GLOBE LIFE INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Financial Performance: Net income $255 million ($3.01/share) vs $254 million ($2.67/share) y-o-y. Net operating income $259 million ($3.07/share), up 10% y-o-y. ROE 19% (GAAP), 14.1% excluding AOCI. Book value per share $64.5 (GAAP), $87.92 excluding AOCI, up 11% y-o-y.
• Investment Strategy: Invested $245 million in investment-grade fixed maturities (avg yield 6.4%, avg rating A-), $51 million in commercial mortgage loans (avg expected cash return 8.5%). Fixed maturity portfolio yield 5.25% in Q1, net unrealized loss ~$1.5 billion due to interest rates.
• Capital and Liquidity: Parent had liquid assets ~$90 million at start of year, expects $675M-$725M excess cash flows in 2025. Target share repurchases $600M-$650M. Consolidated RBC ratio 316% at year-end 2024, targets 300%-320% in 2025.

Segment Performance

• Life Insurance Operations:
  • Premium revenue in Q1: Life insurance premium revenue increased 3% y-o-y to $830 million. Life underwriting margin was $337 million, up 9% y-o-y. For the year, life premium revenue is expected to grow ~4%, with life underwriting margin as a percent of premium anticipated to be between 42% and 44%.
  • American Income Life: Life premiums up 6% y-o-y to $438 million, life underwriting margin up 5% to $196 million. Net life sales $99 million, up 1%. Average producing agent count 11,510, up 3% y-o-y.
  • Liberty National: Life premiums up 6% y-o-y to $96 million, life underwriting margin up 3% to $32 million. Net life sales up 4% to $22 million, net health sales down 5% to $7 million. Average producing agent count 3,688, up 8% y-o-y.
  • Family Heritage: Health premiums up 9% y-o-y to $112 million, health underwriting margin up 10% to $39 million. Net health sales up 7% to $27 million. Average producing agent count 1,417, up 9% y-o-y.
  • Direct-to-Consumer: Life premiums down 1% y-o-y to $246 million, life underwriting margin up 10% to $64 million. Net life sales down 12% to $25 million. Focus on managing distribution costs.
  • United American General Agency: Health premiums up 13% y-o-y to $160 million, health underwriting margin $2 million, down ~$10 million y-o-y due to higher claim costs. Net health sales up $11 million to $28 million.
• Investment Operations: Excess investment income $36 million, down ~$8 million y-o-y. Net investment income $281 million, down 1% y-o-y. Invested assets $21.4 billion, fixed maturities $19 billion (18.5 billion investment grade). Net unrealized loss on fixed maturities ~$1.5 billion due to interest rates. Expected net investment income flat, required interest up ~2.5% for full year 2025.

Guidance

• Full Year 2025: Reaffirms net operating earnings per diluted share range $13.45-$14.05, 11% growth at midpoint. Life premium revenue expected to grow ~4%. Health premium revenue expected to grow 7.5%-8.5%. Excess investment income expected down 7%-15% for full year.
• Health Margins: Rate increases effective in Q2, UAGA margins expected 5%-7% for year. Health obligations elevated due to claim trends outpacing premium rate increases, with majority of 2025 rate increases effective in April, reflected in 2026 filings.
• Sales Projections: American Income Life mid single-digits agent count growth, Liberty National high single-digits, Family Heritage low double-digits. Life sales guidance: American Income high single-digits, Liberty National low double-digits, direct-to-consumer low to mid single-digits. Health sales guidance: Liberty National, Family Heritage, UAGA low double-digits.

Risks

• Health Claims Utilization: Higher claim costs in UAGA due to increased utilization of certain procedures in doctors' offices, including specialty bandages, which may require continued rate increases and monitoring.
• Legal and Regulatory: Ongoing SEC and DOJ inquiries, with no material developments to disclose, but potential litigation and regulatory actions could impact results.
• Interest Rate Risk: Net unrealized loss on fixed maturity portfolio ~$1.5 billion due to higher market rates, but intent to hold to maturity mitigates concern.

Question and Answer

Q: Jack Matton on health margins lag between rate actions and results A: Yes. No, almost all the rate increases will be effective or in place in the beginning of the second quarter. So we'll see the full benefit of those rate increases. We'd expect margins for UAGA to be in the 5% to 7% range. So about 6% overall for the year.

