MCKINNEY, Texas, Oct. 25, 2016 /PRNewswire/ -- Torchmark
Corporation (NYSE: TMK) reported today that for the quarter ended
September 30, 2016, net income was $1.25 per diluted common share, compared with
$1.15 per diluted common share for
the year-ago quarter. Net operating income from continuing
operations for the quarter was $1.15
per diluted common share, compared with $1.03 per diluted common share for the year-ago
quarter.
HIGHLIGHTS:
- Net income as a ROE was 12.0%. Net operating income as a ROE
excluding net unrealized gains on fixed maturities was 14.7%.
- American Income life premiums increased 10% over the year-ago
quarter.
- At Liberty National, net life sales increased 11% over the
year-ago quarter.
- Net health sales increased 8% at Family Heritage over the
year-ago quarter.
- Average agent counts increased over the year-ago quarter by 6%
at American Income, 9% at Family Heritage, and 13% at Liberty
National.
- 1.2 million shares of common stock were repurchased during the
quarter.
FINANCIAL SUMMARY
(Dollar amounts in
millions, except per share data)
(unaudited)
Net operating income, a non-GAAP financial measure, has been
used consistently by Torchmark's management for many years 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 certain
nonrecurring items included in net income. Management believes an
analysis of net operating income is important in understanding the
profitability and operating trends of the Company's business. Net
income is the most directly comparable GAAP measure.
|
Per Share
Quarter Ended
|
|
|
|
Quarter Ended
|
|
|
|
September
30,
|
|
|
|
September
30,
|
|
|
|
2016
|
|
|
2015
|
|
%
Chg.
|
|
2016
|
|
|
2015
|
|
%
Chg.
|
Insurance
underwriting income(1)
|
$
|
1.23
|
|
|
|
$
|
1.18
|
|
|
4
|
|
$
|
149.8
|
|
|
|
$
|
149.0
|
|
|
1
|
Excess investment
income(1)
|
0.47
|
|
|
|
0.43
|
|
|
9
|
|
56.7
|
|
|
|
53.9
|
|
|
5
|
Parent company
expense
|
(0.02)
|
|
|
|
(0.02)
|
|
|
|
|
(2.0)
|
|
|
|
(2.2)
|
|
|
|
Income tax
|
(0.55)
|
|
|
|
(0.52)
|
|
|
6
|
|
(67.3)
|
|
|
|
(65.7)
|
|
|
2
|
Stock option expense,
net of tax(2)
|
0.02
|
|
|
|
(0.04)
|
|
|
|
|
2.5
|
|
|
|
(4.4)
|
|
|
|
Net operating income
from continuing operations
|
$
|
1.15
|
|
|
|
$
|
1.03
|
|
|
12
|
|
$
|
139.8
|
|
|
|
$
|
130.5
|
|
|
7
|
Net operating income
from discontinued operations
|
0.03
|
|
|
|
0.04
|
|
|
|
|
4.2
|
|
|
|
5.1
|
|
|
|
Net operating
income from all operations
|
$
|
1.18
|
|
|
|
$
|
1.08
|
|
|
|
|
$
|
144.0
|
|
|
|
$
|
135.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to
net income (GAAP):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items,
net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains
(losses) on investments—continuing operations
|
0.02
|
|
|
|
0.03
|
|
|
|
|
2.3
|
|
|
|
3.3
|
|
|
|
Part D
adjustments—discontinued operations(3)
|
0.04
|
|
|
|
0.05
|
|
|
|
|
5.4
|
|
|
|
6.4
|
|
|
|
Net gain from sale of
Part D-discontinued operations
|
—
|
|
|
|
—
|
|
|
|
|
0.4
|
|
|
|
—
|
|
|
|
Non operating legal
fees
|
—
|
|
|
|
—
|
|
|
|
|
(0.2)
|
|
|
|
—
|
|
|
|
Net
income(4)
|
$
|
1.25
|
|
|
|
$
|
1.15
|
|
|
|
|
$
|
151.9
|
|
|
|
$
|
145.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
diluted shares outstanding (000)
|
121,911
|
|
|
|
126,140
|
|
|
|
|
|
|
|
|
|
|
|
(1) Definitions
included within the document.
|
(2) Decrease from
third quarter of 2015 is due primarily to the impact of new
accounting guidance implemented in 2016.
|
(3) 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.
|
(4) A GAAP-basis
condensed consolidated statement of operations is included in the
appendix of this report.
|
Note: Tables in this
news release may not foot due to rounding.
|
FINANCIAL SUMMARY, CON'T
Management vs.
