Q3 2019 Earnings Call

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The sales was driven by rising agent counts in greater productivity.

Okay, and then lastly, just on the new money yields it was interesting that came in with the new money yield towards phase, 1% in the quarter.

Just given that last quarter, you had a 5% new money yield and I get that interest rates came down pretty sharply but.

Maybe a little color on on on why it was such a steep drop last quarter over quarter.

Hello, everyone.

The biggest Florida was the drop in the treasure rates.

During the quarter and we.

To a lesser extent.

The qualities.

Bonds purchased.

Third quarter is little higher than we had the second quarter, but the big part of it was.

Much of that for for 12 that we had the third quarter.

The treasury rates from the spreads were pretty much the same as a treasury rights.

Has dropped by 60 basis points and so that's.

So thats what impacted our.

New money rate there were projecting for the fourth quarter and for 2020, because we're all we can see those rates are going to.

Going to be that low going forward.

Yes, Thank you said a little earlier.

For 25 is your projection next year for the new money rates is that right do you expect a little device in treasuries.

Yes.

Yes, just yes, this slightly a little bit higher.

Treasury rates has.

And thats more towards the end of year, therefore, 25 as a weighted.

Average rate to sort out lower the first for the year. We think we do take it really increased slightly as we move through the year.

Hi, Thanks, a lot.

Thank you.

Our next question will come from Erik bass economists research.

Hi, Thank you just wanted to touch on life underwriting margins more broadly as it looks like they came in better than your expectations across almost all of the segments. This quarter and are you touched on direct response, but with its just a particularly favorable quarter for mortality experience at American income and Liberty or is there something else.

That led to the improvement and what are you assuming for life margins across on the other businesses in 2020.

Eric.

You're right across the board, we didnt have better.

Mortality than expected.

I think the bigger surprises that liberty and and down one.

We're thinking maybe fluctuation because of the the policy obligation there. The ratio. There are 33.7 is lower than we've seen in quite some time, an American income we saw improvement.

There.

But we think that the we've seen improved mortality over last several quarters at American income and.

As.

The impact on the margin has been.

The underwriting margin going from 33% to 33.6%.

That does it sound like a big change over a billion dollar for the premiums it does make quite a bit to change our growth and earnings.

The margins for this quarter were over 28% for the overall life business, we think thats going to revert back.

And we're looking for.

Underwriting margin for the full year being around 27.9% right at 28 and.

In our early.

Thoughts on 2020 or are there will still be that same rise.

What we've seen is increased or improved mortality.

Especially at American income and also direct response over the last couple of years, we don't think we'll see improvement going forward, but we think we'll maintain the profit margins.

Where we are for this year so.

Again, we think we'll be right around 28% for the year and we think that bill a hole.

In 2020 as oil.

Got it. Thank you and then just moving to the health side.

Yes, I guess you gave some excess.

Expectation around the United American margin.

I would stabilize a bit is the reason that you're assuming flat sales that you are having a raise price a bit to reflect some of the experience.

Given the strong growth in Medicare supplement cells in June 2019, it's really a tough comparable so I want to care supplements sales, there's a market are harder to predict.

We use general agency distribution in those market conditions can change rapidly.

Given that guidance to nearly flat, it's really too early to give any certainly does the guidance.

Got it okay. Thank you.

So.

Thank you. Our next question will come from Ryan Krueger KBW.

Hi, Thanks, Good morning, I had a couple questions about between 20 EPS guidance can you give us.

So.

What your expectation is for admin expense growth in 2020.

Thats right.

We're expecting a around a 5% to 6% growth in administrative expenses.

Yes, and then.

Yes.

Really anticipate that percentage of premium to be sure.

Should probably stick to be about that 6.7% and we're anticipating here for 2019.

Thanks Tonight I may have missed but.

Could you also give.

Expectations for underwriting income growth for both light.

Tony.

Well for life, we're looking at 3% to 5% growth and for the health insurance were looking forward to 6%.

Great. Thank you.

Thank you.

Again, as a reminder, ladies and gentlemen, if he would like to ask a question. Please press star one on your Touchtone phone now our next question will come from it and right.

Bank of America.

Thank you for taking my question.

On the direct response margins, you're now at about 18 and 19%.

For the life underwriting margin and if we look back to 2011 for 2015.

That margin percentages and in that 23% range.

So is there anything that's preventing you from getting back to that level.

Yes, I think the.

At this point in time, as we are having to kind of recalibrate, our our thought process.

Taking into account.

The.

Additional information that we're getting on the Rx underwriting and the results that we had from that during that 2011 to 2014 timeframe.

In the near term, we really think that it's going to continue to be in this 18 and 19% range.

It's difficult to say overtime as we.

Work through testing and work through continuing changes if we can get back.

To those levels, but at least in the near term I would think will be closer to the say 18 and 19%.

And does it have anything to do with the IR is on new products is that.

