Torchmark Corporation Reports First Quarter 2010 Results
By Torchmark Corporation, PRNEMonday, April 26, 2010
MCKINNEY, Texas, April 27, 2010 - Torchmark Corporation (NYSE: TMK) reported today that for the quarter
ended March 31, 2010, net income was US$1.46 per share compared with US$0.91
per share for the year-ago quarter. Net operating income for the quarter was
US$1.52 per share, a 2% increase compared with US$1.49 per share for the
year-ago quarter.
Reconciliations between net income and net operating income are shown in
the Financial Summary below.
FINANCIAL SUMMARY
Net operating income, a non-GAAP financial measure, has long been
consistently used by Torchmark's management to evaluate the operating
performance of the Company, and is a measure commonly used in the life
insurance industry. It differs from net income primarily because it excludes
certain non-operating items such as realized investment gains and losses and
nonrecurring items which are included in net income. Management believes that
an analysis of net operating income is important in understanding the
profitability and operating trends of the Company's business.
(All amounts in US dollars unless otherwise noted)
Financial Summary
(dollars in millions, except per share data)
Per Share
Quarter Ended Quarter Ended
March 31, % March 31, %
2010 2009 Chg. 2010 2009 Chg.
Insurance
underwriting
income* $1.44 $1.35 7 $119.5 $113.2 6
Excess
investment
income* 0.93 0.96 (3) 77.0 80.2 (4)
Parent company
expense (0.03) (0.02) (2.6) (1.9)
Income tax (0.79) (0.77) 3 (65.5) (64.6) 1
Stock option
expense, net of
tax (0.02) (0.02) (2.0) (1.6)
----- ----- ---- ----
Net operating
income $1.52 $1.49 2 $126.6 $125.3 1
Reconciling
items, net of
tax:
Realized gains/
(losses) on
investments 0.06 (0.49) 5.0 (41.0)
Medicare Part D
adjustment (0.12) (0.13) (9.9) (10.7)
Tax
settlements - 0.04 - 3.2
--- ---- --- ---
Net income $1.46 $0.91 $121.7 $76.7
Weighted average
diluted shares
outstanding (000) 83,214 83,875
* See definitions in the discussions below and in the Torchmark 2009 SEC
Form 10-K.
Note: Tables in this news release may not foot due to rounding.
INSURANCE OPERATIONS - comparing the first quarter 2010 with first
quarter 2009:
Life insurance accounted for 74% of the Company's insurance underwriting
margin for the quarter and 63% of total premium revenue.
Health insurance, excluding Medicare Part D, accounted for 23% of
Torchmark's insurance underwriting margin for the quarter and 29% of total
premium revenue. Medicare Part D accounted for 3% of insurance underwriting
margin and 8% of total premium revenue.
Net sales of life insurance increased 9%, while health sales, excluding
Part D, fell 17%.
Insurance Premium Revenue
Insurance Premium Revenue
(dollars in millions)
---------------------
Quarter Ended Quarter Ended %
March 31, 2010 March 31, 2009 Change
-------------- -------------- ------
Life insurance $430.3 $412.7 4
Health insurance -
excluding Medicare Part D 202.7 224.0 (10)
Health -Medicare Part D 52.3 45.9 14
Annuity 2.2 2.4 (8)
--- ---
Total $687.5 $685.1 -
Insurance Underwriting Income
Insurance underwriting margin is management's measure of profitability of
its life, health and annuity segments' underwriting performance, and consists
of premiums less policy obligations, commissions and other acquisition
expenses.
Insurance underwriting income is the sum of the insurance underwriting
margins of the life, health and annuity segments, plus other income, less
insurance administrative expenses. It excludes the investment segment, parent
company expense and income taxes.
Insurance Underwriting Income
(dollars in millions, except per share data)
Quarter Ended % of Quarter Ended % of %
March 31, Premium March 31, Premium Chg.
2010 2009
Insurance underwriting
margins:
Life $116.1 27 $110.5 27 5
Health 35.5 18 40.8 18 (13)
Health - Medicare Part D 5.1 10 4.8 11
Annuity 0.1 (4.1)
--- ----
156.7 $152.0 3
Other income 0.6 0.7
Administrative expenses (37.8) (39.4) (4)
----- -----
Insurance underwriting
income $119.5 $113.2 6
Per share $1.44 $1.35 7
Insurance Results by Distribution Channels
Total premium, underwriting margins, first-year collected premium and net
sales by all distribution channels are shown at www.torchmarkcorp.com
on the Investor Relations page at Financial Reports.
American Income Agency was Torchmark's leading contributor to total
underwriting margin ($51 million) on premium revenue of $154 million. Life
premiums of $135 million were up 10% and life insurance underwriting margin
of $44 million was up 9%. As a percentage of life premium, life underwriting
margin was 33%, same as the year-ago quarter and the highest of the major
life distribution channels at Torchmark. Producing agents grew to 4,201, up
20% from a year ago, and up 1% during the quarter. Net life sales were $34
million, up 25%.
