A.M. Best Affirms Ratings of Torchmark Corporation and Its Subsidiaries

OLDWICK, N.J.--([ BUSINESS WIRE ])--A.M. Best Co. has affirmed the financial strength ratings (FSR) of A+ (Superior) and issuer credit ratings (ICR) of aaa-a of the life/health subsidiaries of Torchmark Corporation (Torchmark) (McKinney, TX) (NYSE: TMK). A.M. Best also has affirmed the ICR of aa-a and all existing debt ratings of Torchmark. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

"Understanding BCAR for Life and Health Insurers"

The rating affirmations reflect Torchmarka�s established market niches, continued strong earnings and solid capitalization. Through multiple distribution channels, Torchmark specializes in providing life and supplemental health insurance to middle class Americans. Key subsidiaries of Torchmark include American Income Life Insurance Company (American Income), which focuses on labor unions, and Liberty National Life Insurance Company (Liberty National), a leading provider of individual whole life and term insurance to the middle and lower-middle income marketplace. Additionally, Globe Life and Accident Insurance Company (Globe Life) remains one of the largest direct response writers of life insurance in the country. These companies have produced consistent individual life insurance premiums and earnings for Torchmark. A.M. Best views favorably that the majority of Torchmarka�s premiums and earnings (both statutory and GAAP) are derived from life insurance, which is seen as more creditworthy than annuities and health products.

The capitalization of Torchmarka�s operating entities remains solid, supported by strong operating results.

Recent results were aided by improved expense management and better persistency within some of Torchmarka�s subsidiaries. A.M. Best expects the groupa�s overall capitalization to be maintained at or above current levels, despite significant dividends from the operating companies and plans to repurchase stock in the near term ($391 million over the last five quarters). A.M. Best notes that Torchmark has consistently maintained financial leverage and interest coverage ratios that are well within the guidelines for its current ratings.

While sales of Torchmarka�s life insurance products continue to provide the corporation with the majority of its earnings, A.M. Best remains concerned about the ongoing premium challenges within some product lines and the impact it will have on Torchmarka�s future growth. Although the agent count has improved within American Incomea�s distribution force, Liberty National and United American Insurance Company (United American), continue to have challenges recruiting and maintaining agents. A.M. Best notes that Torchmark has been working on plans to improve the retention and the quality of its agency force. However, until the number of agents stabilizes, Torchmark will continue to see decreasing sales in most of Liberty Nationala�s and United Americana�s lines of business.

In addition to decreasing health premiums due primarily to the competitive Medicare supplement environment, A.M. Best remains concerned about the relatively long duration of Torchmarka�s fixed income portfolio that remains susceptible to large fluctuations in market value, should interest rates rise. While the organization maintains a manageable level of below investment grade bonds, it has an elevated exposure to abbba category securities within its fixed income portfolio. Given the characteristics of its investment portfolio, if a downturn in the credit cycle occurs, A.M. Best believes Torchmark would incur sizeable impairments, which would likely stress its targeted level of risk-adjusted capital.

The FSRs of A+ (Superior) and ICR of aaa-a have been affirmed for the following life/health subsidiaries of Torchmark Corporation:

Liberty National Life Insurance Company
Globe Life and Accident Insurance Company
United American Insurance Company
First United American Life Insurance Company
American Income Life Insurance Company
National Income Life Insurance Company

The following debt ratings have been affirmed:

Torchmark Corporationa"
-- AMB-1 on commercial paper

Torchmark Corporationa"
-- aa-a on $100 million 7.375% senior unsecured notes, due 2013
-- aa-a on $250 million 6.375% senior unsecured notes, due 2016
-- aa-a on $300 million 9.25% senior unsecured notes, due 2019
-- aa-a on $200 million 7.875% senior unsecured notes, due 2023

Torchmark Capital Trust IIIa"
-- abbba on $120 million 7.10% trust preferred securities, backed by junior subordinated debentures, due 2046

The following indicative debt ratings available under the shelf registration have been affirmed:

Torchmark Corporationa"
--aa-a on senior unsecured debt
--abbb+a on subordinated debt
--abbba on preferred stock

Torchmark Capital Trust IV and Va"
--abbba on trust preferreds

The principal methodology used in determining these ratings is [ Besta�s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition ], which provides a comprehensive explanation of A.M. Besta�s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: aRisk Management and the Rating Process for Insurance Companiesa; aUnderstanding BCAR for Life and Health Insurersa; aRating Health Insurance Companiesa; aA.M.Best Ratings & the Treatment of Debta; aCommercial Paper Methodologya; aEquity Credit for Hybrid Securitiesa; and aRating Members of Insurance Groups.a

Methodologies can be found at [ www.ambest.com/ratings/methodology ].

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit [ www.ambest.com ].

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A.M. Best Affirms Ratings of Torchmark Corporation and Its Subsidiaries