MCKINNEY, Texas, Oct. 17 /PRNewswire-FirstCall/ -- Torchmark
Corporation (NYSE: TMK) reported today that for the quarter ended September
30, 2007, net income was $1.41 per share compared with $1.28 per share for
the year-ago quarter. Net operating income for the quarter was $1.38 per
share, a 10% per share increase compared with $1.26 per share for the
year-ago quarter. Total revenue was $864 million, up from $838 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
Sept. 30, % Sept. 30, %
2007 2006 Chg. 2007 2006 Chg.
Insurance
underwriting
income* $1.28 $1.16 10 $119.9 $116.4 3
Excess investment
income* .86 .80 7 80.6 80.0 1
Parent company
expense (.02) (.02) (2.0) (1.7)
Income tax (.72) (.67) 7 (67.5) (67.2) --
Stock option
expense, net
of tax (.01) (.01) (1.2) (1.0)
Net operating
income $1.38 $1.26 10 $129.7 $126.5 3
Reconciling items,
net of tax:
Gain on sale of
agency buildings .01 -- .8 --
Realized gains
(losses) .01 (.05) .9 (4.9)
Medicare Part D
adjustment .02 .02 1.5 2.2
Tax settlements,
net of tax -- .05 (0.1) 4.8
Net proceeds (cost)
from legal
settlements -- -- 0.1 --
Net income $1.41 $1.28 $132.9 $128.5
Weighted average
diluted shares
outstanding
(000) 94,061 100,103
* See definitions in the discussions below and in the Torchmark 2006 SEC
Form 10-K.
INSURANCE OPERATIONS - comparing the third quarter 2007 with third
quarter 2006:
Life insurance accounted for 66% of the Company's insurance
underwriting margin for the quarter and 56% of total premium revenue.
Health insurance, excluding Medicare Part D, accounted for 28% of
Torchmark's insurance underwriting margin for the quarter and 36% of total
premium revenue. Medicare Part D accounted for 4% of insurance underwriting
margin and 7% of total premium revenue.
Net sales were $129 million compared with $133 million for the year-ago
quarter.
Insurance Premium Revenue
Insurance Premium Revenue
(dollars in millions)
Quarter ended Quarter ended %
Sept. 30, 2007 Sept. 30, 2006 Change
Life insurance $392.7 $381.5 3
Health insurance -
excluding Medicare Part D 253.1 253.6 --
Health - Medicare Part D 52.6 63.4 (17)
Annuity 4.9 5.5 (12)
Total $703.3 $704.1 --
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 %
Sept. 30, 2007 Premium Sept. 30, 2006 Premium Change
Insurance
underwriting
margins:
Life $105.4 27 $97.0 25 9
Health 44.8 18 44.2 17 1
Health -
Medicare
Part D 6.4 12 8.5 13 (25)
Annuity 2.4 3.1
159.0 152.9
Other income 1.0 1.0
Administrative
expenses (40.1) (37.5) 7
Insurance
underwriting
income $119.9 $116.4 3
Per share $1.28 $1.16 10
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 ($131 million) and second leading contributor to total underwriting
margin ($31 million). Life premiums of $121 million were up 6%, and the
life underwriting margin of $29 million was up 18%. As a percentage of life
premium, its life underwriting margin was 24%, up from 22%. Net life sales
of $28 million declined 2% from the year-ago quarter. Direct Response's
life business is comprised of two primary sources: the first is from direct
mail solicitations produced "in house," and the second is from insert
media. Solicitations via insert media increased 27% in this quarter and are
expected to increase going forward. These solicitations will translate into
increased sales in later periods.
American Income Agency was Torchmark's second leading contributor to
total premium revenue ($129 million) and leading contributor to total
underwriting margin ($43 million). AIL's life insurance underwriting margin
of $36 million was up 13%, and as a percentage of life premium, was 32%, up
from 30% and the highest of the major life distribution channels at
Torchmark. Life premiums of $111 million grew 7% compared with the year-ago
quarter. The number of AIL producing agents grew 7% to 2,616 compared with
the year-ago quarter, and was up 9% compared to the count at June 30, 2007.
Net life sales were $24 million for the quarter, up 10%.
LNL Agency, Torchmark's third leading life distribution unit, had total
premium revenue of $108 million, including $73 million from life insurance,
which declined 3%. LNL's total underwriting margin was $27 million, a 1%
decline from the year-ago quarter; however, LNL's life underwriting margin
was $18 million, down 9% from the year-ago quarter. Net life sales of $9
million were down 9% from the year-ago quarter. Producing agents grew to
1,690, up 6% during the quarter.
UA Branch Office Agency is the leading distribution channel in terms of
health premium ($97 million), up 9%, and had a health underwriting margin
of $12 million, down 1%. Underwriting margin was 13% of premium, a decline
from 14% for the year-ago quarter. Net sales fell 2% to $40 million, but
led all life and health distribution channels sales for the quarter. The
number of producing agents at UA Branch grew 13% to 3,346 compared with the
year-ago quarter and increased by 94 producing agents during the quarter.
