Torchmark Corporation Reports Second Quarter 2019 Results



July 24, 2019

McKinney, TX, July 24, 2019—Torchmark Corporation (NYSE: TMK) reported today that for the quarter ended June 30, 2019, net income was $1.67 per diluted common share, compared with $1.59 per diluted common share for the year-ago quarter. Net operating income for the quarter was $1.67 per diluted common share, compared with $1.51 per diluted common share for the year-ago quarter.

Torchmark also announced today that its corporate name will be changed to Globe Life Inc. effective August 8, 2019. The NYSE ticker will be changed to GL on August 9, 2019. The name change is part of a brand alignment strategy which will enhance the Company's ability to build name recognition with potential customers and agent recruits through use of a single brand. The underwriting companies owned by the Parent Company will continue to exist as legal entities, but over a period of time will go to market under the Globe Life name to leverage branding initiatives implemented at Globe Life And Accident Insurance Company in recent years.

HIGHLIGHTS:

  • Net income as an ROE was 12.3%. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 14.6%.
  • Life underwriting margin at American Income Exclusive Agency and Globe Life Direct Response both increased over the year-ago quarter by 9%.
  • Health underwriting margin at Family Heritage Exclusive Agency increased over the year-ago quarter by 14%.
  • Life premiums increased over the year-ago quarter by 7% at American Income Exclusive Agency and health premiums increased over the year-ago quarter by 8% at Family Heritage Exclusive Agency.
  • Net health sales increased over the year-ago quarter by 14%.
  • 979,215 shares of common stock were repurchased during the quarter.

 

RESULTS OF OPERATIONS

Net operating income, a non-GAAP(1) financial measure, has been used consistently by Torchmark’s management for many years 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 significant and unusual items included in net income. Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company’s business. Net income is the most directly comparable GAAP measure.

The following table represents Torchmark's operating summary for the three months ended June 30, 2019 and 2018:

Operating Summary
  Per Share  
  Three Months Ended   Three Months Ended  
  June 30,   June 30,  
 
  2019     2018     % Chg.     2019     2018     % Chg.
Insurance underwriting income(2)   $ 1.60   $ 1.46   10   $ 178,556   $ 168,446   6
Excess investment income(2)   0.58   0.52   12   64,678   59,949   8
Parent company expense   (0.03)   (0.02)       (2,872)   (2,847)    
Income tax   (0.42)   (0.38)   11   (47,114)   (44,251)   6
Stock compensation benefit (expense), net of tax   (0.06)   (0.05)       (6,366)   (6,237)    
Net operating income   $ 1.67   $ 1.51   11   $ 186,882   $ 175,060   7
 
Reconciling items, net of tax:  
  Realized Gain (Loss)—Investments   0.04   0.08       4,072   9,333    
  Part D adjustments—discontinued operations   -   -       (43)   32    
  Legal proceedings   (0.04)   -       (4,345)   -    
Net income(3)   $ 1.67   $ 1.59       $ 186,566   $ 184,425    
 
Weighted average diluted shares outstanding (000)   111,586   115,651  
 
(1) GAAP is defined as accounting principles generally accepted in the United States of America.
(2) Definitions included within this document.
(3) 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.
 

 

MANAGEMENT VS. GAAP MEASURES

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 associated with 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.

  June 30,   June 30,
  2019   2018
Net income as a ROE(1)   12.3 %   12.2 %
Net operating income as a ROE (excluding net unrealized gains on fixed maturities)   14.6 %   14.6 %
 
Shareholders' equity   $ 6,700,398   $ 5,571,609
Impact of adjustment to exclude net unrealized gains on fixed maturities   (1,533,945)   (731,707)
Shareholders' equity, excluding net unrealized gains on fixed maturities   $ 5,166,453   $ 4,839,902
 
Book value per share     $ 60.22     $ 48.44
Impact of adjustment to exclude net unrealized gains on fixed maturities   (13.79)   (6.36)
Book value per share, excluding net unrealized gains on fixed maturities   $ 46.43   $ 42.08
 
(1) Calculated using average shareholders' equity for the measurement period.
 

