Torchmark Corporation (
Q3 2010 Earnings Conference Call
October 28, 2010 11 AM ET
Mark McAndrew – Chairman and CEO
Gary Coleman – EVP and CFO
Jimmy Bhullar – JPMorgan
Paul Sarran – Macquarie
Steven Schwartz – Raymond James and Associates
Jeff Schuman – KBW
Edward Spehar – Banc of America
Eric Berg – Barclays Capital
Bob Glasspiegel – Langen McAlenney
Randy Binner – FBR Capital Markets
Previous Statements by TMK
» Torchmark Corporation Q2 2010 Earnings Call Transcript
» Torchmark Corp. Q1 2010 Earnings Call Transcript
» Torchmark Corp. Q4 2009 Earnings Call Transcript
» Torchmark Corp. Q3 2009 Earnings Call Transcript
Good day, everyone, and welcome to the Torchmark Corporation third quarter 2010 earnings release conference call. Please note that this call is being recorded and is also being simultaneously webcast.
At this time, I would like to turn the call over to the Chairman and Chief Executive Officer, Mr. Mark McAndrew. Please go ahead, sir.
Thank you. Good morning, everyone. Joining me this morning is Gary Coleman, our Chief Financial Officer; Larry Hutchison, our General Counsel; and Mike Majors, Vice President of Investor Relations.
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 2009 10-K and any subsequent Forms 10-Q on file with the SEC.
Net operating income for the third quarter was a $132 million or $1.63per share, a per share increase of 10% from the year ago. Net income was a $115 million or $1.41 per share, a 16% increase.
Net income for the quarter was reduced by $31 million as a result of a GAAP loss on our pending sale of the United Investors. Excluding FAS 115, our return on equity was 13.7% and our book value per share was $47.92, a 12% increase from the year ago. On a GAAP reported basis with fixed maturities carried at market value, book value was $52.77 per share.
In our life insurance operations, premium revenue excluding United Investors grew 5% to $417 million and life underwriting margins increased 8% to $115 million. Life net sales were $79 million, down 7% from a year ago, our first down quarter in two quarters.
Life first year collected premiums however were up 8% to $61 million, significantly better than our 3% growth in year-to-date sales and reflected of improving persistency.
At American Income, life premiums were up 11% to $142 million and life underwriting margin was up 9% to $47 million. Life net sales increased 5% to $34 million. The producing agent count was 4,065, up 3% from a year ago, but down 3% from last quarter.
The renewed growth in our producing agents at American Income is taking longer than we previously anticipated. In addition to changes in our management incentive compensation, we are working on growing our middle management ranks as well as improvements in our sales lead volume inflow. We expect it will take another two to three months to see the impact of these efforts.
We are also in the fourth quarter beginning to implement a centralized recruiting call center for both American Income and Liberty National, which we believe will significantly increase our recruiting activity at both companies.
In our Direct Response operation at Globe Life, life premiums were up 6% to $142 million, and life underwriting margin grew 8% to $36 million. Life net sales declined 3% to $32 million.
The sales in Direct Response were again less than anticipated as response rates in our insert media segment continued to fall during the summer months. For the June to August time period, the response rates were 14% to 17% less than a year ago. For the last 60 days however, we have seen some improvement with the response rate lagging only 3% from last year.
Due to other positive developments in our testing and modeling, we expect to see mid-single digit growth in life sales in Direct Response for 2011, despite these lower response rates and our insert media.
Life sales at Liberty National declined 2% to $73 million and life underwriting margin was up 10% to $16 million. Net life sales for the combined Liberty National United American agency declined 19% to $11.4 million. Although, first-year collected life premiums were flat at $8.6 million, again reflecting improved persistency.
We are beginning to see an upturn in our recruiting activity at Liberty National as a result of our implementation of the recruiting call center which I previously mentioned. For 2011, we currently anticipate 10% to 15% growth in net life sales at Liberty National.
On the health side, premium revenue, excluding Part D, declined 5% to $189 million, while health underwriting margin grew 2% to $37 million. Health net sales decreased 29% from the year ago to $13 million, but first year health collected premiums increased 11% to $20 million.
While official numbers are not yet available, the contact person at CMS has resonated that roughly 900,000 Medicare Advantage participants will be disenrolled at the end of this year and which would be a 50% over last year. We believe we are in significantly better positioned than we were a year ago to capture a share in these disenrollees.
Premium revenue for Medicare Part D was $53 million, a 10% increase, while the underwriting margin was $6 million, down 4%. Part D sales grew 128% to $7 million for the quarter and first year collected premiums were up 83% to $13 million.
Our administrative expenses were $38.4 million for the quarter, up 5% from the year ago. This increase is primarily the result of continued high employee healthcare costs.