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A.M. Best Revises Outlooks to Negative for Torchmark Corporation and Its Subsidiaries

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A.M. Best has revised the outlooks to negative from stable and
affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the
Long-Term Issuer Credit Ratings (Long-Term ICR) of "aa-" of the key
life/health subsidiaries of Torchmark Corporation (Torchmark)
(headquartered in McKinney, TX) (NYSE:TMK). Concurrently, A.M. Best
revised the outlook to negative from stable and affirmed the Long-Term
ICR of "a-" and the Long- and Short-Term Issue Credit Ratings (Long-Term
IR; Short-Term IR) of Torchmark. (See below for a detailed listing of
these companies and ratings)

The Credit Ratings (ratings) of the life insurance subsidiaries of
Torchmark reflect the balance sheet strength, which A.M. Best
categorizes as strong, as well as its very strong operating performance,
favorable business profile and appropriate enterprise risk management.

The outlook revisions to negative reflect the gradual decline in balance
sheet strength over the past several years, including a decline in
risk-adjusted capitalization on a consolidated and entity level basis.
A.M. Best notes that several core subsidiaries remain below A.M Best's
target levels primarily due the above average level of NAIC class two
securities in its general account investment portfolio and the
relatively long duration of these assets, which can result in an
increase in unrealized losses if interest rates continue to rise or if
credit spreads widen. Risk-adjusted capitalization for 2017 also was
impacted by tax reform. While Torchmark's risk-adjusted capitalization
remains lower than some of its similarly rated peers, this concern is
somewhat mitigated by the group's historical track record of generating
strong operating cash flows on a consistent basis, its favorable
liability profile and adequate liquidity throughout the organization.
However, Torchmark's current level of risk-adjusted capitalization
leaves little room for sudden or unforeseen stress scenarios at its
currently strong balance sheet assessment.

Torchmark maintains a multichannel distribution platform through which
it specializes in providing a diversified portfolio of life and
supplemental health insurance products to middle and lower middle class
Americans. In addition, Torchmark has established several market niches
and demonstrated the ability to generate consistently a significant
level of positive cash flows from its insurance operating subsidiaries.
Together, these companies have produced positive operating earnings on a
statutory and GAAP basis with profit margins noticeably higher than
industry averages. Torchmark's adjusted GAAP financial leverage has
declined somewhat in recent periods to approximately 20%, while interest
coverage remains very strong at over 10 times earnings. Both ratios are
well within A.M. Best's guidelines for the organization's current
ratings.

Torchmark also has experienced premium growth in its key subsidiaries,
which include Globe Life and Accident Insurance Company (Globe
Life) (headquartered in Oklahoma City, OK), which is one of the largest
writers of juvenile direct mail life insurance in the United States; American
Income Life Insurance Company
(American Income) (headquartered in
Waco, TX), which focuses on labor unions; Liberty National Life
Insurance Company
(Liberty National) (headquartered in McKinney,
TX), which provides individual whole life and term insurance to the
middle and lower-middle income marketplace; and Family Heritage Life
Insurance Company of America
(Family Heritage) (Cleveland, OH),
which offers supplemental limited-benefit health insurance to middle and
lower middle income families. Overall premium growth is attributable to
the successful recruitment and retention of agents in its exclusive
career distribution channels. However, A.M. notes that the company
experienced a decline in sales at Globe Life as it focuses more on the
profitability of this business and exited certain geographic markets
that were not as profitable.

While Torchmark has experienced increased premium growth in most of its
key insurance subsidiaries, premiums have generally declined over the
past five years at United American Insurance Company (United
American) (headquartered in McKinney, TX), Torchmark's main provider of
Medicare supplement insurance. The decline in premiums in more recent
periods is attributable to United American's withdrawal from its
Medicare Part D prescription drug insurance business. In early 2016, the
company announced that it would exit this line of business due to
several factors, including deteriorating margins, increased competition
and increased compliance requirements, which resulted in higher claims
cost and elevated administrative expenses.

The FSR of A+ (Superior) and the Long-Term ICRs of "aa-" have been
affirmed with a negative outlook for the following life/health
subsidiaries of Torchmark Corporation:

  • Globe Life And Accident Insurance Company
  • American Income Life Insurance Company
  • National Income Life Insurance Company
  • Liberty National Life Insurance Company
  • Family Heritage Life Insurance Company of America
  • United American Insurance Company
  • Globe Life Insurance Company of New York

The following Short-Term Issue Credit Rating has been affirmed:

Torchmark Corporation
-- AMB-1 on commercial paper

The following Long-Term IRs have been affirmed with a negative outlook:

Torchmark Corporation

-- "a-" on $300 million 9.25% senior unsecured notes, due 2019

-- "a-" on $300 million 3.80% senior unsecured notes, due 2022

-- "a-" on $200 million 7.875% senior unsecured notes, due 2023

-- "bbb" on $300 million 6.125% junior subordinated debentures, due 2056

The following indicative Long-Term IRs available under the shelf
registration have been affirmed with a negative outlook:

Torchmark Corporation

-- "a-" on senior unsecured debt

-- "bbb+" on subordinated debt

-- "bbb" on preferred stock

This press release relates to Credit Ratings that have been published
on A.M. Best's website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please see A.M. Best's
Recent
Rating Activity
web page. For additional information
regarding the use and limitations of Credit Rating opinions, please view
Understanding
Best's Credit Ratings
. For information on the proper media
use of Best's Credit Ratings and A.M. Best press releases, please view
Guide
for Media - Proper Use of Best's Credit Ratings and A.M. Best Rating
Action Press Releases
.

A.M. Best is the world's oldest and most authoritative insurance
rating and information source. For more information, visit
www.ambest.com.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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