Torchmark Corporation Reports Second Quarter 2016 Results
MCKINNEY, Texas, July 27,
2016 -- Torchmark Corporation (NYSE: TMK) reported today
that for the quarter ended June 30, 2016, net income was
$1.13 per diluted common share,
compared with $1.00 per diluted
common share for the year-ago quarter. Net operating income from
continuing operations for the quarter was $1.11 per diluted common share, compared with
$1.03 per diluted common share for
the year-ago quarter.
HIGHLIGHTS:
- Net
income as a ROE was 11.8%. Net operating income as a ROE excluding
net unrealized gains on fixed maturities was 14.6%.
- Net
life sales increased 10% at American Income over the year-ago
quarter.
- At
Liberty National, net life sales increased 12% and net health sales
increased 13% over the year ago quarter.
-
Average agent counts increased from the first quarter of 2016 to
the second quarter of 2016 by 13% at Liberty National and Family
Heritage, and 6% at American Income.
- 1.4
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 |
|
|
|
June 30, |
|
|
|
June 30, |
|
|
|
2016 |
|
|
2015 |
|
%
Chg. |
|
2016 |
|
|
2015 |
|
%
Chg. |
| Insurance underwriting income(1) |
$ |
1.22 |
|
|
|
$ |
1.16 |
|
|
5 |
|
$ |
150.2 |
|
|
|
$ |
147.4 |
|
|
2 |
| Excess investment income(1) |
0.44 |
|
|
|
0.45 |
|
|
(2) |
|
54.6 |
|
|
|
56.9 |
|
|
(4) |
| Parent company expense |
(0.02) |
|
|
|
(0.02) |
|
|
|
|
(2.4) |
|
|
|
(2.3) |
|
|
|
| Income tax |
(0.53) |
|
|
|
(0.52) |
|
|
2 |
|
(65.3) |
|
|
|
(66.0) |
|
|
(1) |
| Stock option expense, net of tax |
— |
|
|
|
(0.04) |
|
|
|
|
(0.4) |
|
|
|
(5.1) |
|
|
|
| Net operating income from continuing operations |
$ |
1.11 |
|
|
|
$ |
1.03 |
|
|
8 |
|
$ |
136.7 |
|
|
|
$ |
130.8 |
|
|
4 |
| Net operating income from discontinued operations |
0.02 |
|
|
|
0.02 |
|
|
|
|
2.1 |
|
|
|
2.6 |
|
|
|
| Net operating income from all operations |
$ |
1.13 |
|
|
|
$ |
1.05 |
|
|
|
|
$ |
138.7 |
|
|
|
$ |
133.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciliation to net income (GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciling items, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Realized gains (losses) on investments—continuing
operations |
0.02 |
|
|
|
0.01 |
|
|
|
|
2.6 |
|
|
|
1.7 |
|
|
|
| Part D adjustments- discontinued
operations(2) |
(0.02) |
|
|
|
(0.06) |
|
|
|
|
(2.9) |
|
|
|
(8.0) |
|
|
|
| Net income(3) |
$ |
1.13 |
|
|
|
$ |
1.00 |
|
|
|
|
$ |
138.4 |
|
|
|
$ |
127.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average diluted shares outstanding
(000) |
122,748 |
|
|
|
127,440 |
|
|
|
|
|
|
|
|
|
|
|
| (1) Definitions included within the
document. |
| (2) 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. |
| (3) A GAAP basis condensed
consolidated statement of operations is included in the appendix of
this report. |
| Note 1: 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 AOCI(1), and book
value per share, excluding AOCI, 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.
|
June 30, |
|
2016 |
|
2015 |
| Net income as a ROE(2) |
11.8 |
% |
|
10.7 |
% |
| Net operating income as a ROE(2) (excluding
net unrealized gains on fixed maturities) |
14.6 |
% |
|
14.7 |
% |
|
|
|
|
| Shareholders' equity |
$ |
4,878 |
|
|
$ |
4,306 |
|
| Impact of adjustment |
(1,072) |
|
|
(638) |
|
| Shareholders' equity, excluding AOCI |
$ |
3,806 |
|
|
$ |
3,668 |
|
|
|
|
|
| Book value per share |
$ |
39.87 |
|
|
$ |
33.94 |
|
| Impact of adjustment |
(8.76) |
|
|
(5.03) |
|
| Book value per share, excluding AOCI |
$ |
31.11 |
|
|
$ |
28.91 |
|
|
| (1) AOCI is defined as accumulated other
comprehensive income. |
| (2) Calculated using average shareholders'
equity for the measurement period. |
CONTINUING INSURANCE OPERATIONS – comparing the second quarter 2016
with second 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 increased 2%, while net health sales
increased 6%.
