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Torchmark to Buy Family Heritage

Zacks Equity Research

Torchmark Corp. (TMK) has announced that it is about to acquire privately-held supplemental health insurer Family Heritage Life Insurance Company of America for about $218.5 million. Torchmark’s internal funds would be utilized to finance this definitive deal.
Torchmark will market Family Heritage’s supplemental health insurance products to middle-class families via the latter’s 1200 captive sales agents. The acquisition is deemed as the best fit for Torchmark since it was aiming to grow in supplemental health insurance line of business, which provides higher margin. 

Family Heritage, based in Ohio, is a company that has demonstrated strong performance with substantial premium growth. In addition to this, the company has solid underwriting margins.

The acquisition is expected to close in the early fourth quarter of 2012 and will be additive to Torchmark’s earnings immediately. Moreover, the deal would leave the free cash flow of the company unaffected.

Torchmark expects the acquisition to add 1 to 3 cents per share to its 2012 earnings and 13 to 17 cents per share to the 2013 earnings.

Late last month, the company reported second-quarter 2012 net operating income of $1.30 a share, improving 19.3% year over year. The increase was due to higher insurance underwriting income coupled with increased investment income. Lower share count compared with the year-ago period, owing to share repurchases, also buoyed the bottom line.

While releasing its second quarter earnings, Torchmark’s management announced fiscal 2012 guidance for earnings per share in the range of $5.08 – $5.26. This showed a reduction from the company’s earlier projected range of $5.10 – $5.40 per share. Nevertheless, we believe this acquision will help the company in achieving its guidance.

Torchmark, which competes with Assurant Inc. (AIZ), currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on its shares.

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