TORCHMARK CORPORATION REPORTS First Quarter 2017 Results
MCKINNEY, Texas, April 19,
2017 -- Torchmark Corporation (NYSE: TMK) reported today that for
the quarter ended March 31, 2017, net income was $1.11 per diluted common share, compared with
$1.01 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 $1.08 per diluted common share for the year-ago
quarter.
HIGHLIGHTS:
- Net
income as a ROE was 11.5%. Net operating income as a ROE excluding
net unrealized gains on fixed maturities was 14.2%.
-
American Income life premiums increased 9% over the year-ago
quarter.
- Net
life sales increased over the year-ago quarter by 16% at Liberty
National and 6% at American Income.
- Net
health sales increased 26% at Family Heritage over the year-ago
quarter.
-
Average agent counts increased over the year-ago quarter by 18% at
Liberty National, 8% at American Income and 8% at Family
Heritage.
- 1.1
million shares of common stock were repurchased during the
quarter.
FINANCIAL
SUMMARY
Quarter End
(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
significant and unusual 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 |
|
|
|
March 31, |
|
|
|
March 31, |
|
|
|
2017 |
|
|
2016 |
|
%
Chg. |
|
2017 |
|
|
2016 |
|
%
Chg. |
| Insurance underwriting income(1) |
$ |
1.23 |
|
|
|
$ |
1.21 |
|
|
2 |
|
$ |
148.6 |
|
|
|
$ |
149.4 |
|
|
(1) |
| Excess investment income(1) |
0.49 |
|
|
|
0.44 |
|
|
11 |
|
59.3 |
|
|
|
54.7 |
|
|
8 |
| Parent company expense |
(0.02) |
|
|
|
(0.02) |
|
|
|
|
(2.2) |
|
|
|
(2.0) |
|
|
|
| Income tax |
(0.56) |
|
|
|
(0.54) |
|
|
4 |
|
(67.1) |
|
|
|
(66.2) |
|
|
1 |
| Stock option benefit (expense), net of tax |
— |
|
|
|
(0.02) |
|
|
|
|
0.1 |
|
|
|
(2.5) |
|
|
|
| Net operating income from continuing
operations |
$ |
1.15 |
|
|
|
$ |
1.08 |
|
|
6 |
|
$ |
138.7 |
|
|
|
$ |
133.4 |
|
|
4 |
| Net operating income from discontinued operations |
— |
|
|
|
0.02 |
|
|
|
|
— |
|
|
|
2.0 |
|
|
|
| Net operating income |
$ |
1.15 |
|
|
|
$ |
1.10 |
|
|
|
|
$ |
138.7 |
|
|
|
$ |
135.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciliation to net income (GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reconciling items, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Realized gains (losses) on investments |
(0.01) |
|
|
|
— |
|
|
|
|
(1.5) |
|
|
|
0.2 |
|
|
|
| Part D adjustments—discontinued
operations(2) |
(0.03) |
|
|
|
(0.09) |
|
|
|
|
(3.6) |
|
|
|
(11.5) |
|
|
|
| Net income(3) |
$ |
1.11 |
|
|
|
$ |
1.01 |
|
|
|
|
$ |
133.5 |
|
|
|
$ |
124.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average diluted shares outstanding
(000) |
120,430 |
|
|
|
123,313 |
|
|
|
|
|
|
|
|
|
|
|
| (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
deferred excess benefits incurred in earlier interim periods to
later periods in 2016 in order to more closely match the benefit
cost with the associated revenue. These reconciling items also
include post-sale adjustments. |
| (3) A GAAP-basis consolidated statement of operations
is included in the appendix of this report. |
| Note: Tables in this news release may not sum 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.
