Globe Life Inc. (Torchmark Corporation) — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The filing identifies the registrant as Torchmark Corporation (NYSE: TMK); the company name in the request metadata differs.
Business context and financial results
Torchmark is an insurance holding company focused primarily on individual life and supplemental health insurance. It reports life, health, annuity, investment, and corporate activities. Dollar amounts below are in millions unless noted.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $1,119.2 | $1,070.4 | +5% |
| Premium revenue | $891.0 | $850.1 | +5% |
| Net investment income | $226.7 | $218.1 | +4% |
| Income before tax | $228.1 | $212.8 | +7% |
| Net income | $185.3 | $173.6 | +7% |
| Diluted earnings per share | $1.65 | $1.49 | +11% |
| Operating cash flow | $423.3 | $382.4 | +$40.9 |
Life premium rose 4% to $624.3 million and life underwriting margin increased 10% to $169.8 million; margin was 27% of premium versus 26%. Health premium rose 6% to $266.7 million and health underwriting margin rose 6% to $61.5 million; margin remained 23% of premium. Excess investment income, management’s segment measure, increased 6% to $65.6 million. Consolidated net income included $1.1 million of after-tax realized investment gains and a $0.4 million after-tax administrative settlement charge.
Financial position, liquidity, and capital
- At March 31, 2019, total assets were $24.1 billion and shareholders’ equity was $6.0 billion, compared with $23.1 billion and $5.4 billion at December 31, 2018. The equity increase primarily reflected $543 million of after-tax unrealized fixed-maturity gains as interest rates declined, plus quarterly net income; share repurchases partly offset the increase.
- Fixed maturities available for sale had a fair value of $17.2 billion, including $1.2 billion of net unrealized gains. Management said it intended and was able to hold temporarily impaired securities to maturity; no other-than-temporary impairments were recorded.
- Cash and short-term investments totaled $193 million. Operating cash flow was $423 million; investing activities used $306 million and financing activities used $169 million. Cash ended the quarter at $67 million.
- Total debt was $1.65 billion: $294 million short-term and $1.36 billion long-term. Commercial paper outstanding was $288 million, with $307 million remaining available under the credit line after letters of credit. The company reported compliance with credit-facility covenants.
- Management targeted a 2019 consolidated Company Action Level RBC ratio of 300%–320%; the year-end 2018 ratio was 326%. The company expected to have adequate liquidity from operating cash flows and its credit facility.
- The company repurchased 1.1 million shares for $88.6 million from parent-company excess cash flow at an average $81.32 per share, and declared a quarterly dividend of $0.1725 per share, paid May 1, 2019.
Material changes, outlook, and risks
- Management attributed higher net income mainly to improved underwriting. Total net sales increased 4% to $144 million; total first-year collected premium increased to $118 million from $114 million.
- Management noted that low interest rates constrained investment-income growth: new investments and reinvestments generally earned less than the existing portfolio. The fixed-maturity portfolio’s effective annual yield was 5.51% at quarter-end, versus 5.55% at year-end 2018. Management expected 2019 fixed-maturity turnover of 4%–5%, partly from municipal bond calls, and estimated average annual turnover of 1%–3% over the next five years.
- Management said higher long-term rates could benefit income on new investments but reduce fixed-maturity fair values. It estimated rates could rise about 65–70 basis points before the quarter-end net unrealized gain position was eliminated.
- Insurance administrative expense increased 6.7%, primarily due to spending on data analytics, system modernization, and information security. The company also cited cyber and data-security events, mortality and morbidity, policy lapse and sales trends, interest rates, credit quality, regulation, Medicare alternatives, pricing competition, litigation, and timely health premium-rate approvals as risks.
- Four California putative class actions allege that American Income Life sales agents or trainees were misclassified as independent contractors and assert wage, expense-reimbursement, and related claims. The company said it had no reasonable estimate of potential liability; management generally considered a material adverse judgment remote, while acknowledging litigation outcomes are uncertain.
- Accounting changes adopted in the quarter had no material financial-statement impact. The company was evaluating the impact of the expected-credit-loss standard and the long-duration insurance-contract accounting standard.
Investor facts to verify
- Confirm the issuer and security identity: the supplied filing is Torchmark Corporation, ticker TMK, despite the Globe Life metadata.
- Track whether life and health premium growth, sales, and underwriting margins persist, particularly as claims experience normalizes.
- Assess portfolio credit quality and concentration, including the 4% below-investment-grade share of fixed maturities and the BBB average rating on securities in an unrealized-loss position.
- Monitor the effects of interest-rate changes on investment income, unrealized gains, and equity, and distinguish GAAP equity from management’s measures excluding unrealized fixed-maturity gains.
- Follow the California agent-classification litigation and any subsequent estimate or accrual of potential losses.
- Compare subsequent RBC ratios, liquidity, debt levels, repurchases, and dividend payments with management’s stated capital and liquidity plans.