Mike Majors – Vice President-Investor Relations Gary Coleman – Co-Chairman and Chief Executive Officer Larry Hutchison – Co-Chairman and Chief Executive Officer Frank Svoboda – Executive Vice President and Chief Financial Officer Brian Mitchell – General Counsel.

Jimmy Bhullar – JP Morgan Chase Matt Coad – Autonomous Research.

Good day, ladies and gentlemen and welcome to the Torchmark Corporation Second Quarter 2017 Earnings Release Conference Call. Please note, today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Mike Majors, VP-Investor Relations. Please go ahead, Mike..

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

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our 2016 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures.

Please see our earnings release and website for a discussion of these terms and reconciliations to GAAP measures. I'll now turn the call over to Gary Coleman..

Thank you, Mike, and good morning, everyone. In the second quarter, net income was $140 million or $1.18 per share, a 4% increase on a per share basis. Net operating income from continuing operations for the quarter was $142 million or $1.19 per share, a per share increase of 7% from a year ago.

On a GAAP reported basis, return on equity as of June 30 was 11.4%, and book value per share was $42.55. Excluding unrealized gains and losses on fixed maturities, return on equity was 14.3% and book value per share was $33.49, an 8% increase from a year ago.

In our life insurance operations, premium revenue increased 5% to $574 million, and life underwriting margin was $147 million, a 3% from a year ago. Growth in underwriting margin continues to life premiums growth due primarily to the Direct Response segment, as we have discussed in previous calls.

For the year, we expect life underwriting income to grow around 2% to 4%. On the health side, premium revenue grew 2% to $243 million, while health underwriting margin was up 5% to $55 million. Growth in underwriting margin exceeded premium growth due primarily to favorable claims experience.

For the year, we expect health underwriting income to grow 1% to 3%. Administrative expenses were $51 million for the quarter, up 6% from a year ago, and in line with our expectations. As a percentage of premiums from continuing operations, administrative expenses were 6.3% compared to 6.2% a year ago.

For the full year, we expect administrative expenses to remain around 6.3% of premium. I will now turn the call over to Larry for his comments on the marketing operations..

Liberty National flat to 4% decline; Family Heritage 7% to 11% growth; United American individual Medicare supplement flat to 5% growth. I’ll now turn the call back to Gary..

I want to spend a few minutes discussing our investment operations. First, excess investment income. Excess investment income which we define as net investment income less required interest on net policy liabilities and debt was $62 million, a 13% increase over the year-ago quarter.

On a per share basis, reflecting the impact of our share repurchase program, excess investment income was up 18%. The higher within normal increase is due primarily to the following factors.

First, interest expense was higher in the second quarter of 2016 due to debt issued early in that quarter, refinancing those that did not mature until later in the quarter. And also investment income in 2017 is higher because the negative impact from the lengthy delays of receiving party reimbursements has declined.

For the second half of the year, we expect excess investment income to grow around 5% and excess investment income per share grow around 9% to 10%. Now regarding the investment portfolio, invested assets were $15.3 billion, including $14.7 billion of fixed maturities at amortized cost.

Of the fixed maturities, $14 billion are investment grade with an average rating of A- and below investment grade bonds are $672 million compared to $763 million a year ago. The percentage of below investment grade bonds to fixed maturities is 4.6% compared to 5.5% a year ago.

With a portfolio leverage of 3.7x the percentage of below investment grade bonds to equity, excluding net unrealized gains on fixed maturities, is 17%. Overall, the total portfolio is rated BBB+, just slightly under the A- a year ago.

In addition, we have net unrealized gains in the fixed maturity portfolio of $1.7 billion, approximately the same as a year ago. As to investment yield. In the second quarter, we invested $154 million in investment grade fixed maturities, primarily in the industrial sectors.

We invested at an average yield of 4.90%, an average rating of BBB+ and an average life of 20 years. For the entire portfolio, the second quarter yield was 5.68%, down 12 basis points from the 5.80% yield in the second quarter of 2016. As of June 30, the portfolio yield was approximately 5.68%.

In the midpoint of our guidance, we are assuming an average new money rate of 4.80% for the remainder of the year. We are still hoping to see higher interest rates going forward. Higher new money rates will have a positive impact on operating income by driving up excess investment income.

We are not concerned about potential unrealized losses that are interest rate driven, since we would not expect to realize them. We have the intent and more importantly, the ability to hold our investments to maturity. However, if rates don't rise, a continued low interest rate environment will impact our income statement, but not the balance sheet.

Since we primarily sell non-interest sensitive protection products accounted for under FAS 60, we don't see a reasonable scenario that would require us to write-off DAC or put up additional GAAP reserves due to interest rate fluctuations. In addition, we do not foresee a negative impact on our statutory balance sheet.

While we would benefit from higher interest rates, Torchmark would continue to earn substantial excess investment income in an extended low interest rate environment. Those are my comments to the investments. I will now turn the call over to Frank..

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchases and capital position. In the second quarter, we spent $81 million to buy $1.1 million Torchmark shares at an average price of $75.89. So far in July, we have used $5 million to purchase 65,000 shares at an average price of $77.45.

Thus for the full year through today, we have spent $168 million of Parent Company cash to acquire more than 2.2 million shares at an average price of $76.08. These purchases are being made from the Parent Company’s excess cash flow.

