Torchmark Corp. (TMK) reported first-quarter 2014 net operating income of $1.52 per share, beating the Zacks Consensus Estimate by a couple of pennies. Earnings were also up 9.4% year over year. Strong results came on the back of higher premium revenues as well as an improvement in investment income.
Torchmark reported total premium revenue of $791.6 million, up 3% year over year, led by higher premium from the Life, Health Medicare Part D operations.
Net investment income increased 3% year over year to $188.1 million.
Excess investment income, a measure of the segment’s profitability, went up 2% year over year to $56.9 million.
Torchmark reported underwriting income of $200.7 million which moved up 5.0% year over year. The increase came on the back of higher margins in Life, as well as Medicare Part D operations.
At Life Insurance operations, premium revenue increased 4% year over year to $489.1 million, attributable to higher premiums written by distribution channels – American Income Agency (up 7%) and Direct Response (up 6%), partially offset by a 2% decline in premiums written by Liberty National Life Agency. Life underwriting income increased 6.0% to $140.6 million. Net sales of life insurance went up by 5% year over year.
Health Insurance premium revenue (excluding Medicare Part D ) decreased slightly by 1% year over year to $219.4 million while underwriting income also saw the same 1% decline to $49.5 million.
Premium revenue from the Medicare Part D business increased 8% year over year to $83.0 million. Underwriting income rose 19% year over year to $9.6 million.
Share Repurchase Update
During the quarter, Torchmark repurchased 1.4 million shares at a total cost of $108.0 million.
Shareholders’ equity as of March 31, 2014 increased 5.1% year over year to $3.5 billion.
Torchmark reported book value per share of $39.68 which was up 10.3% year over year.
For the reported quarter, return on equity (:ROE) was 15.5%, almost unchanged year over year.
Management pulled up its earnings expectation to $6.08 to $6.32 per share from its earlier estimate of $6.00 to $6.40.
Torchmark carries a Zacks Rank #3 (Hold).
Torchmark has been generating a consistent earnings performance from past many quarters. We expect the company's niche market focus, steady capital deployment and strong operating fundamentals will aid its solid performance in the upcoming quarters.
Among the company’s distribution channels, American Income Agency and Direct Response are performing well. Liberty National is however, underperforming despite restructuring efforts undertaken for its turnaround.
We are also optimistic about the company’s acquisition of Family Heritage Life, which is accretive to its earnings.
A strong capital position and good capital management make Torchmark a favorite among investors.
Among other players, Travelers Companies Inc. (TRV) reported first-quarter earnings of $2.95 per share, handily beating the Zacks Consensus Estimate by 38%. Other players such as Assurant Inc. (AIZ) and Prudential Financial Inc. (PRU) are expected to report first-quarter earnings on April 23 and May 7, respectively.
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