GAAP measures
(Dollar amounts in millions, except per share data)
(unaudited)
Shareholders' equity, excluding net unrealized gains on fixed
maturities, and book value per share, excluding net unrealized
gains on fixed maturities, are non-GAAP measures that are utilized
by management to view the business without the effect of unrealized
gains or losses which are primarily attributable to fluctuation in
interest rates on the available for sale portfolio. Management
views the business in this manner because the Company has the
ability and generally, the intent, to hold investments to maturity
and meaningful trends can more easily be identified without the
fluctuations. Shareholders' equity and book value per share are the
most directly comparable GAAP measures.
|
September
30,
|
|
2016
|
|
2015
|
Net income as a
ROE(1)
|
12.0
|
%
|
|
11.6
|
%
|
Net operating income
as a ROE(1) (excluding net unrealized gains on fixed
maturities)
|
14.7
|
%
|
|
14.7
|
%
|
|
|
|
|
Shareholders'
equity
|
$
|
5,086
|
|
|
$
|
4,283
|
|
Impact of adjustment
to exclude net unrealized gains on fixed maturities
|
(1,222)
|
|
|
(587)
|
|
Shareholders' equity,
excluding net unrealized gains on fixed maturities
|
$
|
3,864
|
|
|
$
|
3,697
|
|
|
|
|
|
Book value per
share
|
$
|
41.94
|
|
|
$
|
34.21
|
|
Impact of adjustment
to exclude net unrealized gains on fixed maturities
|
(10.08)
|
|
|
(4.68)
|
|
Book value per share,
excluding net unrealized gains on fixed maturities
|
$
|
31.86
|
|
|
$
|
29.53
|
|
|
(1) Calculated using
average shareholders' equity for the measurement period.
|
Note: Net unrealized
gains on fixed maturities referred to above are net of
tax.
|
CONTINUING INSURANCE OPERATIONS – comparing
the third quarter 2016 with third quarter 2015:
Life insurance accounted for 72% of the Company's insurance
underwriting margin for the quarter and 70% of total premium
revenue.
Health insurance accounted for 27% of Torchmark's insurance
underwriting margin for the quarter and 30% of total premium
revenue.
Net sales of life insurance decreased 1%, while net health sales
were flat.
INSURANCE PREMIUM REVENUE
(Dollar
amounts in millions, except per share data)
(unaudited)
|
Quarter
Ended
|
|
%
Chg.
|
|
September 30,
2016
|
|
|
September 30,
2015
|
|
Life
insurance
|
$
|
546.4
|
|
|
|
$
|
518.9
|
|
|
5
|
Health
insurance
|
237.0
|
|
|
|
229.1
|
|
|
3
|
Total
|
$
|
783.4
|
|
|
|
$
|
748.1
|
|
|
5
|
INSURANCE UNDERWRITING INCOME
(Dollar
amounts in millions, except per share data)
(unaudited)
Insurance underwriting margin, a non-GAAP measure, 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. Management believes this information helps provide a better
understanding of the business and a more meaningful analysis of
underwriting results by distribution channel. Underwriting income
is a component of net operating income, which is reconciled to net
income in the Financial Summary section above.
|
Quarter
Ended
|
|
%
of
Premium
|
|
|
Quarter
Ended
|
|
%
of
Premium
|
|
%
Chg.
|
|
September 30,
2016
|
|
|
|
September 30,
2015
|
|
|
Insurance
underwriting margins:
|
|
|
|
|
|
|
|
|
|
|
Life
|
$
|
143.1
|
|
|
26
|
|
|
$
|
144.1
|
|
|
28
|
|
(1)
|
Health
|
53.1
|
|
|
22
|
|
|
50.2
|
|
|
22
|
|
6
|
Annuity
|
2.6
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
198.8
|
|
|
|
|
|
195.4
|
|
|
|
|
2
|
Other
income
|
0.2
|
|
|
|
|
|
0.7
|
|
|
|
|
|
Administrative
expenses
|
(49.2)
|
|
|
|
|
|
(47.2)
|
|
|
|
|
4
|
Insurance
underwriting income
|
$
|
149.8
|
|
|
|
|
|
$
|
149.0
|
|
|
|
|
1
|
Per share
|
$
|
1.23
|
|
|
|
|
|
$
|
1.18
|
|
|
|
|
4
|
Insurance Results from Continuing Operations
by Distribution Channel
Total premium, underwriting margins, first-year collected
premium and net sales by all distribution channels are shown at
www.torchmarkcorp.com on the Investors page at "Financial
Reports."