|
March 31, |
|
2017 |
|
2016 |
| Net income as a ROE(1) |
11.5 |
% |
|
11.7 |
% |
| Net operating income as a ROE(1) (excluding
net unrealized gains on fixed maturities) |
14.2 |
% |
|
14.5 |
% |
|
|
|
|
| Shareholders' equity |
$ |
4,745 |
|
|
$ |
4,392 |
|
| Impact of adjustment to exclude net unrealized gains
on fixed maturities |
(820) |
|
|
(624) |
|
| Shareholders' equity, excluding net unrealized gains
on fixed maturities |
$ |
3,925 |
|
|
$ |
3,768 |
|
|
|
|
|
| Book value per share |
$ |
39.61 |
|
|
$ |
35.72 |
|
| Impact of adjustment to exclude net unrealized gains
on fixed maturities |
(6.84) |
|
|
(5.07) |
|
| Book value per share, excluding net unrealized gains
on fixed maturities |
$ |
32.77 |
|
|
$ |
30.65 |
|
|
| (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 first quarter 2017
with first quarter 2016:
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% and net health sales
increased 6%.
INSURANCE
PREMIUM REVENUE
(Dollar amounts in millions, except per share data)
(unaudited)
|
Quarter
Ended |
|
%
Chg. |
|
March 31,
2017 |
|
|
March 31,
2016 |
|
| Life insurance |
$ |
575.8 |
|
|
|
$ |
544.2 |
|
|
6 |
| Health insurance |
244.8 |
|
|
|
235.7 |
|
|
4 |
| Total |
$ |
820.6 |
|
|
|
$ |
779.9 |
|
|
5 |
INSURANCE
UNDERWRITING INCOME
(Dollar amounts in millions, except per share data)
(unaudited)
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.
Management believes this information helps provide a better
understanding of the business and a more meaningful analysis of
underwriting results by distribution channel. Insurance
underwriting income, a non-GAAP measure, is a component of net
operating income, which is reconciled to net income in the
Financial Summary section above.
|
Quarter Ended |
|
|
|
|
Quarter Ended |
|
|
|
|
|
March 31,
2017 |
|
% of
Premium |
|
|
March 31,
2016 |
|
% of
Premium |
|
%
Chg. |
| Insurance underwriting margins: |
|
|
|
|
|
|
|
|
|
|
| Life |
$ |
144.1 |
|
|
25 |
|
|
$ |
144.3 |
|
|
27 |
|
— |
| Health |
53.4 |
|
|
22 |
|
|
51.5 |
|
|
22 |
|
4 |
| Annuity |
2.6 |
|
|
|
|
|
1.6 |
|
|
|
|
|
|
200.1 |
|
|
|
|
|
197.4 |
|
|
|
|
1 |
| Other income |
0.5 |
|
|
|
|
|
0.5 |
|
|
|
|
|
| Administrative expenses |
(51.9) |
|
|
|
|
|
(48.5) |
|
|
|
|
7 |
| Insurance underwriting income |
$ |
148.6 |
|
|
|
|
|
$ |
149.4 |
|
|
|
|
(1) |
| Per share |
$ |
1.23 |
|
|
|
|
|
$ |
1.21 |
|
|
|
|
2 |
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 ($86 million), on premium revenue of $263 million. Life premiums of $241 million were up 9% and life insurance
underwriting margin of $76 million
was up 10%. As a percentage of life premium, life
underwriting margin was 32%, up from 31% and the highest of the
major life distribution channels at Torchmark. The average
producing agent count during the quarter was 6,713, up 8% from a
year ago, but down 2% from the previous quarter. The producing
agent count at the end of the first quarter was 6,768. Net life
sales were $53 million, up 6%.
Globe Life Direct Response was Torchmark's second leading
contributor to total underwriting margin ($33 million), on premium revenue of $229 million. Life premiums of $210 million were up 5% and the life underwriting
margin was $29 million, down 21%. As
a percentage of life premium, life underwriting margin was 14%,
down from 19%. Net life sales were $39
million, down 6% from the year-ago quarter. Net health
sales decreased from $1.6 million to
$1.5 million.
LNL Agency was Torchmark's third leading contributor to
total underwriting margin ($30
million), on premium revenue of $119
million. Life premiums of $69
million were up 1% from the year-ago quarter and life
underwriting margin was $19 million,
up 1%. As a percentage of life premium, life underwriting margin
was 27%, the same as the year-ago quarter. Net life sales were
$11 million, up
16%.
