Torchmark Corporation

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Torchmark Corporation

2001 Third Avenue South
Birmingham, Alabama 35233
U.S.A.
(205) 325-4200
Fax: (205) 325-4157

Public Company
Incorporated: 1929 as Liberty National Insurance Company
Employees: 6,242
Sales: $2.05 billion
Stock Exchanges: New York London
SICs: 6311 Life Insurance; 6321 Accident & Health Insurance; 6331 Fire, Marine & Casualty Insurance; 6719 Holding Companies, Nee; 6282 Investment Advice

Torchmark Corporation is an insurance and diversified financial services holding company. Most of the company’s history involves a single corporate entity, Liberty National Insurance Holding Co., but in the 1980s the company entered a period of aggressive acquisition. By 1993, Torchmark controlled ten principal subsidiaries, branching out into individual life and health insurance; funeral, fire, and property insurance; financial planning; mutual funds; and investment management services. Torchmark’s subsidiaries held leading positions in their industry segments in the early 1990s.

The company’s roots extend back to the turn of the twentieth century, when the Heralds of Liberty was incorporated in Huntsville, Alabama. Although the entity purported to be a fraternal benefit society, it was actually a front for another company, headquartered in Philadelphia. The fraternal charter limited the Alabama Insurance Department’s ability to oversee the Heralds of Liberty, enabling the parent to circumvent state insurance regulations. The parent company’s officers used a variety of schemes to embezzle funds from the fraternity. The officers sold it worthless bonds, borrowed money on insufficient collateral, and had the Heralds make “payments” to the parent. After 20 years of these illicit practices resulted in a backlog of unpaid claims, the Alabama Insurance Department took over the fraternity in June of 1921.

The state agency assigned deputy insurance commissioner Robert Park Davison to the case. He proceeded to “clean house” at the Heralds of Liberty. He forced all of the fraternity’s officers and directors to resign and was made “Supreme Commander” of the group. Frank Park Samford, Davison’s colleague and cousin, was elected “Supreme Recorder.” The unusual titles reflected the group’s origins as a secret society. Davison and Samford went to the parent’s headquarters in Philadelphia to begin reformation of the Heralds of Liberty. They found that the group was insolvent: unpaid claims amounted to $80,000, but the firm held only $1,410 cash. The Heralds had no reserves, and premiums on the policies that existed were insufficient to meet financial demands. Davison and Samford discovered that the only policy the Heralds had sold was a lottery-type plan, or “Joint Life Distribution Plan.” The scheme divided policy-holders into classes by age. When a policyholder died, his beneficiary and the holder of the lowest certificate number in each class were both paid. Although the Heralds had tried to eliminate these policies through exchanges and introduction of new insurance plans, the parent company was dependent on this business for financial support and was compelled by the nature of the plan to continue to place new policies in the existing classes. It took the new officers until the mid-1930s to rid itself of these policies.

Davison and Samford worked during the 1920s to raise premiums, sell legal life insurance policies based on an adequate reserve, pay past-due claims, and build up a team of trustworthy agents. By 1927, the year the headquarters of the reformed company moved to Birmingham, Alabama, it had 26 employees and one new officer, an assistant secretary. In order to build up a reserve fund, Davison and Samford made the company’s first stock offering in 1929 under its new name, Liberty National Life Insurance Co. Many officers and agents borrowed money in order to purchase shares of the $325,000 offering. The stock offering was supplemented with an additional assessment on Heralds of Liberty policyholders. Liberty National’s officers feared that many clients would cancel their policies, but by July 1929 the company appeared to have endured its transformation into a legitimate insurer.

Disaster struck again when the stock market crashed that year. Many of those who had borrowed to capitalize the new company were stuck with debts that exceeded the value of their collateral. To make matters worse, the cash generated by the initial stock issue had been deposited with the Southern Bank and Trust Company as trustee, and before Liberty National had a chance to invest, it became apparent that the money could not be withdrawn without breaking the bank. Unlike many other banks during this crisis, Southern managed to stay open, and Liberty National was able to withdraw its funds in small increments over the next few months.

