Torchmark Corporation Reports Second Quarter 2010 Results
By Torchmark Corporation, PRNETuesday, July 27, 2010
MCKINNEY, Texas, July 28, 2010 - Torchmark Corporation (NYSE: TMK) reported today that for the quarter
ended June 30, 2010, net income was US$1.53 per share compared with US$1.38
per share for the year-ago quarter. Net operating income for the quarter was
US$1.58 per share, a 3% per share increase compared with US$1.53 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)
Per Share
Quarter Ended Quarter Ended
June 30, % June 30, %
-------- --------
2010 2009 Chg. 2010 2009 Chg.
---- ---- ---- ---- ---- ----
Insurance
underwriting
income* $1.49 $1.45 3 $123.0 $119.8 3
Excess
investment
income* 0.97 0.92 5 80.1 76.2 5
Parent
company
expense (0.03) (0.03) (2.6) (2.6)
Income tax (0.82) (0.79) 4 (67.6) (65.3) 4
Stock option
expense, net
of tax (0.03) (0.02) (2.1) (1.8)
----- ----- ---- ----
Net operating
income $1.58 $1.53 3 $130.8 $126.2 4
Reconciling
items, net
of tax:
Realized
losses on
investments (0.04) (0.14) (3.6) (11.8)
Medicare Part
D adjustment (0.01) - (1.2) (0.3)
----- --- ---- ----
Net income $1.53 $1.38 $126.0 $114.1
Weighted
average
diluted
shares
outstanding
(000) 82,603 82,735
* 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 second quarter 2010 with second
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 24% 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 4%, while health sales, excluding
Part D, fell 23%.
Insurance Premium Revenue
Insurance Premium Revenue
(dollars in millions)
---------------------
Quarter Quarter
Ended Ended %
June 30, June 30,
2010 2009 Change
--------- --------- ------
Life insurance $433.8 $415.0 5
Health insurance -
excluding Medicare
Part D 198.6 211.9 (6)
Health -Medicare
Part D 52.9 45.5 16
Annuity 2.2 2.5 (12)
--- ---
Total $687.5 $674.9 2
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 Quarter
Ended % of Ended % of %
June 30, June 30,
2010 Premium 2009 Premium Change
--------- ------- --------- ------- ------
Insurance
underwriting
margins:
Life $119.6 28 $110.6 27 8
Health 38.2 19 38.3 18 -
Health -
Medicare
Part D 5.1 10 4.8 11 7
Annuity (1.0) 5.2
---- ---
162.0 158.9
Other income 1.0 0.7
Administrative
expenses (40.0) (39.8) -
----- -----
Insurance
underwriting
income $123.0 $119.8 3
Per share $1.49 $1.45 3
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; $54 million on premium revenue of $160 million. Life
premiums of $140 million were up 12% and life insurance underwriting margin
of $46 million was up 11%. 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. The producing agent count was 4,200,
up 10% from a year ago, and unchanged during the quarter. Net life sales were
$37 million, up 11%.
Direct Response was Torchmark's second leading contributor to total
underwriting margin; $40 million on premium revenue of $157 million. Life
premiums of $143 million were up 6%, and the life underwriting margin of $37
million was up 12%. As a percentage of life premium, life underwriting margin
was 26%, up from 25%. Net life sales were $37 million, up 9%.
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 $158 million. Life
premiums of $74 million were down 2% and life underwriting margin of $14
million was down 4%. As a percentage of life premium, life underwriting
margin was 19%, same as the year-ago quarter.
LNL Agency was Torchmark's second leading contributor to health
underwriting margin; $12 million on health premium of $84 million. Health
underwriting margin as a percentage of premium was 15%, down from 16%.
Sales data and agent counts are still presented separately for the LNL
and UA Branch Office Agencies. The LNL Agency producing agent count was
1,606, down 51% from a year ago, but up 5% during the quarter. Net life sales
for the LNL Agency were $9 million, down 26% from a year ago, but up 7%
during the quarter. UA Branch Office Agency producing agents fell to 646,
down 45% from a year ago and down 7% during the quarter. Net health sales for
UA Branch Office Agency were $2 million, down 56%.
UA Independent Agency was Torchmark's leading contributor to health
underwriting margin; $16 million on health premium of $81 million. Health
underwriting margin as a percentage of premium was 19%, up from 17%. Net
health sales were $6 million, up 4%.
