Torchmark Corporation Reports 6% Increase in Net Income Per Share and 9% In
Net Operating Income Per Share for the First Quarter 2003
BIRMINGHAM, Ala., April 22 -- Torchmark Corporation
(NYSE: TMK) reported today that for the quarter ended March 31, 2003, net
income was $.85 per share ($101 million), a 6% per share increase compared
with $.80 per share ($98 million) for the year-ago quarter. Net operating
income for the first quarter of 2003 was $.93 per share ($110 million), a 9%
per share increase compared with $.85 per share ($105 million) for the year-
ago quarter. A reconciliation between net income and net operating income
follows.
FINANCIAL SUMMARY
(dollars in millions, except per share data)
Per Share
Quarter Ended Quarter Ended
March 31, % March 31, %
2003 2002 Chg. 2003 2002 Chg.
Insurance
Underwriting
Income* $.78 $.73 7 $91.6 $89.5 2
Excess
Investment
Income* .67 .59 14 79.0 72.8 8
Other (.03) (.03) (3.5) (4.3)
Income Tax (.48) (.43) 12 (57.1) (53.2) 7
Net Operating
Income** $.93 $.85 9 $110.0 $104.8 5
Realized Losses,
Net of Tax
Investments (.07) (.01) (8.1) (1.1)
Valuation of
Interest Rate
Swaps (.01) (.05) (1.3) (5.6)
Net Income $.85 $.80 $100.6 $98.2
Weighted Average
Diluted
Shares
Outstanding
(000) 117,784 122,918
* See definitions in the discussions below and in the Torchmark 2002 SEC
form 10K.
** Net Operating Income is the economic measure that Torchmark's
management has consistently used over time to evaluate the operating
performance of the Company. It is equivalent to the after-tax sum of
the pretax measures of profit and loss for each of the reportable
operating segments. It differs from Net Income primarily because it
excludes certain non-operating items, nonrecurring items and
discontinued operations which are included in Net Income. Net
Operating Income is a measure commonly used in the life insurance
industry.
HIGHLIGHTS - comparing first quarter 2003 with first quarter 2002:
* Life insurance sales grew 14%. Direct Response led life sales with
$37 million of annualized premium, up 28%.
* American Income also continued double-digit life sales growth with an
18% increase to $23 million of annualized premium sold.
* Non-Medicare supplemental health sales grew 53% to $29 million, while
Medicare supplement sales declined 37% to $20 million. As a result,
total health insurance sales declined 3% to $48 million.
* Total life underwriting margin (before administrative expenses) grew 9%
to $79 million and the life underwriting margin as a percent of premium
was 25%, up 1%.
* Excess Investment Income of $79 million grew 8%, in part due to a 14%
decline in financing costs.
* The Company continued its on-going share repurchase program by acquiring
2.2 million shares at a cost of $77 million.
INSURANCE OPERATIONS - comparing the first quarter 2003 with the first
quarter 2002:
Premium Revenue
Total premium revenue increased 3% to $590 million. Life premium revenue
increased 7% to $321 million. Health premium revenue remained flat at
$262 million as sales of Medicare supplements remain under pressure. The
Company is implementing single-digit Medicare supplement rate increases for
2003, the first year since 1996 that the Company has not needed double-digit
rate increases on these policies. This may result in fewer rate-increase
related lapses and a better competitive sales environment later in the year.
Annuity premium revenue declined 28% to $8 million. Torchmark's annuities
are predominantly variable annuity contracts. Customers' interest in equity
investments has declined and Torchmark's former distributor has moved many
Torchmark variable annuity customers to another carrier. Torchmark previously
announced it would not emphasize the variable annuity market, preferring the
life insurance business. The separate account assets on the consolidated
balance sheet were down 32% compared to the year-ago quarter, but had declined
only 5% ($89 million) since year-end 2002. Of the decline since year-end, 82%
of the net decline was the result of surrenders. Market value decline
contributed 12% of the net separate account balance decline during the
quarter.
Annualized life premium in force at March 31, 2003, was $1.4 billion, an
increase of 7%, and annualized health premium in force was $1.0 billion, the
same as a year ago.
