In the second quarter of 2023, Globe Life reported net income of $215 million and net operating income of $251 million. Premium revenue for the quarter increased 3% from the year ago quarter to $782 million. Life underwriting margin was $296 million in the second quarter, down 1% from a year ago. Return on equity was 22.4% and book value per share was $41.44, while excluding Accumulated Other Comprehensive Income, return on equity was 14.6% and book value per share of $72.09, up 10% from a year ago. Globe Life expects life premium revenue to grow around 4% for the year.

In the second quarter of 2023, life premiums were up 5% from the year ago quarter to $395 million and life underwriting margin was up 2% to $180 million. Net life sales were down 4% compared to the year ago quarter, however average producing count was up 8%. Administrative expenses were up 2% from a year ago, and for the full year are expected to be up 3%. Matt Darden reported that there is good momentum with this division and anticipates strong sales growth in the latter half of the year.

Liberty National, Family Heritage, Globe Life, and United American General Agency all experienced increases in premiums and underwriting margin over the year ago quarter. Liberty National and Family Heritage saw increases in agent count, which was attributed to strong sales and recruiting activities, while Globe Life experienced a decrease in net life sales due to declines in direct mail and insert media activity, but experienced growth in electronic sales. United American General Agency's health underwriting margin was down from the year ago quarter.

Net health sales for the quarter increased by 4%, and for the full year 2023 are expected to grow in the range of low single-digit to mid-single-digit growth. Excess investment income was up 7% from the year ago quarter due to higher yield on fixed maturities and short-term investments, and is expected to grow in the range of $11-12 million for the full year.

In the second quarter, the company invested $359 million in investment-grade fixed maturities and $39 million in commercial mortgage loans and limited partnerships. The yield was 5.18%, the portfolio was rated A minus, and the fixed maturity portfolio was 49% BBB, the lowest in 10 years. There was a $1.6 billion net unrealized loss position due to current market rates being higher than the book yield, but the company has the ability to hold investments to maturity.

This paragraph discusses the ratio of BBB securities to fixed maturities, which is 2.7%, and the ratio of below investment-grade bonds plus bonds rated BBB to fixed maturities, which is 52%. The company has little to no exposure to higher-risk assets and does not invest in direct real estate equity investments or private equities. The company performs stress tests to ensure their investments are able to withstand a market downturn, and they expect to invest approximately $1.1 billion in fixed maturities at an average yield of 5.7% and approximately $325 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average yield of 7.5% to 8.5%.

Global Life Inc. began the year with $91 million of liquid assets and ended the second quarter with $74 million. The company repurchased 780,000 shares of its common stock for a total cost of $84 million in the second quarter, and 133,000 shares for a total cost of $15 million in the third quarter. Global Life Inc. anticipates parent company's excess cash flow for the full year to be approximately $420 million to $440 million, which will be available to return to shareholders in the form of dividends or share repurchases. The company had $74 million of liquid assets at the end of the quarter, higher than the historically targeted $50 million to $60 million.

Globe Life is expecting to generate $140-160 million of excess cash flows for the second half of 2023, providing approximately $200-220 million of assets for the parent company. The company plans to distribute $40-45 million of this to shareholders in the form of dividends and use the remaining amount to support their targeted capital levels and maintain their share repurchase program, which is estimated to be $370-390 million for the year. The goal is to maintain the necessary capital levels to support their current ratings, with a consolidated company action level RBC ratio of 300-320%.

RBC ratio has slightly reduced below the midpoint of the targeted range, and the parent company has sufficient resources to fund any additional capital needed to maintain the ratio. Stress tests are performed on the investment portfolio and the company has updated life and health assumptions for the third quarter of 2022, which reflect current estimates of excess mortality.

In the second quarter, life obligations were slightly favorable, resulting in a remeasurement gain for the quarter. This gain resulted in $2.4 million lower life policy obligations and $2.6 million lower health policy obligations. There were no changes to long-term assumptions, and the company is projecting net operating income per share to be in the range of $10.37 to $10.57 per diluted common share for the year ending December 31, 2023. Life underwriting margins are expected to be in the range of 37% to 39%, and overall underwriting margins are expected to be in the range of 28% to 30%.

