Torchmark Corporation Reports First Quarter 2018 Results
HIGHLIGHTS:
- Net income as an ROE(1) was 11.5%. Net operating income as an ROE excluding net unrealized gains on fixed maturities(1) was 14.6%.
- Life underwriting margins increased over the year-ago quarter by 7% and health underwriting margins increased over the year-ago quarter by 9%.
- Life premiums increased over the year-ago quarter by 9% at American Income and health premiums increased by 8% at Family Heritage.
- Net health sales increased over the year-ago quarter by 11%.
- Average producing agent counts increased over the year-ago quarter by 15% at Liberty National and 11% at Family Heritage.
- 1.0 million shares of common stock were repurchased during the quarter.
(1) Includes the impact of the change in the corporate income tax rate from 35% to 21% due to the recent tax reform. See further discussion of the tax reform on page 2.
FINANCIAL SUMMARY
Quarter End
(Dollar amounts in millions, except per share data)
(unaudited)
Net operating income, a non-GAAP(1) financial measure, has been used consistently by
Per Share |
|
||||||||||||||||||||
|
|
||||||||||||||||||||
2018 |
2017 |
% |
2018 |
2017 |
% |
||||||||||||||||
Insurance underwriting income(2) |
$ |
1.37 |
$ |
1.23 |
11 |
$ |
160.3 |
$ |
148.6 |
8 |
|||||||||||
Excess investment income(2) |
0.53 |
0.49 |
8 |
61.9 |
59.3 |
4 |
|||||||||||||||
Parent company expense |
(0.02) |
(0.02) |
(2.3) |
(2.2) |
|||||||||||||||||
Income tax(3) |
(0.37) |
(0.56) |
(34) |
(42.8) |
(67.1) |
(36) |
|||||||||||||||
Stock compensation benefit (expense), net of tax |
(0.04) |
— |
(5.0) |
0.1 |
|||||||||||||||||
Net operating income |
$ |
1.47 |
$ |
1.15 |
28 |
$ |
172.2 |
$ |
138.7 |
24 |
|||||||||||
Reconciliation to net income (GAAP): |
|||||||||||||||||||||
Reconciling items, net of tax: |
|||||||||||||||||||||
Realized gains (losses) on investments |
0.01 |
(0.01) |
1.5 |
(1.5) |
|||||||||||||||||
Part D adjustments—discontinued operations(4) |
— |
(0.03) |
(0.1) |
(3.6) |
|||||||||||||||||
Net income(5) |
$ |
1.49 |
$ |
1.11 |
$ |
173.6 |
$ |
133.5 |
|||||||||||||
Weighted average diluted shares outstanding |
116,750 |
120,430 |
(1) GAAP is defined as accounting principles generally accepted in |
(2) Definitions included within this document. |
(3) In 2017, new tax legislation revised the corporate income tax rate from 35% to 21% effective |
As of |
(4) The remaining Part D adjustments are administrative items related to the disposition of this business. |
(5) A GAAP-basis consolidated statement of operations is included in the appendix of this report. |
Note: Tables in this news release may not sum due to rounding. |
FINANCIAL SUMMARY, CONT
Management vs. GAAP measures
(Dollar amounts in millions, except per share data)
(unaudited)
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 on 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.
|
|||||||
2018(1) |
2017 |
||||||
Net income as an ROE(2) |
11.5 |
% |
11.5 |
% |
|||
Net operating income as an ROE (excluding net unrealized gains on fixed maturities) |
14.6 |
% |
14.2 |
% |
|||
Shareholders' equity |
$ |
5,820 |
$ |
4,745 |
|||
Impact of adjustment to exclude net unrealized gains on fixed maturities |
(1,067) |
(820) |
|||||
Shareholders' equity, excluding net unrealized gains on fixed maturities |
$ |
4,753 |
$ |
3,925 |
|||
Book value per share |
$ |
50.13 |
$ |
39.61 |
|||
Impact of adjustment to exclude net unrealized gains on fixed maturities |
(9.19) |
(6.84) |
|||||
Book value per share, excluding net unrealized gains on fixed maturities |
$ |
40.94 |
$ |
32.77 |
(1) Includes the effects of recent tax reform legislation. |
(2) Calculated using average shareholders' equity for the measurement period. |
CONTINUING INSURANCE OPERATIONS – comparing the first quarter 2018 with first quarter 2017:
Life insurance accounted for 72% of the Company's insurance underwriting margin for the quarter and 70% of total premium revenue.
