Life and health insurer, Torchmark Corp. (TMK) reported first-quarter 2012 net operating income of $1.27 per share, up 22% year over year. The increase can be attributed to higher insurance underwriting income coupled with increased investment income. Lower share count compared with the year-ago period, due to share repurchases, also buoyed the bottomline.
Total insurance premium increased 5.0% year over year to $706.7 million, led by higher premium from the Life Insurance and Medicare Part D business, partly offset by lower premium from the Health Insurance business.
Net investment income increased 2% year over year to $179.6 million on the back of higher invested assets. However, excess investment income, which is the measure of the segment’s profitability, went down 3% to $63.7 million.
Underwriting income increased 8.0% year over year to $134.5 million, backed by higher margins at Life and Medicare Part D, partially offset by a lower margin in Health business.
Administrative expenses were $40.6 million, up 7.7% from the year-ago quarter.
Segment Update
In Life Insurance operations, premium revenue grew 5% year over year to $451.9 million led by higher premiums written by distribution channels – American Income Agency up 17% and Direct Response up 9% – partly offset by a 22% decrease in premiums written by Liberty National Life Agency. Life underwriting margins increased 13% to $126.1 million. Life net sales increased 9% year over year to $88.1 million.
Health insurance premium revenue declined 6% year over year to $180.6 million, while underwriting margin was down 10% to $39.8 million. Net sales grew 5% to $15.1 million.
Premium revenue from Medicare part D increased 50% year over year to $74.1 million, while underwriting margin increased 54% to $7.9 million. Net sales were up 235% to $25.1 million. This huge growth in Part D business came on the back of the company’s new lower cost part D plan for 2012, which significantly increased the number of low-income auto-enrollees. The product also enabled the company to increase its individual sales.
Book value per share, a measure of net worth, was $32.70 up 9.0% year over year.Return on equity (ROE) was 15.8% for the quarter, compared with 13.9% in the year-ago quarter.
During the quarter, Torchmark repurchased 1.9 million shares at a total cost of $89.8 million.
Looking Ahead
The management reiterated its previously announced fiscal 2012 guidance, according to which earnings per share are expected to be in the $5.10 – $5.40 range.
Management Reshuffling
Along with the earnings release, the company also announced significant changes in its top brass. As per the announcement, Mark S. McAndrew will no longer serve as the Chief Executive Officer and will be replaced by Gary L. Coleman and Larry M.Hutchison, both of whom have been appointed as co-Chief Executive Officers. Mark S. McAndrew will, however, continue to act in his capacity as Chairman of the Board of Directors of Torchmark.
Our Take
Torchmark has been reporting favorable earnings over the past several quarters. Operating results, reflected by earnings per share, return on equity and book value per share, all showed significant increases.A closer look at the segment results indicate that both the Life Insurance segment and the Medicare Part D line of business performed well, offset by a less impressive show by the Health business.
On the balance sheet side, management has been able to maintain a sufficient risk-based capital ratio and adequate financial flexibility. Greater share repurchase activity is anticipated, which would support bottom-line earnings.
The recent management changes, effective June 1, 2012, are expected to create an experienced team, crucial for the success of an enterprise.
Based in Birmingham, Alabama, Torchmark closely competes with Prudential Financial Inc. (PRU), Unum Group (UNM) and other insurers.
