Torchmark Corporation Reports First Quarter 2011 Results
By Torchmark Corporation, PRNEMonday, April 25, 2011
MCKINNEY, Texas, April 26, 2011 - Torchmark Corporation (NYSE: TMK) reported today that for the quarter
ended March 31, 2011, net income was $1.33 per share, compared with $1.46 per
share for the year-ago quarter. Net operating income for the quarter was
$1.62 per share, a 7% increase compared with $1.52 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.
Financial Summary
(dollars in millions, except per share data)
--------------------------------------------
Per Share
Quarter Ended
March 31, %
---------
2011 2010 Chg.
---- ---- ----
Insurance underwriting
income* $1.57 $1.39 13
Excess investment
income* 0.93 0.87 7
Parent company expense (0.03) (0.03)
Income tax (0.82) (0.75) 9
Stock option expense,
net of tax (0.02) (0.02)
----- -----
Net operating income
from continuing
operations $1.62 $1.45 12
Net operating income
from discontinued
operations 0.00 0.07
---- ----
Net operating income
from all operations $1.62 $1.52 7
Reconciling items, net
of tax:
Realized gains (losses)
on investments -
continuing operations (0.19) 0.06
Realized gains on
investments -
discontinued operations 0.00 0.00
Loss on disposal of
discontinued operations (0.01) 0.00
Medicare Part D
adjustment (0.03) (0.12)
State administrative
settlement (0.05) 0.00
Loss on sale of
equipment (0.01) 0.00
----- ----
Net income $1.33 $1.46
Weighted average diluted
shares outstanding (000) 79,343 83,214
Financial Summary
(dollars in millions, except per share data)
--------------------------------------------
Quarter Ended
March 31, %
---------
2011 2010 Chg.
---- ---- ----
Insurance underwriting
income* $124.3 $115.6 8
Excess investment
income* 74.2 72.1 3
Parent company expense (2.4) (2.6)
Income tax (65.3) (62.5) 4
Stock option expense,
net of tax (2.0) (2.0)
---- ----
Net operating income
from continuing
operations $128.8 $120.6 7
Net operating income
from discontinued
operations 0.0 6.0
--- ---
Net operating income
from all operations $128.8 $126.6 2
Reconciling items, net
of tax:
Realized gains (losses)
on investments -
continuing operations (15.5) 4.7
Realized gains on
investments -
discontinued operations 0.0 0.3
Loss on disposal of
discontinued operations (0.6) 0.0
Medicare Part D
adjustment (2.5) (9.9)
State administrative
settlement (4.1) 0.0
Loss on sale of
equipment (0.7) 0.0
---- ---
Net income $105.5 $121.7
Weighted average diluted
shares outstanding (000)
* See definitions in the following sections and in the Torchmark
2010 SEC Form 10-K.
Note: Tables in this news release may not foot due to rounding.
INSURANCE OPERATIONS - comparing the first quarter 2011 with first
quarter 2010:
Life insurance accounted for 74% of the Company's insurance underwriting
margin for the quarter and 64% 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 7% of total premium revenue.
Net sales of life insurance fell 5%, while health sales, excluding
Medicare Part D, fell 16%.
Insurance Premium Revenue
from Continuing Operations
(dollars in millions)
---------------------
Quarter Quarter
Ended Ended %
March 31, March 31,
2011 2010 Chg.
---------- ---------- ----
Life insurance $430.7 $413.9 4
Health insurance -
excluding Medicare
Part D 191.8 202.7 (5)
Health -Medicare
Part D 49.5 52.3 (5)
Annuity 0.1 0.2
--- ---
Total $672.0 $669.1 -
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
from Continuing Operations
(dollars in millions, except per share data)
--------------------------------------------
Quarter
Ended %
March 31, of
2011 Premium
---------- -------
Insurance underwriting
margins:
Life $119.1 28
Health 36.9 19
Health -Medicare Part
D 5.0 10
Annuity 0.6
---
161.5
Other income 0.5
Administrative
expenses (37.7)
-----
Insurance underwriting
income $124.3
Per share $1.57
Insurance Underwriting Income
from Continuing Operations
(dollars in millions, except per share data)
--------------------------------------------
Quarter
Ended % %
March 31, of
2010 Premium Chg.
---------- ------- ----
Insurance underwriting
margins:
Life $111.1 27 7
Health 35.5 18 4
Health -Medicare Part D 5.1 10 (2)
Annuity 0.5
---
152.1
Other income 0.6
Administrative
expenses (37.1)
-----
Insurance underwriting
income $115.6
Per share $1.39
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 ($56 million), on premium revenue of $166 million. Life
premiums of $146 million were up 8% and life insurance underwriting margin of
$48 million was up 8%. 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 fell to 4,039, down
4% from a year ago, and up 3% during the quarter. Net life sales were $33
million, down 5%.
Direct Response was Torchmark's second leading contributor to total
underwriting margin ($40 million), on premium revenue of $166 million. Life
premiums of $152 million were up 5%, and the life underwriting margin was $38
million, same as the year-ago quarter. As a percentage of life premium, life
underwriting margin was 25%, down from 26%. Net life sales were $36 million,
down 2%.