American Income Agency was Torchmark's leading
contributor to total underwriting margin ($84 million), on premium revenue of $253 million. Life premiums of $231 million were up 10% and life insurance
underwriting margin of $74 million
was up 11%. As a percentage of life premium, life
underwriting margin was 32%, the same as a year ago and the highest
of the major life distribution channels at Torchmark. The average
producing agent count during the quarter was 7,004, up 6% from a
year ago, and up 6% from the previous quarter. The producing agent
count at the end of the third quarter was 7,025. Net life sales
were $52 million, up 4%.
Globe Life Direct Response was Torchmark's second leading
contributor to total underwriting margin ($32 million), on premium revenue of $210 million. Life premiums of $192 million were up 4% and the life underwriting
margin was $29 million, down 26%. As
a percentage of life premium, life underwriting margin was 15%,
down from 21%. Net life sales were $35
million, down 9% from the year-ago quarter. Net health
sales increased from $1.0
million to $1.2 million.
LNL Agency was Torchmark's third leading contributor to
total underwriting margin ($31
million), on premium revenue of $117
million. Life premiums of $67
million were down 1% from the year-ago quarter and life
underwriting margin was $20 million,
up 9%. As a percentage of life premium, life underwriting margin
was 29%, up from 27%. Net life sales were $10 million, up 11%.
LNL Agency was Torchmark's third leading contributor to health
underwriting margin ($11 million), on
health premiums of $50 million.
Health underwriting margin as a percentage of health premium was
23%, approximately the same as the year-ago quarter. Net health
sales were $5 million, up 3%.
LNL Agency's average producing agent count during the
quarter was 1,799, up 13% over a year ago, and up 3% from the
previous quarter. The producing agent count at the end of the third
quarter was 1,785.
Family Heritage Agency was Torchmark's second leading
contributor to health underwriting margin ($13 million) on health premiums of $60 million. Health underwriting margin as a
percentage of health premium was 22%, up from 20%. The average
producing agent count during the quarter was 986, up 9% from a year
ago, and up 6% from the previous quarter. The producing agent count
at the end of the third quarter was 1,004. Net health
sales were $14 million, up 8%
from the year-ago quarter.
UA Independent Agency was Torchmark's leading contributor
to health underwriting margin ($15
million), on health premiums of $88
million. Health underwriting margin as a percentage of
premium was 17%, down from 18%. Net health sales were
$10 million, down 14%. Excluding the
group business, net health sales grew 13%.
Administrative Expenses were $49
million, up 4% from the year-ago quarter. The ratio of
administrative expenses to premium for continuing operations was
approximately 6.3%, in line with expectations and consistent with
the year-ago quarter.
Note: Net sales (health and life) is a non-GAAP measure that is
calculated as the annualized premium issued, net of cancellations
in the first 30 days after issue, except in the case of Globe Life
Direct Response where net sales is annualized premium issued at the
time the first full premium is paid after any introductory offer
period has expired. Management believes net sales is a meaningful
indicator of the rate of premium growth relative to annualized
premium.
INVESTMENTS
EXCESS INVESTMENT INCOME
(Dollar
amounts in millions, except per share data)
(unaudited)
Management uses excess investment income, a non-GAAP measure, as
the measure to evaluate the performance of the investment
segment. It is defined as net investment income less both the
required interest attributable to net policy liabilities and the
interest on debt. We also view excess investment income per diluted
common share as an important and useful measure to evaluate
performance of the investment segment as it takes into
consideration our stock repurchase program.
|
Quarter
Ended
|
|
September
30,
|
|
2016
|
|
|
2015
|
|
%
Chg.
|
Net investment
income
|
$
|
202.7
|
|
|
|
$
|
193.2
|
|
|
5
|
Required
interest:
|
|
|
|
|
|
|
Interest on net
policy liabilities(1)
|
(125.6)
|
|
|
|
(120.1)
|
|
|
5
|
Interest on
debt
|
(20.4)
|
|
|
|
(19.2)
|
|
|
6
|
Total required
interest
|
(146.0)
|
|
|
|
(139.3)
|
|
|
5
|
Excess investment
income
|
$
|
56.7
|
|
|
|
$
|
53.9
|
|
|
5
|
Per share
|
$
|
0.47
|
|
|
|
$
|
0.43
|
|
|
9
|
(1) Interest on net
policy liabilities is a component of total policyholder benefits (a
GAAP measure).
|
Net investment income increased 5%, while average invested
assets increased 6%. Required interest on net policy liabilities
increased 5%, approximately the same as the increase in net policy
liabilities. Interest expense on debt increased by 6%. The weighted
average discount rate for the net policy liabilities was 5.6%, same
as the year-ago quarter.