 

INSURANCE OPERATIONS—comparing Q2 2019 with Q2 2018:

Life insurance accounted for 74% of the Company’s insurance underwriting margin for the quarter and 70% of total premium revenue.

Health insurance accounted for 25% of Torchmark’s insurance underwriting margin for the quarter and 30% of total premium revenue.

Net sales of life insurance increased 1%, while net health sales increased 14%.

The following table summarizes Torchmark's premium revenue by product type for the three months ended June 30, 2019 and 2018:

INSURANCE PREMIUM REVENUE

    Quarter Ended    
    June 30,     June 30,  
    2019     2018     % Chg.
Life insurance   $ 631,201   $ 602,534   5
Health insurance   266,282   251,440   6
Annuity   1   5    
Total   $ 897,484   $ 853,979   5
 

 

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. 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 Results of Operations section above.

The following table summarizes Torchmark's insurance underwriting income by segment for the three months ended June 30, 2019 and 2018:

Insurance Underwriting Income
  Quarter Ended   Quarter Ended  
    June 30,   % of   June 30,   % of   %
    2019     Premium     2018     Premium     Chg.
Insurance underwriting margins:  
   Life     $ 175,050   28   $ 161,177   27   9
   Health   60,159   23   59,538   24   1
   Annuity   2,365       2,566  
  237,574       223,281   6
Other income   398   441  
Administrative expenses   (59,416)   (55,276)   7
Insurance underwriting income   $ 178,556   $ 168,446   6
   Per share   $ 1.60   $ 1.46   10
 

Administrative Expenses were $59 million, up 7% from the year-ago quarter. The ratio of administrative expenses to premium was in line with expectations at 6.6%, compared with 6.5% for the year-ago quarter.

 

LIFE 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."

Life Underwriting Margin
  Quarter Ended
  June 30,
    2019     2018        
  % of   % of     %
    Amount     Premium     Amount     Premium     Chg.
American Income Exclusive Agency     $ 97,006   34   $ 88,616   33   9
Globe Life Direct Response   39,042   18   35,735   17   9
Liberty National Exclusive Agency   18,136   25   17,045   25   6
Other Agencies   20,866   39   19,781   36   5
   Total   175,050   28   161,177   27   9
 

Life Premium
    Quarter Ended    
    June 30,    
        2019     2018     % Chg.
American Income Exclusive Agency   $ 288,334   $ 269,658   7
Globe Life Direct Response   217,278   209,021   4
Liberty National Exclusive Agency   71,478   69,456   3
Other Agencies   54,111   54,399   (1)
   Total   $ 631,201   $ 602,534   5
 

Life Net Sales(1)
    Quarter Ended    
    June 30,    
        2019     2018     % Chg.
American Income Exclusive Agency   $ 61,048   $ 59,670   2
Globe Life Direct Response   34,456   35,040   (2)
Liberty National Exclusive Agency   13,428   12,869   4
Other Agencies   3,207   3,678   (13)
   Total   $ 112,139   $ 111,257   1
 

(1) Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty 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. We believe that net sales is a better indicator of the rate of premium growth than annualized premium issued.

 

HEALTH INSURANCE RESULTS BY DISTRIBUTION CHANNEL

Health Underwriting Margin
  Quarter Ended
  June 30,
    2019     2018        
  % of   % of     %
    Amount     Premium     Amount     Premium     Chg.
United American Independent Agency     $ 14,390   14   $ 15,578   17   (8)
Family Heritage Exclusive Agency   17,901   25   15,771   23   14
Liberty National Exclusive Agency   11,837   25   12,371   26   (4)
American Income Exclusive Agency   13,040   53   12,682   54   3
Direct Response   2,991   16   3,136   17   (5)
   Total   60,159   23   59,538   24   1
 

