TORCHMARK CORPORATION REPORTS Third quarter 2016 Results
MCKINNEY, Texas, Oct. 25, 2016 -- Torchmark Corporation (NYSE:
TMK) reported today that for the quarter ended September 30, 2016, net income was $1.25 per diluted common share, compared with
$1.15 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 $1.03 per diluted common share for the year-ago
quarter.
HIGHLIGHTS:
- Net income as a ROE was 12.0%. Net operating income as a ROE
excluding net unrealized gains on fixed maturities was 14.7%.
- American Income life premiums increased 10% over the year-ago
quarter.
- At Liberty National, net life sales increased 11% over the
year-ago quarter.
- Net health sales increased 8% at Family Heritage over the
year-ago quarter.
- Average agent counts increased over the year-ago quarter by 6%
at American Income, 9% at Family Heritage, and 13% at Liberty
National.
- 1.2 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 |
|
|
|
September
30, |
|
|
|
September
30, |
|
|
|
2016 |
|
|
2015 |
|
%
Chg. |
|
2016 |
|
|
2015 |
|
%
Chg. |
Insurance underwriting income(1) |
$ |
1.23 |
|
|
|
$ |
1.18 |
|
|
4 |
|
$ |
149.8 |
|
|
|
$ |
149.0 |
|
|
1 |
Excess investment income(1) |
0.47 |
|
|
|
0.43 |
|
|
9 |
|
56.7 |
|
|
|
53.9 |
|
|
5 |
Parent company expense |
(0.02) |
|
|
|
(0.02) |
|
|
|
|
(2.0) |
|
|
|
(2.2) |
|
|
|
Income tax |
(0.55) |
|
|
|
(0.52) |
|
|
6 |
|
(67.3) |
|
|
|
(65.7) |
|
|
2 |
Stock option expense, net of tax(2) |
0.02 |
|
|
|
(0.04) |
|
|
|
|
2.5 |
|
|
|
(4.4) |
|
|
|
Net operating income from continuing operations |
$ |
1.15 |
|
|
|
$ |
1.03 |
|
|
12 |
|
$ |
139.8 |
|
|
|
$ |
130.5 |
|
|
7 |
Net operating income from discontinued operations |
0.03 |
|
|
|
0.04 |
|
|
|
|
4.2 |
|
|
|
5.1 |
|
|
|
Net operating income from all operations |
$ |
1.18 |
|
|
|
$ |
1.08 |
|
|
|
|
$ |
144.0 |
|
|
|
$ |
135.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation to net income (GAAP): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling items, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on investments—continuing
operations |
0.02 |
|
|
|
0.03 |
|
|
|
|
2.3 |
|
|
|
3.3 |
|
|
|
Part D adjustments—discontinued
operations(3) |
0.04 |
|
|
|
0.05 |
|
|
|
|
5.4 |
|
|
|
6.4 |
|
|
|
Net gain from sale of Part D-discontinued
operations |
— |
|
|
|
— |
|
|
|
|
0.4 |
|
|
|
— |
|
|
|
Non operating legal fees |
— |
|
|
|
— |
|
|
|
|
(0.2) |
|
|
|
— |
|
|
|
Net income(4) |
$ |
1.25 |
|
|
|
$ |
1.15 |
|
|
|
|
$ |
151.9 |
|
|
|
$ |
145.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding
(000) |
121,911 |
|
|
|
126,140 |
|
|
|
|
|
|
|
|
|
|
|
(1) Definitions included within the document. |
(2) Decrease from third quarter of 2015 is due
primarily to the impact of new accounting guidance implemented in
2016. |
(3) 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. |
(4) A GAAP-basis condensed consolidated statement of
operations is included in the appendix of this report. |
Note: 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 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.
|
September
30, |
|
2016 |
|
2015 |
Net income as a ROE(1) |
12.0 |
% |
|
11.6 |
% |
Net operating income as a ROE(1) (excluding
net unrealized gains on fixed maturities) |
14.7 |
% |
|
14.7 |
% |
|
|
|
|
Shareholders' equity |
$ |
5,086 |
|
|
$ |
4,283 |
|
Impact of adjustment to exclude net unrealized gains
on fixed maturities |
(1,222) |
|
|
(587) |
|
Shareholders' equity, excluding net unrealized gains
on fixed maturities |
$ |
3,864 |
|
|
$ |
3,697 |
|
|
|
|
|
Book value per share |
$ |
41.94 |
|
|
$ |
34.21 |
|
Impact of adjustment to exclude net unrealized gains
on fixed maturities |
(10.08) |
|
|
(4.68) |
|
Book value per share, excluding net unrealized gains
on fixed maturities |
$ |
31.86 |
|
|
$ |
29.53 |
|
|
(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 third quarter 2016
with third 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 decreased 1%, while net health sales
were flat.
