Filing summary
Issuer identity: The supplied filing is Torchmark Corporation’s Form 10-Q for the quarter ended September 30, 2017, filed November 7, 2017. It is not filed under the name Globe Life Inc.; investors should verify the issuer and corporate history before attributing these results to Globe Life.
Business context and reporting period
Torchmark reported life, health, annuity, and investment operations. Results below compare the three and nine months ended September 30, 2017 with the corresponding 2016 periods. Dollar figures are in millions unless noted.
Financial performance and position
| Metric | Q3 2017 | Nine months 2017 | Prior comparable period |
|---|---|---|---|
| Total revenue | $1,046; +5.7% | $3,099; +4.7% | Q3: $990; nine months: $2,959 |
| Income from continuing operations | $153.3; +8.1% | $430.9; +3.9% | Q3: $141.9; nine months: $414.8 |
| Net income | $153.3; +1.0% | $427.1; +3.1% | Q3: $151.9; nine months: $414.3 |
| Diluted EPS | $1.29, from $1.25 | $3.58, from $3.38 | Prior figures shown in order |
| Operating cash flow | Not separately presented for quarter | $1,085.8 | Nine months 2016: $971.9 |
Nine-month premiums were $2,456.5, up 4.6%: life premiums rose 5% to $1,725.9 and health premiums rose 3% to $730.6. Nine-month segment underwriting margins were 26% for life (unchanged) and 23% for health (up from 22%). Excess investment income, a company-defined measure, increased 9% to $181.8; per diluted share it rose 13% to $1.52.
Net investment income increased 6% to $634.9 over nine months, below 7% growth in average invested assets. The fixed-maturity portfolio’s effective yield declined to 5.68% from 5.80%. Administrative expenses rose 6.6% to $155.8, or 6.3% of premiums versus 6.2%.
At September 30, total assets were $22,993.6, shareholders’ equity $5,167.7, and cash plus short-term investments approximately $153.9. Short-term debt was $309.0 and long-term debt $1,130.8. The company reported $305.8 of commercial paper outstanding and $267.2 remaining under its credit line after letters of credit; it said it was in compliance with facility covenants. Nine-month dividends declared were $0.45 per share, and $301.4 was spent on treasury-stock purchases.
Changes, outlook, risks, and unusual items
- Nine-month net sales increased 2% to $420 million, while first-year collected premium was approximately flat at $339 million. Life net sales grew 1%; health net sales grew 6%, but first-year collected health premium declined 4%.
- Management cited growth in insurance premiums and underwriting income, but noted pressure on investment yields from lower-yielding reinvestments. It expected fixed-maturity portfolio turnover to average no more than 1%–2% annually over the next five years and said higher rates could benefit future investment income. No specific earnings or revenue guidance was provided.
- Unrealized fixed-maturity gains increased shareholders’ equity: the portfolio’s net unrealized gain was about $1.7 billion at quarter-end, up from $1.1 billion at year-end 2016. Management noted this GAAP mark-to-market effect does not revalue insurance liabilities consistently and said it intended and had the ability to hold securities to maturity.
- The Medicare Part D business had been sold in 2016; residual receivables and payables remained in discontinued operations. At September 30, discontinued-operation assets included $65 million due from CMS, with related settlement balances expected to resolve in the ordinary course.
- Estimated guaranty-fund assessments associated with Penn Treaty and its affiliate totaled approximately $10 million, of which $1.4 million was expected to be unrecoverable; the remainder was expected to be recovered through premium-tax credits. The filing also reported $0.245 million of other-than-temporary investment impairment for the nine-month period.
- Risks include changes in lapse, mortality and morbidity experience; regulation and Medicare-related changes; interest rates and issuer credit quality; pricing competition; litigation; health-rate approvals; and cybersecurity or data-access events. Management reported no material change in risk factors and no material adverse effect expected from litigation or unclaimed-property audits. A putative class-certification motion in the Proctor case was denied in August 2017.
Important facts for investors to verify
- Confirm that this Torchmark filing is the intended filing for the requested company and period.
- Check the definitions and reconciliation of non-GAAP measures, particularly net operating income and excess investment income.
- Assess sensitivity to interest-rate changes, investment credit quality, and the substantial unrealized gains recorded in equity.
- Review commercial-paper reliance, credit-facility availability, insurance-subsidiary dividend capacity, and capital requirements.
- Track CMS-related discontinued-operation settlements, guaranty-fund assessments, and the outcome of litigation and unclaimed-property audits.
- Monitor sales and first-year collected premium trends, especially the decline in health first-year collected premium and Globe Life Direct Response life sales.