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News Release

Torchmark Reports $.85 First Quarter 2002 Operating EPS, a 9% Increase

April 18, 2002

Torchmark Corporation (NYSE: TMK) reported today that net operating income for the first quarter of 2002 was $.85 per share ($105 million), compared with $.78 per share ($98 million) for the first quarter of 2001 (excluding amortization of goodwill in the 2001 quarter), a 9% per share increase.

Net operating income per share for the 2001 quarter was previously reported as $.75 per share (including amortization of goodwill). Torchmark stopped amortizing goodwill on January 1, 2002 in accordance with Financial Accounting Standard 142.

Net income for the first quarter of 2002 was $.80 per share ($98 million) compared with $.76 per share ($96 million) for the year-ago quarter.

OPERATING HIGHLIGHTS - comparing first quarter 2002 with the first quarter of 2001:

  • American Income's life sales grew 32% to $19 million. American Income Life is Torchmark's fastest growing life distribution unit and it also enjoys the highest life underwriting margin (as a percent of premium).
  • Direct Response life premium revenue grew 12% and annualized life premium in force grew 5%. Sales of $29 million for the 2002 quarter were in line with expected results.
  • Medicare supplement health sales declined 41% to $31 million on comparison with the year-ago quarter that included sales to a greater number of Medicare HMO disenrollees. Sales have also declined due to competitive premium rate pressure.
  • Excess investment income increased 23% to $73 million, primarily due to the 45% decline in financing costs to $9 million.

 

The following chart displays the key per share components of Torchmark's net operating income:

 

  Per Share Net Operating Income
  Quarter Ended  
  March 31,  
  2002   2001   % Chg.
 
Insurance underwriting income   $.73   $.73   0
 
Excess investment income   .59   .47   26
 
Other   (.03)   (.03)   0
 
Income tax   (.43)   (.39)   10
 
Net Operating Income   $.85   $.78   9
 

 

INSURANCE OPERATIONS - comparing the first quarter of 2002 with the first quarter of 2001:

Premium Revenue

Total premium revenue for the quarter increased 4% to $571 million. Life and annuity premium revenue increased 5% to $309 million, and health premium revenue increased 4% to $263 million as detailed in the following chart:

 

  Premium Revenue
  (dollars in millions)
 
  Life and Annuity   Health   Total
  First Quarter   First Quarter   First Quarter
  March 31,   March 31,   March 31,
  2002   2001   % Chg.   2002   2001   % Chg.   2002   2001   % Chg.
 
Direct Response     $78.1     $70.0     12     $5.3     $4.5     17     $83.4     $74.5     12
 
LNL Exclusive Agency   75.3   74.3   1   39.9   39.1   2   115.2   113.4   2
 
American Income Agency   65.5   59.9   9   12.7   12.1   4   78.2   72.1   9
 
Military   35.8   32.0   12   -   -   -   35.8   32.0   12
 
United American Agencies  
  Branch Office Agency   4.8   4.9   (1)   82.2   77.6   6   87.0   82.5   5
  Independent Agency   12.3   12.6   (3)   122.5   119.5   3   134.8   132.1   2
 
Other Life   26.6   27.6   (3)   -   -   -   26.6   27.6   (3)
Annuity   10.3   12.7   (18)   -   -   -   10.3   12.7   (18)
 
Total   $308.7   $294.0   5   $262.5   $252.9   4   $571.2   $546.9   4
 

 

Insurance Underwriting Income

Insurance underwriting income declined 3% to $90 million. The life underwriting margin (before administrative expenses) was 24% of premium, a 1% decline from the year-ago quarter. Health underwriting margin was 17% of premium, also a 1% decline from the year-ago period.

Annuity underwriting income was $4 million, declining from $6 million in the year-ago quarter, primarily due to surrender activity that began in 2000. The majority of surrender requests were for Section 1035 transfers initiated by Waddell & Reed agents.

On March 19 an Alabama jury awarded $50 million compensatory damages to Torchmark's subsidiary United Investors against Waddell & Reed and subsidiaries. Waddell is a former distributor of United's variable annuities. The dispute arose regarding certain compensation on United's in-force block of variable annuities and alleged a scheme by Waddell to improperly replace United's variable annuities with another company. United will not record this award as income until all appeals, if any, are completed. In addition, United's request for injunctive relief to prohibit future improper policy replacements by Waddell remains to be decided by the Court.

