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News Release

Torchmark Reports 9% Increase in Operating Income/Share For The Year & 8% for the 4th Qtr of 2001

February 07, 2002

Torchmark Corporation (NYSE: TMK) reported today that for the year ended December 31, 2001, net operating income was $3.12 per share ($393 million), up 9% from $2.85 per share ($365 million) for the prior year. For the fourth quarter of 2001, net operating income was $.80 per share ($100 million) compared with $.74 per share ($94 million) for the fourth quarter of 2000, an 8% per share increase. Operating earnings per share were in line with the Company's expectations and the consensus analysts forecast per First Call/Thompson Financial.

FOR THE YEAR, premium revenues of $2.2 billion increased 8%, with life premiums up 6% and health premiums up 11%. Insurance net underwriting income increased 3%. On a per share basis, excess investment income increased 15%. Return on equity for the year was 16.1%.

FOR THE QUARTER, premium revenues of $553 million were up 6%, with life premiums increasing 5% and health premiums increasing 7%. Insurance net underwriting income decreased 1%. On a per share basis, excess investment income increased 22%. Return on equity for the quarter was 16.0%.

HIGHLIGHTS for 2001:

  • American Income sales for the year increased 17% to $76 million, with sales of $21 million in the fourth quarter, a 29% increase compared with the year-ago quarter. The American Income producing agent count grew 31% to 1,768 in 2001.
  • Direct Response premium revenue grew 9%. Direct Response sales declined 1% compared with 2000, but were slightly above plan for the year. As announced early in 2001, growth in Direct Response sales programs for the year was restrained in order to focus on marketing more profitable business. The Direct Response life underwriting margin (underwriting income as a percent of premium) stabilized at 25% for the year.
  • 2001 Medicare supplement health sales declined when compared with the prior year's unusually high sales generated by the unprecedented number of involuntary Medicare HMO disenrollments in 2000. Medicare supplement sales also faced competitive premium rate pressures as Torchmark implemented rate increases more timely than some competitors.
  • Financing costs declined $19 million (27%) due to lower short-term interest rates and the Company's call during the year of $200 million of 9.18% Monthly Income Preferred Securities (MIPS).

 

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

 

  Per Share Net Operating Income
  Year Ended   Year Ended  
  December 31,   December 31,  
  2001   2000   % Chg.   2001   2000   % Chg.
Insurance Net Underwriting Income   $2.92   $2.77   5   $.72   $.72   0
 
Excess Investment Income   2.03   1.77   15   .55   .45   22
 
Other   (.21)   (.23)   (9)   (.05)   (.05)   0
 
Income Tax   (1.62)   (1.46)   11   (.42)   (.38)   11
 
Net Operating Income   $3.12   $2.85   9   $.80   $.74   8
 

 

INSURANCE OPERATIONS comparing the year ended December 31, 2001 with the year ended December 31, 2000:

Total premium revenue increased 8% to $2.2 billion. Life and annuity premium revenue increased 6% to $1.2 billion. Health premium revenue increased 11% to $1.0 billion.

 

 
  Premium Revenue
  (dollars in millions)
  Life and Annuity   Health   Total
  Year Ended   Year Ended   Year Ended
  December 31,   December 31,   December 31,
  2001   2000   % Chg.   2001   2000   % Chg.   2001   2000   % Chg.
 
Direct Response     $289.1     $267.9     8     $17.8     $14.9     20     $306.9     $282.8     9
 
LNL Exclusive Agency   297.3   294.3   1   155.9   151.4   3   453.2   445.6   2
 
American Income Agency   246.7   231.1   7   49.8   48.3   3   296.5   279.4   6
 
United American Agencies  
  Branch Office Agency   19.3   19.4   (1)   323.2   254.3   27   342.4   273.7   25
  Independent Agency   47.8   43.0   11   464.1   442.4   5   511.9   485.4   5
 
Other   244.8   227.2   8   -   -   -   244.8   227.2   8
 
Annuity   59.5   52.2   14   -   -   -   59.5   52.2   14
 
Total   $1,204.4   $1,135.1   6   $1,010.8   $911.2   11   $2,215.2   $2,046.2   8
 

 

Insurance net underwriting income increased 3% to $368 million. The life underwriting margin (before administrative expenses) was 25% of premium, the same as for 2000. Health underwriting income was $173 million with an underwriting margin (before administrative expenses) of 17%. Administrative expenses were $119 million, compared with $112 million for 2000, but declined slightly as a percentage of premium. Insurance underwriting results are summarized in the following chart:

 

  Insurance Net Underwriting Income
  (dollars in millions, except per share data)
    Year Ended   % of   Year Ended   % of   %
    December 31, 2003     Premium     December 31, 2001     Premium     Chg.
Underwriting Income before Administrative Expenses  
   Life     $284.3     25     $271.7     25     5
   Health   173.5   17   161.1   18   8
   Annuity   24.8       29.9   (17)
  482.5       462.7  
Other income   4.4   4.7  
Administrative expenses   (119.0)   5   (111.8)   5   6
 
Insurance Net Underwriting Income   $367.9   $355.6   3
 

 

Total insurance sales for 2001 were $508 million, a 6% decrease. Total life insurance sales of $295 million were up 1%. Of Torchmark's three major life insurance distribution units, Direct Response, Liberty National and American Income, the Direct Response unit continued as the largest writer of new life insurance sales with $112 million for the year.

