GL - Earnings call transcript Q1 2018

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Operator

Good day, and welcome to the Torchmark Corporation First Quarter 2018 Earnings Release Conference. Today's conference is being recorded.

For opening remarks and introduction, I would now like to turn the conference over to Mr. Mike Majors, VP Investor Relations. Sir, please go ahead.

Michael Majors

you. Thank everyone. morning, Good

today Officers; Coleman Financial Frank our Brian call our Officer; Larry Co-Chief Mitchell, Counsel. Executive Svoboda, General are the and Gary Hutchison, and Joining our Chief

your of SEC. questions are Some for purposes our refer guidance Accordingly, general or file XXXX comments answers XX-K provided may forward-looking on statements our contain that please to only. to with the

to release these also our non-GAAP measures. Gary reconciliations earnings comments terms, our of discussion may to contain measures. turn and of now for Some see website over I'll the GAAP and Please call Coleman.

Gary Coleman

share morning, Thank for you, impact compared XX% Mike, In the and as growth On million or quarter share a per the share quarter, was and million on basis, per per year $X.XX good of that $XX.XX. net $XXX book income was per share ago. share, have $XXX or year return or tax a been increase $X.XX Without the per from everyone. was XX.X% was $X.XX estimate X%. March ago. XX income approximately first operating reported would we of or value a million GAAP of reform, $XXX to the Net equity

a year higher in Income and million to $XXX Direct American Growth life underwriting X% margin maturities, fixed increased ago and ago. to XX% on from insurance and premium revenue from million, margin X% Excluding to life operations, and losses a $XX.XX. per growth, at share unrealized gains $XXX on exceeded was underwriting margins equity XX.X% year due value premium was Response. return book grew In our up

X%. grow year, we the expect For to underwriting income around to X% life

margin to and X% grew $XXX margins million, was $XX due at Growth growth Heritage margin exceeded premium X% On million. Income. higher the American health side, underwriting revenue in up Family and health premium to to underwriting

ago underwriting million, income with and around X% from expect we X% year $XX were to a up X%. our Administrative expectations. For expenses the grow in year, health to line

of compared expenses a ago. were premium, year a As X.X% percentage administrative to X.X%

administrative I be expect on we for turn year, premium. his expenses the the X.X% of operations. around marketing now to the For call over comments Larry will

Larry Hutchison

count. the agent X,XXX, the Gary. quarter X,XXX, year you, agent underwriting ago, up At producing first but $XX XX% The from first but X% at quarter. was to quarter National year-ago the million, sales average The million ended and were down million, underwriting to was to life quarter. the down XX% of for the premiums $XXX end at producing The net million, Liberty fourth million. American X% count compared count up quarter X% were sales up life X%. was up increase ago, up Thank producing margin average a were National, The the Net At for increased to X,XXX. and to from agent premiums growth up $X life quarter of driven life up Income, was a $XX count $XX XX% sales fourth $XX margin while million, the primarily by from life from to agent health Net X% down life was was were count year X% first producing X% quarter. X,XXX. sales in agent $XX XX% the million. Liberty The

underwriting were Our XX% X% to XX% up were and Direct $XXX increased life sales Globe to $XX Response at premiums $XX margin million. life to operation million, down million. Net Life, life

sales by the discussed have we on is decline design. calls, previous As

agent Approximate quarter end to million underwriting X% increased X% fourth X% $XX decline. the the $XX Heritage, premiums to XX% sales Response, be supplement, XXXX both was the trends to X% refine million, XX% Heritage, operations, grew To units. compared Health are Medicare count year-ago Family United as producing We the on to sales. follows: I year X% million. X% the American continue X% quarter. the to growth; market Medicare from full to will XXX, supplement expected million. programs forward-looking count X% marketing and increases first sales were Net on margin National, $XX producing National, new health and growth; X,XXX. now for growth. net our the turn at to quarter average The to profitability Family for health in an XX% the growth; Liberty call XXXX for some are XX% to effort the trends ago Liberty was X% to to X% to adjust be XX% of $XX my sales to the agent sales follows: X% maximize full premiums from health General million. American group At information. The year of increased discussion Income, Direct Agency, XX% individual $XX health Approximate Individual quarter, life a now to down net complete to net X% provide year X% At up and to up and the growth; as I United health American increased Gary. will due to expected back