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
23%, up from 22%. Net health sales were $4
million, down 8% from the year-ago quarter.
LNL Agency's average producing agent count during the
quarter was 1,820, up 18% over a year ago, and up 2% from the
previous quarter. The producing agent count at the end of the first
quarter was 1,953.
Family Heritage Agency was Torchmark's second leading
contributor to health underwriting margin ($13 million) on health premiums of $62 million. Health underwriting margin as a
percentage of health premium was 21%, the same as a year ago. The
average producing agent count during the quarter was 894, up 8%
from a year ago, but down 6% from the previous quarter. The
producing agent count at the end of the first quarter was 980. Net
health sales were $13 million,
up 26% from the year-ago quarter.
UA Independent Agency was Torchmark's leading contributor
to health underwriting margin ($15
million), on health premiums of $92
million. Health underwriting margin as a percentage of
premium was 16%, down from 18%. Net health sales were
$11 million, down 5%.
Administrative Expenses were $52
million, up 7% from the year-ago quarter. The ratio of
administrative expenses to premium for continuing operations was
approximately 6.3% and in line with expectations, compared to 6.2%
for the year-ago quarter.
Note: Net sales (health and life), a statistical performance
measure, 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.
INVESTMENTS
EXCESS
INVESTMENT INCOME
(Dollar amounts in millions, except per share data)
(unaudited)
Management uses excess investment income 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 |
|
March 31, |
|
2017 |
|
|
2016 |
|
%
Chg. |
| Net investment income |
$ |
208.3 |
|
|
|
$ |
197.1 |
|
|
6 |
| Required interest: |
|
|
|
|
|
|
| Interest on net policy liabilities(1) |
(128.3) |
|
|
|
(123.0) |
|
|
4 |
| Interest on debt |
(20.7) |
|
|
|
(19.4) |
|
|
7 |
| Total required interest |
(149.0) |
|
|
|
(142.4) |
|
|
5 |
| Excess investment income |
$ |
59.3 |
|
|
|
$ |
54.7 |
|
|
8 |
| Per share |
$ |
0.49 |
|
|
|
$ |
0.44 |
|
|
11 |
|
| (1) Interest on net policy liabilities is a component
of total policyholder benefits (a GAAP measure). |
Net investment income increased 6%, while average invested
assets increased 8%. Required interest on net policy liabilities
increased 4%, in line with a similar increase in average net policy
liabilities. Interest expense on debt increased by 7%. 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 March 31,
2017 is as follows:
|
Invested Assets
(dollar amounts in millions)
(unaudited) |
|
$ |
|
% of
Total |
| Fixed maturities (at amortized cost) |
$ |
14,602 |
|
|
96 |
% |
| Policy loans |
511 |
|
|
3 |
|
| Other long-term investments |
53 |
|
|
— |
|
| Short-term investments |
121 |
|
|
1 |
|
| Total |
$ |
15,287 |
|
|
100 |
% |
Fixed maturities at amortized cost by asset class as of
March 31, 2017 are as follows:
|
Fixed Maturities
(dollar amounts in millions)
(unaudited) |
|
Investment
Grade |
|
Below
Investment
Grade |
|
Total |
| Corporate bonds |
$ |
11,872 |
|
|
$ |
576 |
|
|
$ |
12,448 |
|
| Redeemable preferred stock: |
|
|
|
|
|
| U.S. |
271 |
|
|
74 |
|
|
345 |
|
| Foreign |
55 |
|
|
— |
|
|
55 |
|
| Municipal |
1,184 |
|
|
1 |
|
|
1,184 |
|
| Government-sponsored enterprises |
307 |
|
|
— |
|
|
307 |
|
| Government and agencies |
98 |
|
|
— |
|
|
98 |
|
| Collateralized debt obligations |
— |
|
|
60 |
|
|
60 |
|
| Residential mortgage-backed securities |
4 |
|
|
— |
|
|
4 |
|
| Other asset-backed securities |
102 |
|
|
— |
|
|
102 |
|
| Total |
$ |
13,892 |
|
|
$ |
711 |
|
|
$ |
14,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The market value of Torchmark's fixed maturity portfolio was
$15.9 billion, $1.3 billion higher than amortized cost of
$14.6 billion. The $1.3 billion of net unrealized gains compares to
$1.1 billion at December 31, 2016. Net unrealized gains were
comprised of gross unrealized gains of $1.4
billion and gross unrealized losses of $160 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 5.70% during the first quarter of
2017, compared to 5.83% in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter
totaled $522 million at cost.
