The paragraph is an introduction to the Globe Life Incorporated First Quarter Earnings Release Call. It introduces the participants of the call and mentions that the call will be recorded. The Co-Chief Executive Officers, Chief Financial Officer, Chief Strategy Officer, and General Counsel will be present on the call. The paragraph also mentions that there may be forward-looking statements and non-GAAP measures discussed during the call, and provides information on the company's net income, net operating income, return on equity, and book value per share for the first quarter.

The article addresses concerns about dismissed litigation, a DOJ inquiry, and a recent attack by a short seller against the company. The company has a strong business model and strives to act ethically. The Audit Committee has hired a law firm to conduct an independent review of the short seller's claims. Due to ongoing investigations, the company cannot provide much information but will update as necessary. The company also provides an update on a lawsuit filed by a former independent contractor, which includes allegations of sexual harassment and misclassification.

In 2022, a claimant filed for arbitration against Global Life and American Income. After a year and a half of litigation, the case was dismissed with prejudice by the arbitration panel and affirmed by the court. Global Life and American Income also received subpoenas from the U.S. Attorney's Office for the Western District of Pennsylvania related to sales practices of certain licensed insurance agents. The company is cooperating with the DOJ and does not believe the investigation will result in material liability. This information is being provided in response to recent inquiries.

Matt Darden discusses a recent attack on the company by a short seller and explains how the company recognizes revenue from premiums and reports net sales and policies. He also emphasizes the importance of underwriting and retaining customers for the success of the business.

American Income receives majority of its life premiums from policies that have been in force for over one year. The company's agents offer products to help families protect their financial future. The agents operate under a structured hierarchy and receive override commissions. This is a common business model in the industry and has been successful for the company. American Income values integrity and has measures in place to detect and deter unethical agent conduct. The company closely monitors data related to policy lapse and persistency to identify any trends of fraud or misconduct.

American Income has implemented controls to ensure the validity and legitimacy of their insurance sales, including conducting background checks on agents and conducting quality assurance calls. They also have a dedicated team to investigate complaints and have taken disciplinary actions against agents when necessary. The short seller's report relies heavily on allegations from a former employee who was terminated for sexual harassment. The company also investigates any claims of bribery or kickback schemes, but a lawsuit filed by an insurance licensing exam test prep company was dismissed. American Income does not contract with or recommend any test prep companies and denies any knowledge of bribes or kickbacks to company executives.

In the first quarter, the company's premium revenue and underwriting margin for life insurance increased by 4% and 6% respectively. They expect life premium revenue to grow by 4.5-5% and underwriting margin to grow by 7-7.5% for the year. Health premium revenue also grew by 6% and they anticipate it to grow by 7% for the year. Administrative expenses were $80 million, up 9% from last year. They expect it to be around 7% of premium for the year. The final tri-agency rule had minimal impact on their business. Matt will now discuss marketing operations.

In the first quarter of 2024, American Income Life saw a 7% increase in life premiums and underwriting margin, with net life sales up 17% due to growth in agent count. Liberty National also saw a 7% increase in life premiums and an 11% increase in underwriting margin, with net life sales slightly declining but net health sales up 7% due to increased agent count. The company has made investments in technology to enhance their business, which temporarily slowed down policy issues but is expected to return to normal. Family Heritage saw an 8% increase in health premiums and a 13% increase in underwriting margin.

In the first quarter, net health sales for the company increased by 11%, with a flat average producing agent count. The Direct to Consumer division saw flat life premiums and a 4% increase in life underwriting margin, but a 12% decline in net life sales due to reduced marketing spend on certain campaigns. The United American General Agency saw a 7% increase in health premiums and a 7% increase in net health sales. The company expects mid-teens growth for Liberty National and low single-digit growth for Family Heritage in terms of agent count, and a slight decline in net life sales for Direct to Consumer in 2024.

Net health sales for 2024 are expected to see growth in all three sectors of Liberty National, Family Heritage, and United American General Agency. The impact of recent events on AIL's agent count and projected sales is being evaluated, but there has not been a significant impact on agent recruiting. The majority of AIL's business is produced by experienced agents, so any negative recruiting trends should have a muted impact on 2024 sales. The estimated average agent count growth and sales growth for the full year at AIL are in the low single digits and mid-single digits, respectively. The excess investment income and net investment income have both seen increases, with the latter growing by 10% or $25 million due to strong growth in average invested assets.