Health Premium
    Quarter Ended    
    June 30,    
        2019     2018     % Chg.
United American Independent Agency   $ 102,254   $ 93,555   9
Family Heritage Exclusive Agency   73,037   67,635   8
Liberty National Exclusive Agency   47,292   47,879   (1)
American Income Exclusive Agency   24,450   23,372   5
Direct Response   19,249   18,999   1
   Total   $ 266,282   $ 251,440   6
 

Health Net Sales(1)
    Quarter Ended    
    June 30,    
        2019     2018     % Chg.
United American Independent Agency   $ 16,587   $ 13,410   24
Family Heritage Exclusive Agency   16,898   15,537   9
Liberty National Exclusive Agency   5,864   5,277   11
American Income Exclusive Agency   4,299   3,700   16
Other Agencies   582   986   (41)
   Total   $ 44,230   $ 38,910   14
 

(1) Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty 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. We believe that net sales is a better indicator of the rate of premium growth than annualized premium issued.

 

PRODUCING EXCLUSIVE AGENT COUNT RESULTS BY DISTRIBUTION CHANNEL

  Quarterly Average     End of Quarter
  Producing Agent Count(1)     Agent Count
  June 30,     March 31,     June 30,     March 31,    
  2019     2018     % Chg.     2019     % Chg.     2019     2018     % Chg.     2019     % Chg.    
American Income Exclusive Agency     7,364     7,064     4     6,865     7     7,477     7,143     5     7,233     3    
Liberty National Exclusive Agency     2,290     2,185     5     2,179     5     2,390     2,198     9     2,297     4    
Family Heritage Exclusive Agency     1,081     1,052     3     1,002     8     1,089     1,090     -     1,020     7    

(1) The quarterly average producing agent count is based on the actual count at the end of each week during the period.

 

INVESTMENTS

EXCESS INVESTMENT INCOME

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.

The following table summarizes Torchmark's investment income, excess investment income, and excess investment income per diluted common share.

Excess Investment Income
Quarter Ended
June 30,
  2019     2018     % Chg.
Net investment income     $ 227,425   $ 218,568   4
Required interest:  
   Interest on net policy liabilities(1)   (141,315)   (136,208)   4
   Interest on debt   (21,432)   (22,411)   (4)
   Total required interest   (162,747)   (158,619)   3
Excess investment income   $ 64,678   $ 59,949   8
   Per share   $ 0.58   $ 0.52   12
(1) Interest on net policy liabilities is a component of total policyholder benefits, a GAAP measure.

Net investment income increased 4%, while average invested assets increased 5%. Required interest on net policy liabilities increased 4%, while average net policy liabilities increased 3%. The weighted average discount rate for the net policy liabilities was 5.6% and in line with the year-ago quarter.

 

The composition of the investment portfolio at book value at June 30, 2019 is as follows:

Investment Portfolio
  As of
  June 30, 2019
  Amount   % of Total
Fixed maturities at fair value(1)     $ 17,934,274     95 %
Policy loans   560,469   3
Other long-term investments2   289,147   2
Short-term investments   74,116   -
Total   $ 18,858,006   100 %

(1) Fixed maturities at amortized cost as of June 30, 2019 were $16.0 billion.

(2) Includes $165 million of investments accounted for under the fair value option which have an amortized cost of $157 million as of June 30, 2019.

 

Fixed maturities at amortized cost by asset class as of June 30, 2019 are as follows:

Fixed Maturity Portfolio by Sector
  As of
  June 30, 2019
  Below  
  Investment   Investment  
  Grade   Grade   Total
Corporate bonds     $ 13,430,284     $ 573,556     $ 14,003,840
Municipal   1,364,901   444   1,365,345
Government-sponsored enterprises   330,339   -   330,339
Government and agencies   81,755   -   81,755
Collateralized debt obligations   -   57,172   57,172
Other asset-backed securities   131,421   14,400   145,821
Total   $ 15,338,700   $ 645,572   $ 15,984,272

 

The market value of Torchmark’s fixed maturity portfolio was $17.9 billion compared with amortized cost of $16.0 billion. Net unrealized gains were comprised of gross unrealized gains of $2.1 billion and gross unrealized losses of $109 million.

