SYS-CON MEDIA Authors: Adine Deford, Cynthia Dunlop, Harry Trott, Xenia von Wedel, Peter Silva

News Feed Item

Torchmark Corporation Reports Fourth Quarter 2013 Results

MCKINNEY, Texas, Feb. 3, 2014 /PRNewswire/ -- Torchmark Corporation (NYSE: TMK) reported today that for the quarter ended December 31, 2013, net income was $1.56 per share, compared with $1.58 per share for the year-ago quarter. Net operating income for the quarter was $1.46 per share, compared with $1.33 per share for the year-ago quarter.

Net income for the year ended December 31, 2013, was $5.68 per share, compared with $5.41 per share for the year-ago period. Net operating income for the year ended December 31, 2013, was $5.70 per share, compared with $5.18 per share for the prior year.

Reconciliations between net income and net operating income, GAAP ROE and management ROE, and GAAP book value and management book value are shown in the Financial Summary below.

HIGHLIGHTS:

  • Net operating income per share increased 10% over the year-ago quarter and for the year.
  • Book value per share (excluding net unrealized gains on fixed maturities) increased 10% over the year-ago quarter.
  • Direct Response net life sales were up 8% compared to the year-ago quarter.
  • Medicare Part D net sales were up 15% compared to the year-ago quarter.
  • 1.3 million shares of common stock were repurchased, bringing the total for the year to 5.5 million shares

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 certain 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,


%



2013



2012


Chg.


2013



2012


Chg.

Insurance underwriting income* 


$1.66



$1.47


13


$152.0



$140.1


8

Excess investment income* 


0.60



0.58


3


54.8



55.8


(2)

Parent company expense


(0.02)



(0.02)




(1.8)



(2.0)



Income tax


(0.73)



(0.67)


9


(67.2)



(63.9)


5

Stock option expense, net of tax


(0.04)



(0.03)




(4.1)



(3.3)


















Net operating income 


$1.46



$1.33


10


$133.7



$ 126.6


6
















Reconciling items, net of tax:
















Realized gains on investments  


0.01



0.14




1.0



13.6




Medicare Part D adjustment


0.09



0.13




8.2



12.3




Family Heritage acquisition 


0.00



(0.02)




0.0



(1.5)



Net income


$1.56



$1.58




$142.8



$151.0


















Weighted average diluted shares outstanding (000)
















91,563



95,523
















Per Share 











Year Ended




Year Ended





December 31,


%


December 31,


%



2013


2012


Chg.


2013


2012


Chg.














Insurance underwriting income*


$6.49


$5.59


16


$604.1

$546.8


10

Excess investment income*  


2.35


2.42


(3)


218.8

236.6


(8)

Parent company expense


(0.09)


(0.08)




(8.5)

(8.2)



Income tax


(2.87)


(2.60)


10


(267.1)

(254.5)


5

Stock option expense, net of tax


(0.18)


(0.14)




(16.7)

(14.0)















Net operating income 


$5.70


$5.18


10


$530.7

$506.6


5













Reconciling items, net of tax:













Realized gains on investments  


0.04


0.25




4.0

24.6




Legal settlements


(0.06)


0.00




(5.9)

0.0




Guaranty fund assessment


(0.01)


0.00




(0.8)

0.0




Family Heritage acquisition 


0.01


(0.02)




0.5

(1.9)















Net income


$5.68


$5.41




$528.5

$529.3















Weighted average diluted shares outstanding (000)














93,043


97,898














* See definitions in the following sections and in the Torchmark 2012 SEC Form 10-K

Note: Tables in this news release may not foot due to rounding.





Financial Summary, continued

Management vs. GAAP Measures

(dollars in millions, except per share data)





Management







(excluding the


Revaluation





Revaluation Adj.**)


Adjustment**


GAAP



at December 31,


at December 31,


at  December 31,



2013


2012


2013


2012


2013


2012














2013 Net income as a ROE***










13.2%


13.0%

2013 Net operating income as a ROE


15.5%


15.5%






















Shareholders' equity


$3,529


$3,353


$247


$1,009


$3,776


$4,362

Book value per share


$38.77


$35.24


$2.72


$10.61


$41.49


$45.85





** Accounting rules (ASC-820, which includes guidance formerly set forth in FAS 115) require a revaluation adjustment of fixed maturities available for sale to fair value.  Without the revaluation adjustment, these assets would be reported at amortized cost.


 ***ROE is calculated using average shareholders' equity for the measurement period.




INSURANCE OPERATIONS – comparing the fourth quarter 2013 with fourth quarter 2012:

Life insurance accounted for 69% of the Company's insurance underwriting margin for the quarter and 62% of total premium revenue.

