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Last Friday, the rating agency A.M.Best affirmed the financial strength ratings (FSR) and the issuer credit ratings (ICR) on Torchmark Corp. (TMK) and its subsidiaries. Torchmark's subsidiaries have been conferred with FSR of "A+" and ICR of "aa-", while Torchmark has been bestowed with an ICR of "a-", along with its existing debt ratings. All the ratings hold a stable outlook.

A.M.Best acknowledges Torchmark's solid market presence as well as a broad product profile that offers annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements, and long-term healthcare policies. Torchmark makes these offerings through its subsidiaries Liberty National Life, American Income Life Insurance, United Investors Life Insurance, United American Insurance and Globe Life and Accident Insurance.

The rating agency views that a low premium growth in certain product lines of Torchmark's life business, which accounts for over 60% of its business, might further suppress the company's growth.

Low agent count is also a headwind to the company. Agent count at Torchmark's subsidiary Liberty National at first quarter end dropped 17% year over year to 1,844. However, the company's new agent recruitment increased the agent count at American Income during the first quarter to 4,039, up 3% sequntially.

Another offsetting factor to the rating is Torchmark's long-duration investment portfolio, having a high concentration (95%) of fixed maturity assets that would cause the market value to decline in case of a rise in interest rates from the current low levels. The rating agency also notes that the company has a high level of fixed assets, which are rated "bbb". Both these features of the company's investment portfolio would make it vulnerable to investment impairments if there is any downturn in the credit cycle.

Torchmark is also active in managing capital through share repurchases. During the first quarter, it spent $187 million to buy 2.9 million shares. Year till date, the company has spent $217 million of its parent company cash to acquire 3.4 million shares.

Besides, Torchmark also has adequate balance sheet capitalization. At December 31^st 2010, the company's consolidated risk-based capital ratio (RBC) was 421% and adjusted capital was approximately $385 million, in excess of the requirement for the target 325% ratio. The parent company began the year with liquid assets of $205 million. Management expects the company to generate approximately $655 million of free cash for 2011. Thus, the total free cash available for 2011 will be around $860 million.

Birmingham, Alabama-based Torchmark competes with Unum Group (UNM), Aflac Inc. (AFL), and Assurant Inc. (AIZ).

 
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