Torchmark is not a party to any derivatives contracts, including credit default swaps, and does not participate in securities lending.

At amortized cost, 96% of fixed maturities (97% at market value) were rated “investment grade.” The fixed maturity portfolio earned an annual effective yield of 5.50% during the second quarter of 2019, compared with 5.57% in the year-ago quarter.

Comparable information for acquisitions of fixed maturity investments is as follows:

Fixed Maturity Acquisitions
  Quarter Ended
  June 30,
  2019   2018
Amount     $ 252,742     $ 181,688
Average annual effective yield     5.0%     5.2%
Average rating   A-   BBB+
Average life (in years) to:  
   Next call   23.7   16.0
   Maturity   29.2   18.4

 

SHARE REPURCHASE:

During the quarter, the Company repurchased 979,215 shares of Torchmark Corporation common stock at a total cost of $85 million for an average share price of $87.18.

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 operations.

EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2019:

Torchmark projects that net operating income per share will be in the range of $6.67 to $6.77 for the year ending December 31, 2019.

NON-GAAP MEASURES:

In this news release, Torchmark includes non-GAAP measures to enhance investors' understanding of management's view of the business. The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing broader perspective. Torchmark's definitions of non-GAAP measures may differ from other companies' definitions. More detailed financial information including various GAAP and non-GAAP measurements are located at www.torchmarkcorp.com on the Investors page under “Financial Reports."

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, 2018, 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 Investors 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 second quarter 2019 earnings release conference call with financial analysts at 11:00 am (Eastern) tomorrow, July 25, 2019. Access to the live webcast and replay will be available at www.torchmarkcorp.com on the Investors/Calls and Meetings 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 Investors page menu of the Torchmark website at “Financial Reports.”

 

For additional information contact: Mike Majors,
  Executive Vice President
  Torchmark Corporation
  3700 South Stonebridge Dr.
  P. O. Box 8080
  McKinney, Texas 75070-8080
  Phone: 972/569-3627
  tmkir@torchmarkcorp.com
  Website: www.torchmarkcorp.com

 

APPENDIX

TORCHMARK CORPORATION
GAAP CONSOLIDATED STATEMENTS OF OPERATIONS

 

  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2019   2018   2019   2018
Revenue:  
Life premium     $ 631,201     $ 602,534     $ 1,255,490     $ 1,200,837
Health premium   266,282   251,440   532,966   503,238
Other premium   1   5   1   10
   Total premium   897,484   853,979   1,788,457   1,704,085
Net investment income   227,425   218,568   454,098   436,652
Realized gains (losses)   5,154   11,813   6,483   13,764
Other income   398   416   639   711
   Total revenue   1,130,461   1,084,776   2,249,677   2,155,212
 
Benefits and expenses:  
Life policyholder benefits   410,961   399,334   820,653   799,915
Health policyholder benefits   170,511   160,461   340,528   321,080
Other policyholder benefits   7,890   8,582   15,938   17,271
   Total policyholder benefits   589,362   568,377   1,177,119   1,138,266
Amortization of deferred acquisition costs   138,165   129,077   273,987   258,697
Commissions, premium taxes, and non-deferred acquisition costs   73,698   69,427   147,163   139,066
Other operating expense   79,044   68,620   151,837   135,444
Interest expense   21,432   22,411   42,710   44,033
   Total benefits and expenses   901,701   857,912   1,792,816   1,715,506
 
Income before income taxes   228,760   226,864   456,861   439,706
Income tax benefit (expense)   (42,151)   (42,471)   (84,858)   (81,602)
Income from continuing operations   186,609   184,393   372,003   358,104
 
Discontinued operations:  
   Income (loss) from discontinued operations, net of tax   (43)   32   (92)   (79)
      Net income   $ 186,566   $ 184,425   $ 371,911   $ 358,025
 
      Total basic net income per common share   $ 1.70   $ 1.63   $ 3.38   $ 3.15
 
      Total diluted net income per common share   $ 1.67   $ 1.59   $ 3.32   $ 3.08