Insurance Underwriting Income
Insurance underwriting income is management's measure of the pretax
underwriting income of the Company's 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 rose 2% to $92 million. The life
underwriting margin (before administrative expenses) increased 9% and was 25%
of premium revenue, up 1% from the year-ago quarter. American Income was the
leading contributor to life underwriting margin with $22 million, up 12%,
followed closely by Direct Response with $21 million, up 10%. Health
underwriting margin (before administrative expenses) declined 3% to
$43 million and was 16% of premium, down 1%. Administrative expenses were
$34 million, compared with $31 million for the year-ago quarter, but as a
percent of premium, increased less than 1% to 6% of premium. Insurance
underwriting results are summarized in the following chart:
Insurance Net Underwriting Income
(dollars in millions, except per share data)
Quarter Ended % of Quarter Ended % of %
March 31, 2003 Premium March 31, 2002 Premium Change
Underwriting
Income before
Administrative
Expenses
Life $79.3 25 $72.4 24 9
Health 42.6 16 43.7 17 (3)
Annuity 2.2 3.7 (41)
124.1 119.9
Other Income 1.0 .9
Administrative
Expenses (33.5) (31.3) 7
Insurance Net
Underwriting
Income $91.6 $89.5 2
Per Share $ .78 $ .73 7
Sales
Total insurance sales were $136 million of annualized premium, a 7%
increase. Total life insurance sales of $88 million were up 14%. The Direct
Response unit continued as the largest writer of new life insurance sales with
$37 million, a 28% increase. American Income also continued with double-digit
life sales growth of $23 million, an 18% increase, while the Military
distribution unit had double-digit growth of 12% with $6 million.
Total health insurance sales decreased 3% to $48 million, of which
$20 million (41%) were Medicare supplements. Medicare supplement sales
declined 37%, continuing the declining trend that began in the second quarter
of 2001. This period of declining Medicare supplement sales has been
reflective of the decline in the market as the number of involuntary HMO
disenrollments declined, and competitive pressures increased as Torchmark
implemented double-digit rate increases while some competitors were slower to
raise their rates. As discussed earlier, due to smaller 2003 Medicare
supplement rate increases by the Company, competitive rate pressures for
Medicare supplements are expected to ease somewhat later in 2003.
The UA Independent Agency, the largest writer of health insurance for
Torchmark, had health sales of $24 million during the quarter, an increase of
4%, of which about 65% were limited benefit supplemental health plans sold to
people under age 65. The remaining sales were Medicare supplements, up
slightly from the fourth quarter of 2002, but 30% below a year ago. Health
sales at the UA Branch Office, the Company's second largest writer of health
insurance, declined 16% to $17 million, as about 50% of this unit's sales came
from Medicare supplements. This agency is also increasing sales of non-
Medicare supplements as it also diversifies its target market.
INVESTMENTS - comparing the quarter ended March 31, 2003, to the year-ago
quarter:
Excess Investment Income
Excess investment income is the measure that management uses to evaluate
the performance of the investment segment. It is net investment income on a
tax-equivalent basis, where the yield on tax-exempt securities is adjusted to
produce the equivalent pretax yield, reduced by required interest. Required
interest consists of the interest costs credited to net policy liabilities and
the net financing costs. Net financing costs include interest payable on debt
and dividends payable on trust preferred securities, offset by the income from
interest rate swap agreements.
Excess investment income was $79 million, compared with $73 million, an 8%
increase, or a 14% increase on a per-share basis, as detailed in the following
chart:
Quarter Ended
March 31, 2003 March 31, 2002 %
(dollars in millions, except per share data) Change
Investment Income $135.4 $128.2
Tax Equivalent Adjustment .9 1.0
Tax Equivalent Investment Income 136.3 129.2 6
Required Interest:
Interest Credited on Net Policy
Liabilities (49.8) (47.5) 5
Net Financing Costs:
Interest on Debt (11.1) (11.7)
Trust Preferreds Dividend* (2.9) (2.9)
Income from Interest
Rate Swaps 6.4 5.7
Total Net Financing Costs (7.6) (8.9) (14)
Total Required Interest (57.4) (56.4) 2
Excess Investment Income 79.0 72.8 8
Per Share $.67 $ .59 14
* This presentation differs from GAAP reporting where dividends paid on
Trust Preferred Securities are stated on an after-tax basis.
Financing costs were $8 million, down 14%. The decline was primarily
attributable to the almost $1 million increase in cash settlements received
from interest rate swap agreements. Under these agreements, the Company's
fixed interest expense obligations are converted to floating rates. While the
cash settlements from these agreements are reflected in net operating income,
Financial Accounting Standard 133 requires that the Company also record the
"market value" of the swaps (i.e. the present value of the estimated future
cash settlements) on the balance sheet. The quarterly change in the market
value is recognized as a "non-cash" capital gain or loss, even though
Torchmark plans to hold the swaps until the scheduled termination dates, at
which time their market value and the cumulative capital gains and losses
recorded will be $0. At March 31, 2003, the cumulative realized gains were
$23 million, net of tax.