Health insurance, excluding Medicare Part D, accounted for 25% of Torchmark's insurance underwriting margin for the quarter and 28% of total premium revenue. Medicare Part D accounted for 5% of insurance underwriting margin and 10% of total premium revenue.

Net sales of life insurance were flat, while health sales, excluding Medicare Part D, increased 13%, primarily due to the addition of Family Heritage.

Insurance Premium Revenue




Insurance Premium Revenue



(dollars in millions)



Quarter Ended



Quarter Ended


%



Dec. 31, 2013



Dec. 31, 2012


Chg.









Life insurance


$468.5



$452.0


4

Health insurance - 









excluding Medicare Part D


214.9



203.0


6

Health - Medicare Part D


73.2



84.0


(13)

Annuity


0.1



0.1











Total


$756.7



$739.1


2




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


%



Dec. 31, 2013


Premium



Dec. 31, 2012


Premium


Chg.

Insurance underwriting margins:













Life


$137.2


29



$128.9


29


6


Health


49.4


23



44.5


22


11


Health - Medicare Part D


10.0


14



10.0


12


0


Annuity


0.9





0.8







197.5





184.1




7

Other income


0.2





0.4





Administrative expenses


(45.8)





(44.5)




3













Insurance underwriting income


$152.0





$140.1




8


Per share


$1.66





$1.47




13




Insurance Results by Distribution Channels

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

American Income Agency was Torchmark's leading contributor to total underwriting margin ($69 million), on premium revenue of $202 million. Life premiums of $182 million were up 6% and life insurance underwriting margin of $59 million was up 4%. As a percentage of life premium, life underwriting margin was 32%, down from 33% a year ago, but the highest of the major life distribution channels at Torchmark. Producing agents grew to 5,302, up 2% from a year ago, and down 3% during the quarter. Net life sales were $38 million, down 5%.

Direct Response was Torchmark's second leading contributor to total underwriting margin ($43 million), on premium revenue of $175 million. Life premiums of $162 million were up 6% and the life underwriting margin was $41 million, up 19%. As a percentage of life premium, life underwriting margin was 25%, up from 22% a year ago. Net life sales were $34 million, up 8%.

LNL Agency was Torchmark's third leading contributor to total underwriting margin ($32 million), on premium revenue of $126 million. Life premiums of $68 million were down 2% and life underwriting margin of $19 million was down 6%. As a percentage of life premiums, life underwriting margin was 28%, down from 29% a year ago. Net life sales for the LNL Agency were $8 million, down 4%.

LNL Agency was Torchmark's second leading contributor to health underwriting margin ($13 million), on health premium of $58 million. Health underwriting margin as a percentage of health premium was 22%, up from 21%. Net health sales for the LNL Agency were $4 million, up 2%.

LNL Agency's producing agent count grew to 1,430, up 1% from a year ago, and up 8% during the quarter.

Family Heritage Agency was acquired by Torchmark on November 1, 2012. FHL contributed health underwriting margin of $10 million on health premium of $49 million and health underwriting margin as a percentage of health premium was 20%. Net health sales were $11 million. Producing agent count declined during the quarter to 695 from 717.

UA Independent Agency was Torchmark's leading contributor to health underwriting margin ($15 million), on health premium of $75 million. Health underwriting margin as a percentage of premium was 20%, same as the year-ago quarter. Net health sales were $22 million, up 5%.

Medicare Part D Prescription Drug Plan is distributed by Direct Response and the UA agency. Fourth quarter 2013 premium revenue was $73 million, down 13%. Underwriting margin for fourth quarter 2013 was $10 million, same as the year-ago quarter. Net sales were $53 million, up 15%.

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 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 are 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 included in this release. A chart reconciling the Company's non-GAAP financial presentation to a GAAP presentation may be viewed on the Company's website at www.torchmarkcorp.com on the Investor Relations page at Financial Reports.

Administrative Expenses were $46 million, up 3% from the year-ago quarter. The ratio of administrative expenses to premiums was 6.1% compared to 6.0% in the year-ago quarter.

INVESTMENTS

Excess Investment Income – comparing the fourth quarter 2013 with the fourth quarter 2012:

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



December 31,



(dollars in millions, except per share data)



2013



2012


% Chg.









Net investment income 


$184.6



$180.6


2









Required interest:









Interest on net policy liabilities


(110.8)



(103.5)


7


Interest on debt


(19.1)



(21.3)


(11)










Total required interest


(129.9)



(124.8)


4









Excess investment income 


$54.8



$55.8


(2)


Per share


$0.60



$0.58


3




Net investment income increased 2% while average invested assets increased 7%. This is due primarily to lower new money yields and calls of hybrid bank securities early in 2013. Required interest on net policy liabilities increased 7%, while the average liabilities increased 8%. The weighted average discount rate for the net policy liabilities declined to 5.5% from 5.6% a year ago.

