Torchmark Corp. (TMK) reported first-quarter 2011 operating income of $1.62 per share, lagging the Zacks Consensus Estimate by 2 cents. However, earnings grew 7% from $1.52 earned in the year ago quarter. Operating income improved 6.8% year over year to $128.8 million in the quarter.
The year-over-year improvement was driven by a higher underwriting income, coupled with increased investment income. Lower share count compared with last year, due to share repurchases, also buoyed the bottom-line.
Adjusting for realized losses on investments of 19 cents, loss on disposal of discontinued operations of 1 cent, Medicare Part D adjustment of 3 cents, State administrative settlement of 5 cents and loss on sale of equipment of 1 cent, Torchmark reported a net income of $1.33 per share, declining 8.9% year over year. Net income declined 13% to $105.5 million.
Operational Update
Total insurance premium of Torchmark inched up to $672 million in the quarter under review, owing to higher premium from Life insurance.
Net investment income increased 5% year over year to $175.3 million due to higher invested assets. Excess investment income, which is the measure of the segment’s profitability, increased 3% to $74.2 million.
Underwriting income increased 7.5% year over year to $124.3 million in the first quarter, primarily due to higher margins at Life and Health.
Segment Update
Premium revenue at Torchmark’s Life insurance segment in the quarter was $430.7 million, up 4% on a year-over-year basis. This is the only segment to have grown in the quarter. Higher premiums written by distribution channels, such as American Income Agency and Direct Response, were partly offset by a slight decrease in premium written by LNL Agency, but accounted for the overall improvement in the premium generated by the segment. Insurance underwriting margin improved 7% to $119.1 million.
Health Insurance premium revenue declined 5% year over year to $191.8 million. Underwriting margin witnessed a single digit increase of 4% to $36.9 million.
Health-Medicare Part D premium revenue in the quarter was $49.5 million, a 5% year-over-year decrease. Underwriting margin decreased 2% to $5.0 million.
Annuity premium revenue plummeted to $0.1 million from $0.2 million in the prior year quarter. Underwriting margin decreased 20% to $0.6 million.
Share Repurchases
During the quarter, Torchmark spent $186.8 million to buy back 2.0 million common shares at an average price of $63.45.
Looking Ahead
Torchmark has guided 2011 net operating income in the range of $6.75 to $7.10 per share.
We maintain our Neutral recommendation on Torchmark. The quantitative Zacks #3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
Based in McKinney, Texas, Torchmark Corp. through its subsidiaries provides annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements and long-term healthcare policies. It competes with Prudential Financial Inc. (PRU) and Unum Group (UNM).
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
TORCHMARK CORP (TMK): Free Stock Analysis Report
UNUM GROUP (UNM): Free Stock Analysis Report
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