Business context and reporting period
Issuer clarification: The filing is Torchmark Corporation’s Form 10-K for the fiscal year ended December 31, 2015, not a filing by Globe Life Inc. Globe Life And Accident Insurance Company is one of Torchmark’s principal subsidiaries and operates its direct-response business. The filing reports full-year results; fourth-quarter figures are identified separately below.
Torchmark is an insurance holding company focused primarily on individual life and supplemental health products sold to middle-income customers through exclusive agents, independent agents, and direct response.
Financial performance and position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $3.766 billion | $3.620 billion | +4% |
| Premium revenue | $2.999 billion | $2.836 billion | +6% |
| Income from continuing operations | $516.3 million | $528.1 million | -2% |
| Net income | $527.1 million | $542.9 million | -3% |
| Diluted EPS, continuing operations | $4.07 | $3.98 | +2% |
| Net cash from operations | $1.120 billion | $865 million | Increased |
- Life premiums rose 5% to $2.073 billion; life underwriting margin increased 2% to $569.4 million, while margin as a share of premium eased to 27% from 28%, primarily reflecting higher-than-expected claims.
- Health premiums rose 6% to $925.5 million; health underwriting margin increased 3% to $204.4 million, but margin as a share of premium declined to 22% from 23%, partly due to the pricing of 2014 group business.
- Excess investment income fell 2% to $219.5 million, although excess investment income per diluted share rose to $1.73 from $1.69, supported by fewer shares outstanding.
- At year-end, total assets were $19.853 billion, shareholders’ equity $4.056 billion, and total debt approximately $1.234 billion. Cash and short-term investments were approximately $116 million; total investments were $14.344 billion.
- Insurance subsidiaries’ aggregate risk-based capital ratio was approximately 320%, below management’s 325% target. The filing says the parent had liquidity available to contribute capital if needed.
Fourth quarter: Revenue was $933.9 million, continuing-operations income $119.1 million, net income $133.0 million, and diluted net income per share $1.07. The quarter included a $16.7 million pretax realized investment loss.
Material changes versus the prior comparable period
- Revenue and premiums grew, led by life and health premium expansion, but continuing-operations income and reported net income declined.
- Life net sales increased 9% to $411.9 million. Health net sales declined 13% to $156.5 million, including a 29% decrease in Medicare Supplement net sales after unusually strong group sales in 2014.
- Net investment income rose 2%, slower than growth in mean invested assets; portfolio yields continued to face pressure from the low-rate environment. Excess investment income declined as required interest on policy liabilities rose.
- Shareholders’ equity fell to $4.056 billion from $4.697 billion. The main factors included $750 million of after-tax unrealized losses on fixed maturities and share repurchases, partly offset by net income.
- Gross unrealized losses on fixed maturities rose to $564 million from $79 million, particularly reflecting energy and metals and mining sector weakness and higher interest rates. Management reported no other-than-temporary impairment charges in 2013–2015.
Outlook, risks, contingencies, and unusual items
- Management planned to sell the Medicare Part D business during 2016, citing declining margins, higher drug costs, increased risks, and administrative and compliance costs. Its results are classified as discontinued operations; 2015 income from discontinued operations was $10.8 million.
- CMS placed United American and First United American on an enrollment sanction in the third quarter of 2015, restricting new Part D enrollment subject to stated exceptions. CMS accepted a remediation plan; the business was held for sale.
- Management expected approximately $450 million of subsidiary dividends and transfers to the parent in 2016, with approximately $320–$330 million available as excess cash flow. It intended to refinance $250 million of senior notes maturing in June 2016, with a hybrid debt instrument.
- Delayed federal reimbursement of Medicare Part D claims reduced pretax investment income by approximately $8 million in 2015; management expected an approximately $9 million impact in 2016.
- Key risks include deviations in mortality, morbidity, and persistency; investment credit and interest-rate risk; regulatory limits on subsidiary dividends and health premium increases; competition; litigation and agent conduct; and operational, privacy, cybersecurity, and catastrophic-event risks.
- Audits covering unclaimed life-insurance and annuity property were underway in 47 states. No assessment or liability had been indicated, but the company could not estimate a range for possible penalties or escheatment payments. Management did not consider pending litigation contingencies material, while noting the possibility of unpredictable punitive awards.
- Other notable items: 2015 included $1.4 million of pretax administrative settlements related to a former subsidiary sale. The company repurchased 6.3 million shares for $359 million from excess cash flow and paid $0.53 per share in dividends.
- The company reported unqualified audit opinions on its financial statements and internal control over financial reporting; no material weaknesses were identified.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Torchmark Corporation, not Globe Life Inc.; verify the correct filing and reporting entity before relying on the figures.
- Track the Medicare Part D sale, sale proceeds, final disposition accounting, and the status and financial effects of the CMS enrollment sanction.
- Monitor life claims experience and margins, and health sales and margins—especially Medicare Supplement group-business trends following the unusually high 2014 sales.
- Assess fixed-maturity credit exposure, unrealized losses, and the energy and basic materials portfolio, alongside the effect of interest rates on investment income and equity.
- Verify capital adequacy against management’s 325% RBC target, subsidiary dividend capacity, the 2016 debt refinancing, and projected parent-company cash flow.
- Follow the unclaimed-property audits and any resulting state assessments, as the filing provides no estimable loss range.