Investment Portfolio Composition at March 31, 2003:
At March 31, 2003, the market value of Torchmark's fixed maturity
portfolio was $7.4 billion, $423 million higher than amortized cost. At
amortized cost, 90% of fixed maturities were rated "investment grade."
The fixed income portfolio, which at amortized cost comprised 92% of total
invested assets, earned 7.47%, the same as a year ago. Acquisitions of fixed
maturity investments totaled $271 million, with an average yield of 7.40%.
Write-down of Investment in Bonds
Net realized capital losses from investments, excluding interest rate
swaps, were $8 million after tax for the quarter, compared with net realized
losses of $1 million in the year-ago quarter. The 2003 losses are comprised
of a write-down of bonds of $6 million and losses on the sale of other
investments of $2 million. At March 31, 2003, the book value of certain bonds
was written down from $16 million to $7 million resulting in the after tax
loss of $6 million.
SHARE REPURCHASE - during the quarter ended March 31, 2003:
Torchmark's ongoing share repurchase program resulted in the repurchase of
2.2 million shares of Torchmark Corporation common stock for a total cost of
$77 million ($35.28 average cost per share). At March 31, 2003, there were
116.1 million Torchmark shares outstanding, 116.4 million on a diluted basis.
OTHER FINANCIAL INFORMATION for the quarter ended March 31, 2003:
FAS 115 requires the adjustment of fixed maturities available for sale to
fair market value. Without the FAS 115 adjustment, these assets would be
reported at book value. This adjustment includes the unrealized changes in
fair market value of these assets due to interest rate fluctuations.
Torchmark management and many industry analysts prefer to view the financial
ratios and balance sheet information shown below without the distortions of
the FAS 115 adjustment; therefore, we have presented this data both with and
without the FAS 115 adjustment.
Excluding
GAAP FAS 115 ADJ.
Quarter Ended Quarter Ended
March 31, March 31,
2003 2002 2003 2002
Net Income as a Return
on Equity 13.9% 15.8% ----- -----
Net Operating Income as
a Return on Equity ----- ----- 16.5% 16.6%
At March 31, At March 31,
2003 2002 2003 2002
Total Assets (in
millions) $12,616 $12,284 $12,216 $12,392
Shareholder Equity
(in millions) $2,942 $2,479 $2,682 $2,549
Book Value Per Share $25.28 $20.23 $23.04 $20.80
Debt to Capital Ratio
Treating Trust
Preferred Securities
as Debt 23.7% 27.1% 25.4% 26.6%
Additional detailed financial reports are available on the Company's
website at www.torchmarkcorp.com , on the Investor Relations page at
"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, 2002, on file with the Securities and Exchange Commission and on
the Company's website at 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 first quarter 2003
earnings release conference call with financial analysts at 10:00 a.m.
(Eastern Time) today, April 22, 2003. Access to the live webcast and replays
will be available at www.torchmarkcorp.com on the Investor Relations page, at
the "Conference Calls on the Web" icon, or at www.PRNewswire.com/news at the
"Multimedia Menu" at "Conference Calls." Supplemental financial reports will
be available April 22 on the Investor Relations page of the Torchmark website
at the "Financial Reports" icon.
Torchmark Corporation is a holding company specializing in life and
supplemental health insurance for "middle income" Americans marketed through
multiple distribution channels including direct response, and exclusive and
independent agencies. Subsidiary Globe Life and Accident is a nationally
recognized direct-response provider of life insurance known for its
administrative efficiencies. United American has been a nationally recognized
provider of Medicare supplement health insurance since 1966. Liberty National
Life, one of the oldest traditional life insurers in the Southeast, is the
largest life insurer in its home state of Alabama. American Income Life is
nationally recognized for providing supplemental life insurance to labor union
members.
SOURCE Torchmark Corporation
-0- 04/22/2003
/CONTACT: Joyce Lane, Vice President, Investor Relations of Torchmark
Corporation, +1-972-569-3627, or fax, +1-972-569-3696, or
jlane@torchmarkcorp.com /
/FCMN Contact: /
/Web site: http://www.torchmarkcorp.com /
(TMK)
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