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On Jun 27, we issued an updated research report on Torchmark Corp. (TMK - Analyst Report). With a broad product profile that offers annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements, and long-term healthcare policies, the company qualifies as a specialized player in the life insurance industry.

Torchmark is one of the few companies in the U.S. with a niche presence in the middle-income market, which is huge, underpenetrated in the United States and Canada and represents an attractive market opportunity. A distinctive captive distribution capability, offering a more conservative product profile than most competitors  as well as sustained focus on costs has enabled the company to achieve strong profitability in its middle-market segment over the years.

Torchmark which is known from its brands, Global Life and Accident, American Income Life and Liberty National Life, is seeking to grow organically as well inorganically.

The company is busy working to address challenges relating to growing and maintaining its agent count at its distribution channels, American Income and Liberty National. Agent count remains crucial for revenue growth. Recent results (first-quarter 2014) showed a mixed recruiting trend, with agent count up at Liberty National and down at American Income. But we believe that retention initiatives like changes in compensation and bonus will yield positive results.

The acquisition of Family Heritage Life Insurance in 2012, marks one of the steps by the company to grow inorganically in its Health Insurance segment.

Although low interest rates present a headwind, we believe that Torchmark is less exposed than most other life insurers. We believe Torchmark’s strong underwriting margins, lower portfolio leverage and longer portfolio duration should insulate the company somewhat from the impact of the current low rate environment.

Also, this insurer maintains a strong capital position with sufficient free cash flow for share buybacks, which should help drive earnings growth.

Other Stocks

Torchmark carries a Zacks Rank #3 (Hold). Better-ranked players from the same industry include Sun Life Financial Inc. (SLF - Analyst Report), Lincoln National Corp. (LNC - Analyst Report) and China Life Insurance Co. Ltd. (LFC - Analyst Report). All these stocks hold a Zacks Rank #2 (Buy).

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