Investment Portfolio
The composition of the investment portfolio at
September 30, 2016 is as follows:
|
Invested
Assets
(dollars in
millions) (unaudited)
|
|
$
|
|
% of
Total
|
Fixed maturities (at
amortized cost)
|
$
|
13,944
|
|
|
96
|
%
|
Policy
loans
|
499
|
|
|
3
|
|
Other long-term
investments
|
56
|
|
|
—
|
|
Short-term
investments
|
66
|
|
|
—
|
|
Total
|
$
|
14,566
|
|
|
100
|
%
|
Fixed maturities at amortized cost by asset class as of
September 30, 2016 are as follows:
|
Fixed
Maturities
(dollars in
millions)
(unaudited)
|
|
Investment
Grade
|
|
Below
Investment
Grade
|
|
Total
|
Corporate
bonds
|
$
|
11,131
|
|
|
$
|
618
|
|
|
$
|
11,748
|
|
Redeemable preferred
stock:
|
|
|
|
|
|
U.S.
|
271
|
|
|
74
|
|
|
346
|
|
Foreign
|
55
|
|
|
—
|
|
|
55
|
|
Municipal
|
1,272
|
|
|
1
|
|
|
1,273
|
|
Government-sponsored
enterprises
|
302
|
|
|
—
|
|
|
302
|
|
Government and
agencies
|
102
|
|
|
—
|
|
|
102
|
|
Collateralized debt
obligations
|
—
|
|
|
61
|
|
|
61
|
|
Residential
mortgage-backed securities
|
4
|
|
|
—
|
|
|
4
|
|
Other asset-backed
securities
|
54
|
|
|
—
|
|
|
54
|
|
Total
|
$
|
13,191
|
|
|
$
|
753
|
|
|
$
|
13,944
|
|
The market value of Torchmark's fixed maturity portfolio was
$15.8 billion; $1.9 billion higher than amortized cost of
$13.9 billion. The $1.9 billion of net unrealized gains compares to
$1.7 billion at June 30, 2016. Net unrealized gains were
comprised of gross unrealized gains of $2.0
billion and gross unrealized losses of $120 million.
Torchmark is not a party to any derivatives contracts, including
credit default swaps, and does not participate in securities
lending.
At amortized cost, 95% of fixed maturities (96% at market value)
were rated "investment grade." The fixed maturity portfolio earned
an annual effective yield of 5.77% during the third quarter of
2016, compared to 5.81% in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter
totaled $275 million at cost.
Comparable information for acquisitions of fixed maturity
investments is as follows:
|
Quarter
Ended
|
|
September
30,
|
|
2016
|
|
|
2015
|
Average annual
effective yield
|
4.4%
|
|
|
5.1%
|
Average
rating
|
BBB
|
|
|
BBB+
|
Average life (in
years) to:
|
|
|
|
|
Next call
|
23.4
|
|
|
25.8
|
Maturity
|
25.3
|
|
|
26.0
|
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.2 million shares
of Torchmark Corporation common stock at a total cost of
$77 million for an average share
price of $62.65. For the nine months
ended September 30, 2016, the Company repurchased 4.2 million
shares at an average share price of $57.58.
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.
EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2016:
Torchmark projects that net operating income from continuing
operations per share will be in a range of $4.43 to $4.49 for the year ending December 31, 2016, and from $4.55 to $4.85 for the year ending December 31, 2017.
NON-GAAP MEASURES:
In this news release, Torchmark includes non-GAAP measures to
enhance investors' understanding of management's view of the
business. The non-GAAP measures are not a substitute for GAAP, but
rather a supplement to increase transparency by providing broader
perspective. Torchmark's definitions of non-GAAP measures may
differ from other companies' definitions. More detailed financial
information including various GAAP and non-GAAP measurements are
located at www.torchmarkcorp.com on the Investors page under
"Financial Reports."
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, 2015, 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 Investors 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 third quarter
2016 earnings release conference call with financial analysts at
11:00 a.m. (Eastern) tomorrow,
October 26, 2016. Access to the live webcast and replay will
be available at www.torchmarkcorp.com on the Investors/Calls and
Meetings 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 Investors page menu
of the Torchmark website at "Financial Reports."