Insurance underwriting results are summarized in the following chart:

 

  Insurance Underwriting Income
  (dollars in millions)
    Quarter Ended   % of   Quarter Ended   % of   %
    March 31, 2002     Premium     March 31, 2001     Premium     Chg.
Insurance underwriting margins:  
   Life     $72.4     24     $70.0     25     4
   Health   43.7   17   45.1   18   (3)
   Annuity   3.7       6.4   (42)
 
Other income   .9   1.2  
Administrative expenses   (31.3)   5   (30.0)   5   4
 
Insurance Net Underwriting Income   $89.5   $92.7   (3)
 

 

Sales

Life insurance sales of $77 million increased 1%. American Income, Torchmark's second largest writer of life insurance, wrote $19 million of annualized life premium during the quarter, a 32% increase. The Direct Response unit's life sales declined 5% to $29 million and were in line with expected results. The decline in Direct Response sales reflects the increased focus on writing higher margin business and eliminating sales in markets with lesser margins.

Total health sales for the quarter declined 22% to $50 million, of which $31 million was from Medicare supplements, down 41%. The decline was partly because the year-ago quarter contained a greater number of sales to Medicare HMO disenrollees. In addition, Torchmark's success in obtaining and implementing Medicare supplement annual rate increases while some competitors continue to sell at lower rates, continues to dampen Torchmark Medicare supplement sales.

Sales by distribution channels are shown in the following chart:

 

  Annualized Life and Health Premium Issued
  (dollars in millions)
 
  Life   Health   Total
  Quarter Ended   Quarter Ended   Quarter Ended
  March 31,   March 31,   March 31,
  2002   2001   % Chg.   2002   2001   % Chg.   2002   2001   % Chg.
 
Direct Response     $29.2     $30.8     (5)     $2.2     $1.3     62     $31.4     $32.2     (2)
 
LNL Exclusive Agency   14.1   13.5   4   2.6   2.3   13   16.7   15.9   5
 
American Income Agency   19.4   14.7   32   2.4   2.3   8   21.8   16.9   29
 
Military   5.5   5.3   4   -   -   -   5.5   5.3   4
 
United American Agencies  
  Branch Office Agency   1.6   1.2   40   19.8   36.6   (46)   21.5   37.7   (43)
  Independent Agency   5.8   7.1   (19)   22.9   21.6   6   28.7   28.7   0
 
Other   1.9   3.8   (50)   -   -   -   1.9   3.8   (50)
 
Total Premium Issued   $77.5   $76.5   1   $50.0   $64.1   (22)   $127.5   $140.6   (9)
 

 

INVESTMENTS - comparing the first quarter of 2002 with the first quarter of 2001:

Excess investment income (investment income less interest credited on net policy liabilities and less financing costs) was $73 million compared with $59 million, a 23% increase as detailed in the following chart.

 

  Quarter Ended
  March 31,
  (dollars in millions)
  2002   2001   % Chg.
 
Investment Income   $129   $122   6
 
Required interest:  
  Interest Credited on Net Policy Liabilities   (47)   (47)   2
  Financing Costs:  
    Debt   (12)   (13)    
    Trust Preferred/MIPS   (3)   (5)    
    Interest Rate Swaps   6   1    
    Total Financing Costs   (9)   (16)   (45)
 
Total Required Interest   (56)   (63)   (10)
 
Excess Investment Income   $73   $59   23
 

 

Investment income increased 6%, in line with the 6% increase in average invested assets for the quarter. Financing costs were $9 million, down $7 million, or 45%. The decline was attributable to (1) a $1 million decline in interest on debt due primarily to lower short term interest costs, (2) a $2 million decline in trust preferred/MIPS dividends and (3) $5 million of cash settlements received from interest rate swap agreements. The more favorable financing position regarding the trust preferred/MIPS securities resulted from Torchmark redeeming the $200 million of 9.18% MIPS in 2001 (after the first quarter) and the issuance of $150 million of 7.75% trust preferred securities in the fourth quarter of 2001.

