at 'BBB-';

--Commercial paper at 'F2'.

Liberty National Life Insurance Company

United American Insurance Company

Globe Life & Accident Insurance Company

American Income Life Insurance Company

--IFS at 'A+'.

The Rating Outlook is Stable.

Additional information is available on www.fitchratings.com

Applicable Criteria

Insurance Rating Methodology (pub. 15 Sep 2016)

https://www.fitchratings.com/site/re/887191

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1015832

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1015832

Endorsement Policy

https://www.fitchratings.com/regulatory

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTPS://WWW.FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed.

The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers.

For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Fitch Ratings
Primary Analyst
Bradley Ellis, CFA
Director
+1-312-368-2089
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Nelson Ma, CFA
Director
+1-212-908-0273
or
Committee Chairperson
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations
Hannah James, + 1 646-582-4947
[email protected]

Source: Fitch Ratings



Serious News for Serious Traders! Try StreetInsider.com Premium Free!

You May Also Be Interested In





Related Categories

Press Releases

Related Entities

Fitch Ratings, Earnings