Torchmark Corp. ( TMK - Analyst Report ) 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.

Segment Update

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.

Looking Ahead

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 - Analyst Report ) 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.