Risk of additional loss in the investment portfolio of life and health insurer Torchmark Corp. has prompted rating agency A.M Best to revise the outlook to negative from stable for Torchmark Corp.
A.M. Best affirmed the financial strength rating of "A+" and issuer credit ratings of "aa-" of the major life and health subsidiaries of the McKinney, Texas-based company.
A.M. Best affirmed the financial strength rating of A and issuer credit ratings "a" of the company's subsidiary United Investors Life Insurance Co.
A.M. Best affirmed the ICR at "a-" for Torchmark.
The rating actions reflect the heightened risk in Torchmark's investment portfolio, analysts said.
They cited the significant unrealized loss position within its fixed income portfolio and a substantial increase in below investment grade bonds recently.
The analysts said the company maintains a favorable risk-adjusted capital position in each of its insurance operating entities, but the capital position may be strained if it were to experience significant losses or further negative ratings in its fixed income portfolio this year.
Torchmark's investment concentration within the financial sector and its relatively long average duration in its corporate bond portfolio has contributed to significant declines in market values, the analysts said.
However, large reserve concentration within the ordinary life line will allow it to hold most of its investments to maturity, and Torchmark has sufficient liquidity to cover its short-term debt obligations.
Additionally, Torchmark continues to maintain financial leverage and fixed coverage ratios, which are well within the guidelines for its current ratings.
Fitch Ratings on Friday lowered its ratings on senior debt and a range of senior notes and debentures to "BBB+" from "A" for Torchmark. The commercial paper rating was cut to "F2" from "F1." Fitch maintained its negative outlook.
Analysts cited Torchmark's exposure to financial market turmoil and expected additional investment deterioration this year and next year.
The company responded in a statement Monday that said none of its bonds are in default and net unrealized losses were about $1.7 billion, $500 million narrower than they were at the end of the first quarter.
Torchmark said it has the capacity to absorb impairments at historically high default rates and still maintain adequate statutory capital, management does not expect to incur that level of impairment.
Torchmark shares fell 4 cents to $39.40 in afternoon trading.
Terms & Conditions
RSS Headlines
Fool UK