torchmark corporation - stockline · 2018. 11. 24. · torchmark corporation boa merrill lynch...

TORCHMARK CORPORATION BOA Merrill Lynch Insurance Conference February 14, 2018

This presentation may contain forward-looking statements within the meaning of the federal

securities laws. These prospective statements reflect management’s current expectations, but are not

guarantees of future performance. Accordingly, please refer to Torchmark’s cautionary statement

regarding forward-looking statements, and the business environment in which the Company operates,

contained in the Company’s Form 10-K for the period ended December 31, 2016, and subsequent Forms

10-Q, on file with the Securities and Exchange Commission, and on the Company’s website at

www.torchmarkcorp.com on the Investor Relations page. Torchmark specifically disclaims any

obligation to update or revise any forward-looking statement because of new information, future

developments or otherwise.

This presentation contains certain financial measures that differ from the comparable GAAP

measures. The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase

transparency by providing broader perspective. Torchmark’s definitions of non-GAAP measures may

differ from other companies’ definitions. Reconciliations between the non-GAAP measures and the

comparable GAAP measures may be found on the Company’s website at www.torchmarkcorp.com on

the Investor Relations page under SEC filings (form 10-K for 2016) and subsequent quarterly earnings

press releases.

Some of the prior year data in this presentation include discontinued operations. Also, some

tables may not foot due to rounding.

2

Cumulative Return

$-

$50

$100

$150

$200

$250

$300

2012 2013 2014 2015 2016 2017

Torchmark

S&P 500

S&P 500 Life & Health Insurance

5-year Cumulative Annualized Return : TMK – 22.5% S&P 500 – 15.78% S&P 500 Life & Health – 17.81%

3

Key Components of Torchmark Model

Underserved market – middle-income

families

Products - basic protection life and

supplemental health insurance

Controlled distribution - exclusive agencies and direct response

Effective cost control and profitability

Consistent strong excess cash flow

Return of excess capital to shareholders

4

Investments in Technology

• Investment Goals

- Improve agent experience and ease of doing business

- Facilitate digital experience for consumers

- Modernize back-office systems

- Expand use of data analytics

- Information security

5

Components of 2017 Net Operating Income ($ in millions, except per share data)

Underwriting Income $625 $5.25

Excess Investment Income 239 2.01

Tax and Parent Expenses (288) (2.42)

Net Operating Income* $574 $4.82

Stock Compensation Expense, Net of Tax (2) (0.02)

* Net operating income is a non-GAAP measure. Please see appendix for reconciliation to net income.

Per Share

6

Net Operating Income Per Share From Continuing Operations

Compound Annual Growth Rate Through 2017: 10 year- 8.3% 5 year- 7.8%

$2.18 $2.27 $2.32 $2.52

$2.91

$3.31

$3.65 $3.92

$4.13

$4.49

$4.82

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Note: Net operating income from continuing operations for 2016 and after reflects the impact of new accounting guidance implemented on a prospective basis at the beginning of 2016. Note: Net operating income per share is a non-GAAP measure. See net income per share on following page. * On December 22, 2017, the Tax Cuts and Jobs Act (Tax Legislation) was signed into law which significantly revises corporate income tax rates from 35% to 21%, among other modifications. The guidance for net operating income from continuing operations prior to the effects of the new tax reform legislation would have been $5.12.

Guidance $5.90-$6.10*

7

Net Income Per Share

Compound Annual Growth Rate Through 2017: 10 year- 18.2% 5 year- 27.7%

Note: Net income for 2016 and after reflects the impact of new accounting guidance implemented on a prospective basis at the beginning of 2016 relating to excess tax benefits on equity compensation.

$2.30 $2.14 $2.05

$2.70 $3.02

$3.60 $3.79 $4.09 $4.16

$4.49

$12.22 *

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

* As a result of the Tax Legislation, the Company made a one-time adjustment of $874 million in 2017 to estimate the impact related to the Tax Legislation, which is included in 2017 net income. Net income per share for the year calculated prior to the Tax Legislation adjustment would have been $4.88, resulting in a 10 year compound annual growth rate of 7.8% and a 5 year compound annual growth rate of 6.3%.