NET INCOME - comparing the first quarter of 2002 with the first quarter of 2001:

Net income was $.80 per share ($98 million) in the first quarter of 2002 compared with $.76 per share ($96 million) in the year-ago quarter. The following chart shows the differences between net operating income and net income:

 

  Quarter Ended
  March 31, 2002   March 31, 2002
  (dollars in millions)
 
Net Operating Income     $105     $98
Realized Gains (Losses):  
  Investments   (1)   2
  Valuation of Interest Rate Swaps   (6)   2
Goodwill Amortization   -   (3)
Discontinued Operations   -   (3)
 
Net Income   $98   $96
 

 

The primary difference between net operating income and net income in the first quarter of 2002 is the change in the market value of Torchmark's interest rate swap agreements. Under these agreements, the company converts interest expense obligations from fixed to floating rates. The periodic cash settlements from these agreements are reflected in net operating income, but as required by FAS 133, the Company also must record the "market value" of the swaps (i.e. the present value of the estimated future cash settlements) on the balance sheet. The quarterly change in the market value is recognized as a "non cash" capital gain or loss, even though Torchmark plans to hold the swaps until the scheduled termination dates, at which time their market value and the total capital gains and losses recorded will be $0. At March 31, 2002, the market value of the swap agreements was a net asset of $7 million.

SHARE REPURCHASE - first quarter of 2002:

In accordance with its ongoing share repurchase program, during the first quarter of 2002 Torchmark repurchased 1.0 million shares of Torchmark Corporation common stock for a total of $40 million ($38.82 average cost per share).

OTHER FINANCIAL INFORMATION:

Net operating income as a return on equity* for the quarter ended March 31, 2002, was 16.6%, up from 16.1% for the year-ago quarter. Total assets at March 31, 2002, were $12.3 billion and shareholders' equity was $2.5 billion. Book value per share* at March 31, 2002, was $20.90. The debt to capital ratio* was 22.4% at March 31, 2002, as compared with 20.4% a year ago (26.6% and 26.3% respectively, when the Monthly Income Preferred and Trust Preferred Securities are treated as debt rather than equity).

* Excludes the adjustment of fixed maturity assets to fair market value required by accounting standard SFAS 115.

SUMMARY OF FINANCIAL RESULTS

 

  Quarter Ended
  March 31, 2002   March 31, 2002
  (in thousands, except per share data)
 
Total Revenue from Operations **     $699,923     $668,222
Net Operating Income   $104,818   $98,467
  Per diluted share   $.85   $.78
Net Income   $98,154   $96,398
  Per diluted share   $.80   $.76
Weighted Average Diluted Shares Outstanding   122,918   126,772
 

 

** Total revenue from operations excludes net realized investment gains and losses.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS:

This press release may contain forward-looking statements within the meaning of the federal securities laws. These prospective statements reflect management's current expectations, but are not guarantees of future performance. Accordingly, please refer to Torchmark's cautionary statement regarding forward-looking statements, and the business environment in which the Company operates, contained in the Company's Form 10-K for the period ended December 31, 2001, on file with the Securities and Exchange Commission. Torchmark specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

EARNINGS RELEASE CONFERENCE CALL WEBCAST:

Torchmark will provide a live audio webcast of its first quarter earnings release conference call with financial analysts at 10:00 a.m. Eastern today, April 18, 2002. Access to the live webcast and replays will be available at http://www.torchmarkcorp.com/ on the Investor Relations page, at the "Conference Call on the Web" icon, or at http://www.prnewswire.com/.

Supplemental financial reports for the quarter will be available today, April 18, on the Investor Relations page of the Torchmark website at the "Financial Reports" icon.

TORCHMARK CORPORATION is a financial services holding company specializing in life and supplemental health insurance for "middle income" Americans marketed through multiple distribution channels including direct response, and exclusive and independent agencies. Subsidiary Globe Life and Accident is a nationally recognized direct-response provider of life insurance known for its administrative efficiencies. United American has been a nationally recognized provider of Medicare supplement health insurance since 1966. Liberty National Life, one of the oldest traditional life insurers in the Southeast, is the largest life insurer in its home state of Alabama. American Income Life is nationally recognized for providing supplemental life insurance to labor union members.

SOURCE Torchmark Corporation

CONTACT: Joyce Lane, Vice President, Investor Relations of Torchmark Corporation, +1-972-569-3627, or fax, +1-972-569-3282, or jlane@torchmarkcorp.com

Web site: http://www.torchmarkcorp.com/