The Globe Life Second Quarter 2024 Earnings Release Conference Call has begun abruptly, with the operator introducing Stephen Mota as the speaker. Mota then introduces the other members of the call, and warns that some comments may contain forward-looking statements and non-GAAP measures. Frank Svoboda takes over and reports on the company's net income and operating income for the quarter. He also mentions the company's return on equity and book value per share. Before continuing, Svoboda addresses the ongoing independent review of allegations made by short sellers against the company.

The Audit Committee was assisted by external firms in reviewing allegations of financial misconduct and found them to be false. The review did not identify any issues with the company's financial statements or disclosures. The company has policies in place to prevent misconduct and is cooperating with inquiries from the SEC and DOJ. So far, the SEC has not made any claims against the company.

The company is cooperating with the DOJ regarding sales practices by certain insurance agents, but the DOJ has not made any claims against the company. The company takes allegations of misconduct seriously and has systems in place to detect and prevent unethical behavior. They have a history of integrity and are focused on growth while maintaining ethical standards. The company's insurance operations are performing well.

In the second quarter, premium revenue in life insurance operations increased by 4% to $815 million, with a 8% increase in life underwriting margin. For the full year, the company expects life premium revenue to grow between 4.5% and 5% and life underwriting margin to grow between 9% and 10%. In health insurance, premium grew by 7% to $352 million, with a 9% increase in health underwriting margin. Administrative expenses were $82 million, consistent with expectations. American Income Life saw a 7% increase in life premiums and a 7% increase in life underwriting margin, with net life sales up 16% due to strong agent growth and retention.

In the second quarter, the new pipeline for American Income increased by 16%, while Liberty National saw a 6% increase in life premiums and a 9% increase in life underwriting margin. Net life sales also increased by 11%, driven by growth in agent count. Family Heritage saw an 8% increase in health premiums and a 12% increase in health underwriting margin, with net health sales up by 7%. Globe Life's life premiums remained flat, but their life underwriting margin increased by 13% due to favorable mortality and cost-cutting efforts. However, net life sales were down by 3% due to reduced marketing spend on certain campaigns.

The company is focused on improving their overall margin and maximizing underwriting margin on new sales. They are also utilizing their direct-to-consumer channel to support their agency business. In the health division, premiums and underwriting margin have increased, with net sales also showing growth due to improved market conditions. The company expects to see growth in agent count and net sales in the coming years, with raised guidance for American Income. In terms of investments, the company will now discuss their operations.

In the second quarter, the company saw an increase in excess investment income of $43 million, largely due to a 9% growth in net investment income. This was driven by a 6% growth in average invested assets and higher interest rates across various investments. The company expects net investment income to grow between 7% and 8% for the full year. The company also invested in industrial and financial fixed maturities at an average yield of 6.16%, and in commercial mortgage loans with an expected cash return of 10%. The fixed maturity portfolio yield was 5.26%, up 8 basis points from the previous year.

In the second quarter, the company earned a yield of 5.44% including cash from commercial mortgage loans and limited partnerships. The investment portfolio is currently valued at $21.3 billion, with $19.2 billion in fixed maturities. The majority of the fixed maturity portfolio is investment grade with an average rating of A-. The portfolio has a net unrealized loss of $1.6 billion due to higher market rates, but the company is not concerned as they have the ability to hold investments to maturity. The company has a high ratio of BBB securities, but they believe these investments provide the best risk-adjusted, capital-adjusted returns. The company also has a small exposure to below investment-grade bonds. During the quarter, they extended duration by selling shorter maturity bonds and investing in longer-dated securities.

In the second quarter, the company was able to extend the average life and improve the yield of their portfolio, reduce exposure to smaller regional banks, and invest in fixed maturities and commercial mortgage loans. This resulted in higher interest rates, which positively impacted operating income. The company also had a strong liquidity position and repurchased a significant number of shares, returning a total of $337 million to shareholders in the second quarter and $375 million year-to-date.

The company has increased its share repurchases during the quarter due to favorable market conditions and excess cash flows. They anticipate using their excess cash flows for the remainder of the year to continue repurchasing shares and paying dividends to shareholders. They also plan to raise additional capital to support further share repurchases in 2024. Overall, they estimate a total of $750 million to $770 million in share repurchases for the full year. The company also mentions their capital levels at their insurance subsidiaries.

Globe Life's goal is to maintain capital levels to support their current ratings. They target a consolidated company action RBC ratio of 300% to 320% and currently have a ratio of 314%. They estimate that no additional capital is needed for the midpoint of their target. They have included a remeasurement gain or loss by distribution channel in their financial information. In the second quarter of 2024, their life policy obligations were favorable and they had a remeasurement gain of $12 million for life obligations and $3 million for health obligations. They are encouraged by recent trends in policy obligations. Their earnings guidance for 2024 includes potential future remeasurement impacts and will be informed by third quarter 2024 updates to assumptions.

The speaker, Tom, discusses the estimated operating earnings per diluted share for the full year 2024, which is expected to be in the range of $11.80 to $12.10, representing a 12% growth at the midpoint. This is higher than previous guidance due to anticipated improvements in underwriting income and a greater impact from share repurchases. The call is then opened up for questions, with the first one being about first year lapses across different divisions. Tom explains that they are pleased with recent persistency despite economic conditions and that first year lapses are in line with expectations.

