A.M. Best Rates Torchmark Stable - Analyst Blog
June 13 2011 - 8:15AM
Zacks
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 31st 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).
AFLAC INC (AFL): Free Stock Analysis Report
ASSURANT INC (AIZ): Free Stock Analysis Report
TORCHMARK CORP (TMK): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
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