Torchmark Corp.(TMK) reported fourth-quarter net operating income of $1.68 per share, which compared favorably with $1.47 in the year ago quarter aided by a higher underwriting income, coupled with increased investment income. Lower share count compared with last year, due to share repurchases, also buoyed the bottomline.
Total insurance premium of Torchmark rose 1.0% year over year to $655.2 million in the reported quarter, owing to higher premium from Life insurance and Medicare Part-D. The result was offset by a decline in Health insurance-excluding Part-D.
Net investment income hiked 10% year over year to $175.4 million due to higher invested assets, partially offset by lower yields on new investments. Excess investment income, which is the measure of the segment’s profitability, increased 17% to $76.0 million.
Net operating income for FY10 dropped 7.4% year over year to $6.41 per share. It fell in line with the higher range of management’s earlier expectation of $6.38–$6.42.
Segment Update
Premium revenue at Torchmark’s Life insurance segment in the quarter was $415 million, up 4% on a year-over-year basis. 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 5% to $114.9 million.
Health Insurance premium revenue declined 6% year over year to $188.3 million. Underwriting margin witnessed a single digit increase of 3% to $35.4 million.
Health-Medicare Part D premium revenue in the quarter was $51.2 million, a 15% year-over-year increase, resulting from solid performance of Direct Response and the UA Agencies. Underwriting margin improved 48% to $8.5 million.
Annuity premium revenue doubled to $0.2 million from $0.1 million in the prior year quarter.
Book value per share as of December 31, 2010 was $49.03, up 10.8% from $44.22 as of December 31, 2009.
During the quarter, Torchmark spent $62.3 million to buy back 1.1 million of common stock at an average price of $58.49.
Full-Year 2010 Guidance
Management provided 2011 net operating income expectation range of $6.75–$7.10 per share. Measured from the midpoint of the range, the guidance provided is up 8% compared with this year’s per share operating income.
During the quarter, Torchmark concluded the sale of its unit United Investors Life Insurance Co. to Protective Life Insurance Company. The sale will bring $305 million to the acquiring company through assets distribution. Torchmark considered this spin off as it is no longer involved in the lines of business offered by the company. Consequently, the funds released from this strategic sell-off will be pumped into its main line of operations (life and health insurance business), thereby enhancing its core efficiency.
Torchmark carries a Zacks Rank #3, which translates into a Hold recommendation over the short term (1-3 months). Also, over the longer term, we would advise the investors to maintain a Neutral position on the shares.
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