Gary Coleman

and investment minutes net investment on X% Excess net share interest define income basis, first, I a investment was discussing impact share excess few to investment income. as operations; over required our the our less want we year-ago liabilities of On was per up income, spend policy which excess a debt increase program, reflecting a X%. $XX investment repurchase income million, quarter. the our

expect For grow the investment X%. excess by about year, income to we full

increase a we share an about basis, X%. of should on see per However,

X.X% of average maturities below percentage $XXX BBB+, percentage the were million of bonds is billion, the and billion ago. total $XXX times, $XX.X And including is $XX grade of invested investment an grade investment amortized unrealized of so the portfolio grade, gains same equity, of with portfolio are year-ago net as rating maturities bonds is $XX.X A- the excluding our fixed million fixed the XX%. grade maturities, below year compared investment of fixed portfolio, Of and a to costs. investment Overall rated leverage bonds fixed with to low the were quarter. investment X.X X.X% assets on a a In to billion compared maturities year-ago,

In addition, gains have net we unrealized higher in billion, maturity fixed $X.X a million the $XX approximately of year-ago. portfolio than

at XX primarily the X.XX%, yield industrials fixed Regarding first A, in investment an average We in of of average yield, average an investment-grade and rating we million years. tax in $XXX quarter invested and invested life immunities. of maturities, an

the in the first X.XX%, yield first was the portfolio, yield points of XXXX. down quarter entire the For quarter from XX basis X.X%

XX, approximately was March yield portfolio of As the X.XX%.

to investment the XXXX, driving new higher year. new of on X.XX% guidance operating money current for of midpoint For positive our assumes going full would average like excess the We income forward. Higher by money rates interest will up income. see impact rates have an yield a

We that are unrealized potential not expect concerned are about realize since them. rate-driven, interest losses not we to would

to We and our importantly, the maturity. to ability have intent, investments hold the more

sheet, if impact but continued interest primarily don't a not under balance FAS protection statement, sell rates XX. rise, noninterest-sensitive for or will However, statutory products accounted low GAAP rate we our the since environment income

in extended rates, interest Torchmark income benefit would rate environment. investment interest continue substantial low we would from While an to excess earn higher

will I back to the Now, Frank. call turn

Frank Svoboda

Thanks, Gary.

$XX the our and First, few year I capital want assets ended of liquid to The share parent discussing with million. repurchases spend position. minutes a

less Torchmark liquid subsidiaries, to will parent company's assets, we the addition flow excess it, from In the by generate paid debt parent the XXXX. cash in shareholders. paid received as these to its results from The on cash the and dividend primarily excess dividends flow, parent define the interest

We we expect in currently the spend $XXX of cash $XX to the the during excess hand to Torchmark million expect $XXX XXXX, cash buy $XXX first year. of assets be the $XX.XX. on beginning at price million to the Thus, to including have X year, quarter, $XXX in and shares liquid the flow of million range at available average million of to million. around assets the In million an to parent we

today, Thus, These were million at have have cash parent full made million more purchase excess company's So we far the we cash of from $XX.XX. $XXX shares. spent average in April, to XXX,XXX parent the shares of million X.X $XX year price flow. spent for than purchases through an to acquire company

as continue to will previous use will cash we calls, on repurchases conditions those our use a market efficiently If are share primary noted possible. as be of As expect that we favorable, funds.

to We the of parent XXXX, also expect of assets insurance these utilize our $XX company any million support at to approximately operations. of retain funds need end the to absent

