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TMK Concludes Family Heritage Buy

TMK AIZ

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Life and supplemental health insurer Torchmark Corp. (TMK - Analyst Report) has announced the successful completion of privately-held supplemental health insurer Family Heritage Life Insurance Company of America. The acquisition, which was announced in August, 2012, was completed on schedule.  

The acquisition will be additive to Torchmark’s earnings immediately with 2012 earnings benefiting by 1 to 2 cents per share. Earnings in the year 2013, however, will see greater accretion of 13–17 cents per share. Moreover, the deal would leave the free cash flow of the company unaffected.

For 2013, the integration of Family Heritage will cause 5%–6% increase in administrative expenses at Torchmark.

Of the total value of the deal, which is $232 million, around $200 million was funded from notes issued in the month of September this year.  

Family Heritage, based in Ohio and founded in 1989, has demonstrated strong performance with substantial premium growth over the years. In addition to this, the company has solid underwriting margins.

Henceforth, Family Heritage will be run as a standalone company. Torchmark will distribute Family Heritage’s supplemental health insurance products to middle-class families via the latter’s 1200 captive sales agents and 41 sales directors. The acquisition is deemed as the best fit for Torchmark, since it was aiming to grow in supplemental health insurance line of business, with a return-of-premium feature, which provides higher margin.  Overall, in addition to its distribution team, Torchmark will get Family Heritage's business, which has over 223,000 policies in force.

Late last month, Torchmark reported its third-quarter 2012 net operating income of $1.29 per share, growing 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.

Torchmark, which competes with Assurant Inc. (AIZ - Analyst Report), 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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