The operator introduces the Globe Life Incorporated Third Quarter 2023 Earnings Release Conference Call and hands it over to Senior Director, Investor Relations Stephen Mota. He introduces the executives present on the call and mentions that some comments may contain forward-looking statements and non-GAAP measures. Co-Chief Executive Officers Frank Svoboda and Matt Darden discuss the company's net income and net operating income for the quarter, which has increased by 24% from the previous year. Chief Financial Officer Tom Kalmbach discusses the re-measurement loss taken in the year-ago quarter and reports a strong return on equity and book value per share.

In the third quarter, the company saw a 4% increase in premium revenue in their life insurance operations and a 21% increase in life underwriting margin. This was due in part to a re-measurement gain and improved claims experience. Health insurance premium also grew by 3%, but health underwriting margin was down 4% due to a re-measurement gain in the previous year. Administrative expenses decreased by 1% and are expected to remain in line with previous expectations for the full year. The call was then turned over to Matt for his comments on American Income Life, where life premiums and underwriting margin were up 6% and 8% respectively, and net life sales increased by 6% due to agent count growth.

The average agent count for the third quarter has increased for Liberty National, Liberty, and Family Heritage. Liberty National has seen a 7% increase in life premiums and a 39% increase in life underwriting margin. Family Heritage has also seen an 8% increase in health premiums and a 15% increase in net health sales. Globe Life's direct-to-consumer division has seen a 1% increase in life premiums and an 86% increase in life underwriting margin, but a decrease in net life sales due to declines in direct mail and insert media activity.

The company will focus on maximizing underwriting margin dollars on new sales by managing advertising and distribution costs. The direct-to-consumer division provides support to agencies and has seen an increase in health premiums and sales. Projections for agent count and net sales for the full year of 2023 are provided for American Income Life, Liberty National, and Family Heritage. For 2024, the company expects sales growth at the midpoint of their guidance.

The paragraph discusses the expected growth in sales for American Income, Liberty National, and Family Heritage, as well as the investment operations of the company. It mentions an increase in excess investment income and net investment income, as well as the company's investment strategy and expected growth in these areas for the full year.

The fixed maturity portfolio yield for the third quarter was 5.19%, with a net unrealized loss position of $2.6 billion due to higher market rates. The portfolio is rated A minus and consists mostly of investment-grade bonds. The company is not concerned about the unrealized loss and has the ability to hold investments to maturity. BBB securities make up 48% of the portfolio, which is the lowest it has been in 10 years, but the company has little exposure to higher risk assets compared to peers. Below-investment grade bonds make up only 2.6% of the portfolio.

The company expects to invest a significant amount in fixed maturities and commercial mortgage loans in the next few years, with expected average yields of 5.9% and 8.3% respectively. They are also pleased with higher interest rates as it positively impacts their operating income. The company has also repurchased a significant number of shares of their common stock and has excess cash flows.

The Parent Company's excess cash flow is primarily from dividends received from subsidiaries and less debt interest. They expect to have $425 million in excess cash flow for the year, with $69 million in liquid assets and an additional $35-40 million in the fourth quarter. They plan to distribute $21 million to shareholders in dividends and prioritize share repurchases as the best return for shareholders. The remaining cash is used for investments in new sales, technology, and long-term assets within their insurance operations.

The company expects to return $465 million to shareholders in 2023, primarily through share repurchases. They aim to maintain their current credit ratings and have a target RBC ratio of 300%-320%. Due to credit losses, their RBC ratio is expected to be around 310% at the end of the year, and they are prepared to address any additional capital needs. The company has included historical operating results under LDTI for each quarter of 2022 on their website, and a remeasurement gain of $19 million was recorded for the current quarter. Assumption changes were made in the third quarter of 2022 and again in the third quarter of 2023 for life and health segments.

The third quarter results showed a decrease in total life and health obligations of $3 million. This was due to assumption changes and favorable experience fluctuations. The remeasurement gain for the Life segment resulted in a decrease of $13 million in life policy obligations and $3 million in health policy obligations. The projected earnings guidance for 2023 has been increased by $0.10 per diluted share, primarily due to favorable policy obligations in the third quarter. The guidance for 2023 anticipates continued favorable trends, but at a lower level. For 2024, the estimated net operating earnings per diluted share is expected to be in the range of $11 to $11.60, representing 7% growth at the midpoint of the range.

The company expects life and health underwriting income to grow in line with premium growth, with margins falling within the same ranges as the previous year. They anticipate a 5% increase in life premiums and a 7% increase in health premiums. Higher interest rates are also expected to have a positive impact on excess investment income. The company also announced a merger with Evry Health, a start-up focused on technology and customer experience in the healthcare industry. The merger is not expected to significantly impact 2023 or 2024 results. The call was then opened for questions from analysts.

