TORCHMARK CORPORATION REPORTS Second Quarter 2019 Results

MCKINNEY, Texas, July 24, 2019 /PRNewswire/ -- Torchmark Corporation TMK reported today that for the quarter ended June 30, 2019, net income was $1.67 per diluted common share, compared with $1.59 per diluted common share for the year-ago quarter. Net operating income for the quarter was $1.67 per diluted common share, compared with $1.51 per diluted common share for the year-ago quarter.

Torchmark also announced today that its corporate name will be changed to Globe Life Inc. effective August 8, 2019. The NYSE ticker will be changed to GL on August 9, 2019. The name change is part of a brand alignment strategy which will enhance the Company's ability to build name recognition with potential customers and agent recruits through use of a single brand. The underwriting companies owned by the Parent Company will continue to exist as legal entities, but over a period of time will go to market under the Globe Life name to leverage branding initiatives implemented at Globe Life And Accident Insurance Company in recent years.

HIGHLIGHTS:

  • Net income as an ROE was 12.3%. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 14.6%.
  • Life underwriting margin at American Income Exclusive Agency and Globe Life Direct Response both increased over the year-ago quarter by 9%.
  • Health underwriting margin at Family Heritage Exclusive Agency increased over the year-ago quarter by 14%.
  • Life premiums increased over the year-ago quarter by 7% at American Income Exclusive Agency and health premiums increased over the year-ago quarter by 8% at Family Heritage Exclusive Agency.
  • Net health sales increased over the year-ago quarter by 14%.
  • 979,215 shares of common stock were repurchased during the quarter.

RESULTS OF OPERATIONS

Net operating income, a non-GAAP(1) 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 significant and unusual 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.

The following table represents Torchmark's operating summary for the three months ended June 30, 2019 and 2018:

Operating Summary



Per Share















Three Months Ended

June 30,







Three Months Ended

June 30,







2019



2018



%

Chg.



2019



2018



%

Chg.

Insurance underwriting income(2)

$

1.60





$

1.46





10



$

178,556





$

168,446





6

Excess investment income(2)

0.58





0.52





12



64,678





59,949





8

Parent company expense

(0.03)





(0.02)









(2,872)





(2,847)







Income tax

(0.42)





(0.38)





11



(47,114)





(44,251)





6

Stock compensation benefit (expense), net of tax

(0.06)





(0.05)









(6,366)





(6,237)







Net operating income

1.67





1.51





11



186,882





175,060





7

























Reconciling items, net of tax:























Realized Gain (Loss)—Investments

0.04





0.08









4,072





9,333







Part D adjustments—Discontinued operations













(43)





32







Legal proceedings

(0.04)













(4,345)











Net income(3)

$

1.67





$

1.59









$

186,566





$

184,425































Weighted average diluted shares outstanding

111,586





115,651























(1)

GAAP is defined as accounting principles generally accepted in the United States of America.

(2)

Definitions included within this document.

(3)

A GAAP-basis consolidated statement of operations is included in the appendix of this report.





Note: Tables in this earnings release may not sum due to rounding.

MANAGEMENT VS. GAAP MEASURES

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 associated with 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.



June 30,



2019



2018

Net income as a ROE(1)

12.3

%



12.2

%

Net operating income as a ROE (excluding net unrealized gains on fixed maturities)

14.6

%



14.6

%









Shareholders' equity

$

6,700,398





$

5,571,609



Impact of adjustment to exclude net unrealized gains on fixed maturities

(1,533,945)





(731,707)



Shareholders' equity, excluding net unrealized gains on fixed maturities

$

5,166,453





$

4,839,902











Book value per share

$

60.22





$

48.44



Impact of adjustment to exclude net unrealized gains on fixed maturities

(13.79)





(6.36)



Book value per share, excluding net unrealized gains on fixed maturities

$

46.43





$

42.08







(1)

Calculated using average shareholders' equity for the measurement period.

INSURANCE OPERATIONS—comparing Q2 2019 with Q2 2018:

Life insurance accounted for 74% of the Company's insurance underwriting margin for the quarter and 70% of total premium revenue.

Health insurance accounted for 25% of Torchmark's insurance underwriting margin for the quarter and 30% of total premium revenue.

Net sales of life insurance increased 1%, while net health sales increased 14%.

The following table summarizes Torchmark's premium revenue by product type for the three months ended June 30, 2019 and 2018:

Insurance Premium Revenue



Quarter Ended



June 30, 2019



June 30, 2018



%

Chg.

Life insurance

$

631,201





$

602,534





5

Health insurance

266,282





251,440





6

Annuity

1





5







Total

$

897,484





$

853,979





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. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of underwriting results by distribution channel. Insurance underwriting income, a non-GAAP measure, is a component of net operating income, which is reconciled to net income in the Results of Operations section above.

The following table summarizes Torchmark's insurance underwriting income by segment for the three months ended June 30, 2019 and 2018:

Insurance Underwriting Income



Quarter Ended



June 30, 2019



% of

Premium



June 30, 2018



% of

Premium



%

Chg.

