Life and supplemental health insurer
) has announced the successful completion of privately-held
supplemental health insurer Family Heritage Life Insurance
Company of America. The acquisition, which was announced in
August, 2012, was completed on schedule.
The acquisition will be additive to Torchmark's earnings
immediately with 2012 earnings benefiting by 1 to 2 cents per
share. Earnings in the year 2013, however, will see greater
accretion of 13-17 cents per share. Moreover, the deal would
leave the free cash flow of the company unaffected.
For 2013, the integration of Family Heritage will cause 5%-6%
increase in administrative expenses at Torchmark.
Of the total value of the deal, which is $232 million, around
$200 million was funded from notes issued in the month of
September this year.
Family Heritage, based in Ohio and founded in 1989, has
demonstrated strong performance with substantial premium growth
over the years. In addition to this, the company has solid
Henceforth, Family Heritage will be run as a standalone
company. Torchmark will distribute Family Heritage's supplemental
health insurance products to middle-class families via the
latter's 1200 captive sales agents and 41 sales directors. The
acquisition is deemed as the best fit for Torchmark, since it was
aiming to grow in supplemental health insurance line of business,
with a return-of-premium feature, which provides higher
margin. Overall, in addition to its distribution team,
Torchmark will get Family Heritage's business, which has over
223,000 policies in force.
Late last month, Torchmark reported its third-quarter 2012 net
operating income of $1.29 per share, growing 10.3% year over
year. The earnings increase was due to higher premium revenue as
well as increased insurance underwriting income. Lower share
count compared with the year-ago period, owing to share
repurchases, also buoyed the bottom line.
Torchmark, which competes with
), currently retains a Zacks #3 Rank, which translates into a
short-term Hold rating. We are also maintaining our long-term
Neutral recommendation on its shares.
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