MCKINNEY, Texas, April 16 /PRNewswire-FirstCall/ -- Torchmark
Corporation (NYSE: TMK) reported today that for the quarter ended March 31,
2008, net income was $1.29 per share compared with $1.37 per share for the
year-ago quarter. Net operating income for the quarter was $1.43 per share,
an 8% per share increase compared with $1.32 per share for the year-ago
quarter.
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, 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 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
March 31, % March 31, %
2008 2007 Chg. 2008 2007 Chg.
Insurance underwriting
income $1.31 $1.20 9 $120.2 $119.3 1
Excess investment
income .91 .84 8 83.4 83.0
Parent company expense (.02) (.02) (1.7) (1.8)
Income tax (.75) (.69) 9 (68.5) (68.1) 1
Stock option expense,
net of tax (.02) (.01) (1.6) (1.3)
Net operating income $1.43 $1.32 8 $131.8 $131.1 1
Reconciling items,
net of tax:
Gain on sale of
agency buildings -- .01 -- .6
Realized gains
(losses) on
investments (.05) .07 (4.5) 6.5
Realized losses on
company occupied
property (.01) -- (1.4) --
Medicare Part D
adjustment (.09) (.03) (8.6) (3.1)
Tax settlements -- -- -- .4
Net proceeds (cost)
from legal
settlements .01 -- 0.9 (.2)
Net income $1.29 $1.37 $118.2 $135.2
Weighted average
diluted shares
outstanding (000) 91,877 99,026
INSURANCE OPERATIONS -- comparing the first quarter 2008 with first
quarter 2007:
Life insurance accounted for 68% of the Company's insurance
underwriting margin for the quarter and 57% of total premium revenue.
Health insurance, excluding Medicare Part D, accounted for 29% of
Torchmark's insurance underwriting margin for the quarter and 36% of total
premium revenue. Medicare Part D accounted for 3% of insurance underwriting
margin and 7% of total premium revenue.
Net sales of life insurance increased 13%, while health sales fell 29%.
Insurance Premium Revenue
Insurance Premium Revenue
(dollars in millions)
Quarter ended Quarter ended %
March 31, 2008 March 31, 2007 Change
Life Insurance $402.9 $391.5 3
Health insurance -
excluding Medicare Part D 253.1 264.9 (4)
Health - Medicare Part D 46.6 54.7 (15)
Annuity 4.0 5.1 (21)
Total $706.6 $716.1 (1)
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 Quarter Ended % of %
March 31, 2008 Premium March 31, 2007 Premium Chg.
Insurance
underwriting margins:
Life $107.6 27 $101.8 26 6
Health 45.5 18 47.6 18 (4)
Health - Medicare
Part D 4.9 11 5.1 9 (4)
Annuity 1.1 2.6 (57)
$159.1 $157.1
Other income .8 .9
Administrative expenses (39.8) (38.7) 3
Insurance underwriting
income $120.2 $119.3 1
Per share $1.31 $1.20 9
Insurance Results by Distribution Channels
Total premium, underwriting margins, first-year collected premium and
net sales by all distribution channels are shown at
http://www.torchmarkcorp.com on the Investor Relations page at Financial
Reports.
Direct Response was Torchmark's leading contributor to total premium
revenue ($140 million) and second leading contributor to total underwriting
margin ($32 million). Life premiums of $129 million were up 5%, and the
life underwriting margin of $30 million was up 3%. As a percentage of life
premium, its life underwriting margin was 24%, the same as a year ago. Net
life sales of $31 million increased 8%.
American Income Agency was Torchmark's second leading contributor to
total premium revenue ($133 million) and leading contributor to total
underwriting margin ($44 million). AIL's life insurance underwriting margin
of $37 million was up 15%. As a percentage of life premium, underwriting
margin was 32%, up from 31% and the highest of the major life distribution
channels. Life premiums of $115 million grew 8% and were the second highest
of the major life channels. Net life sales were $24 million for the
quarter, up 17%. The number of AIL producing agents grew 9% to 2,616
compared with the year-ago quarter.
LNL Agency was Torchmark's third leading contributor to total premium
revenue ($106 million), including $72 million from life insurance which was
down 3%. LNL's total underwriting margin was $27 million, down 4%. LNL's
life underwriting margin of $18 million was down 6%. As a percentage of
life premium, the life underwriting margin was 24%, down from 25% a year
ago. Net life sales of $10 million were up 14% from the year-ago quarter.
Producing agents grew to 2,840, up 62% from a year ago and 15% during the
quarter. LNL revised the assumptions used to count producing agents in the
first quarter to be consistent with the other distribution channels. Please
see details at http://www.torchmarkcorp.com on the Investor Relations page
at "Financial Reports."
UA Independent Agency was Torchmark's leading contributor to health
premium ($95 million) and health underwriting margin ($16 million);
however, its health premium declined 8% and underwriting margin declined
12%. Health underwriting margin as a percentage of premium fell 1% to 16%.
Net health sales of $10 million remained the same.
UA Branch Office Agency was the second leading distribution channel in
terms of health premium ($94 million), and health underwriting margin ($13
million). Underwriting margin was 14% of premium, the same as a year ago.