The speaker is Wes Carmichael, who asks about mortality trends and the life underwriting margin for 2024. Frank Svoboda responds by saying that they are seeing excess mortality, but it was favorable in the third quarter. They are waiting to see if the trend continues before making any adjustments. He also mentions that excess mortality is expected to drop in 2024, which is reflected in their guidance. When Jimmy Bhullar asks for clarification, Svoboda confirms that they are still expecting some excess mortality in 2024. Bhullar then asks about sales and direct response, to which Svoboda responds by saying that they have reduced marketing spending, which is holding back sales.

The company's marketing spending has been reduced in response to declining sales, which are returning to pre-pandemic levels after a spike during the pandemic. The focus is now on maintaining profit margins, with a prediction of flat sales in the coming year. Lapses in direct response and agency channels have improved slightly.

In this paragraph, Tom Kalmbach and Matt Darden discuss the lapse rates and inflationary pressures at DTC. They believe that the lapse rates are just fluctuations and not a trend, and they are not seeing significant inflationary pressure on sales. They also mention that the middle management growth at American Income is up 20% year-to-date and is expected to end at 10-15% for the full year.

Liberty National has seen strong growth in middle management count, with a 9% increase expected for the year. Family Heritage has had flat growth in middle management count, but anticipates a 2-4% increase by the end of the year. The company's sales guidance for 2024 takes into account the time it takes for agents to move into middle management. A question was asked about the 2024 guidance, specifically regarding administrative expenses and buyback expectations. The company expects admin expenses to increase slightly as a percentage of premium, due to investments in IT and higher postage costs. The amount available to shareholders may be lower in 2024 due to lower excess cash flow and liquid assets.

The company has not yet finalized their annual statutory report, but they expect repurchase to be between $325 million to $350 million. The $400 million free cash flow is being affected by $50 million in credit losses and strong sales growth. The company is still seeing excess mortality, but it is better than what they had assumed in their projections. This can be seen in the re-measurement gains.

The speaker discusses the company's positive financial performance and how it has exceeded expectations. They mention that the company's actual experience is lower than expected, but it is still running higher than usual. They also mention that they are seeing positive trends in the near-term, but want to see them continue before making any long-term assumptions. The speaker then answers a question about recruiting, stating that they have historically been able to recruit well in a tight labor market and expect this trend to continue in the future. They clarify that they do not recruit unemployed individuals.

The company is recruiting individuals who are seeking entrepreneurial opportunities and the potential for higher income. The flexibility of the job is also attractive to people, especially with the uncertainty of returning to office work. The company has historically seen strong recruiting and sales growth during economic cycles and expects this trend to continue in 2024. They did not provide a full year 2024 agent count number as they want to see how the fourth quarter plays out. The question was then asked about experience gains in life insurance.

The speaker is trying to understand the company's mortality experience and is confused about the math. The other speaker clarifies that the $13 million in favorable experience for the third quarter is a smoothed number, representing a 1.7% impact on premiums. The third quarter was particularly favorable in terms of mortality, but the second quarter also had a favorable re-measurement gain.

Tom Gallagher asks Tom Kalmbach about the favorable third quarter and whether it would impact future assumptions. Kalmbach explains that the 25% rule of thumb for volatility may not be accurate and that they would need to look at long-term trends to determine if assumptions need to be changed. Wes Carmichael also asks about 2024 and excess mortality assumptions.

The excess death assumption is expected to decrease over the next few years as mortality levels return to normal. If actual experience is more favorable than expected, there may be revaluation gains. The company would not let the RBC ratio drop below 300% and may use short-term financing to maintain capital levels at the subsidiaries.

The speaker says that they are committed to maintaining a minimum level of RBC and will look to alternative sources of financing before resorting to buybacks. They plan to issue debt in 2024 and have not solidified an amount yet. There have been no major changes to their stress testing and they feel good about the portfolio.

The company has had seven quarters of net upgrades in its portfolio and is prepared for potential downgrades and defaults. They are not anticipating any defaults for 2024 but expect some overall net downgrades. Interest rates are expected to decrease in 2024, with an average of 5.7%. The company has done strong recruiting and a significant portion of life and health sales come from new recruits.

The speaker explains that around 30-40% of new sales come from agents recruited in the first year, due to the company's business model of recruiting agents and promoting them to middle management. This is because these middle managers spend time on both sales and recruiting, training, and onboarding new agents. The speaker thanks the participants for joining the call and concludes the conference.

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