A.M. Best Rates TMK Notes - Analyst Blog

By Zacks | September 24, 2012 AAA

Torchmark Corp.'s (TMK) newly issued $300 million worth of 3.58% Senior Notes, which will mature in 2022, have been assigned with an 'a-' rating by A.M. Best. Simultaneously, the newly issued 5.875% $125 million junior subordinated debentures with maturity scheduled in September 2052 were allotted debt rating of 'bbb.'

The rating agency has left unchanged Insurer Financial Strength Issuer Credit and existing debt ratings of the parent and its subsidiaries. 
 
The rating carries a stable outlook.  A stable outlook indicates that a company is experiencing steady financial as well as market trends, and the company's ratings are not likely to change over an intermediate period. 
 
Torchmark will use nearly $200 million from the proceeds to fund the proposed acquisition of Family Heritage Life Insurance Company of America. The acquisition was announced last month and is expected to close by the fourth quarter of 2012. 
 
The remaining funds from the Senior Notes offering will be utilized for meeting the working capital requirements, which include discharging of the $94.1 million in principal amount outstanding of the company's 7.375% Notes maturing on August 1, 2013. On the other hand, the proceeds from the Junior Subordinated Notes will be used to redeem all of the $120 million of 7.10% Trust Originated Preferred Securities, maturing in 2046.
 
The ratings outlook by A.M. Best takes into account Torchmark's niche position in the market as a provider of supplemental and health insurance products. The company has consistently shown favorable performance and its investment results are also improving. 
 
According to A.M. Best, the company's has healthy near-term prospects and its financial leverage will remain below 30% with interest coverage above 9x. Both these metrics are in line with the current ratings requirement.  The debt to capital ratio was 23.6% as of June 30, 2012, and the interest coverage was 10.1x.
 
Recently, Standard & Poor's has assigned senior unsecured debt rating of 'A' to senior unsecured notes due in 2022, and 'BBB+' to junior subordinated debt due in 2052. Also, Moody's Corp. (MCO) has rated Torchmark's senior debt with 'Baa1' and junior subordinated debt with 'Baa2'.
 
Fitch has assigned a 'BBB+' to senior unsecured notes whereas the junior subordinated debentures have been given 'BBB-' rating. 
 
Torchmark competes with Assurant Inc. (AIZ) and currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term 'Neutral' recommendation on its shares.
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