INSURANCE
PREMIUM REVENUE
(Dollar amounts in millions, except per share data)
(unaudited)
|
Quarter
Ended |
|
%
Chg. |
|
September 30,
2016 |
|
|
September 30,
2015 |
|
Life insurance |
$ |
546.4 |
|
|
|
$ |
518.9 |
|
|
5 |
Health insurance |
237.0 |
|
|
|
229.1 |
|
|
3 |
Total |
$ |
783.4 |
|
|
|
$ |
748.1 |
|
|
5 |
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. |
|
September 30,
2016 |
|
|
|
September 30,
2015 |
|
|
Insurance underwriting margins: |
|
|
|
|
|
|
|
|
|
|
Life |
$ |
143.1 |
|
|
26 |
|
|
$ |
144.1 |
|
|
28 |
|
(1) |
Health |
53.1 |
|
|
22 |
|
|
50.2 |
|
|
22 |
|
6 |
Annuity |
2.6 |
|
|
|
|
|
1.1 |
|
|
|
|
|
|
198.8 |
|
|
|
|
|
195.4 |
|
|
|
|
2 |
Other income |
0.2 |
|
|
|
|
|
0.7 |
|
|
|
|
|
Administrative expenses |
(49.2) |
|
|
|
|
|
(47.2) |
|
|
|
|
4 |
Insurance underwriting income |
$ |
149.8 |
|
|
|
|
|
$ |
149.0 |
|
|
|
|
1 |
Per share |
$ |
1.23 |
|
|
|
|
|
$ |
1.18 |
|
|
|
|
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 ($84 million), on premium revenue of $253 million. Life premiums of $231 million were up 10% and life insurance
underwriting margin of $74 million
was up 11%. As a percentage of life premium, life underwriting
margin was 32%, the same as a year ago and the highest of the major
life distribution channels at Torchmark. The average producing
agent count during the quarter was 7,004, up 6% from a year ago,
and up 6% from the previous quarter. The producing agent count at
the end of the third quarter was 7,025. Net life sales were
$52 million, up 4%.
Globe Life Direct Response was Torchmark's second leading
contributor to total underwriting margin ($32 million), on premium revenue of $210 million. Life premiums of $192 million were up 4% and the life underwriting
margin was $29 million, down 26%. As
a percentage of life premium, life underwriting margin was 15%,
down from 21%. Net life sales were $35
million, down 9% from the year-ago quarter. Net health sales
increased from $1.0 million to
$1.2 million.
LNL Agency was Torchmark's third leading contributor to
total underwriting margin ($31
million), on premium revenue of $117
million. Life premiums of $67
million were down 1% from the year-ago quarter and life
underwriting margin was $20 million,
up 9%. As a percentage of life premium, life underwriting margin
was 29%, up from 27%. Net life sales were $10 million, up 11%.
LNL Agency was Torchmark's third leading contributor to health
underwriting margin ($11 million), on
health premiums of $50 million.
Health underwriting margin as a percentage of health premium was
23%, approximately the same as the year-ago quarter. Net health
sales were $5 million, up 3%.
LNL Agency's average producing agent count during the quarter
was 1,799, up 13% over a year ago, and up 3% from the previous
quarter. The producing agent count at the end of the third quarter
was 1,785.
Family Heritage Agency was Torchmark's second leading
contributor to health underwriting margin ($13 million) on health premiums of $60 million. Health underwriting margin as a
percentage of health premium was 22%, up from 20%. The average
producing agent count during the quarter was 986, up 9% from a year
ago, and up 6% from the previous quarter. The producing agent count
at the end of the third quarter was 1,004. Net health sales were
$14 million, up 8% from the year-ago
quarter.