Liberty National struggled over the next five years to endure the Great Depression. Income from premiums declined as customers were forced to cancel their policies, and losses were sustained when banks failed and debtors defaulted on their bonds. Cost-cutting helped the company survive losses during the depression, and Liberty National even invested $95,000 to acquire the distribution system of a failing competitor. Circumstances compelled Liberty to use creative financing to remain solvent in the early years of the decade. In 1931 the company purchased a 70 percent interest in a headquarters building, then claimed it as an asset in order to maintain an adequate surplus. Davison and Samford even offered to surrender some of their stock to the company in 1932 in order to subsidize Liberty National’s surplus, but that drastic step was not necessary. In fact, Liberty National paid its first cash dividend the following year. The insurance company’s officers perceived that its shareholders doubted the continued viability of Liberty National, and felt that the $21,000 dividend would restore investor confidence. That first payment started a custom that was followed every year in the company’s history.

When Davison died in 1934, Samford was elected president and chief executive officer, more traditional administrative titles than “Supreme Commander.” Liberty National enjoyed a period of growth and prosperity after that year, and worked to build a dependable base of financial strength. Innovative policies helped the company compete successfully with its older and larger rivals. Liberty National made its first acquisition in 1944 through an interesting series of events. Late in 1943, Rufus Lackey, the principal stockholder of the Brown-Service Insurance Company, offered to sell his share of the Alabama insurer to Liberty National for $5 million, provided the transaction was completed by the end of the year. Liberty National had the will, but neither the cash nor the borrowing power to make the acquisition on such short notice. Samford and the company’s general counsel secured personal loans with their Liberty National stock as collateral, purchased the stock themselves, and Brown-Service merged with Liberty National in 1944.

Brown-Service, a successful regional company, specialized in burial insurance plans. Liberty National utilized the subsidiary’s large agency force to accomplish the greatest market penetration ever achieved by a life insurance company. Although Liberty National later discontinued the sale of burial insurance policies, the plan provided substantial savings to many citizens of Alabama and helped Liberty National build a highly efficient and profitable operation. In the 1960s, over 80 percent of white Alabamans held Brown-Service policies. Even as late as the mid-1980s, almost half of the people who died in Alabama each year were insured under a Brown-Service policy.

Liberty-National progressed steadily after 1945. The company made several relatively minor acquisitions, expanded geographically, and introduced numerous new insurance products. Beginning in 1952, the company began recording consecutive annual increases in both earnings and dividends that went unmatched by any other member of the New York Stock Exchange.

In 1958 Liberty National altered Birmingham’s skyline by placing a one-fifth-sized replica of the Statue of Liberty atop its Birmingham headquarters. During the 1950s and 1960s, the insurer grew to become America’s second-largest publicly owned provider of so-called industrial insurance. This type of policy was renewed weekly, and had been discontinued by most other major insurers, but Liberty National was reluctant to abandon these policies, which were popular with the company’s rural customers. By the end of the 1960s, it ranked eighteenth in regular coverage, and had expanded its geographical service area to include Georgia, Florida, Tennessee, and California. In 1968 Liberty National sold more than $1 billion in new policies for the first time.

Frank P. Samford, Jr., replaced his father as president and chief executive officer of Liberty National in 1967. He served in that position until 1985. The younger Samford brought Liberty National’s policyholders more modern coverage. In the late 1960s, for example, the company introduced an estate plan and a special program for college students. The company’s agents continued to take a very personal approach to life insurance, however. In 1975 its 2,500 agents still sold monthly life insurance door-to-door. And while other, more urban, companies had abandoned these low-premium policies, Liberty National continued to earn profit margins of 15 percent on the old-style coverage.

