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.
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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