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Torchmark's (TMK) Premium Growth Impresses, High Costs a Woe

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Torchmark Corporation (TMK - Free Report) boasts a niche market focus and has been exhibiting premium growth, consistent strong segmental performances and a steady capital deployment, which will continue to drive its earnings.

The life insurer’s most important distribution channel — American Income Exclusive Agency — has been witnessing higher net sales, driven by an increased agent count. The company projects life sales improvement between 4% and 8% in 2018. Also, expected producing agent count between 7,000 and 7,300 in 2018 should boost higher premiums.

Global Life operates in a relatively non-competitive market, selling basic life insurance products to middle and lower middle-income households and staying beyond the stiff competition purview. Focus on expanding margins rather than boosting sales or sales levels or margins as a percentage of premiums, is bearing fruits. Torchmark estimates the underwriting margin to range between 15% and 17% for 2018.

Given the gradual rise in interest rates as well as a decline in the negative impact of lengthy delays in receiving Part D reimbursements, the insurer has been witnessing improved investment income over the past few years. We expect this momentum to continue in the near term on the back of a better interest rate environment and higher new money rates. In 2018, the company anticipates about 6% rise in excess investment income on a per share basis, resulting in a per share rise of 4-5%.

A robust capital position aids the company to return value to its shareholders via share buybacks and dividend hikes, thus raising optimism among investors. Shareholder-friendly moves like these make the stock an attractive pick for yield-seeking investors.

However, the company has been witnessing rising administrative expenses, mainly due to higher pension costs with the insurer projecting the same to be up 5-6%. Such an increase in administrative expenses can affect the company’s bottom line.

Stocks That Warrant a Look

Investors interested in stocks worth considering from the insurance industry can consider Alleghany Corporation (Y - Free Report) , Arch Capital Group Ltd. (ACGL - Free Report) and The Navigators Group, Inc. (NAVG - Free Report) .

Alleghany provides property and casualty reinsurance and insurance products in the United States and globally. The company delivered positive surprises in three of the trailing four quarters with an average beat of 17.61%.

Arch Capital provides property, casualty and mortgage insurance and reinsurance products worldwide. The company pulled off positive surprises in three of the previous four quarters with an average positive surprise of 1.45%.

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States as well as internationally. The company came up with positive surprises in three of the preceding four quarters with an average earnings surprise of 19.54%.

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