Total health insurance sales decreased 16% to $213 million, including Medicare supplement sales of $159 million, a 21% decline. Total health sales by the United American Branch Office and Independent agencies, the primary writers of health insurance for Torchmark, were $189 million, a decline of 18%. Medicare supplement sales declined when compared with 2000 sales, a difficult comparison due to the very high Medicare supplement sales in 2000 generated by the unprecedented number of involuntary terminations of Medicare HMO members. Involuntary Medicare HMO terminations in 2001 were approximately half those of 2000. In addition, Torchmark Medicare supplement sales faced competitive premium rate pressures in some markets as Torchmark implemented premium rate increases more timely than some competitors. The number of producing agents at the United American Branch Office agency also declined as agents in some markets left United American for easier sales at those competitors whose Medicare supplement products are currently lower priced. Although sales declined in 2001, Medicare supplement annualized premium in force at year-end 2001 increased 4% to $761 million.

Sales by distribution channels are shown in the following chart:

 

 
  Annualized Life and Health Premium Issued
  (dollars in millions)
  Life   Health   Total
  Year Ended   Year Ended   Year Ended
  December 31,   December 31,   December 31,
  2001   2000   % Chg.   2001   2000   % Chg.   2001   2000   % Chg.
 
Direct Response     $112.0     $112.9     (1)     $3.3     $3.6     (8)     $115.3     $116.5     (1)
 
LNL Exclusive Agency   54.9   53.6   2   10.7   10.1   7   65.6   63.7   3
 
American Income Agency   66.4   56.6   17   10.0   8.6   16   76.4   65.2   17
 
United American Agencies  
  Branch Office Agency   4.9   4.7   4   115.7   145.1   (20)   120.6   149.8   (20)
  Independent Agency   24.5   25.7   (5)   73.5   85.1   (14)   98.0   110.8   (12)
 
Other   32.0   37.2   (14)   -   -   -   32.0   37.2   (14)
 
Total Premium Issued   $294.6   $290.7   1   $213.3   $252.5   (16)   $507.9   $543.2   (6)
 

 

INSURANCE OPERATIONS comparing the fourth quarter of 2001 with the fourth quarter of 2000:

Total premium revenue for the quarter increased 6% to $553 million. Life premium revenue increased 5% to $287 million. Health premium revenue increased 7% to $252 million. Insurance net underwriting income declined 1% to $90 million. The life underwriting margin (before administrative expenses) was 26% of premium, the same as for the 2000 quarter. The health underwriting margin was 16% of premium, compared with 17% for the 2000 quarter. Insurance underwriting results are summarized in the following chart:

 

  Insurance Net Underwriting Income
  (dollars in millions, except per share data)
    Quarter Ended   % of   Quarter Ended   % of   %
    December 31, 2003     Premium     December 31, 2001     Premium     Chg.
Underwriting Income before Administrative Expenses  
   Life     $73.5     26     $70.2     26     5
   Health   40.4   16   40.8   17   (1)
   Annuity   6.0       8.4   (29)
  119.9   119.4  
Other income   1.0   1.0  
Administrative expenses   (30.9)   6   (29.3)   6   6
 
Insurance Net Underwriting Income   $89.9   $91.2   (1)
 

 

Total life insurance sales of $74 million were up 3%, but total health insurance sales declined 36% to $56 million, including Medicare supplement sales of $40 million, which declined 47%. As discussed earlier, Medicare supplement sales in the year-ago quarter were unusually high due to unprecedented high numbers of involuntary Medicare HMO terminations in the third and fourth quarters of 2000. As a result of the health sales decline, total insurance sales for the quarter declined 19% to $130 million. 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
  December 31,   December 31,   December 31,
  2001   2000   % Chg.   2001   2000   % Chg.   2001   2000   % Chg.
 
Direct Response     $26.9     $25.1     7     $.9     $.7     28     $27.8     $25.8     8
 
LNL Exclusive Agency   13.7   13.4   2   3.0   2.6   17   16.7   15.9   5
 
American Income Agency   18.9   14.5   30   2.6   2.1   22   21.5   16.6   29
 
United American Agencies  
  Branch Office Agency   1.2   1.2   1   29.3   52.4   (44)   30.5   53.5   (43)
  Independent Agency   5.9   8.6   (31)   20.5   30.1   (32)   26.4   38.7   (32)
 
Other   7.1   9.1   (22)   -   -   -   7.1   9.1   (22)
 
Total Premium Issued   $73.6   $71.7   3   $56.3   $87.9   (36)   $129.9   $159.6   (19)
 

 

INVESTMENTS comparing the year ended December 31, 2001 with the year ended December 31, 2000:

Excess investment income (investment income less interest credited on net policy liabilities and less financing costs) increased 13% to $256 million, or 15% on a per-share basis. Investment income increased 3% to $496 million, or 5% on a per-share basis. Financing costs for the year declined 27% to $51 million, due to lower short-term interest rates and the call of the MIPS.