Insurance underwriting margins:



















Life

$

175,050





28



$

161,177





27



9

Health

60,159





23



59,538





24



1

Annuity

2,365









2,566













237,574









223,281









6

Other income

398









441











Administrative expenses

(59,416)









(55,276)









7

Insurance underwriting income

$

178,556









$

168,446









6

Per share

$

1.60









$

1.46









10

Administrative Expenses were $59 million, up 7% from the year-ago quarter. The ratio of administrative expenses to premium was in line with expectations at 6.6%, compared with 6.5% for the year-ago quarter.

LIFE INSURANCE RESULTS BY DISTRIBUTION CHANNEL

Total premium, underwriting margins, first-year collected premium and net sales by all distribution channels are shown at www.torchmarkcorp.com on the Investors page at "Financial Reports."

Life Underwriting Margin



Quarter Ended



June 30,



2019



2018







Amount



% of

Premium



Amount



% of

Premium



%

Chg.

American Income Exclusive Agency

97,006





34





88,616





33





9

Globe Life Direct Response

39,042





18





35,735





17





9

Liberty National Exclusive Agency

18,136





25





17,045





25





6

Other Agencies

20,866





39





19,781





36





5

Total

$

175,050





28





$

161,177





27





9

 

Life Premium



Quarter Ended







June 30,







2019



2018



%

Chg.

American Income Exclusive Agency

$

288,334





$

269,658





7

Globe Life Direct Response

217,278





209,021





4

Liberty National Exclusive Agency

71,478





69,456





3

Other Agencies

54,111





54,399





(1)

Total

$

631,201





$

602,534





5

 

Life Net Sales(1)



Quarter Ended







June 30,







2019



2018



%

Chg.

American Income Exclusive Agency

$

61,048





$

59,670





2

Globe Life Direct Response

34,456





35,040





(2)

Liberty National Exclusive Agency

13,428





12,869





4

Other Agencies

3,207





3,678





(13)

Total

$

112,139





$

111,257





1





(1)

Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty 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. We believe that net sales is a better indicator of the rate of premium growth than annualized premium issued.

HEALTH INSURANCE RESULTS BY DISTRIBUTION CHANNEL

Health Underwriting Margin



Quarter Ended



June 30,



2019



2018







Amount



% of

Premium



Amount



% of

Premium



%

Chg.

United American Independent Agency

$

14,390





14





$

15,578





17





(8)

Family Heritage Exclusive Agency

17,901





25





15,771





23





14

Liberty National Exclusive Agency

11,837





25





12,371





26





(4)

American Income Exclusive Agency

13,040





53





12,682





54





3

Direct Response

2,991





16





3,136





17





(5)

Total

$

60,159





23





$

59,538





24





1

 

Health Premium



Quarter Ended







June 30,







2019



2018



%

Chg.

United American Independent Agency

$

102,254





$

93,555





9

Family Heritage Exclusive Agency

73,037





67,635





8

Liberty National Exclusive Agency

47,292





47,879





(1)

American Income Exclusive Agency

24,450





23,372





5

Direct Response

19,249





18,999





1

Total

$

266,282





$

251,440





6

 

Health Net Sales(1)



Quarter Ended







June 30,







2019



2018



%

Chg.

United American Independent Agency

$

16,587





$

13,410





24

Family Heritage Exclusive Agency

16,898





15,537





9

Liberty National Exclusive Agency

5,864





5,277





11

American Income Exclusive Agency

4,299





3,700





16

Direct Response

582





986





(41)

Total

$

44,230





$

38,910





14





(1)

Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty 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. We believe that net sales is a better indicator of the rate of premium growth than annualized premium issued.

PRODUCING EXCLUSIVE AGENT COUNT RESULTS BY DISTRIBUTION CHANNEL



Quarterly Average

Producing Agent Count(1)



End of Quarter

 Agent Count



June 30,







March 31,







June 30,







March 31,







2019



2018



%

Chg.



2019



%

Chg.



2019



2018



%

Chg.



2019



%

Chg.

American Income Exclusive Agency

7,364





7,064





4





6,865





7





7,477





7,143





5





7,233





3



Liberty National Exclusive Agency

2,290





2,185





5





2,179





5





2,390





2,198





9





2,297





4



Family Heritage Exclusive Agency

1,081





1,052





3





1,002





8





1,089





1,090









1,020





7







(1)

The quarterly average producing agent count is based on the actual count at the end of each week during the period.

INVESTMENTS

Management uses excess investment income 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.

The following table summarizes Torchmark's investment income, excess investment income, and excess investment income per diluted common share.

Excess Investment Income



Quarter Ended



June 30,



2019



2018



%

Chg.

Net investment income

$

227,425





$

218,568





4

Required interest:











Interest on net policy liabilities(1)

(141,315)





(136,208)





4

Interest on debt

(21,432)





(22,411)





(4)

Total required interest

(162,747)





(158,619)





3

Excess investment income

$

64,678





$

59,949





8

Per share

$

0.58





$

0.52





12





(1)

Interest on net policy liabilities is a component of total policyholder benefits, a GAAP measure.