INSURANCE
PREMIUM REVENUE
(Dollar amounts in millions, except per share data)
(unaudited)
|
Quarter
Ended |
|
%
Chg. |
|
June 30,
2016 |
|
|
June 30,
2015 |
|
| Life insurance |
$ |
548.6 |
|
|
|
$ |
520.0 |
|
|
5 |
| Health insurance |
237.3 |
|
|
|
232.4 |
|
|
2 |
| Total |
$ |
785.9 |
|
|
|
$ |
752.5 |
|
|
4 |
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. |
|
June 30, 2016 |
|
|
|
June 30, 2015 |
|
|
| Insurance underwriting margins: |
|
|
|
|
|
|
|
|
|
|
| Life |
$ |
143.6 |
|
|
26 |
|
|
$ |
139.4 |
|
|
27 |
|
3 |
| Health |
52.6 |
|
|
22 |
|
|
51.6 |
|
|
22 |
|
2 |
| Annuity |
1.9 |
|
|
|
|
|
1.1 |
|
|
|
|
|
|
198.2 |
|
|
|
|
|
192.1 |
|
|
|
|
3 |
| Other income |
0.4 |
|
|
|
|
|
0.7 |
|
|
|
|
|
| Administrative expenses |
(48.4) |
|
|
|
|
|
(45.5) |
|
|
|
|
6 |
| Insurance underwriting income |
$ |
150.2 |
|
|
|
|
|
$ |
147.4 |
|
|
|
|
2 |
| Per share |
$ |
1.22 |
|
|
|
|
|
$ |
1.16 |
|
|
|
|
5 |
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
http://www.torchmarkcorp.com/ on the Investors page at
Financial Reports.
American Income Agency was Torchmark's leading
contributor to total underwriting margin ($82 million), on premium revenue of $247 million. Life premiums of $226 million were up 9% and life insurance
underwriting margin of $72 million
was up 13%. As a percentage of life premium, life
underwriting margin was 32%, up from 31% and the highest of the
life distribution channels at Torchmark. The average producing
agent count during the quarter was 6,599, approximately the same
from a year ago, but up 6% from the previous quarter. The producing
agent count at the end of the second quarter was 6,773. Net life
sales(1) were $55 million,
up 10%.
Globe Life Direct Response was Torchmark's second leading
contributor to total underwriting margin ($36 million), on premium revenue of $216 million. Life premiums of $199 million were up 5% and the life underwriting
margin was $33 million, down 10%. As
a percentage of life premium, life underwriting margin was 17%,
down from 20%. Net life sales were $40
million, down 9% from the year-ago quarter. Net health
sales(1) increased from $0.8
million to $0.9 million.
LNL Agency was Torchmark's third leading contributor to
total underwriting margin ($31
million), on premium revenue of $118
million. Life premiums of $68
million were down 1% from the year-ago quarter and life
underwriting margin was $19 million,
up 6%. As a percentage of life premium, life underwriting margin
was 28%, up from 26%. Net life sales(1) for the
LNL Agency were $10 million, up
12%.
LNL Agency was Torchmark's third leading contributor to health
underwriting margin ($12 million), on
health premiums of $51 million.
Health underwriting margin as a percentage of health premium was
24%, approximately the same as the year-ago quarter. Net health
sales(1) for the LNL Agency were $5 million, up 13%.
LNL Agency's average producing agent count during the
quarter was 1,739, up 12% over a year ago, and up 13% from the
previous quarter. The producing agent count at the end of the
second quarter was 1,812.
Family Heritage Agency was Torchmark's second leading
contributor to health underwriting margin ($12 million) on health premiums of $59 million. Health underwriting margin as a
percentage of health premium was 21%, up 1% from a year ago. The
average producing agent count during the quarter was 933, down 3%
from a year ago, but up 13% from the previous quarter. The
producing agent count at the end of the second quarter was 955. Net
health sales(1) were $14
million, up 1% from the year ago quarter.
UA Independent Agency was Torchmark's leading contributor
to health underwriting margin ($16
million), on health premiums of $90
million. Health underwriting margin as a percentage of
premiums was 18%, down from 19%. Net health sales(1)
were $10 million, up 6%.
Excluding the group business, net health sales grew 13%.
