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Torchmark Corp. Q1 2010 Earnings Call Transcript

Torchmark Corp. Q1 2010 Earnings Call Transcript

Torchmark Corp. (TMK)

Q1 2010 Earnings Call

April 28, 2010 12:00 pm ET


Mark McAndrew - Chairman and CEO

Gary Coleman - EVP and CFO


Randy Binner - FBR Capital Markets

Jimmy Bhullar - JPMorgan

Jeff Schuman - KBW

Ed Spehar - Banc of America

Paul Sarran - Macquarie

Bob Glasspiegel - Langen McAlenney

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Welcome to the Torchmark Corporation First Quarter 2010 Earnings Release Conference Call. Please note that this call is being recorded as also being simultaneously webcast. At this time, I'll turn the call over to the Chairman and Chief Executive Officer, Mr. Mark McAndrew. Please go ahead.

Mark McAndrew

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 first quarter was $127 million or a $1.52 per share, a per share increase of 2% from a year ago. Net income was $122 million or $1.46 per share versus $0.91 a year ago. Excluding FAS115, our return on equity was 13.6% and our book value per share was $45.37, a 12% increase from a year ago. On a GAPP reported basis with fixed maturity investments carried at market value book value was $44.13 per share.

In our life insurance operations, premium revenue grew 4% to $430 million and life underwriting margins increased 5% to $116 million, life net sales were $85 million up 9% from a year ago. At American Income, life premiums were up 10% to $135 million and life underwriting margin was up 9% to $44 million. Net life sales at American increased 25% to $34 million producing agents in at American Income grew to 4,201 up 20% from a year ago.

It was another outstanding quarter at American Income. During the quarter, we began implementation of a need based sales presentation via laptop computer. Initial results have been very encouraging. We will continue to expand introduction of this new sales process over the next three quarters, and we project sales growth at American Income to be in the 15% to 20% range for the full year.

In our Direct Response operation at Globe Life, life premiums were up 6% to a $144 million and like underwriting margins grew 15% of $38 million, net life sales were better than anticipated up 8% to $37 million. As a percentage of life premium, like underwriting margin was 26% from the quarter, up from 24% a year ago. We expect this favorable trend to continue for the balance of 2010.

We also expect to see improved sales growth in the 10% to 15% for the next three quarters as a result of successful test conducted in the second half of last year. Life premiums at Liberty National declined 1% to $74 million, and life underwriting margin was down 17% to $14 million. Net life sales for the Liberty National [office] declined 29% to $9 million, and the producing agent count was down to 1,535, 12% less than year end. The agents count at Liberty [harvest] was basically flat since the end of January, and net sales have also stabilized, sales should improve over first quarter levels going forward although, we now expect a small decline for the full year 2010.

On the health side premium revenue excluding part D declined 10% to $203 million and health underwriting margin was down 13% to $35.5 million. Health net sales decreased 17% from a year ago to $17 million. Health care reform legislation will have an impact on some of our product portfolio. The effective products contributed $1.8 million of net sales in the first quarter and represented $109 million of enforced premiums at quarter end.

New sales of these products will be discontinued prior to September of this year, but we don’t believe there will be an impact on a rapidly declining enforced block before 2014 which would make the impact immaterial. Premium revenue for Medicare Part D was $52 million for the quarter, a 14% increase while underwriting margin was flat at $5 million.

Part D sales for the quarter grew 64% to $17 million. Underwriting margin from our annuity business was $140,000 during the first quarter versus a $4.1 million loss a year ago. Administrate expenses were $38 million, down 4% from a year ago. For the full year, we currently project administrative expenses to increase by 1%.

I will now turn the call over the Gary Coleman, our Chief Financial Officer for his comments.

Gary Coleman

Thanks Mark. I want to spend a few minutes discussing our investment portfolio and capital liquidity. First the investment portfolio. On our website are prescheduled to provide summary information regarding our portfolio as of March 31st, 2010. As indicated on the schedules invested assets are $11.4 billion including $10.6 billion of fixed maturities and advertise cost. Combined RMBS and mortgage loans are $36 million, and we no CMBS exposure. Now the fix maturities $9.7 billion our investment grade with an average rating of A minus.

Below investment grade bonds are $891 million, 8.4% of fixed maturities compared to $824 million at 12/31/09 and $1.3 billion a year ago. The $67 million increase from the fourth quarter is due primarily to downgrade the certain trust preferred securities. We expect that the percentage of below investment grade bonds at 8.4% is still high relative to our peers. However, due to our significant lower portfolio leverage the percentage of below investment grade bonds or equity excluding FAS115 is 24% which is like to lessen the peer average. Overall, the total portfolio is rated BBB plus same as a year ago.

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