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 |
|
%
Chg. |
|
2016 |
|
|
2015 |
|
%
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
tax |
(0.02) |
|
|
|
(0.04) |
|
|
|
|
(2.5) |
|
|
|
(4.7) |
|
|
|
Net operating income from
continuing operations |
$ |
1.08 |
|
|
|
$ |
1.02 |
|
|
6 |
|
$ |
133.4 |
|
|
|
$ |
130.7 |
|
|
2 |
Net operating income from
discontinued operations |
0.02 |
|
|
|
0.02 |
|
|
|
|
2.0 |
|
|
|
2.9 |
|
|
|
Net operating income from all
operations |
$ |
1.10 |
|
|
|
$ |
1.04 |
|
|
|
|
$ |
135.4 |
|
|
|
$ |
133.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items, net of
tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on
investments- continuing operations |
— |
|
|
|
— |
|
|
|
|
0.2 |
|
|
|
0.1 |
|
|
|
Part D adjustment - discontinued
operations** |
(0.09) |
|
|
|
(0.09) |
|
|
|
|
(11.5) |
|
|
|
(12.0) |
|
|
|
Net income |
$ |
1.01 |
|
|
|
$ |
0.95 |
|
|
|
|
$ |
124.0 |
|
|
|
$ |
121.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted
shares outstanding (000) |
123,313 |
|
|
|
128,587 |
|
|
|
|
|
|
|
|
|
|
|
* 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
(excluding the
Revaluation Adj.**) |
|
Revaluation
Adjustment** |
|
GAAP |
|
March 31, |
|
March 31, |
|
March 31, |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
2016 |
|
2015 |
Net income as a ROE*** |
|
|
|
|
|
|
|
|
11.7 |
% |
|
10.2 |
% |
Net operating income as a ROE |
14.5 |
% |
|
14.7 |
% |
|
|
|
|
|
— |
|
|
— |
|
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
Ended |
|
%
of
Premium |
|
|
Quarter
Ended |
|
%
of
Premium |
|
%
Chg. |
|
March 31,
2016 |
|
|
|
March 31,
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 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
Grade |
|
Below
Investment
Grade |
|
Total |
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