BIRMINGHAM, Ala., Feb. 8 /PRNewswire-FirstCall/ -- Torchmark Corporation
(NYSE: TMK) reported today that for the quarter ended December 31, 2005, net
income was $1.21 per share ($126 million) compared with $1.05 per share
($116 million) for the year-ago quarter. Net operating income for the quarter
ended December 31, 2005, was $1.17 per share ($122 million), a 9% per share
increase compared with $1.07 per share ($118 million) for the year-ago
quarter.
Net income for the year ended December 31, 2005, was $4.68 per share
($495 million) compared with $4.19 per share ($469 million) for the year-ago
period. Net operating income for the year ended December 31, 2005, was $4.59
per share ($486 million), a 9% per share increase compared with $4.23 per
share ($473 million) for the year-ago period.
Reconciliations between net income and net operating income are shown in
the Financial Summary below.
FINANCIAL SUMMARY
Net operating income, a non-GAAP financial measure, is the measure that
Torchmark's management has consistently used over time to evaluate the
operating performance of the Company, and is a measure commonly used in the
life insurance industry. It is the sum of the after-tax profit and loss for
each of the operating segments. It differs from net income primarily because
it excludes certain non-operating items such as realized investment gains and
losses and nonrecurring items which are included in net income. Management
believes that 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
December 31, % December 31, %
2005 2004 Chg. 2005 2004 Chg.
Insurance underwriting income* $1.03 $.91 13 $107.2 $100.7 6
Excess investment income* .77 .74 4 80.0 81.1 (1)
Parent company expense (.02) (.02) (2.1) (2.6)
Income tax (.61) (.56) 9 (63.4) (61.6) 3
Net operating income $1.17 $1.07 9 $121.8 $117.7 3
Realized losses, net of tax:
Investments (.03) (.01) (3.1) (1.1)
Valuation of interest
rate swaps (.01) (.01) (1.1) (1.1)
Settlement of prior year taxes,
net of tax .15 --- 16.0 ---
Net cost of legal settlement,
net of tax (.07) --- (7.1) ---
Retiring executive option term
extension, net of tax --- --- (.4) ---
Net income $1.21 $1.05 $126.1 $115.5
Weighted average diluted
shares outstanding (000) 104,314 110,061
Per Share
Year Ended Year Ended
December 31, % December 31, %
2005 2004 Chg. 2005 2004 Chg.
Insurance underwriting income* $4.03 $3.58 13 $426.1 $400.9 6
Excess investment income* 3.07 2.95 4 324.2 330.5 (2)
Parent company expense (.09) (.09) (9.7) (9.6)
Income tax (2.41) (2.22) 9 (255.2) (248.5) 3
Net operating income $4.59 $4.23 9 $485.5 $473.4 3
Realized gains (losses), net of tax:
Investments .01 .04 .6 4.6
Valuation of interest
rate swaps (.05) (.05) (5.4) (5.3)
Settlement of prior year taxes,
net of tax .15 .03 16.0 3.0
Change in accounting principle --- (.06) --- (7.2)
Net cost of legal settlements,
net of tax (.01) --- (1.0) ---
Retiring executive option
term extension, net of tax --- --- (.4) ---
Net income $4.68 $4.19 $495.4 $468.6
Weighted average diluted
shares outstanding (000) 105,751 111,908
* See definitions in the discussions below and in the Torchmark 2004 SEC
Form 10-K.
INSURANCE OPERATIONS -- comparing the fourth quarter 2005 with fourth
quarter 2004:
Insurance Underwriting Income
Torchmark's insurance operations consist of the sales and administration
of life and supplemental health insurance. To a lesser extent, the Company
markets and administers variable and fixed annuities.
Insurance underwriting margin is management's measure of profitability of
each insurance segment's 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 results are summarized in the following table:
Insurance Underwriting Income
(dollars in millions, except per share data)
Quarter Ended Quarter Ended
Dec. 31, % of Dec. 31, % of %
2005 Premium 2004 Premium Chg.
Insurance underwriting margins:
Life $99.5 27 $92.3 26 8
Health 42.6 17 40.1 16 6
Annuity 3.3 3.8
145.4 136.2
Other income 0.4 0.5
Administrative expenses (38.6) (36.0) 7
Insurance underwriting income $107.2 $100.7 6
Per share $1.03 $.91 13
Life Insurance
Life insurance is Torchmark's primary product line. This segment
accounted for 68% of the Company's insurance underwriting margin for the
quarter and 59% of total premium revenue. In addition, the investments
supporting the reserves for the life segment generate most of the excess
investment income that is included in the investment segment.
Torchmark distributes life insurance through four major distribution
channels: Direct Response, American Income Agency, LNL Agency, and the
Military Agency (an independent agency). Total premium, life insurance
margins, first-year collected premium and net sales by distribution channel
are shown on the Company's website at http://www.torchmarkcorp.com on the
Investor Relations page at Financial Reports.