APPENDIX
|
|
TORCHMARK
CORPORATION
|
GAAP CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(Unaudited)
|
(Amounts in
millions except per share data)
|
|
|
Three Months
Ended
September
30,
|
|
Nine Months
Ended
September
30,
|
|
2016(1)
|
|
2015(2)
|
|
2016(1)
|
|
2015(2)
|
Revenue:
|
|
|
|
|
|
|
|
Life
premium
|
$
|
546
|
|
|
$
|
519
|
|
|
$
|
1,639
|
|
|
$
|
1,552
|
Health
premium
|
237
|
|
|
229
|
|
|
710
|
|
|
690
|
Other
premium
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
Total
premium
|
783
|
|
|
748
|
|
|
2,349
|
|
|
2,243
|
Net investment
income
|
203
|
|
|
193
|
|
|
601
|
|
|
580
|
Realized
gains
|
3
|
|
|
5
|
|
|
8
|
|
|
8
|
Other
income
|
—
|
|
|
1
|
|
|
1
|
|
|
2
|
Total
revenue
|
990
|
|
|
947
|
|
|
2,959
|
|
|
2,832
|
Benefits and
expenses:
|
|
|
|
|
|
|
|
Life policyholder
benefits
|
370
|
|
|
342
|
|
|
1,102
|
|
|
1,029
|
Health policyholder
benefits
|
153
|
|
|
149
|
|
|
459
|
|
|
449
|
Other policyholder
benefits
|
9
|
|
|
10
|
|
|
27
|
|
|
29
|
Total policyholder
benefits
|
532
|
|
|
501
|
|
|
1,589
|
|
|
1,507
|
Amortization of
deferred acquisition costs
|
117
|
|
|
112
|
|
|
353
|
|
|
334
|
Commissions, premium
taxes, and non-deferred acquisition costs
|
61
|
|
|
60
|
|
|
186
|
|
|
176
|
Other operating
expense
|
58
|
|
|
56
|
|
|
173
|
|
|
167
|
Interest
expense
|
20
|
|
|
19
|
|
|
63
|
|
|
57
|
Total benefits and
expenses
|
788
|
|
|
748
|
|
|
2,363
|
|
|
2,242
|
|
|
|
|
|
|
|
|
Income before income
taxes
|
201
|
|
|
199
|
|
|
596
|
|
|
590
|
Income
taxes
|
(60)
|
|
|
(65)
|
|
|
(181)
|
|
|
(193)
|
Income from
continuing operations
|
142
|
|
|
134
|
|
|
415
|
|
|
397
|
|
|
|
|
|
|
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
Income from
discontinued operations, net of tax
|
10
|
|
|
12
|
|
|
—
|
|
|
(3)
|
Net
income
|
$
|
152
|
|
|
$
|
145
|
|
|
$
|
414
|
|
|
$
|
394
|
|
|
|
|
|
|
|
|
Basic net income per
share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.19
|
|
|
$
|
1.08
|
|
|
$
|
3.44
|
|
|
$
|
3.16
|
Discontinued
operations
|
0.08
|
|
|
0.09
|
|
|
—
|
|
|
(0.03)
|
Total basic net
income per common share
|
$
|
1.27
|
|
|
$
|
1.17
|
|
|
$
|
3.44
|
|
|
$
|
3.13
|
|
|
|
|
|
|
|
|
Diluted net income
per share:
|
|
|
|
|
|
|
|
Continuing
operations
|
$
|
1.16
|
|
|
$
|
1.06
|
|
|
$
|
3.38
|
|
|
$
|
3.12
|
Discontinued
operations
|
0.09
|
|
|
0.09
|
|
|
—
|
|
|
(0.03)
|
Total diluted net
income per common share
|
$
|
1.25
|
|
|
$
|
1.15
|
|
|
$
|
3.38
|
|
|
$
|
3.09
|
|
|
|
|
|
|
|
|
Dividends declared
per common share
|
$
|
0.14
|
|
|
$
|
0.14
|
|
|
$
|
0.42
|
|
|
$
|
0.41
|
|
(1) Due to the
adoption of ASU 2016-09, certain balances related to excess tax
benefits from stock compensation were adjusted
prospectively.
|
(2) Certain prior
year balances were adjusted to give effect to discontinued
operations.
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/torchmark-corporation-reports-third-quarter-2016-results-300351001.html
SOURCE Torchmark Corporation