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Torchmark Corporation (TMK)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET


Mark McAndrew - Executive Chairman of the Board

Gary Coleman - Co-Chief Executive Officer

Larry Hutchison - Co-Chief Executive Officer

Frank Svoboda - Chief Financial Officer


Vincent Lu - Morningstar

Jeff Schuman - KBW

Chris Giovanni - Goldman Sachs

Sarah DeWitt - Barclays

Randy Binner - FBR

Paul Sarran - Evercore Partners

Mark Hughes - SunTrust

Jimmy Bhullar - JPMorgan

John Nadel - Sterne Agee

Steven Schwartz - Raymond James & Associates

Ed Forun - Nomura



Good day and welcome to Torchmark Corporation's second quarter 2012 earnings release conference call. Today's call is being recorded.

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For opening remarks and introductions, I would like to turn the call over to Mike Majors, Vice President of Investor Relations of Torchmark Corporation. Please go ahead.

Mike Majors

Thank you. Good morning, everyone. Joining me today are Gary Coleman, and Larry Hutchison, our Co-CEOs. Mark McAndrew, our Executive Chairman. Frank Svoboda, our Chief Financial Officer, and Brian Mitchell, our General Counsel.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our 2011 10-K and any subsequent Forms 10-Q on file with the SEC.

I'll now turn the call over to Gary Coleman.

Gary Coleman

Thanks, Mike. Good morning, everyone. Net operating income for the second quarter was $127 million, or $1.30 per share, a per share increase of 19% from a year ago. Net income for the quarter was $129 million or $1.32 per share, a 4% increase on a per share basis.

With fixed maturities at amortized costs, our return on equity was 15.8%, and our book value was $33.26, a 10% increase from a year ago. On a GAAP reported basis with fixed maturities at market value, book value per share grew 29% to $41.38.

In our life insurance operations, premium revenue grew 4% to $451 million, and life underwriting margins increased 7% to $124 million. Net life sales increased 4% to $89 million. So far in July, our sales were ahead of expectations, and our guidance for 2012 remains unchanged.

On the Health side, premium revenue, excluding Part D declined 5% to $177 million, and health underwriting margins declined 2% to $40 million. Health sales were $13 million, the same as the year ago quarter.

I will now turn the call over to Larry Hutchison for his comments on the insurance operations.

Larry Hutchison

Thank you, Gary. At American Income, life premiums were up 9% to $164 million, and life underwriting margin was also up 12% to $54 million. Net life sales increased 10% for the quarter to $40 million. The producing agent count at the end of the second quarter was 5,318, up 23% from a year ago and up 4% during the quarter.

We are pleased with the continued progress at American Income, and we are excited about the company's future prospects. We are seeing growth in a number of newly hired agents who achieve our top bonus level, which is our best indicator of the agent retention. The first top bonus owners were up 60% in the second quarter. Our middle management ranks also increased by 21% in the second quarter. We expect sales growth for remainder of the year to range from 12% to 15%.

Our Direct Response operation, Global Life, life premiums were up 5% to $58 million and life underwriting margin declined 1% to $35 million. The decline in margin was due to unusual claim fluctuations and we expect that the loss ratios will return to previous levels for the remainder of the year. Net life sales were up 4% to $38 million. We are also pleased with the results in Direct Response, despite a difficult economy, we have been able to grow our sales.

We would also remind everyone of the change we initiated in our Direct Response underwriting in mid-2011. On improving our margins resulted in a reduction of our net sales due to more applications been rejected for health reasons, set sales growth through the remainder of the year to be around mid-single digit range.

Liberty National segment declined 2% to $71 million. Our life underwriting was up 21% to $18 million. Net life sales declined 18% to $8 million, while net health sales declined 12% to $4 million. However, health sales increased 9% in the second quarter, compared to the first quarter.

The producing agent count at Liberty National ended the quarter at 1,355, down 24% from a year ago, but up 6% for the quarter. We are very pleased with the progress we have made in turning around our declines and producing agents and sales.

We are optimistic that agent growth will continue going forward, which will result in improved sales of Liberty National for the balance of the year. Premium revenue from Part D grew 60% to $78 million and the underwriting margin increased 47% to $8 million. Part D sales for the quarter jumped 915% to $22 million due to the increase in low income subsidized enrollees for 2012.

I will now turn the call back over to Gary.

Gary Coleman

To complete, insurance operations administrative expenses were $40 million for the quarter, 1% less than a year ago quarter and in line with our expectations.

Now, I'd like to spend a few minutes discussing our investment operations. On our website are three schedules that provide summary information regarding our portfolio as of June 30, 2012. As indicated on the schedule, invested assets were $11.6 million, including $11.1 billion of fixed maturities at amortized cost.

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