Net investment income increased 4%, while average invested assets increased 5%. Required interest on net policy liabilities increased 4%, while average net policy liabilities increased 3%. The weighted average discount rate for the net policy liabilities was 5.6% and in line with the year-ago quarter.

The composition of the investment portfolio at book value at June 30, 2019 is as follows:

Investment Portfolio



As of



June 30, 2019



Amount



% of Total

Fixed maturities at fair value(1)

$

17,934,274





95

%

Policy loans

560,469





3



Other long-term investments(2)

289,147





2



Short-term investments

74,116







Total

$

18,858,006





100

%





(1)

Fixed maturities at amortized cost as of June 30, 2019 were $16.0 billion.

(2)

Includes $165 million of investments accounted for under the fair value option which have an amortized cost of $157 million as of June 30, 2019.

Fixed maturities at amortized cost by asset class as of June 30, 2019 are as follows:

Fixed Maturity Portfolio by Sector



As of



June 30, 2019



Investment

Grade



Below

Investment

Grade



Total

Corporate bonds

$

13,430,284





$

573,556





$

14,003,840



Municipal

1,364,901





444





1,365,345



Government-sponsored enterprises

330,339









330,339



Government and agencies

81,755









81,755



Collateralized debt obligations





57,172





57,172



Other asset-backed securities

131,421





14,400





145,821



Total

$

15,338,700





$

645,572





$

15,984,272



The market value of Torchmark's fixed maturity portfolio was $17.9 billion compared with amortized cost of $16.0 billion. Net unrealized gains were comprised of gross unrealized gains of $2.1 billion and gross unrealized losses of $109 million.

Torchmark is not a party to any derivatives contracts, including credit default swaps, and does not participate in securities lending.

At amortized cost, 96% of fixed maturities (97% at market value) were rated "investment grade." The fixed maturity portfolio earned an annual effective yield of 5.50% during the second quarter of 2019, compared with 5.57% in the year-ago quarter.

Comparable information for acquisitions of fixed maturity investments is as follows:

Fixed Maturity Acquisitions



Quarter Ended



June 30,



2019



2018

Amount

$

252,742





$

181,688



Average annual effective yield

5.0

%



5.2

%

Average rating

A-





BBB+



Average life (in years) to:







Next call

23.7





16.0



Maturity

29.2





18.4



SHARE REPURCHASE:

During the quarter, the Company repurchased 979,215 shares of Torchmark Corporation common stock at a total cost of $85 million for an average share price of $87.18.

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 operations.

EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2019:

Torchmark projects that net operating income per share will be in the range of $6.67 to $6.77 for the year ending December 31, 2019.

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, 2018, 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 second quarter 2019 earnings release conference call with financial analysts at 11:00 am (Eastern) tomorrow, July 25, 2019. 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





Three Months Ended

June 30,



Six Months Ended

June 30,



2019



2018



2019



2018

Revenue:















Life premium

$

631,201





$

602,534





$

1,255,490





$

1,200,837



Health premium

266,282





251,440





532,966





503,238



Other premium

1





5





1





10



Total premium

897,484





853,979





1,788,457





1,704,085



Net investment income

227,425





218,568





454,098





436,652



Realized gains (losses)

5,154





11,813





6,483





13,764



Other income

398





416





639





711



Total revenue

1,130,461





1,084,776





2,249,677





2,155,212



















Benefits and expenses:















Life policyholder benefits

410,961





399,334





820,653





799,915



Health policyholder benefits

170,511





160,461





340,528





321,080



Other policyholder benefits

7,890





8,582





15,938





17,271



Total policyholder benefits

589,362





568,377





1,177,119





1,138,266



Amortization of deferred acquisition costs

138,165





129,077





273,987





258,697



Commissions, premium taxes, and non-deferred acquisition costs

73,698





69,427





147,163





139,066



Other operating expense

79,044





68,620





151,837





135,444



Interest expense

21,432





22,411





42,710





44,033



Total benefits and expenses

901,701





857,912





1,792,816





1,715,506



















Income before income taxes

228,760





226,864





456,861





439,706



Income tax benefit (expense)

(42,151)





(42,471)





(84,858)





(81,602)



Income from continuing operations

186,609





184,393





372,003





358,104



















Discontinued operations:















Income (loss) from discontinued operations, net of tax

(43)





32





(92)





(79)



Net income

$

186,566





$

184,425





$

371,911





$

358,025



















Total basic net income per common share

$

1.70





$

1.63





$

3.38





$

3.15



















Total diluted net income per common share

$

1.67





$

1.59





$

3.32





$

3.08



 

Cision View original content:http://www.prnewswire.com/news-releases/torchmark-corporation-reports-second-quarter-2019-results-300890564.html

SOURCE Torchmark Corporation

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