Investment Portfolio

The composition of the investment portfolio at December 31, 2013 is as follows:




Invested Assets



(dollars in millions)



$


% of Total






Fixed maturities (at amortized cost)


$12,489


96

Equities


1


0

Policy loans


449


3

Other long-term investments


13


0

Short-term investments


77


1






Total


$13,029


100%




Fixed maturities at amortized cost by asset class are as follows:




Fixed Maturities



(dollars in millions)





Below





Investment


Investment





Grade


Grade


Total








Corporate bonds


$9,777


$357


$10,134

Redeemable preferred stock: 








U.S.  


299


144


443


Foreign


60




60

Municipal


1,278




1,278

Government-sponsored enterprises


347




347

Government and agencies


122




122

Collateralized debt obligations




66


66

Residential mortgage-backed securities


8




8

Other asset-backed securities


31




31








Total


$11,923


$566


$12,489




The market value of Torchmark's fixed maturity portfolio was $12.9 billion; $390 million higher than amortized cost of $12.5 billion. The $390 million of net unrealized gains was approximately $99 million lower than it was at September 30, 2013. Net unrealized gains were comprised of gross unrealized gains of $801 million and gross unrealized losses of $411 million.

The investment portfolio contains no securities backed by sub-prime mortgages. Torchmark has no counterparty risk as it is not a party to any credit default swaps or other derivatives contracts and does not participate in securities lending.

At amortized cost, 95.5% of fixed maturities (96% at market value) were rated "investment grade."

The fixed maturity portfolio earned an annual effective yield of 5.90% during the fourth quarter of 2013, compared to 6.20% in the year-ago quarter, reflecting the effect of lower new money yields and calls of bank hybrid securities early in 2013.

Acquisitions of fixed maturity investments during the quarter totaled $319 million at cost. Comparable information for acquisitions of fixed maturity investments is as follows:




Quarter Ended



December 31,



2013



2012







Average annual effective yield


5.4%



4.0%

Average rating


BBB+



BBB+

Average life (in years) to:







First call


24.9



27.0


Maturity


25.2



24.4




Realized Capital Gains on Investments

Torchmark had a net realized capital gain during the quarter of $1.5 million ($1.0 million after tax) resulting primarily from dispositions of fixed maturities. For the year, net realized capital gains were $8.0 million.

SHARE REPURCHASE

During the quarter, the Company repurchased 1.3 million shares of Torchmark Corporation common stock at a total cost of $94.9 million at an average share price of $74.45. For the year, the Company repurchased 5.5 million shares at an average share price of $65.21.

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. In addition, the parent company had $60 million of liquid assets at December 31, 2013.

EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2014:

Torchmark projects that for the year ending December 31, 2014, net operating income per share will be in a range of $6.05 to $6.35.

OTHER FINANCIAL INFORMATION:

More detailed financial information including various GAAP and Non-GAAP ratios and financial measurements are located at www.torchmarkcorp.com on the Investor Relations page under "Financial Reports and Other Financial Information."

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, 2012, 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 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 2013 earnings release conference call with financial analysts at 11:30 a.m. (Eastern) tomorrow, February 4, 2014. Access to the live webcast and replay will be available at 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."

More Stories By PR Newswire

Copyright © 2007 PR Newswire. All rights reserved. Republication or redistribution of PRNewswire content is expressly prohibited without the prior written consent of PRNewswire. PRNewswire shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon.