UA Independent Agency was Torchmark's leading contributor
to health underwriting margin ($15
million), on health premiums of $88
million. Health underwriting margin as a percentage of
premium was 17%, down from 18%. Net health sales were $10 million, down 14%. Excluding the group
business, net health sales grew 13%.
Administrative Expenses were $49
million, up 4% from the year-ago quarter. The ratio of
administrative expenses to premium for continuing operations was
approximately 6.3%, in line with expectations and consistent with
the year-ago quarter.
Note: 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 |
|
September
30, |
|
2016 |
|
|
2015 |
|
%
Chg. |
Net investment income |
$ |
202.7 |
|
|
|
$ |
193.2 |
|
|
5 |
Required interest: |
|
|
|
|
|
|
Interest on net policy liabilities(1) |
(125.6) |
|
|
|
(120.1) |
|
|
5 |
Interest on debt |
(20.4) |
|
|
|
(19.2) |
|
|
6 |
Total required interest |
(146.0) |
|
|
|
(139.3) |
|
|
5 |
Excess investment income |
$ |
56.7 |
|
|
|
$ |
53.9 |
|
|
5 |
Per share |
$ |
0.47 |
|
|
|
$ |
0.43 |
|
|
9 |
(1) Interest on net policy liabilities is a component
of total policyholder benefits (a GAAP measure). |
Net investment income increased 5%, while average invested
assets increased 6%. Required interest on net policy liabilities
increased 5%, approximately the same as the increase in net policy
liabilities. Interest expense on debt increased by 6%. 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 September 30, 2016 is as follows:
|
Invested
Assets
(dollars in millions)
(unaudited) |
|
$ |
|
% of Total |
Fixed maturities (at amortized cost) |
$ |
13,944 |
|
|
96 |
% |
Policy loans |
499 |
|
|
3 |
|
Other long-term investments |
56 |
|
|
— |
|
Short-term investments |
66 |
|
|
— |
|
Total |
$ |
14,566 |
|
|
100 |
% |
Fixed maturities at amortized cost by asset class as of
September 30, 2016 are as
follows:
|
Fixed
Maturities
(dollars in millions)
(unaudited) |
|
Investment
Grade |
|
Below
Investment
Grade |
|
Total |
Corporate bonds |
$ |
11,131 |
|
|
$ |
618 |
|
|
$ |
11,748 |
|
Redeemable preferred stock: |
|
|
|
|
|
U.S. |
271 |
|
|
74 |
|
|
346 |
|
Foreign |
55 |
|
|
— |
|
|
55 |
|
Municipal |
1,272 |
|
|
1 |
|
|
1,273 |
|
Government-sponsored enterprises |
302 |
|
|
— |
|
|
302 |
|
Government and agencies |
102 |
|
|
— |
|
|
102 |
|
Collateralized debt obligations |
— |
|
|
61 |
|
|
61 |
|
Residential mortgage-backed securities |
4 |
|
|
— |
|
|
4 |
|
Other asset-backed securities |
54 |
|
|
— |
|
|
54 |
|
Total |
$ |
13,191 |
|
|
$ |
753 |
|
|
$ |
13,944 |
|
The market value of Torchmark's fixed maturity portfolio was
$15.8 billion; $1.9 billion higher than amortized cost of
$13.9 billion. The $1.9 billion of net unrealized gains compares to
$1.7 billion at June 30, 2016. Net unrealized gains were
comprised of gross unrealized gains of $2.0
billion and gross unrealized losses of $120 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 5.77% during the third quarter of
2016, compared to 5.81% in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter
totaled $275 million at cost.
Comparable information for acquisitions of fixed maturity
investments is as follows:
|
Quarter
Ended |
|
September
30, |
|
2016 |
|
|
2015 |
Average annual effective yield |
4.4% |
|
|
5.1% |
Average rating |
BBB |
|
|
BBB+ |
Average life (in years) to: |
|
|
|
|
Next call |
23.4 |
|
|
25.8 |
Maturity |
25.3 |
|
|
26.0 |
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.2 million shares
of Torchmark Corporation common stock at a total cost of
$77 million for an average share
price of $62.65. For the nine months
ended September 30, 2016, the Company
repurchased 4.2 million shares at an average share price of
$57.58.