LNL Agency (which now includes UA Branch Office Agency) was Torchmark's
third leading contributor to total underwriting margin ($27 million), on
premium revenue of $151 million. Life premiums of $73 million were down 2%
and life underwriting margin of $17 million was up 20%. As a percentage of
life premium, life underwriting margin was 23%, up from 19%.
LNL Agency was Torchmark's second leading contributor to health
underwriting margin ($10 million), on health premium of $77 million. Health
underwriting margin as a percentage of premium was 13%, same as the year ago
quarter.
LNL Agency producing agents fell to 1,844, down 17% from a year ago, and
down 8% during the quarter. Net life sales for the LNL Agency were $9
million, down 12%.
UA Independent Agency was Torchmark's leading contributor to health
underwriting margin ($16 million), on health premium of $80 million. Health
underwriting margin as a percentage of premium was 20%, up from 18%. Net
health sales were $7 million, down 7%.
Medicare Part D Prescription Drug Plan is distributed by Direct Response
and the UA agencies. First quarter premium revenue was $49 million compared
with $52 million in the year-ago quarter. Underwriting margin for first
quarter 2011 was $5 million, down 2%.
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 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 are 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. The
difference for the first quarter of 2011 (excess of benefit costs over
premium) was significantly less than in prior years due to the addition of an
upfront deductible to the Company's 2011 Part D plan. A chart reconciling the
Company's non-GAAP financial presentation to a GAAP presentation may be
viewed on the Company's website at www.torchmarkcorp.com on the
Investor Relations page at Financial Reports.
Administrative Expenses were $38 million, up 2% from the year-ago
quarter.
INVESTMENTS
Excess Investment Income - comparing the first quarter 2011 with the
first quarter 2010:
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 credited to net policy
liabilities and interest on debt.
Quarter Ended
March 31,
(dollars in millions,
except per share data)
----------------------
2011 2010 % Chg.
---- ---- ------
Net investment income
from continuing
operations $175.3 $167.0 5
Required interest:
Interest on net policy
liabilities (81.7) (76.1) 7
Interest on debt (19.4) (18.9) 3
----- -----
Total required interest (101.1) (95.0) 6
------ -----
Excess investment
income from continuing
operations $74.2 $72.1 3
Per share $0.93 $0.87 7
Net investment income increased 5%, in line with the 5% increase in
average invested assets. Required interest on net policy liabilities
increased 7%, in line with the 7% increase in average liabilities.
Investment Portfolio
The composition of the investment portfolio at March 31, 2011 is as
follows:
Invested Assets
(dollars in
millions)
------------
% of
$ Total
--- -----
Fixed maturities (at
amortized cost) $10,524 94
Equities 15 0
Mortgage loans 14 0
Investment real estate 2 0
Policy loans 382 3
Other long-term
investments 25 0
Short-term investments 271 2
--- ---
Total $11,233 100%
Fixed maturities at amortized cost by asset class are as follows:
Fixed Maturities
(dollars in millions)
---------------------
Below
Investment Investment
Grade Grade Total
----- ----- -----
Corporate bonds $7,422 $372 $7,794
Redeemable preferred
stock:
U.S. 895 299 1,194
Foreign 85 31 116
Municipal 1,218 1,218
Government-sponsored
enterprises 59 59
Government and agencies 36 36
Collateralized debt
obligations 57 57
Residential mortgage-
backed securities 16 16
Other asset-backed
securities 34 34
--- ---
Total $9,766 $758 $10,524
The market value of Torchmark's fixed maturity portfolio was $10.7
billion; $156 million higher than amortized cost of $10.5 billion. The $156
million of net unrealized gains compares to $108 million at December 31,
2010. Gross unrealized gains and losses at March 31, 2011 were $468 million
and $312 million, respectively.
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, 93% of fixed maturities (94% at market value) were
rated "investment grade."
The fixed maturity portfolio earned an annual effective yield of 6.62%
during the first quarter of 2011, compared to 6.78% (excluding discontinued
operations) in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter totaled
$265 million at cost. Comparable information for acquisitions of fixed
maturity investments is as follows:
Quarter Ended
March 31,
---------
2011 2010
---- ----
Average annual
effective yield 6.0% 5.9%
Average rating A- A-
Average life (in
years) to:
First call 27.1 23.1
Maturity 27.7 24.8
Realized Capital Losses on Investments - during the quarter ended March
31, 2011:
Torchmark had a net realized capital loss of $23 million ($15 million
after tax) due almost entirely to the sale of all of the Company's MBIA fixed
maturities ($63 million).
SHARE REPURCHASE - during the quarter ended March 31, 2011:
During the quarter, the Company repurchased 2.9 million shares of
Torchmark Corporation common stock at a total cost of $186.8 million at an
average price per share of $63.45.
LIQUIDITY/CAPITAL:
Torchmark's operations consist primarily of writing basic protection life
and supplemental health insurance policies which generate strong and stable
cash flows.
Capital at the insurance companies is sufficient to support current
operations. In addition, the parent company had $409 million of liquid assets
at March 31, 2011.
EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2011:
Torchmark projects that for the year ending December 31, 2011, net
operating income per share will range from $6.75 to $7.10.
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, 2010, 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 2011
earnings release conference call with financial analysts at 12:00 p.m.
(Eastern) tomorrow, April 27, 2011. 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 26, Mckinney, texas, Torchmark Corporation, United Kingdom
