TIDMTMK
Torchmark Corporation Reports First Quarter 2016 Results
MCKINNEY, Texas, April 26, 2016 -- Torchmark Corporation (NYSE: TMK) reported
today that for the quarter ended March 31, 2016, net income was $1.01 per
share, compared with $0.95 per share for the year-ago quarter. Net operating
income from continuing operations for the quarter was $1.08 per share, compared
with $1.02 per share for the year-ago quarter.
Reconciliations between net income and net operating income, GAAP ROE and
management ROE, and GAAP book value and management book value are shown in the
Financial Summary below.
HIGHLIGHTS:
* ROE (excluding net unrealized gains on fixed maturities) was 14.5%.
* Total life premiums increased 6% over the year-ago quarter.
* Net life sales increased 11% at Liberty National and 7% at American Income
over the year-ago quarter.
* Liberty National ending agent count increased 16% over the previous
quarter.
* 1.5 million shares of common stock were repurchased during the quarter.
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 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.
Financial Summary
(dollars in millions, except per share data)
Per Share Quarter Ended
Quarter Ended
March 31, March 31,
2016 2015 % 2016 2015 %
Chg. Chg.
Insurance underwriting income* $ 1.21 $ 1.16 4 $ 149.4 $ 148.8 -
Excess investment income* 0.44 0.43 2 54.7 54.9 -
Parent company expense (0.02) (0.02) (2.0) (2.2)
Income tax (0.54) (0.51) 6 (66.2) (66.2) -
Stock option expense, net of (0.02) (0.04) (2.5) (4.7)
tax
Net operating income from $ 1.08 $ 1.02 6 $ 133.4 $ 130.7 2
continuing operations
Net operating income from 0.02 0.02 2.0 2.9
discontinued operations
Net operating income from all $ 1.10 $ 1.04 $ 135.4 $ 133.6
operations
Reconciling items, net of tax:
Realized gains (losses) on - - 0.2 0.1
investments- continuing
operations
Part D adjustment - (0.09) (0.09) (11.5) (12.0)
discontinued operations**
Net income $ 1.01 $ 0.95 $ 124.0 $ 121.6
Weighted average diluted 123,313 128,587
shares outstanding (000)
* See definitions in the following sections and in the Torchmark 2015 SEC Form
10-K.
** 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.
Note 1: In March 2016, the FASB issued ASU 2016-09 Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting. This ASU affects entities that issue share-based payment awards to
their employees and is designed to simplify certain aspects of accounting for
share-based payments, including income taxes at settlement. This new accounting
guidance will primarily affect computations of net income, diluted shares
outstanding, and earnings per share, and is expected to result in increased
volatility for net income and earnings per share in future periods. The Company
elected to early adopt this standard effective January 1, 2016 and has applied
it prospectively.
As a result of the adoption, the Company recorded $2 million in excess tax
benefits as a component of income taxes for the quarter ended March 31, 2016,
which resulted in an increase to net income as compared to the quarter ended
March 31, 2015 when excess tax benefits of $5 million were recorded as a
component of additional paid-in capital on the balance sheet. The adoption also
resulted in an adjustment to the weighted average diluted shares outstanding to
exclude excess tax benefits from the assumed proceeds in the diluted shares
calculation. This change resulted in diluted weighted average shares
outstanding calculated under the new guidance of 123.3 million for the quarter
ended March 31, 2016, as compared to 122.7 million as would have been
calculated under the previous guidance.
Note 2: Tables in this news release may not foot due to rounding.
Financial Summary, Continued
Management vs. GAAP Measures
(dollars in millions, except per share data)
Management Revaluation GAAP
(excluding the Adjustment**
Revaluation Adj.**)
March 31, March 31, March 31,
2016 2015 2016 2015 2016 2015
Net income as a ROE*** 11.7 % 10.2 %
Net operating income 14.5 % 14.7 % - -
as a ROE
Shareholders' equity $ 3,768 $ 3,638 $ 624 $ 1,245 $ 4,392 $ 4,884
Book value per share $ 30.65 $ 28.44 $ 5.07 $ 9.73 $ 35.72 $ 38.17
**Accounting rules set forth in ASC 820 require a revaluation adjustment to
record fixed maturities classified as available for sale at fair value rather
than at amortized cost.
***ROE is calculated using average shareholders' equity for the measurement
period.
CONTINUING INSURANCE OPERATIONS - comparing the first quarter 2016 with first
quarter 2015:
Life insurance accounted for 73% of the Company's insurance underwriting margin
for the quarter and 70% of total premium revenue.
Health insurance accounted for 26% of Torchmark's insurance underwriting margin
for the quarter and 30% of total premium revenue.
Net sales of life insurance were flat, while net health sales decreased 1%.
Insurance Premium Revenue
Insurance Premium Revenue
(dollars in millions)
Quarter Ended Quarter Ended %
Chg.
March 31, 2016 March 31, 2015
Life insurance $ 544.2 $ 513.3 6
Health insurance 235.7 228.7 3
Annuity - -
Total $ 779.9 $ 742.1 5
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 % of Quarter % of %
Ended Premium Ended Premium Chg.
March 31, March 31,
2016 2015
Insurance underwriting margins:
Life $ 144.3 27 $ 141.4 28 2
Health 51.5 22 51.6 23 -
Annuity 1.6 1.1
197.4 194.1 2
Other income 0.5 0.7
Administrative expenses (48.5) (46.0) 5
Insurance underwriting income $ 149.4 $ 148.8 -
Per share $ 1.21 $ 1.16 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 http://www.torchmarkcorp.com/ on the
Investors page at Financial Reports.