Net health sales fell to $25 million and net life sales grew by $1.5
million. The number of producing agents at the UA Branch Agency fell 15% to
2,670 compared with the year-ago quarter.
Medicare Part D Prescription Drug Plan, which began January 1, 2006, is
distributed by Direct Response and the UA agencies. As expected, first
quarter premium revenue was $47 million compared with $55 million in the
year-ago quarter as the number of insureds declined slightly from previous
years.
Medicare Part D
(dollars in millions)
Quarter Ended % of Quarter Ended % of %
March 31, 2008 Premium March 31, 2007 Premium Change
Premium $46.6 $54.7 (15)
Policy obligations (37.4) 80 (44.0) 81 (15)
Fees to PBM (3.1) 7 (4.2) 8 (25)
Net amortization
of DAC (1.2) 3 (1.4) 3 (15)
Underwriting margin $4.9 11 $5.1 9 (4)
For GAAP reporting, Medicare Part D premiums are recognized evenly
throughout the year when they become due, and benefit costs are recognized
when the costs are incurred. Due to the design of the product, premiums are
evenly distributed throughout the year, but benefit costs are much higher
earlier in the year. As a result, 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.
For the full year, the total premiums and benefits will be the same under
this alternative method as they are under GAAP. The Company reports this
difference between GAAP and management's non-GAAP disclosures, net of tax,
as a reconciling item for the interim periods in the Financial Summary
shown on page 1 of this release. A chart reconciling the Company's non-GAAP
financial presentation to a GAAP presentation may be viewed at
http://www.torchmarkcorp.com on the Investor Relations page at Financial
Reports.
Torchmark Annuities consist of variable and fixed annuity contracts.
Underwriting margin from the annuity segment was $1.1 million, down 57%
from the year-ago quarter. Annuities comprised less than 1% of the
Company's insurance underwriting margin for the quarter.
Administrative Expenses were $39.8 million, up 2.8% from the year-ago
quarter, primarily the result of an increase in pension expense.
INVESTMENTS
Excess Investment Income -- comparing the first quarter 2008 with the
first quarter 2007:
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)
%
2008 2007 Change
Tax equivalent investment income $168.2 $162.9 3
Tax equivalent adjustment (1.4) (.4)
Net investment income 166.8 162.5 3
Required interest:
Interest credited on net policy
liabilities (67.3) (62.3) 8
Interest on debt (16.1) (17.2) (6)
Total required interest (83.4) (79.5) 5
Excess investment income $83.4 $83.0 --
Per share $.91 $.84 8
In the current year quarter, tax equivalent investment income increased
3% in line with a 4% increase in the investment portfolio. Interest
credited on net policy liabilities increased 8% in line with a 7% increase
in the related liabilities. Interest on debt declined 6% due to a lower
average rate on short term debt.
Investment Portfolio Composition at March 31, 2008:
The market value of Torchmark's fixed maturity portfolio was $9.1
billion, $440 million lower than amortized cost of $9.5 billion. This net
unrealized loss is comprised of $216 million gross unrealized gains, and
$656 million gross unrealized losses. At amortized cost and market value,
93% of fixed maturities were rated "investment grade." The fixed maturity
portfolio, which at amortized cost comprised 95% of total invested assets,
earned an annual effective yield of 7.0% during the first quarter of 2008,
the same as the year-ago quarter. The investment portfolio contains no
sub-prime mortgages or structured securities whose underlying collateral
consists of sub-prime mortgages.
Acquisitions of fixed maturity investments during the quarter totaled
$431 million at cost. Comparable information for acquisitions of fixed
maturity investments is as follows:
Quarter Ended
March 31,
2008 2007
Average annual effective yield 7.2% 6.6%
Average rating A- A
Average life (in years) to:
First call 22 20
Maturity 35 29
Realized Capital Losses on Investments -- during the quarter ended
March 31, 2008:
During the quarter, the Company wrote down $2.2 million (after tax) of
non-financial institution fixed securities due to impairment losses and
incurred additional losses on fixed securities that were disposed of and
other investments at a net loss of $2.3 million, for a total net after-tax
loss of $4.5 million.
SHARE REPURCHASE -- during the quarter ended March 31, 2008:
Torchmark's ongoing share repurchase program resulted in the repurchase
during the quarter of 2.5 million shares of Torchmark Corporation common
stock at a total cost of $145 million at an average price per share of
$59.04.
UPDATED EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2008:
Torchmark projects that for the year ending December 31, 2008, net
operating income per share will range from $5.90 - $5.96.
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 Investor Relations page under
"Financial Reports and Other Financial Information."
Note: 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, 2007, and any subsequent Forms 10-Q 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 first quarter 2008
earnings release conference call with financial analysts at 11:00 a.m.
(Eastern) tomorrow, April 17, 2008. 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. Immediately following this
press release, supplemental financial reports will be available before the
conference call on the Investor Relations page menu of the Torchmark
website at "Financial Reports and Other Financial Information."
SOURCE Torchmark Corporation
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Related links:
http://www.torchmarkcorp.com
http://www.prnewswire.com/comp/885425.html /
CONTACT:
Mike Majors, Director, Investor Relations of
Torchmark Corporation, +1-972-569-3627, tmkir@torchmarkcorp.com
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