Health insurance accounted for 27% of
Net sales of life insurance decreased 4%, while net health sales increased 11%.
INSURANCE PREMIUM REVENUE
(Dollar amounts in millions)
(unaudited)
Quarter Ended |
% |
|||||||||
|
|
|||||||||
Life insurance |
$ |
598.3 |
$ |
575.8 |
4 |
|||||
Health insurance |
251.8 |
244.8 |
3 |
|||||||
Total |
$ |
850.1 |
$ |
820.6 |
4 |
INSURANCE UNDERWRITING INCOME
(Dollar amounts in millions, except per share data)
(unaudited)
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 Financial Summary section above.
Quarter Ended |
||||||||||||||
|
% of |
|
% of |
% |
||||||||||
Insurance underwriting margins: |
||||||||||||||
Life |
$ |
154.8 |
26 |
$ |
144.1 |
25 |
7 |
|||||||
Health |
58.0 |
23 |
53.4 |
22 |
9 |
|||||||||
Annuity |
2.6 |
2.6 |
||||||||||||
215.5 |
200.1 |
8 |
||||||||||||
Other income |
0.3 |
0.5 |
||||||||||||
Administrative expenses |
(55.5) |
(51.9) |
7 |
|||||||||||
Insurance underwriting income |
$ |
160.3 |
$ |
148.6 |
8 |
|||||||||
Per share |
$ |
1.37 |
$ |
1.23 |
11 |
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."
Globe Life Direct Response was
LNL Agency's average producing agent count during the quarter was 2,087, up 15% over a year ago, and down 1% from the previous quarter. The producing agent count at the end of the first quarter was 2,224.
Administrative Expenses were
Note: Net sales (health and life), a statistical performance measure, is calculated as the annualized premium issued, net of cancellations in the first 30 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.
INVESTMENTS
EXCESS INVESTMENT INCOME
(Dollar amounts in millions, except per share data)
(unaudited)
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.
Quarter Ended |
||||||||||
|
||||||||||
2018 |
2017 |
% |
||||||||
Net investment income |
$ |
218.1 |
$ |
208.3 |
5 |
|||||
Required interest: |
||||||||||
Interest on net policy liabilities(1) |
(134.5) |
(128.3) |
5 |
|||||||
Interest on debt |
(21.6) |
(20.7) |
4 |
|||||||
Total required interest |
(156.1) |
(149.0) |
5 |
|||||||
Excess investment income |
$ |
61.9 |
$ |
59.3 |
4 |
|||||
Per share |
$ |
0.53 |
$ |
0.49 |
8 |
(1) Interest on net policy liabilities is a component of total policyholder benefits (a GAAP measure). |
Net investment income increased 5%, while average invested assets increased 6%. The 5% increase in required interest on net policy liabilities was in line with a similar increase in average net policy liabilities. The weighted average discount rate for the net policy liabilities was 5.6% and in line with the year-ago quarter.
