A.M. Best reiterated the issuer credit ratings (ICR) of “a-” of Torchmark Corporation TMK. Concurrently, the rating agency reiterated the financial strength rating (FSR) of A+ (Superior) and the ICR of “aa-” of the primary life/health subsidiaries of Torchmark. The ratings carry a stable outlook.
The rating affirmations were backed by diversified product lines, a multi-channel distribution platform and a niche in the life insurance market. The company’s subsidiaries – Globe Life and Accident Insurance Company, American Income Life Insurance Company, Liberty National Life Insurance Company and Family Heritage Life Insurance Company of America – have been generating sales and earnings growth and witnessing solid cash flows. Also, leverage ratio of just below 25% and interest coverage more than eleven times of earnings are within A.M. Best’s guidelines for the current ratings.
However, the company’s risk-adjusted capitalization has deteriorated due to the rating downgrade of fixed-income securities primarily within the energy sector, and increase in C-1 asset risk charges and required capital to support this risk.
Also, United American Insurance Company, a subsidiary of Torchmark that provides Medicare supplement insurance, has been witnessing a steep decline in premiums due to the planned lapse of a large block of Medicare Part D business. Torchmark has announced its intention to exit the Medicare Part D business because of margin erosion, competition and compliance requirements, leading to an increase in claims cost and administrative expenses. Though this will weigh on the company’s revenues, A.M. Best anticipates favorable operating results as the Medicare Part D business did not contribute significantly to overall earnings over the last few quarters.
Rating affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as in maintaining credit worthiness in the market. On the other hand, rating downgrades damage business, apart from increasing the cost of future debt issuances. We believe that strong ratings will help Torchmark to retain investor confidence and help it in writing more business, going forward.
Torchmark carries a Zacks Rank #2 (Buy). Investors interested in life insurers can look at GWG Holdings, Inc. GWGH, Health Insurance Innovations, Inc. HIIQ and Manulife Financial Corporation MFC. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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