2001 Third Avenue South
Birmingham, Alabama 35233
Telephone: (205) 3254200
Fax: (205) 3254157
Incorporated: 1929 as Liberty National Insurance Company
Sales: $2.22 billion (1999)
Stock Exchanges: New York
Ticker Symbol: TMK
NAIC: 524113 Direct Life Insurance Carriers; 524114 Direct Health and Medical Insurance Carriers; 52519 Other Insurance Funds; 52393 Investment Advice; 551112 Offices of Other Holding Companies
1929: Liberty National Insurance Company is founded.
1979: Liberty National Insurance Holding Company is formed.
1980: Corporate reorganization makes LNIHC LNIC's parent.
1981: Company acquires United American Insurance Company and Waddell & Reed.
1982: LNIHC renamed Torchmark Corporation.
1990: Torchmark buys Family Life Insurance Company.
1994: American Income Life Insurance Company enters Torchmark fold.
1998: Family Life and Waddell & Reed are spun off.
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. After a period of consolidation in the 1990s culminating in its decision to spin off two of its subsidiaries in 1998, the company narrowed its focus to the provision of life and health insurance products along with annuities, through its various divisions. The company also planned on continuing to offer financial planning services in conjunction with one of its former subsidiaries, Waddell & Reed.
It Began As a Scam in the Early 1900s
The company's roots extend back to the turn of the 20th 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 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 in 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 policyholders 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 the company of these policies.
Liberty Goes Legit by 1929
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. 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 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 to maintain an adequate surplus. Davison and Samford even offered to surrender some of their stock to the company in 1932 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, more than 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.
Post-World War II Expansion
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. Other, more urban, companies had abandoned these low-premium policies, but Liberty National continued to earn profit margins of 15 percent on the old-style coverage.
Restructuring and Acquisition in the Late 1970s and 1980s
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 more than 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.
The year 1979 also saw the creation of the Liberty National Insurance Holding Company, which became the parent company of all of Liberty National's holdings following a corporate reorganization 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 (W & R) and United Investors Life Insurance Company, two businesses that would become primary subsidiaries of Liberty National. 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.
The 1990s began promisingly for Torchmark, as the 1992 marked the company's forty-first consecutive year of growth in 1992. By then, its stock price had shot up an astronomical 1,675 percent from its 1980 levels. In 1994, however, the company experienced some setbacks. In large part as a result of some poorly performing investments and the fallout from several different legal disputes in Alabama stemming from alleged misconduct by agents at Liberty National Life Insurance Company (some involving age discrimination and punitive damages claims and others relating to an exchange of Liberty's cancer policies), the company's growth streak was snapped. Revenues declined to $1.875 billion from 1993's $2.177 billion and net income dropped $31 million from 1993's results, to $269 million.
The year 1994 also saw some alterations in the company's business balance, as Torchmark made the strategic decision to focus more heavily on its life insurance operations at the expense of its health insurance ones (life insurance products tended to have higher operating margins, build better assets, and be under less year-to-year growth pressure). Buoyed by the acquisition of American Family Life Insurance Company for $552 million in November of that year, Torchmark's life insurance revenues jumped 16 percent from 1993's levels, while the health insurance sector contracted by 31.2 percent over the same period.
The restructuring of 1994 helped stanch the decline in Torchmark's revenues, as 1995 sales climbed to $2.067 billion, recouping nearly all of the 1993-94 drop. Net income, however, declined nearly 47 percent from 1994&mdashø $143 million&mdash a result of poor growth in the Medicare supplemental insurance sector along with the company's litigation exposure, heavy debt burden from the American Family Life acquisition, and underperforming oil and gas investments. (The Medicare business had been slumping ever since federal legislation enacted in 1992 capped the commissions that vendors of such policies could charge.) To remedy this situation as best it could, Torchmark opted to divest itself of its holdings in the energy industry to streamline its operations and dedicate itself more effectively to its core insurance, mutual fund, and asset management businesses. In 1995, therefore, Torchmark liquidated its investments in Torch Energy Advisors, Inc. and the Black Warrior coal mine venture and sold off its holdings in Nuevo Energy Co. as well.
These maneuvers proved tremendously beneficial, as 1996 net income skyrocketed to $311 million on revenues of $2.071 billion. Life insurance operations remained the single largest growth engine, and the company's direct response business was particularly profitable. (As the name suggests, direct response relies on marketing insurance directly to customers via post, television, and other media rather than by the traditional use of agents. Torchmark's Global Life and Accident Insurance Company spearheaded this portion of the company's business.)
Torchmark's success continued in 1997. Revenues increased to $2.282 billion and net income rose to $324 million, as every sector of the company except its Medicare supplement products showed strong growth and administrative efficiencies reduced operating expenses. In March 1998, Torchmark acted further to reduce its indebtedness, when it made an initial public stock offering of 34 percent of its ownership interest in W & R. In November, Torchmark spun off the firm into a free-standing entity, though it continued to rely on its former subsidiary for some of its financial services operations. Torchmark also sold its Family Service Life subsidiary in June 1998 and used the proceeds to pay down debt and buy back some of its outstanding shares. Revenues for the year climbed to $2.158 billion, though net income dropped to $244 million in light of the company's debt restructuring and discharge.
These changes stood the company in good stead, as 1999's net income grew to $341 million. After weathering the storm of the mid-1990s, the company seemed well-positioned to meet the challenges of the 21st century.
Principal Subsidiaries: American Income Life Insurance Company; First United Life Insurance Company; Globe Life and Accident Insurance Company; Liberty National Life Insurance Company; United American Insurance Company; United Investors Life Insurance Company.
Principal Competitors: The Allstate Corporation; Citigroup Inc.; Conseco, Inc.; Liberty Mutual Insurance Companies; Metropolitan Life Insurance Company; Prudential Insurance Company of America; UNUMProvident; USAA.
'A Dying Business,' Forbes, April 15, 1975.
Frank, Robert, 'Torchmark To Buy American Income for $563.5 Million,' Wall Street Journal, September 16, 1994.
'Industrial Insurance Profitable Line for Liberty National Life,' Barron's, July 29, 1968.
Samford, Frank P., Jr., Torchmark Corporation: History of a New Company, Princeton, N.J.: Princeton University Press, 1985.
'Torchmark To Spin Off Waddell & Reed United Sometime in Early 1998,' Wall Street Journal, November 18, 1997.
Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.