Now, regarding capital subsidiaries. insurance levels our at

to current support to necessary capital is goal Our at ratings. levels maintain our

decrease from XX, passage the the several around Even XXX%, RBC consolidated the legislation tax prior the level capital the consolidated the deferred due end a from year assets than level required RBC target, XXX% though lower ratio of by a was capital For this the XXX% amount tax resulted on of basis. years, reduction our NAIC times past reform is been ratio in December has of X.X regulators. of year. XXXX, our that last at an At to the that

of appropriate in for on XXXX. subsidiaries our We still are insurance consolidated determining the early the stages target ratio RBC

will discussions or in Thus, the levels XXXX to will impacted. changes to effective we with any confident time the XXXX. any we delayed this from will if impact choose be fund we our have months. can required changes additional instance, our without flow. until cash capital NAIC capital the that It agency such and In regulators insurance contributions, our a factors targeted rating what remains We existing significant unclear will make make on are unsure be excess coming or capital should we are at how amount

first XX% Liberty a underwriting underwriting comments compared of were those XX%, margin The Next, results. a of quarter life our This in saw quarter. first quarter a the on of which decrease percent XXXX percentage as first XXXX, higher premium than obligations expected. as quarter, the in we down in the was in lower from underwriting of the the margin In policy National. few reflects year-ago to

operations, compared of percent than respect in year year-ago premium. XX% compared year of claims are the we've the the for past anticipated. the and of year experienced the of generally this Direct claims is to in XXXX, claims as the this With the and quarter underwriting first a quarter the expected, At of obligations While that margin margin the to of in higher will quarter primarily XXXX. higher quarter was XX% XX% range XX% the full the years of favorable premium time, higher Response claims of underwriting fluctuations, the than in higher we in year first couple with in quarter to first percentage than quarter. higher our the to first be believe the This the normal this of in attributable as in as were

margin our the with was was anticipated for than higher While percentage in quarter. guidance, underwriting we line the it previous

For of quarters, the last four XX% the premium. margin averaged has underwriting

a the prior For year are now slightly be for of the range from full the estimating underwriting XXXX, to in Response Direct XX% our to we XX%, up margin guidance.

tax stock Finally, expense year-ago the compensation from of increased net quarter. substantially

call, from to is our The this net of be in We million to primarily million. tax new in As last with for the $XX $XX in on first anticipate attributable expense to law. was benefits the range tax quarter expectations. noted the the net XXXX resulting lower line our expense

our The the per this be of range $X.XX comments. XXXX, will Larry. guidance. unchanged December we XXXX. my from with net to are guidance the $X our are Now is operating for turn income the Those to year respect now XX, back guidance in the for I ended previous projecting $X.XX to midpoint of will share call earnings

Larry Hutchison

comments. you, our Thank Those are Frank.

now open the for questions. up call We will

Operator

will from question Morgan. J.P. Bhullar from Thank you. first [Operator come Our Jimmy Instructions]

Jimmy Bhullar

Hi, good morning.

or going I I been difficult to comfortable obviously, early that once first, XXXX. going because start you hasn't question and, still would weak, to I you by stabilize a have you're that marketing. thought indicating before your Direct sales, through life Are to - on in sales you begin sales But had growing? just are lapped mentioned then that I and comps, happened. you would the XXXX Response. limiting think have So had be especially you're obviously would have that

Larry Hutchison

the last and Larry, Jimmy, year-over-year think declines flat low the to be to in year this soften that a throughout we - I basis, early point XXXX by the XXXX. the XXXX do be declines quarter. at implemented or the to implemented comparison of is flat fourth and XXXX. close expect beginning primarily the this the The of higher stricter Year-over-year to changes rates of due were underwriting by these are first throughout of quarter effectively

be changes, adjustments these made. need if the of determine to We results continue any to additional evaluate

Jimmy Bhullar

then, any on They've And Okay. color your fairly been strong. sales? health

Is on quarters you that row. just something had product it think growth you're market what's the or I two is that is and…? really the conditions driving front the doing it double-digit in