Latest Stories
"We help companies that are using a lot of Software as a Service. We help companies manage and gain visibility into what people are using inside the company and decide to secure them or use standards to lock down or to embrace the adoption of SaaS inside the company," explained Scott Kriz, Co-founder and CEO of Bitium, in this SYS-CON.tv interview at 15th Cloud Expo, held Nov 4–6, 2014, at the Santa Clara Convention Center in Santa Clara, CA.
15th Cloud Expo, which took place Nov. 4-6, 2014, at the Santa Clara Convention Center in Santa Clara, CA, expanded the conference content of @ThingsExpo, Big Data Expo, and DevOps Summit to include two developer events. IBM held a Bluemix Developer Playground on November 5 and ElasticBox held a Hackathon on November 6. Both events took place on the expo floor. The Bluemix Developer Playground, for developers of all levels, highlighted the ease of use of Bluemix, its services and functionalit...
The 4th International DevOps Summit, co-located with16th International Cloud Expo – being held June 9-11, 2015, at the Javits Center in New York City, NY – announces that its Call for Papers is now open. Born out of proven success in agile development, cloud computing, and process automation, DevOps is a macro trend you cannot afford to miss. From showcase success stories from early adopters and web-scale businesses, DevOps is expanding to organizations of all sizes, including the world's large...
Some developers believe that monitoring is a function of the operations team. Some operations teams firmly believe that monitoring the systems they maintain is sufficient to run the business successfully. Most of them are wrong. The complexity of today's applications have gone far and beyond the capabilities of "traditional" system-level monitoring tools and approaches and requires much broader knowledge of business and applications as a whole. The goal of DevOps is to connect all aspects of app...
SAP is delivering break-through innovation combined with fantastic user experience powered by the market-leading in-memory technology, SAP HANA. In his General Session at 15th Cloud Expo, Thorsten Leiduck, VP ISVs & Digital Commerce, SAP, discussed how SAP and partners provide cloud and hybrid cloud solutions as well as real-time Big Data offerings that help companies of all sizes and industries run better. SAP launched an application challenge to award the most innovative SAP HANA and SAP HANA...
When an enterprise builds a hybrid IaaS cloud connecting its data center to one or more public clouds, security is often a major topic along with the other challenges involved. Security is closely intertwined with the networking choices made for the hybrid cloud. Traditional networking approaches for building a hybrid cloud try to kludge together the enterprise infrastructure with the public cloud. Consequently this approach requires risky, deep "surgery" including changes to firewalls, subnets...
Want to enable self-service provisioning of application environments in minutes that mirror production? Can you automatically provide rich data with code-level detail back to the developers when issues occur in production? In his session at DevOps Summit, David Tesar, Microsoft Technical Evangelist on Microsoft Azure and DevOps, will discuss how to accomplish this and more utilizing technologies such as Microsoft Azure, Visual Studio online, and Application Insights in this demo-heavy session.
DevOps is all about agility. However, you don't want to be on a high-speed bus to nowhere. The right DevOps approach controls velocity with a tight feedback loop that not only consists of operational data but also incorporates business context. With a business context in the decision making, the right business priorities are incorporated, which results in a higher value creation. In his session at DevOps Summit, Todd Rader, Solutions Architect at AppDynamics, discussed key monitoring techniques...
Cultural, regulatory, environmental, political and economic (CREPE) conditions over the past decade are creating cross-industry solution spaces that require processes and technologies from both the Internet of Things (IoT), and Data Management and Analytics (DMA). These solution spaces are evolving into Sensor Analytics Ecosystems (SAE) that represent significant new opportunities for organizations of all types. Public Utilities throughout the world, providing electricity, natural gas and water,...
The security devil is always in the details of the attack: the ones you've endured, the ones you prepare yourself to fend off, and the ones that, you fear, will catch you completely unaware and defenseless. The Internet of Things (IoT) is nothing if not an endless proliferation of details. It's the vision of a world in which continuous Internet connectivity and addressability is embedded into a growing range of human artifacts, into the natural world, and even into our smartphones, appliances, a...
How do APIs and IoT relate? The answer is not as simple as merely adding an API on top of a dumb device, but rather about understanding the architectural patterns for implementing an IoT fabric. There are typically two or three trends: Exposing the device to a management framework Exposing that management framework to a business centric logic Exposing that business layer and data to end users. This last trend is the IoT stack, which involves a new shift in the separation of what stuff happe...
The 3rd International Internet of @ThingsExpo, co-located with the 16th International Cloud Expo - to be held June 9-11, 2015, at the Javits Center in New York City, NY - announces that its Call for Papers is now open. The Internet of Things (IoT) is the biggest idea since the creation of the Worldwide Web more than 20 years ago.
The Internet of Things is tied together with a thin strand that is known as time. Coincidentally, at the core of nearly all data analytics is a timestamp. When working with time series data there are a few core principles that everyone should consider, especially across datasets where time is the common boundary. In his session at Internet of @ThingsExpo, Jim Scott, Director of Enterprise Strategy & Architecture at MapR Technologies, discussed single-value, geo-spatial, and log time series dat...
An entirely new security model is needed for the Internet of Things, or is it? Can we save some old and tested controls for this new and different environment? In his session at @ThingsExpo, New York's at the Javits Center, Davi Ottenheimer, EMC Senior Director of Trust, reviewed hands-on lessons with IoT devices and reveal a new risk balance you might not expect. Davi Ottenheimer, EMC Senior Director of Trust, has more than nineteen years' experience managing global security operations and asse...
The Internet of Things will greatly expand the opportunities for data collection and new business models driven off of that data. In her session at @ThingsExpo, Esmeralda Swartz, CMO of MetraTech, discussed how for this to be effective you not only need to have infrastructure and operational models capable of utilizing this new phenomenon, but increasingly service providers will need to convince a skeptical public to participate. Get ready to show them the money!