Premium revenue from life insurance increased 5% to $369 million. Direct
Response life premium grew 9% to $106 million, American Income grew 8% to
$97 million and Military grew 4% to $50 million; however, LNL Agency life
premium remained unchanged at $75 million.
Life insurance underwriting margin was $99 million, up 8%, and was 27% of
premium revenue, 1% higher than the year-ago quarter. American Income was the
leading contributor to life underwriting margin with $31 million, up 13%,
followed by Direct Response with $27 million, up 9%. Underwriting margin as a
percentage of premium was 31% for American Income, up 1%, and 25% for Direct
Response, the same as for the year-ago quarter.
Life insurance first year premiums were $53 million, a decline of 6%.
First year premium is a statistical measure of the premium collected on
policies in their first year and is considered by Torchmark as an indicator of
the rate of future premium growth. Direct Response had a 3% increase to
$19 million. American Income's $18 million was a decline of 5%, and LNL
Agency's $9 million was also a decline of 5%. Military had first year
premiums of $5 million, a decline of 34%.
Life insurance net sales were down 5% for the quarter. Net sales is
defined as annualized premium issued, net of cancellations in the first
30 days after issue, except at 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. Net life sales at LNL Agency grew 8%
to $12 million compared with the year-ago quarter, and 6% compared with the
third quarter of 2005. Direct Response's net sales were $26 million, a 1%
increase following strong growth periods in 2003 and 2004. American Income
fell 7% to $20 million in part due to the 6% decline in producing agents
during the quarter. The Military agency's net sales of $4 million fell 35%
from the year-ago quarter. Military's sales production of life insurance for
Torchmark continues to decline since that agency's (non-Torchmark) mutual fund
offering was altered in 2004 resulting in the loss of 30% of agents producing
life insurance for Torchmark since year-end 2004.
Recruiting new agents and growing the number of producing agents at the
agency distribution channels are critical to growth in sales. American
Income's number of producing agents declined to 2,027, down 125 since the end
of the third quarter 2005, and down 63 since year-end 2004. LNL Agency had
1,781 producing agents at the end of the quarter, up 143 from year-end 2004,
but down 54 since the end of the third quarter 2005.
Health Insurance
The Health insurance segment accounted for 29% of Torchmark's insurance
underwriting margin for the quarter and 40% of total premium revenue,
reflective of the lower underwriting margin as a percent of premium for health
compared with life insurance. The supplemental health products the Company
markets and administers are limited benefit plans including hospital/surgical,
dread disease and accident policies all sold to applicants under age 65, as
well as Medicare supplements sold primarily to applicants over age 65.
Medicare supplements accounted for 59% of the Company's health premium in the
fourth quarter, down from 62% a year-ago, but Medicare supplements were only
24% of first year health premium, reflecting the change in the product mix
sold in recent years. UA Independent Agency and UA Branch Office Agency are
the leading writers of Torchmark's health insurance.
Premium revenue from health insurance was $246 million, down 4%. Sales of
non-Medicare health policies have continued to grow resulting in a 4% increase
in limited benefit plans premium to $101 million; however, Medicare
supplemental health premium declined 8% to $145 million. Health premium at UA
Independent Agency declined 7%, reflective of the decline in its premium from
both Medicare supplements and limited benefit plans. UA Branch Office Agency
premium grew 3% as increases in premium from limited benefit plans of 42%
overcame the 10% decline in Medicare supplement premium. As expected, LNL
Agency's health premiums declined 12% to $35 million due to the previously
announced premium reduction under a class action settlement on a closed block
of cancer policies.
Health insurance underwriting margin was $43 million, a 6% increase. As a
percentage of premium, the health underwriting margin rose to 17% from 16% a
year ago, primarily from LNL Agency where the policy obligations loss ratio on
that agency's closed block of cancer policies improved under the class action
settlement initiated in March 2005.
First year health premiums declined 4% to $38 million. First year premium
from limited benefit plans were $29 million, up 7%, as both the UA Independent
Agency and Branch Office Agency continue to sell predominantly limited benefit
plans. First year premiums for Medicare supplements were $9 million,
declining 28% from the year-ago quarter.
Health insurance net sales were $53 million, up 24% compared with the
year-ago quarter and up 8% compared with the third quarter of 2005. The UA
Branch Office was the primary contributor to the growth with net health sales
of $31 million, up 62% from the year-ago quarter, and up 22% from the third
quarter of 2005. These positive results were from sales of limited benefit
health plans. The UA Branch Office ended the quarter with 2,166 producing
agents, up 312 from the third quarter, and up 489, or 29%, from the year-ago
quarter.
