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A.M. Best Revises Torchmark's (TMK) Outlook, Affirms Ratings
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Credit rating giant A.M. Best has revised the outlooks for Torchmark Corporation and its units. The rating agency has affirmed the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” and the Long and Short-Term Issue Credit Ratings (Long-Term IR and Short-Term IR) for Torchmark. Simultaneously, A.M. Best revised the outlook for the abovementioned ratings from stable to negative.
Concurrently, the rating agency affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa-” to Torchmark’s key life/health units. The outlook for these ratings has been revised from stable to negative.
As categorized by A.M. Best itself, the company’s strong balance sheet, impressive operational performance, favorable business portfolio and an appropriate enterprise risk management are reflected by the life insurance units’ credit ratings.
The outlook revisions of the aforementioned ratings denote the balance sheet’s waning in the past few years including a decrease in risk-adjusted capitalization on a consolidated and entity level basis.
It is important to mention here that the rating agency has pointed out a few core units of Torchmark remaining below its target levels, mainly due to the above average level of National Association of Insurance Commissioners (NAIC) class two securities, pertaining to its general account investment portfolio. Also, thanks to the long duration of the class two securities that a rise in unrealized loss can occur with the advent of continued increase in interest rates or widening of credit spreads.
Torchmark and its subsidiaries have consistently delivered favorable operating earnings on a statutory as well as GAAP basis with substantially higher profit margins than industry averages. The life insurer’s adjusted GAAP financial leverage currently stands at about 20% (decreasing to an extent in the recent years) while interest coverage stays very strong at over 10 times earnings. Both these ratios remain well within A.M. Best’s guidelines for the company’s current ratings.
Rating or outlook affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as maintaining credit worthiness of a stock. While downgrades not only damage business but also increase the cost of future debt issuances.
Zacks Rank and Share Price Movement
Currently, Torchmark holds a Zacks Rank #2 (Buy). Shares of Torchmark have gained 7.1% in a year's time against the industry’s decline of 8.4%. We expect solid operational performance, niche market focus and a robust capital position to drive the shares higher in the near term.
First American provides financial services. The company delivered positive surprises in all the last four quarters with an average beat of 8.33%.
National General Holdings offers various insurance products and services in the United States. The company pulled off positive surprises in three of the trailing four quarters with an average positive surprise of 16.93%.
American Equity Investment provides life insurance products and services in the United States. The company came up with positive surprises in all the preceding four quarters with an average earnings surprise of 24.38%.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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A.M. Best Revises Torchmark's (TMK) Outlook, Affirms Ratings
Credit rating giant A.M. Best has revised the outlooks for Torchmark Corporation and its units. The rating agency has affirmed the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a-” and the Long and Short-Term Issue Credit Ratings (Long-Term IR and Short-Term IR) for Torchmark. Simultaneously, A.M. Best revised the outlook for the abovementioned ratings from stable to negative.
Concurrently, the rating agency affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa-” to Torchmark’s key life/health units. The outlook for these ratings has been revised from stable to negative.
As categorized by A.M. Best itself, the company’s strong balance sheet, impressive operational performance, favorable business portfolio and an appropriate enterprise risk management are reflected by the life insurance units’ credit ratings.
The outlook revisions of the aforementioned ratings denote the balance sheet’s waning in the past few years including a decrease in risk-adjusted capitalization on a consolidated and entity level basis.
It is important to mention here that the rating agency has pointed out a few core units of Torchmark remaining below its target levels, mainly due to the above average level of National Association of Insurance Commissioners (NAIC) class two securities, pertaining to its general account investment portfolio. Also, thanks to the long duration of the class two securities that a rise in unrealized loss can occur with the advent of continued increase in interest rates or widening of credit spreads.
Torchmark and its subsidiaries have consistently delivered favorable operating earnings on a statutory as well as GAAP basis with substantially higher profit margins than industry averages. The life insurer’s adjusted GAAP financial leverage currently stands at about 20% (decreasing to an extent in the recent years) while interest coverage stays very strong at over 10 times earnings. Both these ratios remain well within A.M. Best’s guidelines for the company’s current ratings.
Rating or outlook affirmations or upgrades from credit rating agencies play an important role in retaining investor confidence as well as maintaining credit worthiness of a stock. While downgrades not only damage business but also increase the cost of future debt issuances.
Zacks Rank and Share Price Movement
Currently, Torchmark holds a Zacks Rank #2 (Buy). Shares of Torchmark have gained 7.1% in a year's time against the industry’s decline of 8.4%. We expect solid operational performance, niche market focus and a robust capital position to drive the shares higher in the near term.
Other Stocks to Consider
Investors interested in other top-ranked stocks from the insurance industry can also consider First American Financial Corporation (FAF - Free Report) , National General Holdings Corp. and American Equity Investment Life Holding Company (AEL - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
First American provides financial services. The company delivered positive surprises in all the last four quarters with an average beat of 8.33%.
National General Holdings offers various insurance products and services in the United States. The company pulled off positive surprises in three of the trailing four quarters with an average positive surprise of 16.93%.
American Equity Investment provides life insurance products and services in the United States. The company came up with positive surprises in all the preceding four quarters with an average earnings surprise of 24.38%.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>