The higher interest rates in various investments, including fixed maturities, commercial mortgage loans, and limited partnerships, contributed to the growth in net investment income. The company expects net investment income to grow between 7% and 9% for the full year. The investment yield for the first quarter was 5.86%, with investments primarily in the industrial and financial sectors. The company also invested in commercial mortgage loans and limited partnerships with an expected return of 10%, which aligns with their conservative investment approach. Overall, the first quarter yield for the fixed maturity portfolio was 5.24%, with a tax equivalent effective yield rate of 5.25%.

The company's invested assets are $21.4 billion, with $19.5 billion in fixed maturities. The majority of these are investment grade, with an average rating of A-. The company is not concerned about the net unrealized loss position of $1.4 billion, as it is mostly due to interest rates and they have the ability to hold these investments to maturity. The company has a higher ratio of BBB securities compared to peers, but they believe these provide the best risk-adjusted, capital-adjusted returns. Below investment grade bonds remain low at 2.8% of total fixed maturities. The company plans to invest approximately $1 billion to $1.2 billion in fixed maturities and $400 million to $500 million in commercial mortgage loans and limited partnership investments.

The company is pleased with the increase in interest rates, which has positively impacted their operating income. The company also discusses their capital and liquidity position, mentioning their share repurchase program and excess cash flow. They have repurchased shares and returned money to shareholders, and plan to continue doing so in the future. They also mention a potential acquisition that did not go through and how it affected their share repurchases. The company expects to have excess cash flow for the remainder of the year and intends to use it for dividends and share repurchases.

The company expects to have excess cash flows in 2024, with $66 million in liquid assets currently available and an additional $390 million to $410 million expected to be generated. They plan to distribute $65 million to $70 million to shareholders as dividends and use the remaining cash for share repurchases. They anticipate repurchasing approximately $350 million to $370 million worth of shares this year and may accelerate some of their 2025 excess cash flows into 2024. The company aims to maintain a consolidated company action-level RBC ratio of 300% to 320% and currently has $85 million of capital above the low end of this target.

In the third quarter of 2023, the company updated their life and health assumptions, but there have been no changes since then. They plan to update their assumptions in the third quarter of this year. The remeasurement gain or loss also includes experienced fluctuations, resulting in lower policy obligations in the first quarter of 2024. This is due to seasonally high first quarter life claims. The company is encouraged by recent trends and their earnings guidance for 2024 includes the possibility of future favorable remeasurement gains. They will update their endemic mortality assumptions in the third quarter of 2024, which currently assume a return to slightly higher mortality levels over the next few years. However, recent trends suggest a quicker recovery.

The company estimates that for the full year 2024, net operating earnings per diluted share will be in the range of $11.50 to $12, representing 10.3% growth. This is higher than their previous guidance due to recent investment income results and share repurchases. The company will provide updates on the ongoing WilmerHale investigation as appropriate, potentially through 8-K filings. There is no specific timeframe for the investigation. The company has not seen any impact on sales thus far.

The speaker is asked about the impact of recent events on their business. They mention that they have not seen any significant impact on agent recruiting or customer satisfaction. They also mention that their blackout on share buybacks will end soon. The speaker is then asked about the typical amount of capital strain on their free cash flow from new business, and they respond by saying that they expect statutory strain of 40-50% of any increase in sales in their agency channels.

The speaker explains that a reduction in sales would result in a decrease in cash flows, but if there were no new sales at all, about half of the previous year's statutory earnings would become excess cash flows in the following year. The speaker also mentions potentially exploring an in-force reinsurance transaction to generate financing and discusses the mix between first year and renewal commissions paid on business, stating that the majority is likely first year commissions.

The speaker mentions that renewal commissions make up less than 10% of renewal premiums, and this could be a good reference point. They also discuss potentially accelerating buybacks, but this decision is not dependent on any regulatory reviews. They were blacked out of repurchases for part of the quarter due to a potential acquisition by Globe, but no further details are provided.

The speaker explains that the company was considering an acquisition opportunity in January, but decided to enter a blackout period due to the materiality and probability of the transaction. However, they are no longer considering the opportunity and will be out of the blackout period soon. The speaker also mentions that the guidance for administrative expenses includes the cost of the WilmerHale investigation. The speaker also confirms that a previous M&A deal caused a repurchase blackout for a shorter period of time. The company ultimately walked away from the potential deal due to their current stock price.