8

Book Value Per Share

(Excluding Net Unrealized Gains or Losses on Fixed Maturities)

Compound Annual Growth Rate Through 2017: 10 year – 10.4% 5 year – 11.1%

Note: Book value per share as presented above is a non-GAAP measure. Please see following page for GAAP.

$14.77 $15.79

$17.88 $19.87

$21.31

$23.49

$25.85

$27.91

$30.09

$32.13

$39.77 *

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

* Book value per share, excluding net unrealized gains on fixed maturities, calculated prior to the Tax Legislation adjustment would have been $34.68.

9

Book Value Per Share

Compound Annual Growth Rate Through 2017: 10 year – 13.9% 5 year – 11.6%

$14.47

$10.04

$16.40

$20.24

$25.27

$30.56

$27.66

$36.19

$32.71

$37.76

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$52.95*

* Book value per share, including net unrealized gains on fixed maturities, calculated prior to the Tax Legislation adjustment would have been $45.52.

10

Insurance Operations

11







* Net operating income is a non-GAAP measure. Please see appendix for reconciliation to net income

Per Share

12

Components of 2017 Underwriting Income ($ in millions)

$325 $127

$74 $79

Life Underwriting Margin by Distribution Channel

American Income Life Agency

Globe Life Direct Response

Liberty National Life Agency

Other

Total $604 Million

* Underwriting margin is a non-GAAP measure.

Underwriting Margin*% of

Premium

Life $604 26.2%

Health 220 22.5%

Other 11

Total $834 25.4%

Administrative Expenses

Net of Other Income (209) 6.4%

Underwriting Income $625 19.0%

13

2017 Premium by Distribution Channel ($ in millions)

$89

$364

$196

$254

$73

Health Premium by Distribution Channel

United American General Agency

Family Heritage Life Agency




$999 $813

$275 $220

Life Premium by Distribution Channel




Other

14

American Income – Life Sales ($ in millions)

$92

$108

$128 $138 $142

$159 $153

$172

$198

$210

$223

$0

$50

$100

$150

$200

$250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

10-Year Compound Annual Growth Rate – 9.3%

15

American Income – Agent Count

2,545

3,085

4,154 3,912

4,381

5,176 5,302

6,434 6,552 6,870 6,880

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


16

Liberty National – Sales ($ in millions)

$47 $45

$52 $54

$60

$67

$0

$10

$20

$30

$40

$50

$60

$70

$80

2012 2013 2014 2015 2016 2017


17

Liberty National – Agent Count

1,419 1,430 1,498 1,478

1,758

2,106

-

500

1,000

1,500

2,000

2,500

2012 2013 2014 2015 2016 2017


18

Family Heritage – Health Sales ($ in millions)

$44

$47

$50 $51

$57

$0

$10

$20

$30

$40

$50

$60

2013 2014 2015 2016 2017


19

Family Heritage – Agent Count

702 695

785

911 909

1,076

-

200

400

600

800

1,000

1,200

2012 2013 2014 2015 2016 2017


20

Direct Response – Life Sales ($ in millions)

$114

$123

$132 $137 $137

$141 $144

$158 $164

$150

$136

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017


21

United American General Agency – Health Sales ($ in millions)

$42 $41

$84

$72

$56 $61

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

2012 2013 2014 2015 2016 2017


22

United American General Agency – Health Premium ($ in millions)

$299 $298 $305

$345 $355 $364

$0

$50

$100

$150

$200

$250

$300

$350

$400

2012 2013 2014 2015 2016 2017


23

Investments

24







* Net operating income is a non-GAAP measure. Please see appendix for reconciliation to net income

Per Share

25

2017 Excess Investment Income ($ in millions)

Net investment income $ 848

Required interest on net policy liabilities (524)

Interest on debt (85)

Excess investment income $ 239

26

Total Invested Assets at Amortized Cost

($ in billions)

$9.9 $10.2 $10.3

$11.1 $11.4

$12.5 $13.0 $13.3

$13.8

$14.8

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

$15.8


27

Fixed Maturity Portfolio Yield (at end of year)

6.96% 6.98% 6.81%

6.63% 6.49%

6.04% 5.91% 5.89% 5.83% 5.74%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

5.60%

28

Capital Management

29

2017 Cash Flow ($ in millions)

Cash from insurance subsidiaries to parent $ 474

Shareholder dividends (69)

Interest expense (88)

Other 13

Excess Cash Flow $ 330

30

Excess Cash Flow ($ in millions)

$353 $343

$281 $269

$367 $355

$364 $377

$358

$311

$0

$50

$100

$150

$200

$250

$300

$350

$400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018P

estimate

$320-$330 $330

Note: Excess cash flow is the cash available to the Parent Company after meeting parent company’s obligations and paying shareholder dividends. * Exclude $305 from the sale of United Investors.