Direct Response was Torchmark's second leading contributor to total
underwriting margin ($39 million) on premium revenue of $157 million. Life
premiums of $144 million were up 6%, and the life underwriting margin of $38
million was up 15%. As a percentage of life premium, life underwriting margin
was 26%, up from 24%. Net life sales were $37 million, up 8%.
LNL Agency (which now includes UA Branch Office Agency premiums and
underwriting margin) was Torchmark's third leading contributor to total
underwriting margin ($26 million) on premium revenue of $163 million. Life
premiums of $74 million were down 1% and life underwriting margin of $14
million was down 17%. As a percentage of life premium, life underwriting
margin was 19%, down from 22%.
LNL Agency was Torchmark's second leading contributor to health
underwriting margin ($12 million) on health premium of $89 million. Health
underwriting margin as a percentage of premium was 13%, down from 16%.
Sales data and agent counts are still presented separately for the LNL
and UA Branch Office Agencies. LNL Agency producing agents fell to 1,535,
down 57% from a year ago, and down 12% during the quarter. Net life sales for
the LNL Agency were $9 million, down 29%. UA Branch Office Agency producing
agents fell to 693, down 56% from a year ago and down 5% during the quarter.
Net health sales for UA Branch Office Agency were $2 million, down 69%.
UA Independent Agency was Torchmark's leading contributor to health
underwriting margin ($15 million) on health premium of $82 million. Health
underwriting margin as a percentage of premium was 18%, up from 17%. Net
health sales were $8 million, up 4%.
Medicare Part D Prescription Drug Plan is distributed by Direct Response
and the UA agencies. First quarter premium revenue was $52 million compared
with $46 million in the year-ago quarter. Underwriting margin for the first
quarter 2010 was $5 million, same as the year-ago quarter.
For GAAP reporting, Medicare Part D premiums are recognized evenly
throughout the year when they become due, and benefit costs are recognized
when the costs are incurred. Due to the design of the product, premiums are
evenly distributed throughout the year, but benefit costs are much higher
earlier in the year. As a result, under GAAP, benefit costs can exceed
premiums in the first part of the year but be less than premiums during the
remainder of the year. For net operating income purposes, Torchmark defers
excess benefits incurred in earlier interim periods to later periods in order
to more closely match the benefit cost with the associated revenue. For the
full year, the total premiums and benefits will be the same under this
alternative method as they are under GAAP. The Company reports this
difference between GAAP and management's non-GAAP disclosures, net of tax, as
a reconciling item for the interim periods in the Financial Summary shown on
page 1 of this release. A chart reconciling the Company's non-GAAP financial
presentation to a GAAP presentation may be viewed at
www.torchmarkcorp.com on the Investor Relations page at Financial
Reports.
Torchmark Annuities consist of variable and fixed annuity contracts. The
total underwriting gain for annuities in the first quarter 2010 was $140,000
compared to a $4.1 million loss for the year-ago quarter. The change is due
primarily to the effects of fluctuations in the equity markets on variable
annuity account values. The variable annuity business is Torchmark's only
business where margins are significantly impacted by changes in equity
markets.
Administrative Expenses were $38 million, down 4% from the year-ago
quarter due primarily to decreases in salary costs and legal fees.
INVESTMENTS
Excess Investment Income - comparing the first quarter 2010 with the
first quarter 2009:
Management uses excess investment income as the measure to evaluate the
performance of the investment segment. It is net investment income reduced by
required interest. Required interest includes interest on net policy
liabilities and interest on debt.
Quarter Ended
March 31,
(dollars in millions,
except per share data)
---------------------
%
2010 2009 Change
---- ---- ------
Net investment income $177.2 $169.0 5
Required interest:
Interest on net policy
liabilities (81.3) (73.2) 11
Interest on debt (18.9) (15.6) 21
----- -----
Total required interest (100.2) (88.8) 13
------ -----
Excess investment income $77.0 $80.2 (4)
Per share $0.93 $0.96 (3)
Net investment income increased 5% even though average invested assets
increased 10% because yields on fixed maturity investments acquired over the
past year are lower than yields on investments that were sold or matured over
the past year. In addition, the Company held significantly more cash
throughout the first quarter of 2010 than the year-ago quarter. Required
interest on net policy liabilities increased 11% along with a 10% increase in
the related liabilities. Interest on debt increased 21% due to higher
average debt outstanding and a higher average interest rate resulting from
the issuance of $300 million of long-term debt in the second quarter of 2009.