In 1979 Liberty National undertook an agenda of expansion and diversification through acquisition. Prior to that time, most of the company’s investments were concentrated in mortgages, bonds, and a limited number of stocks, but by the mid-1980s, the company had grown from a regional life insurance firm into a diversified national insurance and financial services corporation. From 1980 to 1982, the company spent over half a billion dollars to purchase several insurance and investment businesses. In 1980 the company bought Globe Life And Accident Insurance Company. Headquartered in Oklahoma City, Globe was founded in 1951 by John Singletary and Ralph Reese. Although the company was established with borrowed money, it had grown into a consistently profitable firm through the use of innovative marketing techniques such as direct mail. When Singletary died in 1977, Ronald K. Richey was elected president and CEO. In 1979 the company underwent a crisis when the executor of Singletary’s estate sought to sell his 36 percent share. Liberty National purchased the company in a friendly takeover, and made Richey a director of the parent. He succeeded Samford as president and CEO in 1986.

Liberty National was reorganized as a holding company in 1980. The new entity made two major acquisitions in 1981: Continental Investment Corporation and United American Insurance Company of Dallas. Continental owned Waddell & Reed and United Investors Life Insurance Company, two businesses that would become primary subsidiaries of Liberty National. Waddell & Reed (W&R) was created as a sales and distribution division for United Mutual Funds and was named for the fund’s founders, Chauncey Waddell and Cameron Reed. United Funds became the first mutual fund group to be registered under the Investment Company Act of 1940, the legislation that brought funds under the jurisdiction of the Securities and Exchange Commission.

Waddell & Reed (W&R) hoped their group of mutual funds would make it easier for middle-income Americans to participate in the investing process. United Investors Life Insurance Company was created as an outgrowth of W&R in 1961. Its term insurance product soon accounted for a major part of Continental Investment Company’s income. Problems in the national economy and the stock market, as well as difficulties stemming from Continental’s ownership of Waddell & Reed, combined to force W&R into bankruptcy reorganization in the 1970s. The firm emerged from the crisis with new leadership and new products: financial planning seminars and services. By the early 1980s, W&R was a leading American financial planner. Liberty National purchased W&R’s parent, Continental Investment Corporation, for $155 million in 1981.

The United American Insurance Company of Dallas, Liberty National’s other major acquisition of 1981, was founded in 1947 by Casey Dunlap and Russ Donovan. This company had pioneered the employment of independent health insurance agents in the mid-1950s. It parlayed this new sales system into a nationwide system that extended into Canada by the time it was acquired by Liberty National for $138 million.

Liberty National’s expansion into mutual funds, health insurance, and financial services rendered its formal name, Liberty National Insurance Holding Co., too limiting. The company adopted the name Torchmark Corporation in 1982. Torchmark combined the Statue of Liberty’s torch and the word “hallmark” to form a unique name that drew upon the company’s long history, yet reflected its new components.

While many other insurance providers were lured into the high-return, high-risk junk bond and commercial real estate markets of the 1980s, Torchmark maintained three-fourths of its invested assets in reliable, government-guaranteed securities and short-term investments. When the bottom fell out of the junk bond and real estate markets in the late 1980s, Torchmark emerged unscathed. Torchmark’s conservative investment strategies earned its primary subsidiaries the industry’s highest ratings. The national scandals, however, did affect the company, in the form of increased contributions to the federal guaranty fund to bail out insolvent insurers.

In the 1990s the company planned to limit acquisitions to niche companies with specialized services like pre-need, fire, and cancer insurance. Torchmark continued to focus on home service and term insurance, mutual funds, and asset management as its core businesses. Growth vehicles included Medicare supplemental insurance, variable insurance, and direct mail products.

In 1992 Torchmark recorded its forty-first consecutive year of increased per-share earnings and dividends. The company’s stock had appreciated by an incredible 1,675 percent since 1980. These figures helped the holding company’s subsidiaries maintain leading positions in their industry segments— leadership they were not likely to relinquish in the near future.

Principal Subsidiaries

United Investors Management Company (83%); Liberty National Life Insurance Company; United American Insurance Company; Globe Life and Accident Insurance Company; Family Service Life Insurance Company; Liberty National Fire Insurance Company; United Investors Life Insurance Company; Waddell & Reed, Inc.; Torch Energy Advisors Incorporated.