The Life and Health anticipated underwriting margins remain unchanged from last quarter's guidance, with total acquisition costs in the second quarter as a percent of premium at 21%. Frank Svoboda mentioned that the allowance for credit losses in the fixed maturity portfolio increased by $39.6 million due to losses on First Republic. Tom Kalmbach also mentioned that they are considering issuing new long-term senior debt in 2024 to pay off the term loan for April.

Matt Darden discussed the direct channel and how it is affected by inflationary pressures, particularly on the marketing and distribution side. He noted that they are reducing their traditional channels, such as mail and print media, due to their cost, but are offsetting this by increasing their digital channel which is up 4%. He also mentioned that sales are up on a per policy basis, but they are focused on maintaining their target margins in distribution.

Matt Darden explains that the growth in agent count is due to the addition of middle management and the tools they use to help with recruiting, onboarding, and training. He also believes that the growth is driven more by their own activity rather than the overall economic or market conditions. Frank Svoboda adds that they recruit to a new and better opportunity.

Matt Darden and Frank Svoboda of the company discuss the labor market and the impact of the return to work from an office perspective on the company's opportunity. They explain that the company is able to recruit in all markets due to the better opportunity it provides, and the ability to manage one's own schedule and have an entrepreneurial approach to growing income. Frank Svoboda also states that it is too early to give clear guidance on free cash flow for next year, but that it should be in a similar range to this year, given the realized losses.

Matt Darden discusses how the company is always looking for additional channels to increase electronic sales, which has grown from 50% to 70% in the last few years. He also mentions that competition for Global Life sales is often discretionary income, but he does not think it will have a big impact on their particular demographic, as premium per sale is still increasing and policies have a low premium per month.

Frank Svoboda explains that United Healthcare reported increased benefit utilization due to seniors undergoing elective procedures, but he does not expect to see the same trend in their Medicare Supplement business. Svoboda states that they have seen higher than anticipated health cost trends in their Medicare Supplement business, but the seasonality has subsided and the increased utilization is isolated to their group retiree health business. He adds that if this trend continues, they will take it into account when setting renewal rates for 2024 and expect to be able to offset any of those costs.

Liberty National saw favorable mortality experience this quarter, with improvement in excess deaths and a decline in COVID-related deaths, but still elevated levels of mortality from particular causes. The company had been more conservative in its assumptions, resulting in the current experience being less than the anticipated amount.

James Darden and Frank Svoboda discussed the drivers of Liberty's agent growth and investment income growth. Agent growth was the primary reason for the increase in sales, with a slight increase in agent productivity. Investment income growth was mainly due to higher short-term rates, as well as a faster growth in net investment income than invested assets.

Tom Kalmbach and Frank Svoboda discuss the accounting for COVID and non-COVID excess mortality, which is estimated to be around $45 million a year. They explain that there is an element of smoothing going on with the new accounting, and that fluctuations are generally seen in the current year. They also mention that in the third quarter, they will be updating their assumptions, though they do not expect them to have a significant impact.

Tom Gallagher and Suneet Kamath asked questions about the company's financials. Tom asked about the impact of the LDTI on current year earnings and the remeasurement gain. Suneet asked about the year-to-date statutory operating income and statutory net income, as well as the capital stress test results. The answers provided by Tom Kalmbach and Frank Svoboda indicated that the impact of the LDTI would be less than expected and the capital stress test results had improved slightly from the previous quarter.

Frank Svoboda and Matt Darden discussed the potential impact of the FDA's recent approval of new Alzheimer's drugs on Medicare and how that could affect their rates for 2024. They noted that Medicare covers drugs administered in office, and they have already taken this into consideration when pricing for their 2023 rates. Suneet Kamath had no further questions, and the call was concluded with Frank Svoboda thanking everyone for joining the call and saying they would speak again next quarter.

This summary was generated with AI and may contain some inaccuracies.