Torchmark Corp. Reports Operating Results (10-Q)
Torchmark Corp has a market cap of $4.85 billion; its shares were traded at around $47.84 with a P/E ratio of 10 and P/S ratio of 1.4. The dividend yield of Torchmark Corp stocks is 1.2%. Torchmark Corp had an annual average earning growth of 8.7% over the past 10 years. GuruFocus rated Torchmark Corp the business predictability rank of 3.5-star.
Highlight of Business Operations:We use three statistical measures as indicators of future premium growth: annualized premium in force, net sales, and first-year collected premium. Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period. Annualized premium in force is an indicator of potential growth in premium revenue. Net sales is defined as annualized premium issued, net of cancellations in the first thirty days after issue, except for Direct Response, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer has expired. Annualized premium issued is the gross premium that would be received during the policies first year in force, assuming that none of the policies lapsed or terminated. Although lapses and terminations will occur, we believe that net sales is a useful indicator of the rate of acceleration of premium growth. First-year collected premium is the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first policy year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future.
Health insurance premium income, excluding Medicare Part D premium, declined 6% to $181 million. Health net sales, excluding Part D, increased 5% to $15 million for the three months, primarily as a result of sales of a new cancer product at Liberty. First-year collected health premium, excluding Part D, fell 2% to $14 million for the period. Health premium continued to be restrained by the discontinuance of sales of certain health products.
Net sales for the Liberty Agency declined 22% to $7 million. Liberty had 1,276 producing agents at March 31, 2012, compared with 1,844 a year earlier, a decline of 31%. The agent count declined 5% since December 31, 2011, when it stood at 1,345. However, the agent count steadily increased during the last half of the first quarter of 2012 after reaching a low of 1,228 agents in the middle of February. The decrease in agent count over the prior twelve months is due to a number of factors, one of which was the closing of several offices which had poor production. Decreases were also a result of certain agent compensation issues which resulted in the departure of a number of the less productive agents. While these modifications caused a loss of agents, they resulted in improved persistency and margins, and have contributed to Torchmarks overall improvement in life insurance margins. Additionally, we have changed the cost structure of this agency to a more commission-driven model, which we believe will also increase the profitability of new sales.
The Liberty National Exclusive Agency markets Medicare Supplements and limited-benefit health products including cancer insurance. This agency represented 39% of Torchmarks non-Part D health premium income at $70 million in the 2012 three months. Net sales in this agency rose 16% in the 2012 period, due in large part to sales of a new cancer insurance product.
Discussed under the Life Insurance caption, we noted the 31% decline in agent counts at Liberty over the prior twelve months. Declines in agent counts have had a negative effect on premium income and first-year collected premium. In the 2012 period, health premium income in the Liberty Agency declined 10% from the prior year premium of $77 million. However, first-year collected premium rose 25% to $4 million, due to the cancer sales.
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