Administrative Expenses were $48
million, up 6% from the year ago quarter due primarily to an
increase in information technology costs. The ratio of
administrative expenses to premium for continuing operations was
approximately 6.2% and in line with expectations, compared to 6.0%
for the year ago quarter.
| (1) 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 |
|
June 30, |
|
2016 |
|
|
2015 |
|
%
Chg. |
| Net investment income |
$ |
201.6 |
|
|
|
$ |
194.8 |
|
|
4 |
| Required interest: |
|
|
|
|
|
|
| Interest on net policy liabilities(1) |
(123.9) |
|
|
|
(118.8) |
|
|
4 |
| Interest on debt |
(23.1) |
|
|
|
(19.1) |
|
|
21 |
| Total required interest |
(147.0) |
|
|
|
(138.0) |
|
|
7 |
| Excess investment income |
$ |
54.6 |
|
|
|
$ |
56.9 |
|
|
(4) |
| Per share |
$ |
0.44 |
|
|
|
$ |
0.45 |
|
|
(2) |
|
| (1) Interest on net policy liabilities is
a component of total policyholder benefits (a GAAP measure). |
Net investment income increased 4%, while average invested
assets increased 6%. Required interest on net policy liabilities
increased 4%, in line with the increase for average net policy
liabilities. Interest expense on debt increased by 21%. 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 June 30,
2016 is as follows:
|
Invested Assets
(dollars in millions)
(unaudited) |
|
$ |
|
% of Total |
| Fixed maturities (at amortized cost) |
$ |
13,778 |
|
|
96 |
% |
| Equities |
— |
|
|
— |
|
| Investment real estate |
1 |
|
|
— |
|
| Policy loans |
502 |
|
|
3 |
|
| Other long-term investments |
57 |
|
|
— |
|
| Short-term investments |
49 |
|
|
— |
|
| Total |
$ |
14,386 |
|
|
100 |
% |
Fixed maturities at amortized cost by asset class as of
June 30, 2016 are as follows:
|
Fixed
Maturities
(dollars in millions)
(unaudited) |
|
Investment
Grade |
|
Below
Investment
Grade |
|
Total |
| Corporate bonds |
$ |
10,942 |
|
|
$ |
626 |
|
|
$ |
11,568 |
|
| Redeemable preferred stock: |
|
|
|
|
|
| U.S. |
282 |
|
|
74 |
|
|
356 |
|
| Foreign |
55 |
|
|
|
|
55 |
|
| Municipal |
1,277 |
|
|
1 |
|
|
1,277 |
|
| Government-sponsored enterprises |
300 |
|
|
— |
|
|
300 |
|
| Government and agencies |
102 |
|
|
— |
|
|
102 |
|
| Collateralized debt obligations |
— |
|
|
62 |
|
|
62 |
|
| Residential mortgage-backed securities |
4 |
|
|
— |
|
|
4 |
|
| Other asset-backed securities |
54 |
|
|
— |
|
|
54 |
|
| Total |
$ |
13,015 |
|
|
$ |
763 |
|
|
$ |
13,778 |
|
The market value of Torchmark's fixed maturity portfolio was
$15.4 billion; $1.7 billion higher than amortized cost of
$13.8 billion. The $1.7 billion of net unrealized gains compares to
$970 million at March 31, 2016. Net unrealized gains were
comprised of gross unrealized gains of $1.9
billion and gross unrealized losses of $211 million.
Torchmark is not a party to any derivatives contracts, including
credit default swaps, and does not participate in securities
lending.
At amortized cost, 94% of fixed maturities (96% at market value)
were rated "investment grade." The fixed maturity portfolio earned
an annual effective yield of 5.8% during the second quarter of
2016, the same as the year ago quarter.
Acquisitions of fixed maturity investments during the quarter
totaled $364 million at cost.
Comparable information for acquisitions of fixed maturity
investments is as follows:
|
Quarter
Ended |
|
June 30, |
|
2016 |
|
|
2015 |
| Average annual effective yield |
4.7% |
|
|
4.7% |
| Average rating |
BBB+ |
|
|
A- |
| Average life (in years) to: |
|
|
|
|
| Next call |
23.4 |
|
|
28.8 |
| Maturity |
23.7 |
|
|
30.5 |
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.4 million shares
of Torchmark Corporation common stock at a total cost of
$83 million at an average share price
of $57.77. For the six months ended
June 30, 2016, the Company repurchased 2.9 million shares at
the average share price of $55.46.
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 $4.40 to $4.50 for the year ending December 31, 2016.