Investment Portfolio
The composition of the investment portfolio at
Invested Assets |
||||||
$ |
% of Total |
|||||
Fixed maturities (at amortized cost) |
$ |
15,274 |
95 |
% |
||
Policy loans |
532 |
3 |
||||
Other long-term investments |
161 |
1 |
||||
Short-term investments |
80 |
— |
||||
Total |
$ |
16,049 |
100 |
% |
Fixed maturities at amortized cost by asset class as of
Fixed Maturities (unaudited) |
|||||||||||
Investment |
Below |
Total |
|||||||||
Corporate bonds |
$ |
12,488 |
$ |
570 |
$ |
13,058 |
|||||
Municipal |
1,219 |
— |
1,220 |
||||||||
Redeemable preferred stock: |
|||||||||||
|
285 |
60 |
345 |
||||||||
Foreign |
31 |
— |
31 |
||||||||
Government-sponsored enterprises |
317 |
— |
317 |
||||||||
Government and agencies |
97 |
— |
97 |
||||||||
Collateralized debt obligations |
— |
58 |
58 |
||||||||
Residential mortgage-backed securities |
1 |
— |
1 |
||||||||
Other asset-backed securities |
147 |
— |
147 |
||||||||
Total |
$ |
14,586 |
$ |
688 |
$ |
15,274 |
The market value of
At amortized cost, 95% of fixed maturities (96% at market value) were rated "investment grade." The fixed maturity portfolio earned an annual effective yield of 5.58% during the first quarter of 2018, compared to 5.70% in the year-ago quarter.
Acquisitions of fixed maturity investments during the quarter totaled
Quarter Ended |
||||
|
||||
2018 |
2017 |
|||
Average annual effective yield |
4.5% |
4.9% |
||
Average rating |
A |
BBB+ |
||
Average life (in years) to: |
||||
Next call |
14.8 |
22.2 |
||
Maturity |
23.4 |
23.2 |
SHARE REPURCHASE:
During the quarter, the Company repurchased 1.0 million shares of
LIQUIDITY/CAPITAL:
EARNINGS GUIDANCE FOR THE YEAR ENDING
NON-GAAP MEASURES:
In this news release,
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
EARNINGS RELEASE CONFERENCE CALL WEBCAST:
APPENDIX |
|||||||
|
|||||||
Three Months Ended |
|||||||
2018 |
2017 |
||||||
Revenue: |
|||||||
Life premium |
$ |
598 |
$ |
576 |
|||
Health premium |
252 |
245 |
|||||
Other premium |
— |
— |
|||||
Total premium |
850 |
821 |
|||||
Net investment income |
218 |
208 |
|||||
Realized investment gains (losses) |
2 |
(6) |
|||||
Other income |
— |
— |
|||||
Total revenue |
1,070 |
1,024 |
|||||
Benefits and expenses: |
|||||||
Life policyholder benefits |
401 |
391 |
|||||
Health policyholder benefits |
161 |
158 |
|||||
Other policyholder benefits |
9 |
9 |
|||||
Total policyholder benefits |
570 |
558 |
|||||
Amortization of deferred acquisition costs |
130 |
126 |
|||||
Commissions, premium taxes, and non-deferred acquisition costs |
70 |
65 |
|||||
Other operating expense |
67 |
62 |
|||||
Interest expense |
22 |
21 |
|||||
Total benefits and expenses |
858 |
832 |
|||||
Income before income taxes |
213 |
192 |
|||||
Income taxes |
(39) |
(55) |
|||||
Income from continuing operations |
174 |
137 |
|||||
Discontinued operations: |
|||||||
Income (loss) from discontinued operations, net of tax |
— |
(4) |
|||||
Net income |
$ |
174 |
$ |
134 |
|||
Basic net income (loss) per common share: |
|||||||
Continuing operations |
$ |
1.52 |
$ |
1.16 |
|||
Discontinued operations |
— |
(0.03) |
|||||
Total basic net income per common share |
$ |
1.52 |
$ |
1.13 |
|||
Diluted net income (loss) per common share: |
|||||||
Continuing operations |
$ |
1.49 |
$ |
1.14 |
|||
Discontinued operations |
— |
(0.03) |
|||||
Total diluted net income per common share |
$ |
1.49 |
$ |
1.11 |
|||
Dividends declared per common share |
$ |
0.16 |
$ |
0.15 |
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