UA Independent Agency was Torchmark's second largest contributor to
health premium ($93 million) and had a health underwriting margin of $15
million; however, its health premium declined 8% and underwriting margin
declined 11%. Health underwriting margin as a percentage of premium
remained 17%. Net health sales of $11 million fell 9%. The largest
component of this agency's in-force premium is for Medicare supplement
policies for which new sales have declined over the last several years.
Medicare Part D Prescription Drug Plan, which began January 1, 2006, is
distributed by Direct Response and the UA agencies. Third quarter 2007
premium revenue was $53 million for the 2007 plan year compared with $63
million in the year-ago quarter for the 2006 plan year.
Medicare Part D
Quarter Ended Quarter Ended
Sept. 30, 2007 Sept. 30, 2006
(dollars % of (dollars % of %
in millions) Premium in millions) Premium Change
Premium $52.6 $63.4 (17)
Policy
obligations (42.3) 80 (47.9) 76
Fees to PBM (2.5) 5 (5.1) 8
Net
amortization
of DAC (1.3) 2 (1.9) 3
Underwriting
margin $6.4 12 $8.5 13 (25)
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 $2.4 million, down 23%
from the year-ago quarter. Annuities comprised less than 2% of the
Company's insurance underwriting margin for the quarter.
Administrative Expenses were $40.1 million, up $2.5 million from the
year-ago quarter, of which $1.9 million relates to the affirmation during
the quarter by the Mississippi Supreme Court of an earlier verdict against
United American, including expenses related to the case.
INVESTMENTS
Excess Investment Income - comparing the third quarter 2007 with third
quarter 2006:
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
September 30,
(dollars in millions, except per share data)
%
2007 2006 Change
Tax equivalent investment
income $164.4 $161.1 2
Tax equivalent adjustment (1.4) (.4)
Net investment income 163.0 160.8 1
Required interest:
Interest credited on net
policy liabilities (64.9) (59.5) 9
Interest on debt (17.5) (21.3) (18)
Total required interest (82.4) (80.8) 2
Excess investment income $80.6 $80.0 1
Per share $.86 $.80 7
In comparing the components of excess investment income, it should be
noted that both net investment income and interest expense were unusually
high in third quarter of 2006. This occurred because late in the second
quarter of 2006, the Company issued $370 million of debt and trust
preferred securities to pre-fund the retirement of $330 million of similar
securities in the fourth quarter of 2006. As a result, in the third quarter
of 2006 $6 million of interest expense was incurred on the new debt, offset
by $6 million of investment income earned on the investment of the net
proceeds.
In the current year quarter, net investment income increased 1%.
Excluding the third quarter, 2006 income and assets related to the
pre-funding, net investment income was up 5%, lower than the 8% increase in
average investment assets at amortized cost due to new investments made at
yields lower than the overall portfolio yield. Contributing to the lower
yields was the investment of $256 million in municipal bonds in early 2007,
which resulted in approximately $1 million less investment income in the
current year quarter. The average yield on the municipal bonds is 4.6%, but
when adjusted for the related tax benefits, the tax equivalent yield is
6.6%.
Interest credited on net policy liabilities increased 9% in line with a
similar increase in the related liabilities. Interest on debt declined 18%.
Excluding the expense related to the aforementioned pre-funding, interest
expense was up $2.4 million in the current year quarter due to the increase
in the average short-term debt outstanding.
Investment Portfolio Composition at September 30, 2007
The market value of Torchmark's fixed maturity portfolio was $9.131
billion, $44.1 million lower than amortized cost of $9.175 billion. This
net unrealized loss is comprised of $210 million gross unrealized gains,
and $254 million gross unrealized losses. At amortized cost, 92.2% of fixed
maturities (92.3% at market value) were rated "investment grade." The fixed
maturity portfolio, which at amortized cost comprised 94.5% of total
invested assets, earned an annual effective yield of 6.95% during the third
quarter of 2007, down from 7.06% in the year-ago quarter. The investment
portfolio contains no securities backed by sub-prime mortgages.
Acquisitions of fixed maturity investments during the quarter totaled
$226 million at cost, with an average annual effective yield of 6.8%, an
average life of 22.1 years and average rating of A, compared with an
average annual effective yield of 7.2%, average life of 21.8 years and
average rating of BBB+ in the year-ago quarter.
SHARE REPURCHASE - during the quarter ended September 30, 2007:
Torchmark's ongoing share repurchase program resulted in the repurchase
during the quarter of 1.6 million shares of Torchmark Corporation common
stock for a total cost of $103 million ($63.46 average cost per share).
Year-to- date, the Company has repurchased 6.1 million shares at a total
cost of $401 million at an average price per share of $65.40. This was a
greater amount than the Company had previously indicated was likely for the
year.
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, 2006, 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 third quarter 2007
earnings release conference call with financial analysts at 11:00 a.m.
(Eastern) tomorrow, October 18, 2007. 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
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CONTACT:
Joyce Lane, Vice President, Investor
Relations of Torchmark Corporation, +1-972-569-3627,
jlane@torchmarkcorp.com
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