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 http://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 http://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 second
quarter 2016 earnings release conference call with financial
analysts at 11:00 a.m. (Eastern)
tomorrow, July 28, 2016. Access to the live webcast and replay
will be available at http://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
June 30, |
|
Six Months Ended
June 30, |
|
2016(1) |
|
2015(2) |
|
2016(1) |
|
2015(2) |
| Revenue: |
|
|
|
|
|
|
|
| Life premium |
$ |
549 |
|
|
$ |
520 |
|
|
$ |
1,093 |
|
|
$ |
1,033 |
|
| Health premium |
237 |
|
|
232 |
|
|
473 |
|
|
461 |
|
| Other premium |
— |
|
|
— |
|
|
— |
|
|
— |
|
| Total premium |
786 |
|
|
752 |
|
|
1,566 |
|
|
1,495 |
|
| Net investment income |
202 |
|
|
195 |
|
|
399 |
|
|
386 |
|
| Realized investment gains |
4 |
|
|
3 |
|
|
4 |
|
|
3 |
|
| Other income |
— |
|
|
1 |
|
|
1 |
|
|
1 |
|
| Total revenue |
992 |
|
|
951 |
|
|
1,970 |
|
|
1,885 |
|
| Benefits and expenses: |
|
|
|
|
|
|
|
| Life policyholder benefits |
369 |
|
|
347 |
|
|
732 |
|
|
687 |
|
| Health policyholder benefits |
153 |
|
|
151 |
|
|
306 |
|
|
299 |
|
| Other policyholder benefits |
9 |
|
|
10 |
|
|
18 |
|
|
20 |
|
| Total policyholder benefits |
531 |
|
|
508 |
|
|
1,056 |
|
|
1,006 |
|
| Amortization of deferred acquisition costs |
117 |
|
|
112 |
|
|
236 |
|
|
222 |
|
| Commissions, premium taxes, and non-deferred
acquisition costs |
63 |
|
|
59 |
|
|
124 |
|
|
116 |
|
| Other operating expense |
58 |
|
|
56 |
|
|
115 |
|
|
111 |
|
| Interest expense |
23 |
|
|
19 |
|
|
42 |
|
|
38 |
|
| Total benefits and expenses |
793 |
|
|
754 |
|
|
1,575 |
|
|
1,494 |
|
|
|
|
|
|
|
|
|
| Income before income taxes |
199 |
|
|
197 |
|
|
395 |
|
|
391 |
|
| Income taxes |
(60) |
|
|
(64) |
|
|
(122) |
|
|
(128) |
|
| Income from continuing operations |
139 |
|
|
133 |
|
|
273 |
|
|
263 |
|
|
|
|
|
|
|
|
|
| Discontinued operations: |
|
|
|
|
|
|
|
| Income (loss) from discontinued operations, net of
tax |
(1) |
|
|
(5) |
|
|
(10) |
|
|
(15) |
|
| Net income |
$ |
138 |
|
|
$ |
127 |
|
|
$ |
262 |
|
|
$ |
249 |
|
|
|
|
|
|
|
|
|
| Basic net income per share: |
|
|
|
|
|
|
|
| Continuing operations |
$ |
1.16 |
|
|
$ |
1.05 |
|
|
$ |
2.26 |
|
|
$ |
2.08 |
|
| Discontinued operations |
(0.01) |
|
|
(0.04) |
|
|
(0.09) |
|
|
(0.11) |
|
| Total basic net income per common share |
$ |
1.15 |
|
|
$ |
1.01 |
|
|
$ |
2.17 |
|
|
$ |
1.97 |
|
|
|
|
|
|
|
|
|
| Diluted net income per share: |
|
|
|
|
|
|
|
| Continuing operations |
$ |
1.13 |
|
|
$ |
1.04 |
|
|
$ |
2.22 |
|
|
$ |
2.06 |
|
| Discontinued operations |
— |
|
|
(0.04) |
|
|
(0.09) |
|
|
(0.12) |
|
| Total diluted net income per common share |
$ |
1.13 |
|
|
$ |
1.00 |
|
|
$ |
2.13 |
|
|
$ |
1.94 |
|
|
|
|
|
|
|
|
|
| Dividends declared per common share |
$ |
0.14 |
|
|
$ |
0.14 |
|
|
$ |
0.28 |
|
|
$ |
0.27 |
|
|
|
| (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. |
SOURCE Torchmark Corporation
CONTACT: Mike Majors, Vice
President, Investor Relations, Torchmark Corporation, 3700 South
Stonebridge Dr., P. O. Box 8080, McKinney, Texas 75070-8080, Phone:
972/569-3239, tmkir@torchmarkcorp.com, Website:
www.torchmarkcorp.com