After tax net realized capital losses were $2 million for 2001 compared to $3 million of losses in 2000.

CAPITAL TRANSACTIONS during the year ended December 31, 2001:

In 2001, Torchmark called the $200 million of MIPS (Torchmark Capital LLC 9.18% Monthly Income Preferred Securities). As previously announced, the MIPS were called as follows: $50 million on April 30, $40 million on August 31, and the remaining $110 million on November 30.

In November and December, 2001, Torchmark issued $150 million of trust preferred securities; $125 million through Torchmark Capital Trust I (NYSE: TMKPRT) and $25 million through Torchmark Capital Trust II (NYSE: TMKPRS). Both issues have a $25 per value per share, pay quarterly dividends at an annual rate of 7.75% and become callable at Torchmark's option in November 2006. Also, the Company issued $180 million of 6.25% unsecured notes due December 15, 2006. Proceeds from the new issues were used to fund the call of the MIPS, to reduce short-term corporate debt and for other corporate purposes.

SHARE REPURCHASE during the year ended December 31, 2001:

In accordance with Torchmark's ongoing share repurchase program, a total of 4.3 million common shares at a cost of $159 million were repurchased during 2001 (average cost of $37.25 per share). During the fourth quarter of 2001, the Company repurchased 2 million shares at an average cost of $38.26 per share. At December 31, 2001, there were 122.9 million Torchmark shares outstanding (123.4 million on a diluted basis).

OTHER FINANCIAL INFORMATION for the year ended December 31, 2001:

Operating earnings as a return on equity was 16.1%. At year-end, total assets were $12.4 billion and shareholders' equity was $2.5 billion. Book value per share was $20.32, excluding the effect of SFAS 115. The debt to capital ratio, excluding the effect of SFAS 115, was 21.9% as compared with 21.5% at the previous year-end (26.2% and 27.5%, respectively, when the preferred securities are treated as debt rather than equity).

Net income for the year was $2.83 per share ($357 million) compared with $2.82 per share ($362 million) for 2000. Net income for the fourth quarter was $.67 per share ($83 million) compared with $.73 per share ($92 million) for the year-ago quarter.

The debt to capital ratio was 21.1%* at December 31, 2001, and was 21.9%* at the same year-ago date (25.2%* and 26.2%*, when the Monthly Income Preferred and Trust Preferred Securities are treated as debt rather than equity).

Net operating income for 2001 ($393 million) differs from net income ($357 million) for the year by the following items net of taxes:

 

    (i)     net realized investment losses of $2 million,
    (ii)     loss on redemption of MIPS and debt of $5 million,
    (iii)     change in accounting principle of $27 million, and
    (iv)     loss on discontinued operations of $3 million.
 
    Note:     The change in accounting principle, as previously reported for the second quarter of 2001, resulted from the required implementation of a new accounting standard regarding the recognition of interest income and impairment of asset-backed securities. Subsequent to the write-down, Torchmark sold $40 million of these assets. The effect of the change in accounting principle is expected to be immaterial in the future.

 

2000 net operating income ($365 million) differs from net income ($362 million) by the following items, net of taxes:

 

    (i)     net realized investment losses of $3 million, and
    (ii)     gain on the redemption of debt of $202 thousand.

 

 

  Summary of Financial Results
  (in thousands, except per share data)
  Year Ended Dec. 31,   Quarter Ended Dec. 31,
 
  2001   2000   2001   2000
 
Total Revenue from Operations *   $2,709,474   $2,521,216   $678,387   $643,906
 
Net Operating Income**   $392,510   $365,292   $99,703   $93,686
 
   Per Diluted Share   $3.12   $2.85   $.80   $.74
Net Income   $356,513   $362,035   $83,126   $92,123
   Per Diluted Share   $2.83   $2.82   $.67   $.73
 
Weighted Average Diluted Shares Outstanding (000 omitted)   125,861   128,353   124,451   126,976
 
* Total revenue from operations excludes net realized investment losses.
 
** Net operating income excludes net realized investment gains or losses, a gain or loss on redemption of MIPS and debt; and for 2001, a loss from a change in accounting principle and loss from discontinued operations, all items net of tax.
 

 

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 10Q for the period ended September 30, 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 fourth quarter 2001 earnings release conference call with financial analysts at 11:00 a.m. (eastern time) today, February 7, 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/.

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, 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 insurance company 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/