Is that a consideration as well.

I don't think it's really the IRS on the new products and products are essentially the same it's just getting the right mix of.

Pricing and underwriting and.

Working through all those too so we can really maximize underwriting dollars.

Im trying to get the right next to give us the right response rates growth in sales.

But at a.

At a price said at a margin that we can ultimately grow underwriting dollars more so than we're not as focused on the underwriting percentage as much as we are trying to grow the underwriting dollars.

Got it and then just real quick on American income sales. So you talked about some near term pressure from just opening up new offices I assume this cap middle management busy just onboarding and training new agents.

Given the results the last couple of quarters, they were particularly good this quarter.

Are we starting to see a turnaround in sales is this headwind starting to abate.

I'll take we've had.

Several factors at American income that led to the issue growth first we had strong recruiting.

If you're a terminations that was caused apart by the restructuring compensation for here to date or recruiting is up 9%.

Another important factors that for this year of that middle management growth of 9% year to date as.

As you stated we have searching new offices opened since January 2008 chain.

Those middleman just goes officers have been replaced now we're starting to shoot recruiting activity in those search and new office as follows factors.

Work in increasing the agent count at American income.

Great. Thank you.

Thank you next question will come from Alex Scott Goldman Sachs.

Hi, Good morning first question I had was on the agent count in recruiting.

I guess, just looking at the landscape and it sounds like some of these online distributors or youre looking for for higher growth rates and there's there's a bit more conversation around sort of a gig economy type approach the agents and so forth.

Yeah, I'd just be interested to hear your take on that business model versus yours in my way, what you're doing too.

Yes. This resulted in you not feeling pressure from from agents will even for that kind of a gig here.

You know or any other color that you could provide on whats, allowing you to strengthen your age or occurred in here.

Okay.

Thank you discussed the marketing generally we operate an underserved market. So typically we're the only agent in their home.

And.

There's not a competition from the from other Asia.

Nor is there additional competition says that this is indeed is filled people are looking to my life insurance.

You are really explain the need.

People buy insurance sector, they understand the need.

I think Sofia place for life insurance changes as we go forward.

Because we're selling smaller face policies.

And there's not real competition in that part of the market because.

Other agencies or other companies can't control expenses.

<unk> expense control, so important when you're running lower face policies. So.

Both for expense control.

The market that we serve I think the Asia Philips important niche market.

Got it said in the last couple of years into like thinking now longer term I mean, you're not seeing any signs there would that would lead you to believe in any way that they're shifting consumer preference for online purchasing verse.

Yes.

Within it no agent in person.

Do you still feel like all the trends are still there for for this to be the business model long term.

Yes, I think all the trends are there and we continue to grow the agency force trended Robyn and measure of open offices.

We we havent seen a change persistency that we're losing.

Policies district history shown here persistency.

Attention of ages and unchanged over the short term factors for discussion on other calls was low unemployment rate.

We've dealt with that and much restructure compensation and really focusing on the training and retention of our new agents, Sean. Thanks, a lot for our business model that works.

Got it okay.

Maybe one last one for you guys.

Yeah, one of your peers.

Talked about efficiencies and I think they were similarly.

Organized with multiple sobs under a holding company with maybe some different brands. So I guess I'd just be interested to.

To know if you guys are looking at anything structurally or if there's any.

Anything going on I know you change the name of the company recently at the parent level if.

Any thoughts on if there is sort of more to come in terms of thinking through like structure and efficiency, particularly as you might have some of the Texas systems and.

Progress towards the new accounting requirements. Some companies are thinking more holistically.

Any insight there.

There is not.

Major plans it changed structure first.

Legal structure there there's really no plans will continue to have several companies will operate under the global brand.

But as far as of Theres a lot of our.

For example, our systems and back office operations of we've consolidated those quite some time ago, what we're doing now we're upgrading those systems.

And.

That will benefit.

We will have systems that are enterprise wanted.

We have hasn't but what we're doing now as upgrade to.

The more efficient and systems or provide better service.

Yes, the one thing I would just add to that I think from a pure structural perspective, we don't have that many operating companies to begin with as we have taken a look at it and considered along with the branding strategy the cost ultimately.

Moving that working through changes all the policyholders and the transferring of policyholders through some type of a merger getting or.

Putting the entities together really wasn't worth the additional.

Benefits that we might be able to achieve from that.

As Gary said, we felt comfortable operating within the current operating through our legal structures that we have and still be able to get good efficiencies from the overall consolidation of systems and then working out of the unified brand.

Thanks.

Thank you very much again, ladies and gentlemen to ask a question that a star.

Schoenfeld now.

Thanks.

Hey, guys at this time, we have no further questions in the Q.

Alright, thanks for joining us. This morning does your comments and will not be again next quarter.

Thank you very much ladies and gentlemen at this time. This concludes today's conference you may disconnect your phone lines and have a great rest the week. Thank you.