Larry Hutchison

that. I think driving market conditions are

little still emphasis health at National. life remains expected we but sales, Liberty on particularly sales, stronger Our have a than

Jimmy Bhullar

And on stock expense, quarter. Okay. this was then lastly options high fairly just that actually

$X of the what's year it's increase that lower tax the even for million, for the think part been it expectation your I for is - rate, What's your last the go-forward a on wasn't think year. I for so that? expectation reason that basis? whole

Frank Svoboda

anticipate an Yeah, actual think just should benefits has impact million be for it, into number. is it as that $X in And upon exercises Jimmy, million We depending our to our But in some it the I the expectations that $XX in runs because that range million. volatility should stock that the does it line year of what the does I for around it option changes per be stock quarter. are $XX changes, the year think year. tax it with on during excess price and have

Jimmy Bhullar

Okay. Thank you.

Operator

[Operator Thank comes question Our Research. from Bass Instructions] ‎Autonomous from next Erik you.

Erik Bass

Hi. Thank you.

up full conservatism increase and for saw you revised the margins year? Direct negatives health this guidance not and any as there income the you of well for change, the favorable as Why I bit. underwriting midpoint Is year Response expectation in you the prior just your for expectations? see your the versus or given this little offsetting think Just target do the quarter a

Gary Coleman

Yeah. Hi, Erik.

year moving to We did stock some little their the with a bit quarter. with just respect our expense parts expectation to to actually a We just different there we Response with them in the of due stock Liberty compensation the well guidance. for option Direct uptick a are claims increase several on think did an bit or well. first of little I respect bit. respect little to as then the are as higher National And seeing lower

at of early point it net-net, kind same. Just still being time year, leaving the we're in this in the

Erik Bass

And capital of you. result the down RBC tax talked a having Thank you've to in debt about event it. ratio. has the your reform. needing Got come And previously debt as of rebuild capacity to

leverage And so, capacity and what term do longer the you target much then you? for this does ratio give how

Gary Coleman

end That's we existing capacity of ratio that in and rating quite able have stay over do to as we within be the by million. of below the than dip Well, definitely expressed that be guideline by we that will think lower to by our debt/cap think will agencies end the do year to what the XXXX of ratings We actually keep - of $XXX had XX%. our number years. our a

think what to And be that the might might Now, to necessarily wouldn't so we have we'd our plays about what amount the target capacity. be. for. go of that ratio want we'll just see That as target - out how year our

Erik Bass

preliminary any C-X on RBC impact do quickly, And for of the have you. last you changes from charges the your proposed ratio just to investments? estimate Thank then potential the

Gary Coleman

at NAIC we don't received guidance changes think just this just too time. of from have might indication be. a enough haven't and to really that actually point they good we what It's Now, the those in early

Erik Bass

you. Thank Okay.

Operator

Thank you.

Next from question, Scott. Janney Glasspiegel we have Montgomery Bob

Robert Glasspiegel

Good morning, Torchmark.

I year. flu of surprise. reassured Am about implying could I But it Liberty or…? bit had. surprise season it way short the bad going had the it a worse. at wrong as into in mean, was actually National were as you the a looking was I margins You have wasn't have lower a a we as

Gary Coleman

the you bit back It's go expect expectation. quarter usually first National, little a the it and claims the at higher Liberty be No, of history higher if our we quarter. Bob. But look first than are higher. in to Actually,

For this obligations the XX% XX%. that's low. it had difference was last percentage, the was year, policy five in years, real The was we've we at It last had quarter. range

goes lower at the the to year. on. XX% We as for expected it to for quarter ratio a higher year we expect And and a first be

expect - full in then a policy we is wasn't But through to little again, was for that of and we'll ratio the the of few surprise, year expected. it level it but has which will XX%, the be years. year what than So a we we it - the much what around the last higher it rest bit out obligation

