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Torchmark's High Administrative Expenses Remains a Concern

On Oct 6, 2015, we issued an updated research report on Torchmark CorporationTMK .

Torchmark Corporation has been witnessing a rise in administrative expenses since 2014, which is expected to continue through 2015. The increase in expenses stemmed from higher pension costs due to the mandatory implementation of a new mortality table and further investments in IT systems. This is likely to weigh on the company's bottom line, going forward.

Torchmark expects administrative expenses to increase approximately 6-7% and be approximately 5.8% of its premium in 2015.

Torchmark's third-largest distribution system - Liberty National - has been underperforming historically due to lower life premiums. The life underwriting margin of this segment also declined in the last reported quarter. The underperformance of this sales channel was primarily due to its cost structure, which was characterized by high and fixed acquisition costs.

Interestingly, Liberty National has been moving away from its high fixed cost structure since 2003. The insurer has been changing the arrangement of compensation for sales personnel to achieve its goal. However, growth remains challenged and it is unlikely this distribution channel to contribute meaningfully to the company's earnings in the near term.

Additionally, the company has been witnessing a decline in its excess investment income due to Medicare Part D operations. Management anticipates excess investment income to decrease about 1-2%. At the midpoint of its 2015 guidance, it speculated a further drag of approximately $8 million on excess investment income from Part D.

However, Torchmark's niche market focus, steady capital deployment and strong operating fundamentals should drive long-term growth. The company estimates life and health sales growth in distribution channels.

Zacks Rank and Key Picks from the Industry

Torchmark presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks from the life insurance industry are Sun Life Financial Inc. SLF , Health Insurance Innovations, Inc. HIIQ and Primerica, Inc. PRI . While Sun Life Financial sports a Zacks Rank #1 (Strong Buy), both Health Insurance Innovations and Primerica hold a Zacks Rank #2 (Buy).

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TORCHMARK CORP (TMK): Free Stock Analysis Report

HEALTH INS INN (HIIQ): Free Stock Analysis Report

PRIMERICA INC (PRI): Free Stock Analysis Report

SUN LIFE FINL (SLF): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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