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Torchmark Corp. (TMK - Analyst Report) reported third-quarter 2012 net operating income of $1.29 per share, up 10.3% year over year. The earnings increase was due to higher premium revenue as well as increased insurance underwriting income. Lower share count compared with the year-ago period, owing to share repurchases, also buoyed the bottom line.

Total insurance premium increased 7.2% year over year to $705.0 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 decreased 1% year over year to $175.0 million, due to lower reinvestment rates. Also, excess investment income, a measure of the segment’s profitability, went down 14% to $54.7 million.

Underwriting income increased 13.0% year over year to $138.0 million, backed by higher margins at Life and Medicare Part D.

Segment Update

At Life Insurance operations, premium revenue increased 5.5% year over year to $453.7 million, attributable to higher premiums written by distribution channels – American Income Agency (up 9%) and Direct Response (up 9%) – partly offset by a 2% decrease in premiums written by Liberty National Life Agency. Life underwriting margins increased 13% to $130.3 million.
Health Insurance premium revenue declined 4.5% year over year to $169.5 million, while underwriting margin remained unchanged at $39.4 million.

Premium revenue from the Medicare part D business increased 64% year over year to $81.6 million, while underwriting margin increased 8% to $7.3 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 15.3% for the quarter, compared with 15.2% in the year-ago quarter.

During the quarter, Torchmark repurchased 874,000 million shares at a total cost of $44.4 million.
Looking Ahead

Followed by better than expected results, management hiked its earnings guidance for full year 2012. It now expects 2012 earnings per share in the range of $5.15–$5.19, up from the earlier guidance of $5.08–$5.26. For 2013, management projects earnings to be in the range of $5.45–$5.85 per share.

Peer Assurant Inc. (AIZ - Analyst Report) also reported earnings of $1.55 per share on the same day, substantially ahead of the Zacks Consensus Estimate of $1.39 per share.

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.

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