Comparable information for acquisitions of fixed maturity
investments is as follows:
|
Quarter Ended |
|
March 31, |
|
2017 |
|
|
2016 |
| Average annual effective yield |
4.9% |
|
|
5.0% |
| Average rating |
BBB+ |
|
|
BBB+ |
| Average life (in years) to: |
|
|
|
|
| Next call |
22.2 |
|
|
25.6 |
| Maturity |
23.2 |
|
|
25.9 |
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.1 million shares
of Torchmark Corporation common stock at a total cost of
$82 million for an average share
price of $76.18.
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, 2017:
Torchmark projects that net operating income from continuing
operations per share will be in a range of $4.63 to $4.77 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 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, 2016, 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 first quarter
2017 earnings release conference call with financial analysts at
12:00 p.m. (Eastern) tomorrow,
April 20, 2017. 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 CONSOLIDATED
STATEMENTS OF OPERATIONS |
| (Unaudited) |
| (Dollar amounts in
millions except per share data) |
|
|
Three Months
Ended
March 31, |
|
2017 |
|
2016 |
| Revenue: |
|
|
|
| Life premium |
$ |
576 |
|
|
$ |
544 |
|
| Health premium |
245 |
|
|
236 |
|
| Other premium |
— |
|
|
— |
|
| Total premium |
821 |
|
|
780 |
|
| Net investment income |
208 |
|
|
197 |
|
| Realized investment gains (losses) |
(6) |
|
|
— |
|
| Other income |
— |
|
|
— |
|
| Total revenue |
1,024 |
|
|
978 |
|
|
|
|
|
| Benefits and expenses: |
|
|
|
| Life policyholder benefits |
391 |
|
|
363 |
|
| Health policyholder benefits |
158 |
|
|
153 |
|
| Other policyholder benefits |
9 |
|
|
9 |
|
| Total policyholder benefits |
558 |
|
|
525 |
|
| Amortization of deferred acquisition costs |
126 |
|
|
119 |
|
| Commissions, premium taxes, and non-deferred
acquisition costs |
65 |
|
|
62 |
|
| Other operating expense |
62 |
|
|
57 |
|
| Interest expense |
21 |
|
|
19 |
|
| Total benefits and expenses |
832 |
|
|
782 |
|
|
|
|
|
| Income before income taxes |
192 |
|
|
195 |
|
| Income taxes |
(55) |
|
|
(62) |
|
| Income from continuing operations |
137 |
|
|
134 |
|
|
|
|
|
| Discontinued operations: |
|
|
|
| Income (loss) from discontinued operations, net of
tax |
(4) |
|
|
(10) |
|
| Net income |
$ |
134 |
|
|
$ |
124 |
|
|
|
|
|
| Basic net income per share: |
|
|
|
| Continuing operations |
$ |
1.16 |
|
|
$ |
1.10 |
|
| Discontinued operations |
(0.03) |
|
|
(0.08) |
|
| Total basic net income per common share |
$ |
1.13 |
|
|
$ |
1.02 |
|
|
|
|
|
| Diluted net income per share: |
|
|
|
| Continuing operations |
$ |
1.14 |
|
|
$ |
1.08 |
|
| Discontinued operations |
(0.03) |
|
|
(0.07) |
|
| Total diluted net income per common share |
$ |
1.11 |
|
|
$ |
1.01 |
|
|
|
|
|
| Dividends declared per common share |
$ |
0.15 |
|
|
$ |
0.14 |
|
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