Torchmark Corp. (TMK) reported second-quarter 2012 net operating income of $1.30 per share, up 19.3% year over year. The increase can be attributed 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. Total insurance premium increased 6.0% year over year to $706.1 million, led by higher premium from the Life Insurance and Medicare Part D business, partly offset by lower premium from the Health Insurance business.
Net investment income increased 2% year over year to $180.7 million on the back of higher invested assets. However, excess investment income, a measure of the segment's profitability, went down 5% to $62.5 million.
Underwriting income increased 8.0% year over year to $134.2 million, backed by higher margins at Life and Medicare Part D, partially offset by a lower margin in the Health business.
At Life Insurance operations, premium revenue increased 4% year over year to $451.0 million, led by higher premiums written by distribution channels - American Income Agency up 9% and Direct Response up 5% - partly offset by a 2% decrease in premiums written by Liberty National Life Agency. Life underwriting margins increased 7% to $124.2 million.
Health Insurance premium revenue declined 5% year over year to $176.9 million, while underwriting margin was down 2% to $40.3 million.
Premium revenue from the Medicare part D business increased 60% year over year to $78.1 million, while underwriting margin increased 47% to $8.2 million. This huge growth in Part D business came on the back of the company's new lower cost part D plan for 2012, which significantly increased the number of low-income auto-enrollees. The product also enabled the company to increase its individual sales.
Return on equity (ROE) was 15.7% for the quarter, compared with 14.4% in the year-ago quarter.
During the quarter, Torchmark repurchased 3.9 million shares at a total cost of $184 million.
Management announced fiscal 2012 guidance for earnings per share in the range of $5.08 - $5.26. This marked a reduction from the earlier projected range of $5.10 - $5.40 per share.
Peer Assurant Inc. (AIZ) also reported earnings on the same day, substantially ahead of the Zacks Consensus Estimate.
Torchmark 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.