The company has decided to use its funds to repurchase its own shares in order to provide the best returns for its shareholders. They are currently not pursuing any M&A deals, but in the past, they have looked for opportunities in their markets and for products that align with their business model. The 2024 excess cash flow increased due to higher statutory earnings and subsidiary dividends to the parent. The statutory blue book for 2023 is not completed until February.

The speakers discuss the favorable mortality results seen in the third and fourth quarter of 2023 and mention the possibility of bringing forward excess cash flows from 2025. They are unable to quantify this amount at the moment but may provide an update on the next call. The next question asks about the involvement of the DOJ in the company's sales practices, but the speakers refer back to their earlier remarks. The blackout period prevented the company from pursuing an M&A opportunity, and it is unclear if they would have used equity or excess cash flows for the financing. The decision to not go ahead with the opportunity is discussed.

Bob Huang asked about the increase in lapse rates at American Income and the drivers behind it. Tom Kalmbach explained that the first year lapse rates were higher for the quarter, but this is not unusual and there is some seasonality in lapse rates. The renewal lapse rates have also increased due to a change in the mix of business, with more sales in the second, third, and fourth durations which tend to have higher lapse rates. Overall, the increase in lapse rates is considered normal and not abnormal.

The speaker is asked about the DOJ probe and whether there is a need for change in the sales organization structure, compliance procedures, and distributor relationships. They respond by stating that they take unethical agent conduct seriously and have measures in place to detect and deter it. They also mention dedicated teams that investigate issues as they arise. When asked about the concentration of sales in various channels, the speaker shares that the areas organization represents about 6% of new production and that agents within this organization are individual contractors who come and go regularly.

In this paragraph, the speaker discusses the agency owners within the company and how they transition out of the business. They mention that sometimes it is necessary to terminate an agency owner, but they have processes in place to handle these transitions. They also mention that about 6% of American Income Life's new sales are from these agency owners, who make up about 20% of the company's total agency owners. The speaker also clarifies that there were no remeasurement gains in the quarter.

The speaker is asked if their guidance includes any positive impact from the third quarter assumption review. They confirm that it does, and that their guidance also takes into account lower share prices and expected remeasurement gains. Any potential changes in underlying assumptions are reflected in their guidance range, which is based on current information and trends.

Frank Svoboda and Jim Bhullar are discussing the potential for an assumption change in the third quarter. They are considering various possibilities, such as remeasurement gains or worse experience. According to CDC data, overall population deaths are still higher than pre-COVID levels, with drug-related deaths remaining elevated. However, there have been improvements in motor vehicle deaths and homicides. Bhullar also asks about a recent deal, which Svoboda cannot comment on specifically but says it was a little bigger than recent deals.

The company's direct response sales have been weak due to high inflation and postage costs, which may continue to impact sales if postage costs increase further. However, the company is focusing on digital channels and the efforts of their Direct to Consumer division to support agency sales. The company also mentioned a subpoena related to sales practices by certain licensed insurance agents. The percentage of premiums from policies that have been in force for more than one year has remained stable over time.

The speaker discusses the stable nature of Globe Life's business over the past 10 years, with consistent growth in in-force business and earned premiums. They also mention the strong and stable cash flow generated by the company, with over $1 billion in operating cash flows each year. They mention the potential for 8% to 10% expected returns on alternative investment strategies and clarify that they are looking to expand into different asset classes.

The company plans to spend $400 million to $500 million on non-fixed maturities investments this year, with about half going towards transitional commercial mortgage loans and the other half towards other strategies like infrastructure and private credit. These investments may result in higher capital charges, but the company is considering risk-adjusted and capital-adjusted returns to ensure they are getting a good return on their investment. The investments are being managed by outside partners like JPMorgan, Goldman, PIMCO, Ares, and MetLife.

During the question and answer session, Wes Carmichael from Autonomous Research asked about the slowdown in American Income's agent count and sales growth. Matt Darden, the company's representative, explained that they have revised down their projections due to negative press and litigation, but they have not seen any impact on their recruiting pipeline. He also mentioned that they are monitoring the situation closely and have not heard any concerns from their field. The call then concluded with closing remarks from Stephen Mota.

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