TEXT-Fitch affirms Torchmark Corp ratings
June 25 - Fitch Ratings has affirmed the 'A-' long-term ratings and 'A+' Insurer Financial Strength (IFS) ratings of Torchmark Corp. (TMK) and its insurance subsidiaries. The Rating Outlook remains Stable. 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. Consistently strong earnings at TMK's insurance subsidiaries continue to provide TMK's holding company with robust cash flow which is mainly used for debt service and share repurchases. For the first three months of 2012, TMK had pre-tax operating return on assets (ROA) of 3.9% and GAAP earnings based interest coverage of 9.4 times(x). This was down slightly from historical levels (ROA 4%-5%, and interest coverage 10x-13x). However, TMK's overall profitability and interest coverage ratios continue to exceed rating guidelines. Additionally, they are better than similarly rated peers, which have comparable measures of about 1.4% and 8x, respectively for 2011. Fitch views TMK's capital as adequate for its current 'A+' IFS rating. Fitch estimates TMK's total adjusted capital (TAC) and NAIC Risk Based Capital (RBC) to be $1.4 billion and 333%, respectively (at March 31, 2012) These levels are in-line with the previous two quarters and the 325% RBC target set by TMK. TMK's financial leverage increased to 26% at March 31, 2012, versus 24% at year-end 2011. Financial leverage is above Fitch's expectation of equal to or less than 25%. However, the increase is expected to be temporary. The leverage increase is due to a $395 million or 9.4% decline in GAAP shareholders' equity compared to year-end 2011. This decline was associated with the adoption of Accounting Standard Update 2010-26 in first quarter-2012. TMK's total financing and commitment (TFC) ratio was 0.41x at March 31, 2012. This remains in line with Fitch's expectation of less than 0.55x and is stronger than most peers. TMK reported $16.7 billion in assets and $3.8 billion in shareholders' equity on March 31, 2012. Key rating triggers that could lead to an upgrade include: --Improved diversification in earnings and risk. --Sustained statutory capital adequacy levels above 370% RBC. Key rating triggers that could lead to a downgrade include: --Investment losses beyond Fitch's expectations. --A sustained statutory capital adequacy below 290% RBC. --Increased equity credit adjusted financial leverage above 25% or total financing and commitments ratio above 0.55x. --GAAP earnings based interest coverage ratio below five times. Fitch affirms the following ratings with a Stable Outlook: Torchmark Corporation --Long-term 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+'.
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