American Income Agency was Torchmark's leading contributor to total
underwriting margin ($79 million), on premium revenue of $241 million. Life
premiums of $220 million were up 9% and life insurance underwriting margin of
$69 million was up 11%. As a percentage of life premium, life underwriting
margin was 31%, same as a year ago and the highest of the life distribution
channels at Torchmark. The average producing agent count during the quarter was
6,206, down 2% from a year ago, and down 6% from the fourth quarter. The
producing agent count at the end of the first quarter was 6,225. Net life sales
were $50 million, up 7%.
Globe Life Direct Response was Torchmark's second leading contributor to total
underwriting margin ($40 million), on premium revenue of $218 million. Life
premiums of $200 million were up 7% and the life underwriting margin was $37
(MORE TO FOLLOW) Dow Jones Newswires
April 27, 2016 02:00 ET (06:00 GMT)
million, down 13%. As a percentage of life premium, life underwriting margin
was 19%, down from 23%. Net life sales were $41 million, down 8% from the
year-ago quarter. Net health sales decreased from $1.8 million to $1.6 million.
LNL Agency was Torchmark's third leading contributor to total underwriting
margin ($30 million), on premium revenue of $120 million. Life premiums of $68
million were approximately the same as the year-ago quarter and life
underwriting margin was $18 million, up 6%. As a percentage of life premium,
life underwriting margin was 27%, up from 26%. Net life sales for the LNL
Agency were $9 million, up 11%.
LNL Agency was Torchmark's third leading contributor to health underwriting
margin ($12 million), on health premiums of $52 million. Health underwriting
margin as a percentage of health premium was 22%, down from 23%. Net health
sales for the LNL Agency were $5 million, up 19%.
LNL Agency's average producing agent count during the quarter was 1,542, up 5%
over a year ago, and approximately the same as the fourth quarter. The
producing agent count at the end of the first quarter was 1,711.
Family Heritage Agency was Torchmark's second leading contributor to health
underwriting margin ($12 million) on health premiums of $57 million. Health
underwriting margin as a percentage of health premium was 21%, approximately
the same as a year ago. The average producing agent count during the quarter
was 827, up 5% from a year ago and down 6% from the fourth quarter. The
producing agent count at the end of the first quarter was 881. Net health sales
were $11 million, down 9%.
UA Independent Agency was Torchmark's leading contributor to health
underwriting margin ($16 million), on health premiums of $88 million. Health
underwriting margin as a percentage of premiums was 18%, down from 19%. Net
health sales were $12 million, down 2%. Excluding the group business, net
health sales grew 2%.
Administrative Expenses were $48 million, up 5% 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%, in line with expectations and same as the year-ago quarter.
INVESTMENTS
Excess Investment Income - comparing the first quarter 2016 with the first
quarter 2015:
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)
2016 2015 %
Chg.
Net investment income $ 197.1 $ 191.6 3
Required interest:
Interest on net policy liabilities (123.0) (117.6) 5
Interest on debt (19.4) (19.1) 2
Total required interest (142.4) (136.7) 4
Excess investment income $ 54.7 $ 54.9 -
Per share $ 0.44 $ 0.43 2
Net investment income increased 3%, while average invested assets increased 4%.
Required interest on net policy liabilities increased 5%, in line with a
similar increase in average net policy liabilities. Interest expense on debt
increased by 2%. 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, 2016 is as follows:
Invested Assets
(dollars in millions)
$ % of Total
Fixed maturities (at amortized cost) $ 13,489 95 %
Equities 1 -
Investment real estate 1 -
Policy loans 497 4
Other long-term investments 36 -
Short-term investments 145 1
Total $ 14,169 100 %
Fixed maturities at amortized cost by asset class as of March 31, 2016 are as
follows:
Fixed Maturities
(dollars in millions)
Investment Below Total
Grade Investment
Grade
Corporate bonds $ 10,689 $ 634 $ 11,323
Redeemable preferred stock:
U.S. 282 74 356
Foreign 55 - 55
Municipal 1,281 1 1,282
Government-sponsored enterprises 298 0 298
Government and agencies 93 0 93
Collateralized debt obligations - 62 62
Residential mortgage-backed securities 5 - 5
Other asset-backed securities 16 - 16
Total $ 12,718 $ 771 $ 13,489
The market value of Torchmark's fixed maturity portfolio was $14.5 billion;
$970 million higher than amortized cost of $13.5 billion. The $970 million of
net unrealized gains compares to $506 million at December 31, 2015. Net
unrealized gains were comprised of gross unrealized gains of $1.4 billion and
gross unrealized losses of $394 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 5.83% during the first quarter of 2016, compared to 5.87% in the
year-ago quarter.
Acquisitions of fixed maturity investments during the quarter totaled $287
million at cost. Comparable information for acquisitions of fixed maturity
investments is as follows:
Quarter Ended
March 31,
2016 2015
Average annual effective yield 5.0% 4.5%
Average rating BBB+ BBB+
Average life (in years) to:
Next call 25.6 28.0
Maturity 25.9 28.8
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.5 million shares of Torchmark
Corporation common stock at a total cost of $80 million at an average share
price of $53.26.
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 $66 million of liquid assets at March 31,
2016.
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 $4.35 to $4.51 for the year ending December 31,
2016. The midpoint of this guidance is $4.43, a five cent increase over
previous guidance, of which four cents is due to the projected impact of the
adoption of ASU 2016-09 previously discussed.
OTHER FINANCIAL INFORMATION:
More detailed financial information including various GAAP and Non-GAAP ratios
and financial 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, 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 2016 earnings
release conference call with financial analysts at 11:00 a.m. (Eastern)
tomorrow, April 27, 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."
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
END
(END) Dow Jones Newswires
April 27, 2016 02:00 ET (06:00 GMT)
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