Investment Portfolio
The composition of the investment portfolio at March 31, 2010 is as
follows:
(dollars in millions)
-------------------
$ % of Total
--- ----------
Fixed maturities (at amortized cost) $10,603 93%
Equities 15 -
Mortgage loans 16 -
Investment real estate 2 -
Policy loans 389 3%
Other long-term investments 32 -
Short-term investments 332 3%
--- ---
Total $11,389 100%
Fixed maturities at amortized cost by asset class are as follows:
Fixed Maturities
(dollars in millions)
---------------------
Below
Investment Investment
Grade Grade Total
----- ----- -----
Corporate bonds $7,391 $458 $7,850
Redeemable preferred stock*:
U.S. 950 348 1,298
Foreign 85 30 115
Municipal 1,136 - 1,136
Government-sponsored
enterprises 55 - 55
Government and agencies 39 - 39
Residential mortgage-
backed securities 20 - 20
Collateralized debt
obligations - 54 54
Other asset-backed
securities 37 - 37
--- --- ---
Total $9,712 $891 $10,603
* Torchmark's redeemable preferred stock portfolio does not include any
perpetual preferreds.
The market value of Torchmark's fixed maturity portfolio was $10.4
billion; $173 million lower than amortized cost of $10.6 billion. The $173
million of net unrealized losses compares to $456 million at December 31,
2009. The decrease in unrealized losses is due primarily to the tightening
of spreads on corporate debt. Due to its strong liquidity position,
Torchmark does not intend to sell the securities and plans to hold these
investments to maturity.
The investment portfolio contains no securities backed by sub-prime
mortgages. Torchmark has no counterparty risk as it is not a party to any
credit default swaps or other derivatives contracts and does not participate
in securities lending.
At amortized cost, 92% of fixed maturities (93% at market value) were
rated "investment grade."
The fixed maturity portfolio earned an annual effective yield of 6.79%
during the first quarter of 2010, compared to 6.97% in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter totaled
$676 million at cost. Comparable information for acquisitions of fixed
maturity investments is as follows:
Quarter Ended
March 31,
---------
2010 2009
---- ----
Average annual effective
yield 6.0% 7.7%
Average
rating A- A-
Average life (in years) to:
First call 24 25
Maturity 26 26
Realized Capital Gains on Investments - during the quarter ended March
31, 2010:
Torchmark had a pre-tax net realized gain of $8 million resulting from $9
million of realized gains from dispositions offset by a $2 million impairment
charge. The after-tax net realized gain was $5 million.
SHARE REPURCHASE - during the quarter ended March 31, 2010:
Torchmark's Board of Directors authorized the resumption of the share
repurchase program in the first quarter. During the quarter, the Company
repurchased 220,000 shares of Torchmark Corporation common stock at a total
cost of $12 million at an average price per share of $52.83.
LIQUIDITY/CAPITAL:
Torchmark's operations consist primarily of writing basic protection life
and supplemental health insurance policies which generate strong and stable
cash flows. Less than 1% of revenue arises from asset accumulation products
where margins are significantly impacted by changes in the equity markets.
Capital at the insurance companies continues to be sufficient to support
current operations. In addition, the parent company held $194 million of cash
at March 31, 2010.
UPDATED EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2010:
Torchmark projects that for the year ending December 31, 2010, net
operating income per share will range from $6.10 to $6.20 assuming no further
share repurchases.
OTHER FINANCIAL INFORMATION:
More detailed financial information including various GAAP and Non-GAAP
ratios and financial measurements are located at www.torchmarkcorp.com
on the Investor Relations page under "Financial Reports and Other Financial
Information."
CAUTION REGARDING FORWARD-LOOKING STATEMENTS:
This press release may contain forward-looking statements within the
meaning of the federal securities laws. These prospective statements reflect
management's current expectations, but are not guarantees of future
performance. Accordingly, please refer to Torchmark's cautionary statement
regarding forward-looking statements, and the business environment in which
the Company operates, contained in the Company's Form 10-K for the year ended
December 31, 2009, and any subsequent Forms 10-Q on file with the Securities
and Exchange Commission and on the Company's website at
www.torchmarkcorp.com on the Investor Relations page. Torchmark
specifically disclaims any obligation to update or revise any forward-looking
statement because of new information, future developments or otherwise.
EARNINGS RELEASE CONFERENCE CALL WEBCAST:
Torchmark will provide a live audio webcast of its first quarter 2010
earnings release conference call with financial analysts at 11:00 a.m.
(Eastern) tomorrow, April 28, 2010. Access to the live webcast and replay
will be available at www.torchmarkcorp.com on the Investor Relations
page, at the Conference Calls on the Web icon. Immediately following this
press release, supplemental financial reports will be available before the
conference call on the Investor Relations page menu of the Torchmark website
at "Financial Reports and Other Financial Information."
Mike Majors, Vice President, Investor Relations of Torchmark Corporation, +1-972-569-3627, tmkir at torchmarkcorp.com
Tags: April 27, England, Mckinney, texas, Torchmark Corporation
