Fitch Ratings has affirmed the ratings and Stable Rating Outlook of Torchmark Corp. (TMK) and its insurance subsidiaries. A complete list of the ratings appears at the end of this release.
The affirmation of TMK's ratings reflects Fitch's view that TMK's financial and operating profiles continue to be consistent with rating expectations. Investment impairments have moderated over the past year in line with Fitch's expectations. TMK's gross unrealized losses declined from $723 million at Dec. 31, 2009 to $280 million at Sept. 31, 2010.
On Dec. 31, 2010 TMK completed the sale of United Investors Life Insurance Company (UILIC) to Protective Life Insurance Company (Protective, a subsidiary of Protective Life Corporation), as announced in October 2010. The sale and preceding asset transfer resulted in $648 million in proceeds for UILIC's immediate parent, Liberty National Life Insurance Company. The sale created a small GAAP loss for TMK but will not have a material impact on consolidated GAAP results. UILIC is not a significant aspect of TMK's business strategy or its earnings profile.
The continued strong earnings profile of TMK's remaining insurance subsidiaries are expected to lead to improved capital and NAIC risk based capital(RBC) in 2010 and 2011. Fitch estimates TMK's total adjusted capital and RBC to be $1.5 billion and 342%, respectively, at Sept. 30, 2010. Earnings have proven resilient during the economic crisis and provide a strong dividend stream to the holding company.
TMK replaced its bank credit agreement in December 2010 with a new facility with extended maturity and greater flexibility. The company's financial leverage at Sept. 30, 2010 was 20%, down from 21.8% at year-end 2009 and remains in line with Fitch's expectation of 18%-25%. TMK's total financings and commitments (TFC) ratio was 0.33 at Sept. 30, 2010, which is consistent with rating expectations. TMK had strong interest coverage of 11 times (x) through September 2010, up from 9x in 2009.
TMK reported $17.7 billion in assets and $4.3 billion in shareholders equity on Sept. 31, 2010.
Key rating drivers that could lead to an upgrade include:
--Improved
diversification in earnings and risk.
--Sustained statutory capital
adequacy levels above 370% RBC.
Key rating drivers that could lead to a downgrade include:
--Increased
investment losses beyond Fitch's expectations.
--A sustained
statutory capital adequacy below 290% RBC.
--Increased equity
credit adjusted financial leverage above 25% or total financings
commitments ratio above 0.55x.
Fitch affirms the following ratings with a Stable Outlook:
Torchmark Corporation
--Long-term Issuer Default Rating (IDR) at
'A-';
--Short-term IDR at 'F2';
--Senior debt at 'BBB+';
--9.25%
senior debentures due 2019 at 'BBB+';
--7.875% senior notes due
2023 at 'BBB+';
--7.375% senior notes due 2013 at 'BBB+';
--6.375%
senior debentures due 2016 at 'BBB+';
--Commercial paper rating at
'F2'.
Torchmark Capital Trust III
--Preferred stock at 'BBB-'.
Liberty National Life Insurance Company
United American Insurance
Company
Globe Life & Accident Insurance Company
American
Income Life Insurance Company
--Insurer Financial Strength (IFS) at
'A+'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Insurance Rating
Methodology' (Aug. 16, 2010);
--'Life Insurance Rating Methodology'
(March 24, 2010);
--'Insurance Industry: Global Notching
Methodology and Recovery Analysis' (Dec. 29, 2009);
--'Fitch's
Approach to Rating Insurance Groups' (Dec. 14, 2010).
Applicable Criteria and Related Research:
Insurance Rating
Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766
Life
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506285
Insurance
Industry: Global Notching Methodology and Recovery Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114
Fitch's
Approach to Rating Insurance Groups
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=586765
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Contacts:
Fitch Ratings
Primary Analyst:
Bruce Cox, +1-312-606-2316
Director
Fitch,
Inc.
70 W. Madison
Chicago, IL 60670
or
Secondary
Analyst:
Manish Patel, +1-312-368-3188
Associate Director
or
Committee
Chairperson:
Don Thorpe, +1-312-606-2353
Senior Director
or
Media
Relations:
Brian Bertsch, +1-212-908-0549 (New York)
brian.bertsch@fitchratings.com