Q: Jimmy Bhullar on EPS guidance confidence A: Jimmy, we're very comfortable with the range. I think one of the things we've been wanting to see is actually the continued trends of favorable mortality, which would lead to a life mortality assumption update. And we've seen really good mortality results in the third quarter and the fourth quarter and now in the first quarter, which gives us a bit more confidence in -- and as we reflect that experience in our assumption updates, we'll see some favorable remeasurement gains due to those updates.

Q: Elyse Greenspan on capital return and Bermuda update A: Generally, we think normally ratable throughout the year, but we will take advantage of kind of market opportunities. So I could see us buying a little bit more in the first half of the year relative to the second half of the year. Yes, we're still working through it. And so we will plan to update you on the next call.

Q: Andrew Kligerman on health margin timeline A: Yes, you do look at kind of the post LDTI, the margins on that business on the UAGA side have been a little bit on the side that 10% to 11%. And I think from an overall health somewhere more in the upper 20s overall as a margin percent of premium income. I think with respect to UAGA, and they're in the mid up specifically, we would be looking into taking -- getting the cost and the higher utilization that we're seeing here in the last couple of quarters and at least here early in '25 and working those into our third quarter premium rate adjustments that we'd be filing that would be effective in 2026.

Q: Wilma Burdis on life margin run rate A: Yes. I think after you end up making the assumption changes, I think from a policy obligations perspective, you would expect it to be a little bit higher of run rate going forward. Then keep in mind we are continuing to still see over the next couple of years, at least probably into '26. Some of the increases in amortization expense just because of the transition to LDTI that we talked about in the prior calls as well as kind of the renewal commissions.

Q: John Barnidge on health usage drivers A: It's a great question, John. It is -- utilization is the big driver. But one of the causes of utilization increase is related to claims related to bandages, these specialty bandages, which does have a higher claim cost to it. So it's adding a little bit to the average claim cost as well. And that's something that we are taking action on to mitigate the impact of any fraud that's apparent that -- from those billings. So we're taking actions there to help manage those costs.

Q: Thomas Gallagher on health stat earnings impact A: That's a great question. The $60 million to $100 million is a GAAP assumption of locking. So it's GAAP only. But when we see favorable claims trends, 100% of those that benefit comes through on the statutory side. generally, there's a smoothing mechanism that spreads good claims or bad claims over the future. So we should -- favorable mortality will impact statutory results in a favorable way as well.

Q: Ryan Krueger on free cash flow and moving pieces A: Yes, excess cash flow is expected to be $785 million to $835 million for the full year, unchanged from where it was . The reinsurance benefit we won't have and then less of an impact on the valuation manual changes but also a favorable impact to just growth in the business and the favorable mortality trends that we're seeing. Kind of in my estimation, run rates for excess cash flows would be in the $500 to $600 range kind of going forward, I think more midpoint of that range.

Q: Wesley Carmichael on remeasurement gains A: It's definitely included in our guidance range, right? So that is part of what's incorporated in there. On the pluses and minuses, it really is -- it's a very detailed process to go through setting the assumptions. And so we -- the assumptions are very, I'm going to say, detailed with regards to issue years, issue ages, attained ages, genders, so there's a lot of pluses and minuses that go across. And so until we actually put those into our valuation systems that will kind of determine exactly what that result is.

Q: Suneet Kamath on sales confidence from April results A: Yes. Let me start with -- it's not just April. It was the trend that we were seeing throughout Q1. As I mentioned, January was softer than we anticipated, but looked at how February and particularly March performed and then you're seeing that trend continue through April. So it's really the results of multiple months in how we think about that as we look at the momentum in our agent count with recruiting and growing our overall agents that are producing and submitting business. And so that is really a precursor, a leading indicator to ultimate sales growth. And on the consumer side, we generally don't -- we've talked about this before, see significant impacts based on economic factors to our customers. And I think that really gets back to our customers value our products. They have a need for that. And more than 50% of our demographic does not have our coverage and the affordability of our policies where it's $30 or $50 or $60 a month, still makes that affordable. And what we really see is that as long as our customers have jobs or employee that they still find value in the products that we're offering as well as the cost of what they're trying to cover from an experience perspective. As those costs go up, we see them taking out more coverage. And so what I continue to be encouraged about is if I look at the trends of just the premium on a per policy basis, those trends are up in Q1 compared to last year. And so people are paying a little bit more to take out a little bit more coverage for their needs. So we're really not seeing any weakness there. And I'd say that's consistent. We go back to the 2008 through '10 time frame, 2020, '21. We had double-digit growth in our agent count. We had double-digit growth in sales across those time frames. And so I think that bodes well.