Robert Glasspiegel

worst beating the may a the industry, I'm dead I quarter, it's of awful season been. the the was into horrific thought weather apologize. I flu this you it for particularly going to be flu other the It rotten end Gary, At But to issue. in your flu did I have the horse of not season the I companies was here, was quarter, be I we're just still light you realized Liberty-National-specific saying, think when year, expect would from flu a you season? mean, going well. rampant, we a not regions. the see than and as had was first worse mean, - it's ever in

you're mean, a I but was not is it's it surprise, bigger season it worse flu sounds have saying the like was would think bad how I given you or you're than what thought it don't saying? So,

Larry Hutchison

no, cause the terms the big Well, impact deaths didn't flu see in we first from quarter. of of in the of that season

we we get always that we in - those bit as the the by not fact just than - are. So little from a sure weren't standpoint. the what quarter, have going we we of we see deaths the - were the uptick cause we'd We higher with - flu. did was flu-related big didn't into - would've by in much flu But did what really harder they mind, claims. pretty It's really total not that But expected.

Robert Glasspiegel

not. publication Life whether for if interest it stories Nestlé Okay. don't up put the or have market. available? there would the I you was see know Gerber are I potentially confirmed that But stories has are trade

Gary Coleman

Bob. Yeah,

seen same have We those announcements.

Goldman past talked of in. has think in interested Gerber fit It a an we put the well the does income have announcement the up sort control company to we had certainly it they that for be that going products, And generally does the I as would distribution. the market, were protection in sale. of profile that middle and

I we'd started our this process point Best knowledge, this in at time. in be point least interested. think time, has no at So at to

Robert Glasspiegel

Good Thank you. Okay. that. on luck

Operator

Instructions] Goldman Our you. [Operator Alex Sachs. Thank question from of comes Scott next

Alex Scott

Hi, good morning.

some expenses. like across overall guess I [ph] higher. was just corporate of have at expenses higher admin been looks like the margin. First were little tech And expenses the on question It a like your would

sort Just sort just of And cetera? what's headwind, of if as we a there wondering that, are to we tax Or at from think pick your from baked systems, and of et will that of guidance slowly for integrate of sort into that a levels peak XXXX decline here? continue should kind you expense. would all is year-over-year any kind up

Frank Svoboda

just Is to tax understand said - on Alex, non-deferred you acquisition or…? Yeah, expenses, just I that but expenses, you the what our meant clarify, admin expenses?

Alex Scott

yeah. Yeah,

Frank Svoboda

I a in large as admin well, the true seeing our in acquisition on uptick yeah, expenses, we reflecting is both expenses really respect And expenses. to uptick expense bit an two to - an as IT-related really think little part are pension an our of okay. our uptick well non-deferred our as with and Yeah, things, this

initiatives have the security, and investing organization. well IT amount and modernization we analytics as a So across on been systems other as fair agency

those larger come do projects and will, increases, started have to some as onboard if normal the than take And so hold. depreciation of we you

Alex Scott

and remain more those is that would would from the it just a a you Or terms in to fade that year here? while? so, for like this be peak of expenses level And will of something consider of

Frank Svoboda

- time and level that that how the changes is - the as some interest anticipate impact pension at I on we - going and continue Yeah, least our pension behave overall would invest. in those expense, growth and we forward, the that reliant the would obviously, to has or we rates level increases would But and that of about and they expect - this rates on them continue wouldn't more slight to yeah, be anticipate on at over that expense. then would

Alex Scott

that. have any health action, any second pricing some for just pricing And just question, your tax any Thanks related of reform plan Okay. you other to or on you take factors? taken do action products, or

Gary Coleman

time. to continue in No, not is we will at something this look It point that at.

our in perspective. we'll competitive as continue We Med-sup to health on. just from a to the the that and continue year on look especially And evaluate goes lines,

Alex Scott

Thanks much. Okay. very

Operator

Thank you.

next from Sam Our comes question Hoffman Lincoln Square. of

Sam Hoffman

question be guidance formula? you it a any to based had ask capital on just makes it to be on how your changes Or flow. needs ratings? based clarify free I and they could models you determine and Is RBC, agency morning. you going cash rating the going give is to - Good that and NAIC on to capital you the if on