Medicare Part D Prescription Drug Plan is distributed by Direct Response
and the UA agencies. Second quarter premium revenue was $53 million, up 16%.
Underwriting margin for the second 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.
Underwriting loss from the annuity segment was $1 million compared to a $5
million gain 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.
INVESTMENTS
Excess Investment Income - comparing the second quarter 2010 with the
second 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
June 30,
(dollars in millions, except
per share data)
----------------------------
%
2010 2009 Change
---- ---- ------
Net investment income $181.6 $167.3 9
Required interest:
Interest credited on net policy
liabilities (82.7) (76.3) 8
Interest on debt (18.7) (14.9) 26
----- -----
Total required interest (101.4) (91.1) 11
------ -----
Excess investment income $80.1 $76.2 5
Per share $0.97 $0.92 5
Net investment income was up 9%, while average invested assets increased
10%. Interest credited on net policy liabilities increased 8%, in line with
the 8% increase in the related liabilities. Interest on debt increased 26%
due to higher average long-term debt outstanding and a higher average
interest rate resulting from the issuance of $300 million of long-term debt
at the end of the second quarter of 2009.
Investment Portfolio
The composition of the investment portfolio at June 30, 2010 is as
follows:
Invested Assets
(dollars in
millions)
------------
$ % of Total
--- ----------
Fixed maturities (at
amortized cost) $10,746 94%
Equities 15 -
Mortgage loans 15 -
Investment real estate 2 -
Policy loans 396 3%
Other long-term investments 27 -
Short-term investments 254 2%
--- ---
Total $11,456 100%
Fixed maturities at amortized cost by asset class are as follows:
Fixed Maturities
(dollars in millions)
---------------------
Below
Investment Investment
Grade Grade Total
----- ----- -----
Corporate bonds $7,536 $400 $7,936
Redeemable preferred stock*:
U.S. 980 346 1,327
Foreign 85 31 115
Municipal 1,162 - 1,162
Government-sponsored
enterprises 56 - 56
Government and agencies 41 - 41
Collateralized debt
obligations - 55 55
Residential mortgage-backed
securities 19 - 19
Other asset-backed
securities 37 - 37
--- --- ---
Total $9,915 $832 $10,746
* Torchmark's redeemable preferred stock portfolio includes only $5
million of perpetual preferreds.
The market value of Torchmark's fixed maturity portfolio was $10.9
billion; $178 million higher than amortized cost of $10.7 billion. The $178
million net unrealized gain compares to net unrealized losses of $173 million
at March 31, 2010, and $1.4 billion a year ago.
The investment portfolio contains no commercial mortgage-backed
securities or 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 (94% at market value) were
rated "investment grade."
The fixed maturity portfolio earned an annual effective yield of 6.75%
during the second quarter of 2010, compared to 6.97% in the year-ago quarter.
The decrease is due primarily to the portfolio restructuring that took place
in the third quarter of 2009 and lower new money yields.
Acquisitions of fixed maturity investments during the quarter totaled
$377 million at cost. Comparable information for acquisitions of fixed
maturity investments is as follows:
Quarter Ended
June 30,
--------
2010 2009
---- ----
Average annual effective
yield 6.3% 7.0%
Average rating BBB+ A-
Average life (in years) to:
First call 24.6 17.1
Maturity 26.7 17.6
Realized Capital Losses on Investments - during the quarter ended June
30, 2010:
Torchmark had a net capital loss of $5.5 million ($3.6 million after tax)
resulting from dispositions and extinguishment of debt during the quarter
ended June 30, 2010. Year-to-date, the Company had net capital gains of $2.3
million ($1.5 million after tax).
SHARE REPURCHASE - during the quarter ended June 30, 2010:
During the quarter, the Company repurchased 1.2 million shares of
Torchmark Corporation common stock at a total cost of $63.2 million at an
average price per share of $51.86. Subsequent to the end of the second
quarter, the Company repurchased 675,000 shares at a total cost of $33.1
million at an average price per share of $48.96.
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 more than sufficient to
support current operations. In addition, the parent company held $300 million
of liquid assets at June 30, 2010.
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 $6.25 to $6.30 assuming no further
share repurchases other than those mentioned above.
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
htpp://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 second quarter 2010
earnings release conference call with financial analysts at 12:00 p.m.
(Eastern) tomorrow, July 29, 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: England, July 28, Mckinney, texas, Torchmark Corporation