The company has seen higher lapses on Internet sales, which may be driving some of the experience. LND first year lapses are consistent with last quarter. The company had a couple of items below the line that affected net income, including legal expenses related to an investigation and expenses related to M&A. These expenses are not expected to continue at a material level and the company does not anticipate any major changes in stock price affecting their accelerated buybacks and related financing.

The company has some debt capacity and plans to add $400 million in additional debt, which will bring their projected debt cap ratios closer to 25%. They are also looking into opportunities for capital management within their insurance operations. The form of financing for the accelerated buyback has not been decided yet. The company's Audit Committee is conducting an investigation, but there is no need to restate financials or disclosures. There are no expected material organizational changes in response to short seller allegations about agent behavior in American Income.

The company has processes in place to prevent, identify, and respond to misconduct. They regularly review and enhance these processes. They believe they have appropriate procedures to identify and address inappropriate activity. They also consider this part of their overall third-party risk management processes. The company recently initiated a review of potential vulnerabilities in their web portal and is currently investigating the matter.

In response to a question about any potential impact on the company's operations, the speaker states that there has been no material impact and there is nothing further to disclose at this time. They will continue to provide updates if any become available. The speaker also mentions a share repurchase authorization that is in place until the end of 2025, which could potentially allow for more buybacks in 2025 than the normal run rate. They also mention the possibility of raising additional capital through reinsurance and other means to purchase more shares in 2024 or 2025. The speaker notes that excess cash flows for 2025 are expected to be higher than in 2024, but the share repurchase authorization is not a mandate and they will only buy back shares if it is prudent to do so.

The speaker asks about the results of the Audit Committee review and whether any improvements need to be made in monitoring sales practices. The company states that they are always looking to enhance internal controls and processes for identifying misconduct. They will provide updates on the DOJ and SEC reviews as material developments occur. The speaker also asks about the remeasurement and the company clarifies that they did an assumption review in Q3 and will do another one in Q3 of this year.

The speaker discusses remeasurement gains in the fourth and second quarters, which were significant. They attribute these gains to favorable mortality trends and an endemic assumption established in the third quarter of 2023. They anticipate a favorable remeasurement gain in the third quarter and have increased their underwriting margin range as a result. This gain is already factored into their EPS guidance.

During a conference call, Elyse Greenspan asked about the company's potential reinsurance plans and the timeline for implementation. Thomas Kalmbach responded that they are currently evaluating reinsurance opportunities and considering expanding their financial reinsurance program. They are also looking into managing capital in an economic framework in Bermuda. Frank Svoboda added that they are also evaluating potential books of business to dispose of. Greenspan also asked about subsidiary dividends, to which Kalmbach responded that the full year dividends for 2021 are estimated to be between $460 million and $470 million, but there is no updated guidance for 2025 yet.

The company's Audit Committee has confirmed that the company has policies and procedures in place to prevent, identify, and respond to agent misconduct. The WilmerHale investigation focused on the company's processes for managing agent behavior and reviewed all allegations that could have impacted the company's financial statements and disclosures. No restatements were deemed necessary.

The speaker discusses the potential impact of the DOJ investigation on the company, stating that they are currently only focusing on certain agents in the Arias Organization. They also mention their goal of increasing free cash flow conversion to 60% in the long term, which they believe can be achieved through various strategies, including utilizing the Bermuda regulatory environment.

The speaker discusses the potential for increased free cash flow in 2025 due to strong sales and favorable claims experience, as well as potential changes in the conversion ratio. They also mention the impact of remeasurement gains on both GAAP and statutory earnings, which could lead to improved statutory earnings in 2024 and increased dividends in 2025.

The speaker mentions two factors that could lead to higher statutory earnings and dividends for the parent company in 2025. One is a change in the valuation manual that allows for better mortality assumptions, and the other is a review of certain agents at American Income. The speaker notes that the process is outside their control and they are cooperating fully. There have been no changes in senior management or sales managers, but some agents may have been let go as a result of the review.

The scope of the DOJ investigation into the Arias Organization was narrow, but the evaluation of assertions and allegations in the short selling report was broad. The company takes appropriate action against misconduct and terminated some agents before the investigation. The recent review may have resulted in some terminations, but this information cannot be disclosed due to litigation. The company has seen some adverse effects on mortality due to the pandemic, but it is unclear if it has returned to normal levels.

Thomas Kalmbach, the CFO of a company, is discussing the favorable impact of the company's conservative assumptions on their LDTI (long-duration target improvements) and how it has led to consistent mortality rates over the past few quarters. However, they are still seeing some elevated causes of death, such as heart disease and cancer, and are keeping an eye on neurological disorders like stroke and Alzheimer's. Nonmedical deaths have improved, but are still slightly elevated. When asked about the potential impact of stat valuation changes, Kalmbach declines to give a specific amount but implies it is more than a few million dollars.

Jimmy Bhullar agrees to wait three more months before asking any further questions. The operator thanks everyone for participating and hands the call back to Stephen Mota for any final remarks. Mota thanks everyone for joining and ends the call.

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