The Parent Company's excess cash flow, as we define it, results primarily from the dividends received by the Parent from the subsidiaries less the interest paid on debt and the interest paid to Torchmark’s shareholders. We expect the Parent Company's excess cash flow in 2017 to be in the range of $325 million to $330 million.

With $168 million debt on share repurchases thus far, we can expect to have $157 million to $162 million available for the remainder of the year from our excess cash flow plus other assets available to the Parent. As noted on previous calls, we will use our cash as efficiently as possible.

If market conditions are favorable, we expect that share repurchases will continue to be a primary use of those funds. We also expect to retain approximately $50 million of Parent assets at the end of 2017, absent the need to utilize any of these funds to support our insurance company operations. Now regarding RBC at our insurance subsidiaries.

We currently plan to maintain our capital at the level necessary to retain our current ratings. For the past several years, that level has been around an NAIC RBC ratio of 325% on a consolidated basis.

This ratio is lower than some peer companies, but is sufficient for our companies in light of our consistent statutory earnings and the relatively lower risk of our policy liabilities and our ratings. At December 31, 2016, our consolidated RBC was 324%.

Although, we do not calculate RBC on a quarterly basis, we are still planning to target a 2017 consolidated RBC ratio of 325%. Next, a few comments to provide an update on our Direct Response operations.

During the second quarter of 2017, the growth in total life underwriting income continue to lag behind the growth in premium due to higher policy obligations in our Direct Response operations. As discussed on previous calls, this is mostly attributable to higher obligations related to policies issued in calendar years 2011 through 2015.

On our last call, we noted that we anticipated the margin for the full year of 2017 to range between 14% to 16%. For the second quarter, the margin was 15%, fully in line with our expectations for the quarter. We still anticipate the margin for the full year to range between 14% to 16%. Now with respect to our guidance for 2017.

We are projecting the net operating income from continuing operations per share will be in the range of $4.70 to $4.80 for the year ended December 31, 2017. The $4.75 midpoint of this guidance reflects a $0.05 increase over our previous guidance.

The increase is primarily attributed to an improved outlook for underwriting income as well as an increase in investment income. Those are my comments. I will now turn the call back to Larry..

Thank you, Frank. Those are our comments. We will now open the call up for questions..

Thank you. [Operator Instructions] Our first question will come from Jimmy Bhullar with JP Morgan Chase..

Hi, good morning. I had a couple of questions. Obviously pretty strong results overall but the Direct Response business, the sales have stayed weak, despite easy comps. So you mentioned the reduction in circulation.

Have you fully pulled back from marketing in segments, that you’ll be emphasizing or when do you reach that point where you would have fully sort of limited your marketing efforts and beyond reach you could started growing?.

Jimmy for 2017, we expect our insert media inquiries to be down about 12% to 15%, for electronic inquiries will be about 5% and electronic inquiries represent about two-thirds of the inquiries receive today, so we’re seeing some positive in the marketing.

The circulation for the year, we got about 12% to 15%, mail volumes will be flat to down – down slightly, I think that will be doing in late 2018 or 2019 will begin to positive sales growth going forward. As our margins return to acceptable levels, we will expand our marketing efforts to increase sales.

As you know those positive sales will occur as we use the [indiscernible] and better segmentation to identify the best responding, much profitable consumers within each segment of our business..

Okay.

And then on – just obviously there is uncertainty about what’s happening with Medicare but what are your expectations under the current administration in terms of changes in reimbursement rates on med advantage plans and whether or not that helps demand for MedSup plans?.

Brian, do you want to answer that question?.

Sure, Jimmy, we are constantly reviewing the proposals that come from Capitol Hill, as of the current time, none of the proposals seem to be gear that way to doing away with the original Medicare.

With regard to your question as to reimbursements, again that’s up in the air, we do anticipate the possibility of increased reimbursements going forward into the next year but nothing certainly at this point..

Okay, thank you..

Thank you. Our next question will come from Matt Coad with Autonomous Research..

Hi, guys. Thanks for taking my question. As you noted earlier, it’s a strong quarter in-house with the underwriting margin of 5% and thanks for the updated guidance. That updated guidance however emphasizes a 1% or 2% increase in the margin in 3Q and 4Q.

So can you just provide some color on what cost do you outperformance this quarter and why you don’t expect it to be sustainable?.

Matt, I think in your question ultimately was looking at little bit higher than – higher margins on the – from the health business in the first half of the year, we are not really seeing that in the second half of the year.

And that’s right, largely with respect to both Liberty and American Income we did see some favorable claims in the second quarter that we just not really seeing continuing on for the full year..

Thanks guys..

Thank you. [Operator Instructions].

Yes, this is Frank. I do need to clarify in my opening comments in excluding the excess capital I accidently indicated that our excess cash flow was our dividends – yes, the dividends received from its subsidiary less the interest paid on debt and it should be the dividends paid to the Torchmark’s shareholder.

I think I accidently said interest on our Torchmark’s shareholder. I just want to clarify that..

Thank you. And at this time, there’s no further questions in our queue. I’ll turn the conference back over to our speakers for any additional or closing remarks..

Okay. Thank you for joining us this morning. Those are our comments, and we will talk to you again next quarter..

Thank you. And again ladies and gentlemen, that does conclude our conference for today. We thank you for your participation..