Torchmark Corporation (TMK)

Q2 2010 Earnings Call Transcript

July 29, 2010 12:00 pm ET


Mark McAndrew – Chairman and CEO

Gary Coleman – EVP and CFO


Bob Glasspiegel – Langen McAlenney

Randy Binner – FBR Capital Markets

Paul Sarran – Macquarie

Jimmy Bhullar – JPMorgan

Edward Spehar – Banc of America/Merrill Lynch

Jeff Schuman – KBW

Steven Schwartz – Raymond James and Associates

Eric Berg – Barclays Capital

John Nadel – Sterne Agee

Thomas Gallagher – Credit Suisse

Colin Devine – Citi



Good day, everyone, and welcome to the Torchmark Corporation second quarter 2010 earnings release conference call. Please note that this call is being recorded and also being simultaneously webcast.

At this time, I will turn the call over to the Chairman and Chief Executive Officer, Mr. Mark McAndrew. Please go ahead.

Mark McAndrew

Thank you. Good day, 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 second quarter was $131 million or $1.58 per share, a per share increase of 3% from a year ago. Net income was $126 million or $1.53 per share, an 11% increase.

Excluding FAS 115, our return on equity was 13.7% and our book value per share was $46.81, a 12% increase from a year ago. On a GAAP reported basis, with fixed maturities carried at market value, book value was $48.16 per share.

In our life insurance operations, premium revenue grew 5% to $434 million and life underwriting margins increased 8% to $120 million. Life net sales were $89 million, up 4% from a year ago.

At American Income, life premiums were up 12% to $140 million and life underwriting margin was up 11% to $46 million. Net life sales increased 11% in the quarter to $37 million. The producing agent count was 4,200, which was unchanged during the quarter, but up 10% from a year ago.

By most standards, American Income had another great quarter, although the producing agent count has remained flat, relatively flat for the first half of this year. While our new agent recruiting has increased 17% during that period, we have seen a retention of new agents slipped somewhat.

After analyzing this situation, we have identified a couple of possible causes for this change in new agent retention and have taken appropriate action. We expect to see renewed growth in our producing agents during the second half of this year, while continuing to project 15% to 20% sales growth for the full year of 2010.

In our Direct Response operation at Globe Life, life premiums were up 6% to $143 million. Life underwriting margin grew 12% to $37 million.

Net life sales increased 9% at Globe to $37 million. Life sales growth was less than expected for the quarter. The improvements we saw in the first quarter and our insert media response rate did not hold up and appeared to be the result of a reversal in consumer confidence.

If this trend continues, we expect to see sales growth in the mid single digits for the balance of this year. Life premiums at Liberty National declined 2% to $74 million and life underwriting margin was down 4% to $14 million.

Our net life sales of the combined Liberty National United American agency operations declined 21% to $12 million. First-year collected life premiums were flat at $9 million, reflecting the improved persistency of new sales.

Also, while life sales were down from a year ago, they increased 11% from the first quarter level. The producing agent count at Liberty National was 1,606, down 51% from a year ago, but up 5% from the level in the first quarter.

We believe we have turned the corner at Liberty National as reflected in our growth in new agents and life sales over the first quarter levels. We expect this trend to continue along with additional improvement and the persistency of the new business written.

On the health side, premium revenue, excluding Part D, declined 6% to $199 million and health underwriting margin was unchanged at $38 million.

Health net sales decreased 23% from a year ago to $15 million, while health first-year collected premiums were flat at $20 million.

In our Medicare Supplements business, premiums increased 1% to $116 million. Net sales were up 39% from a year ago to $7 million, while first-year collected premiums grew 94% to $11 million.

We are pleased with results in our health business. While the total sales and premiums continue to be impacted by the runoff of the limited-benefit plans at United American, this business is lower margin, poor persistency business.

The new health business we are writing today has significantly higher margins and much better persistency. We project our health underwriting margins to begin to grow by the end of this year.

Premium revenue for Medicare Part D was $53 million a 16% increase while underwriting margin was $5 million, up 7%. First-year collected premium for Part D grew 79% to $12 million.

We reported an underwriting loss of $1 million in our annuity business during the quarter versus a $5.2 million gain a year ago. This loss can be attributed to the decline in the equity markets during the second quarter.

Administrative expenses were $40 million for the quarter, the same as a year ago. Due to higher than expected employee health costs, we are now projecting administrative expenses to grow in a 2% to 3% range for the full year.

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