Larry Hutchison

our upon Yeah, company of to so of shareholders. available on the dividends the pay I flow, we of to our paid that are cash have interest debt free be to respect with amount insurance initially, out that excess that our our and levels the have dividends we based less think than all we the that

rating. So with the of the make we capital of need upon sure are, Once amount at determinations it's levels factors with are about, where to for change regulators to capital - maintain regulators that appropriate amounts discussions satisfied to we those continue adequate we do risk and appropriate put desired going or to have or support what as we're of level, those levels us what agency do with to to - be in make - look those profile. rating look with then our capital our our will discussions to are, think reach respect maintain given based then are what some as to use and we're as - that our of to the the we we

what with take level what we agree discussions maintain. a to well the appropriate will those we as take it together would rating based on into all need it agencies - will account respect into all So - as as the to with just regulators

Sam Hoffman

the this, of agencies see change all the the they'll you capital, RBC the rating hold? of view their regulators in - think do do amount to change you So formula, terms will the you require

Larry Hutchison

at say It's really I too to point tell. in early this can't time.

Some at of much not all. may have an their that rating agencies own so they of - have the model, it impact

NAIC of formula. any haven't a Some in understanding discussions the do this we situation how rating on in And other had meaningful them about time RBC the think agencies want our it. get with rely true really more at of point they to to

Sam Hoffman

Okay. Thanks.

Operator

next [Operator of comes question Instructions] Ryan KBW. from Krueger Our

Ryan Krueger

or thanks. to potential equity be to Hi, larger capacity you'd the Good can you a transaction I able available, the to would morning. have M&A. was end? do guess, how it I deal be if suspend balance repurchase transaction? expect to And, had if a I discuss fund willing on follow-up much either question share was you extent to a M&A guess, the issue sheet on to

Frank Svoboda

right around limits Yeah, be, an been and that we financial needed be Ryan. do would about with situation our as so, cash indicated some have our came With existing respect $XXX as of to by It fund to we long out total sense. acquisition, to rating would debt it earlier - made flows are and million if excess capacity, set we use as maintain the agencies. probably willing we to to that were

And it combination a use acquisition, of best way debt modeled finance and at of do what's debt? to out we of determine, obviously, Is we that? our the looking work be to flows? it simply type as that cash Is it would any all we cash analysis sense to of flows have into use to straight our So, free all shareholders. just free for our make make that the would or

Gary Coleman

at. which the the generally we're capital income have We in those of also are Ryan, company kind the that And at past distribution, tend selling that makes market cash products. similar in a looking companies to companies strong to we're it flow. said looking differences with middle

fairly from the of demonstrate more - $XXX it can we we quickly company yes, even that can million pay that the we if cash Although, could from back we acquire. than borrow probably Frank mentioned the

So I million limit. $XXX wouldn't is say the

depending go more on of would think I could purchase. we that we type that probably than company the

Ryan Krueger

talked, been NAIC then, mitigate in to incorporated. it. on the Have from of evaluate points if updated XX had potential partially that impact? potential RBC I previously able a the Got And was tax would ratio the the about proposals you kind reduction Thanks. XX you think impact the reform of based to

Gary Coleman

those We I not be initial and at on they pullback do all those at time. at actually of this updated in give that not to have calculations factors you understand some considering point may they're as that they of Academy at they I had the seen some severe recommended new up initial what where as their factors. some also has come least have factors with and issued. that Actuaries redo least models

point of it's time. why in this the that's So at up air really kind in

Ryan Krueger

Got it.

Thanks a Okay. lot.

Operator

time, Sir, at this questions I further am showing no in the queue.

Michael Majors

you this comments, and quarter. our morning. we'll again next All you Those to talk us joining for right. are Thank

Operator

This ladies concludes gentlemen. teleconference. and you, today's Thank

You disconnect. may now

Globe Life (GL) 19 Apr 182018 Q1 Earnings call transcript