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 $4.43 to $4.49 for the year ending December 31, 2016, and from $4.55 to $4.85 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 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 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 third quarter
2016 earnings release conference call with financial analysts at
11:00 a.m. (Eastern) tomorrow,
October 26, 2016. Access to the live
webcast and replay will be available at 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
September 30, |
|
Nine Months
Ended
September 30, |
|
2016(1) |
|
2015(2) |
|
2016(1) |
|
2015(2) |
Revenue: |
|
|
|
|
|
|
|
Life premium |
$ |
546 |
|
|
$ |
519 |
|
|
$ |
1,639 |
|
|
$ |
1,552 |
Health premium |
237 |
|
|
229 |
|
|
710 |
|
|
690 |
Other premium |
— |
|
|
— |
|
|
— |
|
|
— |
Total premium |
783 |
|
|
748 |
|
|
2,349 |
|
|
2,243 |
Net investment income |
203 |
|
|
193 |
|
|
601 |
|
|
580 |
Realized gains |
3 |
|
|
5 |
|
|
8 |
|
|
8 |
Other income |
— |
|
|
1 |
|
|
1 |
|
|
2 |
Total revenue |
990 |
|
|
947 |
|
|
2,959 |
|
|
2,832 |
Benefits and expenses: |
|
|
|
|
|
|
|
Life policyholder benefits |
370 |
|
|
342 |
|
|
1,102 |
|
|
1,029 |
Health policyholder benefits |
153 |
|
|
149 |
|
|
459 |
|
|
449 |
Other policyholder benefits |
9 |
|
|
10 |
|
|
27 |
|
|
29 |
Total policyholder benefits |
532 |
|
|
501 |
|
|
1,589 |
|
|
1,507 |
Amortization of deferred acquisition costs |
117 |
|
|
112 |
|
|
353 |
|
|
334 |
Commissions, premium taxes, and non-deferred
acquisition costs |
61 |
|
|
60 |
|
|
186 |
|
|
176 |
Other operating expense |
58 |
|
|
56 |
|
|
173 |
|
|
167 |
Interest expense |
20 |
|
|
19 |
|
|
63 |
|
|
57 |
Total benefits and expenses |
788 |
|
|
748 |
|
|
2,363 |
|
|
2,242 |
|
|
|
|
|
|
|
|
Income before income taxes |
201 |
|
|
199 |
|
|
596 |
|
|
590 |
Income taxes |
(60) |
|
|
(65) |
|
|
(181) |
|
|
(193) |
Income from continuing operations |
142 |
|
|
134 |
|
|
415 |
|
|
397 |
|
|
|
|
|
|
|
|
Discontinued operations: |
|
|
|
|
|
|
|
Income from discontinued operations, net of tax |
10 |
|
|
12 |
|
|
— |
|
|
(3) |
Net income |
$ |
152 |
|
|
$ |
145 |
|
|
$ |
414 |
|
|
$ |
394 |
|
|
|
|
|
|
|
|
Basic net income per share: |
|
|
|
|
|
|
|
Continuing operations |
$ |
1.19 |
|
|
$ |
1.08 |
|
|
$ |
3.44 |
|
|
$ |
3.16 |
Discontinued operations |
0.08 |
|
|
0.09 |
|
|
— |
|
|
(0.03) |
Total basic net income per common share |
$ |
1.27 |
|
|
$ |
1.17 |
|
|
$ |
3.44 |
|
|
$ |
3.13 |
|
|
|
|
|
|
|
|
Diluted net income per share: |
|
|
|
|
|
|
|
Continuing operations |
$ |
1.16 |
|
|
$ |
1.06 |
|
|
$ |
3.38 |
|
|
$ |
3.12 |
Discontinued operations |
0.09 |
|
|
0.09 |
|
|
— |
|
|
(0.03) |
Total diluted net income per common share |
$ |
1.25 |
|
|
$ |
1.15 |
|
|
$ |
3.38 |
|
|
$ |
3.09 |
|
|
|
|
|
|
|
|
Dividends declared per common share |
$ |
0.14 |
|
|
$ |
0.14 |
|
|
$ |
0.42 |
|
|
$ |
0.41 |
|
(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. |
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