*

31

Share Repurchases

Average Price

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

$78.67 $59.78 $56.99 $52.42

$43.48 $32.13 $27.78 $23.78 $10.12 $24.83

16.3 13.3 13.8 13.4 11.9 9.7 9.5 9.4 4.4 10.9

Year Total Spent (in millions)

Operating P/E Ratio*

No. of Shares (in 000’s)

4,126 5,208 6,292 7,155 8,280 11,219 28,347 8,560 4,613 17,185

6.4 13.3 13.7 12.8 11.5 8.9 9.2 8.8 4.9 11.6

Net Income P/E Ratio**

* Calculated using net operating income from continuing operations.

** As a result of the Tax Legislation, the Company made a one-time adjustment to estimate the impact related to the Tax Legislation, which is included in 2017 net income. Net income P/E ratio for 2017 calculated prior to the Tax Legislation adjustment would have been 16.1.

$325 $311 $359 $375 $360 $360 $788 $204 $47 $427

32

Cash Returned to Shareholders 2008-2017 ($ in millions)

(A) (B)

Total

Share Dividends Cash Net

Year Repurchases Paid Returned Income* (A) / (B)

2017 $325 $69 $394 $581 68%

2016 311 67 378 550 69%

2015 359 67 426 527 81%

2014 375 65 440 543 81%

2013 360 61 421 528 80%

2012 360 56 416 529 79%

2011 788 49 837 497 168%

2010 204 50 254 499 51%

2009 47 47 94 383 25%

2008 427 49 476 427 111%

Total $4,136 $5,064 82%

* The Company made a one-time adjustment to estimate the impact related to the Tax Legislation, which is included in 2017 net income, but is excluded from the net income shown in the chart for 2017. Net income for 2017, including the Tax Legislation adjustment, was $1,454 and the ratio of total cash returned to net income was 27%.

33

Tax Reform

34

• Substantial long-term benefits from the taxation of future profits at the new 21% tax rate

• Increases GAAP equity and post-2017 GAAP income

• Initially, the benefits of lower tax rates won’t translate into materially lower

cash taxes due to changes in the tax base

• Admitted statutory deferred tax assets reduced substantially, resulting in lower statutory capital as of year-end 2017 and reduced RBC %

Overview of Tax Reform

35

• One time adjustment of $874 million recorded in fourth quarter 2017 to net income, largely related to reduction of deferred tax liabilities - Increased net income but had no effect on net operating income - Includes $275 million relating to unrealized gains on fixed maturity investments

• Book value per share, excluding the effect of unrealized gains on fixed

maturities, increased by 15 percent, or $5.09 per share

• Estimated 2018 Effects: - Effective tax rate on operating income of 19% to 20% - Net increase in net operating EPS of $0.88 at mid-point of guidance - ROE estimated in the 14% to 14.5% range - Debt/Capital ratio (without further borrowings) below 23%

Tax Reform - GAAP Implications

36

• Benefits of lower tax rate virtually offset by lower deductible policy reserves and deferred acquisition costs for the next 8 years. Net annual savings of $5 - $10 million anticipated.

• Estimated reduction in 2017 admitted deferred tax assets of $130 – 140

million. - 30 bp reduction in CAL RBC %, resulting in 2017 consolidated RBC in range of 300% – 310%

• Additional consolidated RBC% reduction of approximately 45 basis points if NAIC adjusts RBC factors for the tax reform as expected.

• Target RBC levels for 2018 yet to be determined pending discussions with

regulators and rating agencies.

Tax Reform – Statutory Reporting

37

Tax Reform

Appendix

38

TORCHMARK CORPORATION

39

torchmark corporation - stockline · 2018. 11. 24. · torchmark corporation boa merrill lynch...

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