Increased demand over the past few years for limited benefit supplemental
health plans is ongoing as some employers continue to eliminate or reduce
their major-medical type group coverage for employees, and as individually
written major-medical plans have become less available.
Details of the health segment by distribution channels are on the
Company's website at http://www.torchmarkcorp.com on the Investor Relations
page at Financial Reports.
Medicare Part D Prescription Drug Plan participation:
During the quarter, United American began marketing its Medicare Part D
prescription drug plan for Medicare beneficiaries for which coverage began
January 1, 2006. At January 31, 2006, the Company had 121 thousand enrollees
in its plan that had been confirmed by CMS, with enrollment expected to
continue to May 15, 2006. Details of the Company's plan were reported last
quarter and are at http://www.uamedicarepartd.com .
Annuities
Torchmark's annuities are predominantly variable annuity contracts.
Underwriting margin from the annuity segment was $3 million, down from
$4 million in the year-ago quarter. Annuities comprised only 2% of the
Company's insurance underwriting margin for the quarter.
INVESTMENTS -- comparing the fourth quarter 2005 with fourth quarter 2004:
Excess Investment Income
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 net financing costs. Net financing costs are interest on debt
(including trust preferred securities) offset by the income from interest rate
swap agreements. Excess investment income per share recognizes the effect of
Torchmark's share repurchase program that uses excess cash flow to repurchase
TMK shares rather than acquire fixed income investments.
Excess investment income was $80 million, compared with $81 million, a 1%
decline, but a 4% increase on a per-share basis, as detailed in the following
table:
Quarter Ended
December 31,
2005 2004 %
(dollars in millions, except per share data) Chg.
Net investment income $152.1 $146.0 4
Required Interest:
Interest credited on
net policy liabilities (57.4) (54.1) 6
Net financing costs:
Interest on debt (15.5) (14.3)
Income from interest
rate swaps .8 3.5
Total net financing costs (14.7) (10.7)
Total required interest (72.0) (64.8) 11
Excess investment income 80.0 81.1 (1)
Per share $.77 $.74 4
Net investment income increased 4.2%, lower than the 5.6% increase in
average invested assets at amortized cost, and reflective of the effect of
investments acquired in the past three years at lower interest rates than the
average interest rate of the investment portfolio as a whole.
Financing costs increased 37% to $14.7 million because of the negative
effect that higher short-term interest rates have had primarily on Torchmark's
interest rate swaps, and to a lesser extent, on the variable rate short-term
debt. A chart containing additional information about Torchmark's swap
agreements is on the Company's website at http://www.torchmarkcorp.com , on
the Investor Relations page menu, under Financial Reports.
While the cash settlements from the interest rate swap agreements are
reflected in net operating income as management views its operations,
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 "non-cash" unrealized gain or
loss from the quarterly change in the market value is recognized as a realized
capital gain or loss.
Investment Portfolio Composition at December 31, 2005
At December 31, 2005, the market value of Torchmark's fixed maturity
portfolio was $8.8 billion, $425 million higher than amortized cost of
$8.4 billion. This net unrealized gain is composed of $486 million gross
unrealized gains, and $61 million gross unrealized losses. At amortized cost,
92.0% of fixed maturities (92.4% at market value) were rated "investment
grade."
The fixed income portfolio, which at amortized cost comprised 94% of total
invested assets, earned a yield of 7.0% during the fourth quarter of 2005.
Acquisitions of fixed maturity investments during the quarter totaled
$191 million at cost, with an average annual effective yield of 6.1%, an
average life of 14 years and average rating of BBB+.
Realized Capital Gains and Losses -- during the quarter ended
December 31, 2005
The total net realized capital loss was $4.4 million before taxes and
$3.6 million after taxes. The after-tax net realized capital losses from
investments, which exclude the interest rate swap components, were
$3.1 million compared with net realized losses of $1.1 million in the year-ago
quarter. Changes in the market valuation of the interest rate swaps resulted
in an after-tax realized loss of $1.1 million.
PRIOR YEARS TAX SETTLEMENT
In the fourth quarter of 2005, Torchmark favorably settled with the IRS
all issues for the 1996 and 1997 tax years. As a result, Torchmark recorded a
non-operating $16 million after tax benefit in 2005 to reflect the impact of
this settlement on the tax years covered by the examination as well as all
other tax years prior to 2005 to which these issues apply.
SHARE REPURCHASE -- during the quarter ended December 31, 2005:
Torchmark's ongoing share repurchase program resulted in the repurchase of
212 thousand shares of Torchmark Corporation common stock for a total cost of
$11 million ($54.04 average cost per share). For the year, the Company has
repurchased 5.6 million shares at a total cost of $300 million ($53.15 average
cost per share), compared with 5.2 million shares for $268 million during
2004. At December 31, 2005, there were 103.6 million Torchmark shares
outstanding, 104.3 million on a diluted basis.
