Feb 14 - Fitch Ratings has affirmed the 'A-' Issuer Default Rating (IDR) of
Torchmark Corporation (TMK) and the 'A+' Insurer Financial Strength
(IFS) ratings assigned to TMK's insurance subsidiaries. The Rating Outlook has
been revised to Stable from Negative. A complete list of ratings appears at the
end of this release.
KEY RATING DRIVERS
The affirmation of TMK's ratings reflects Fitch's view that TMK's financial and
operating profiles continue to be consistent with rating expectations. The
revision of the Outlook to Stable reflects Fitch's view that ample resources are
available to return financial leverage to historical levels once the company
pays off the prefunded $94 million security due in August 2013.
TMK's financial leverage of 28.1% for Dec. 31, 2012 reflects the issuance of new
debt for the above mentioned prefunding and acquisition of Family Heritage Life
in late 2012. The current, above-normal level of financial leverage is partially
mitigated by the consistently strong earnings of TMK's insurance subsidiaries,
which provide the holding company with robust cash flow. TMK uses these cash
flows mainly for debt service and share repurchase. The speed and level of TMK's
financial leverage reduction and retained earnings growth will be largely
influenced by the dedication of cash flow to TMK's share repurchase program.
Fitch estimates TMK's total financing and commitment (TFC) ratio at 0.45x at
Dec. 31, 2012, which is in line with Fitch's expectation of less than 0.55x and
is stronger than most peers.
Based on TMK's reported results for 2012, the company's pre-tax operating return
on assets (ROA) of 4.1% and GAAP earnings-based interest coverage of 10.1x was
down slightly from historical levels (ROA 4%-5%, and interest coverage 10x-13x).
However, TMK's overall profitability and interest coverage ratios are in-line
with rating guidelines but 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)
at year-end 2012 will be between $1.3 and $1.4 billion and 330% to 340%,
respectively. These figures are consistent with TMK's Sept. 30, 2012 and prior
year levels and the 325% RBC target set by TMK. However, due to the purchase of
a meaningful portion of TMK's recent senior debt issue, Fitch believes the
insurance subsidiaries quality of capital has weakened, although not enough to
TMK reported $18.8 billion in assets and $4.4 billion in shareholders' equity on
Dec. 31, 2012.
Key rating triggers that could lead to an upgrade include:
--A sustained statutory capital adequacy above 350% RBC;
--Sustained financial leverage 20% or below and total financings commitments
ratio below 0.40x;
--GAAP earnings based interest coverage ratio 13 times or above.
Key rating triggers that could lead to a downgrade include:
--Investment losses beyond Fitch's expectations;
--A sustained statutory capital adequacy below 290% RBC;
--Sustained financial leverage above 25% or total financings commitments ratio
--GAAP earnings-based interest coverage ratio below 5x.
Fitch affirms the following ratings with a Stable Outlook:
--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+';
--3.8% senior notes due 2022 at 'BBB+';
--6.375% senior debentures due 2016 at 'BBB+';
--Junior subordinated debt at 'BBB-';
--5.875% junior subordinated debentures due 2052 at 'BBB-';
--Commercial paper rating at 'F2'.
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+'.