If the $300 million free cash flow used for the repurchase of Torchmark
common stock during 2005 had alternatively been invested in corporate bonds,
an estimated $8.8 million of additional investment income, after tax, would
have resulted. Net operating income for the year would have been $494
million, or $4.50 per share for 2005, a 6% per share increase compared with a
year-ago. Actual results, including the buyback, were $4.59 per share, a 9%
per share increase.
EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2006:
Torchmark projects that for the year ended December 31, 2006, net
operating income per share, including the share buy-back program and Medicare
Part D, but excluding stock option expense, will range from $4.90 to $5.00.
Stock option expense is projected to be about $.04 per share, after tax. This
estimate assumes that life premium and underwriting margin both will increase
3% to 5%, and health premium and underwriting margin, excluding Medicare Part
D, will range from unchanged to a 2% increase compared with the year-ago
period. Medicare Part D is projected to range from $.06 to $.09 per share,
after tax. Excess investment income per share is projected to increase 3% to
5%, after tax, compared with the year-ago period.
OTHER FINANCIAL INFORMATION:
Financial Accounting Standard 115 requires the adjustment of fixed
maturities available for sale to fair value. Without the FAS 115 adjustment,
these assets would be reported at amortized cost. This adjustment includes the
unrealized changes in fair value of these assets due primarily to interest
rate fluctuations. Torchmark management and most industry analysts, rating
agencies and lenders, prefer to view the financial ratios and balance sheet
information shown below without the impact of the FAS 115 adjustment for two
reasons: (1) the period-to-period changes in market value are primarily the
result of changes in market interest rates and economic conditions outside the
control of management, and (2) about 63% of Torchmark's fixed maturities
support interest-bearing liabilities, primarily the net policy liabilities.
GAAP does not permit a corresponding adjustment of the liabilities to market
value, which results in an accounting mismatch that can be material to
shareholders' equity. Therefore, management removes the effect of FAS 115
when analyzing balance-sheet based ratios and financial measures. Management
believes that investors can equally benefit from viewing these data. In the
tables below are shown several financial ratios and measures excluding FAS
115, as well as the closest corresponding GAAP ratio and measure.
Non-GAAP
Excluding FAS 115
FAS 115 Adj. Adjustment GAAP
at December 31, at December 31, at December 31,
2005 2004 2005 2004 2005 2004
Net income as a return
on equity (YTD) --- --- 14.6% 14.1%
Net operating income*
as a return on
equity (YTD) 15.9% 16.2% --- ---
Total assets
(in millions) $14,367 $13,640 $402 $612 $14,769 $14,252
Shareholders' equity
(in millions) $3,172 $3,022 $261 $398 $3,433 $3,420
Book value per share $30.41 $27.45 $2.50 $3.62 $32.91 $31.07
Debt to capital ratio 21.9% 22.3% 20.6% 20.2%
* Net operating income is a non-GAAP number that is defined and
reconciled to GAAP Net Income on page 2 of this release.
Quarter Ended Year Ended
December 31, ($ millions) December 31,
2005 2004 2005 2004
Total revenue $769.1 $760.8 $3,125.9 $3,071.5
Net sales $116.9 $110.2 $460.5 $493.6
Additional detailed financial reports are available on the Company's
website at http://www.torchmarkcorp.com , on the Investor Relations page at
Financial Reports.
Tables in this news release may not foot due to rounding.
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, 2004, and Form 10-Q for the quarter ended September 30, 2005, on
file with the Securities and Exchange Commission and on the Company's website
at http://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 fourth quarter 2005
earnings release conference call with financial analysts at 10:00 a.m.
(Eastern Time) tomorrow, February 9, 2006. Access to the live webcast and
replay will be available at http://www.torchmarkcorp.com on the Investor
Relations page, at the Conference Calls on the Web icon, or at
http://www.PRNewswire.com/news at the Multimedia Menu at Conference Calls on
the Web. On February 9 supplemental financial reports will be available
before the conference call 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. Torchmark has several nationally recognized insurance
subsidiaries. Globe Life And Accident is a direct-response provider of life
insurance known for its administrative efficiencies. American Income Life
provides individual life insurance to labor union members. Liberty National
Life, one of the oldest traditional life insurers in the Southeast, is the
largest life insurer in its home state of Alabama. United American is a
consumer-oriented provider of supplemental health insurance.
SOURCE Torchmark Corporation
 back to top
Related links:
http://www.torchmarkcorp.com
http://www.uamedicarepartd.com
Company News On-Call:
http://www.prnewswire.com/comp/885425.html
CONTACT:
Joyce Lane, Vice President, Investor
Relations of Torchmark Corporation, +1-972-569-3627, or fax,
+1-972-569-3282, or jlane@torchmarkcorp.com
|
