Q3 2021 Globe Life Inc Earnings Call
Ladies and gentlemen, thank you for standing by the conference will be underway momentarily. We thank you for your patience.
[music].
Good day, and welcome to the third quarter 'twenty 'twenty.
One earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mike Majors Executive Vice President Administration and Investor Relations. Please go ahead Sir.
Thank you and good morning, everyone joining the call today are Gary Coleman.
And Larry Hutchison, our co chief Executive officers, <unk>, our Chief Financial Officer, and Brian Mitchell, Our General Counsel.
Some of our comments or answers to your questions may contain forward looking statements that are provided for general guidance purposes only.
Accordingly, please refer to our earnings release.
21, 2000, 10-K, and any subsequent forms 10-Q on file with the SEC.
Some of our comments May also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures.
I will now turn the call over to Gary Coleman.
Thank you, Mike and good morning, everyone.
In the third quarter, net income was $199 million or $1.84 per share compared to a $189 million of our $1 76 per share a year ago.
Net operating income for the quarter was $182 million or $1.
So it's for sure.
Greece of 2% per share from a year ago.
On a GAAP reported basis return on equity was eight 9% and book value per share was $84 52 suits.
Excluding unrealized gains and losses on fixed maturities.
Return.
Turn on equity was 12, 5% and book value per share is <unk> $57 or 11 cents up 9% from a year ago.
In our life insurance operations as we've noted before we have seen improved persistency since the onset of the pandemic.
In the third quarter.
Premium revenue increased 8% from a year ago to $729 million.
Life underwriting margin was $162 million down 5% from a year ago.
The decline in margin is due primarily to higher than expected COVID-19 related claims resulting.
<unk> from the impact of the Delta area.
Frank will discuss this further in his comments.
For the full year, we expect life premium revenue to grow 8%, 9% and underwriting margin to decline about 5%.
And health insurance premium revenue.
<unk> grew 4% over the year ago quarter to $299 million.
And health underwriting margin was up 6% to $77 million.
The increase in underwriting margin was due primarily to improved claims experience and increased premium.
For the year, we expect health premium.
It did grow 5% to 6% and underwriting margin to grow around 11%.
Administrative expenses were $68 million for the quarter up 8% from a year ago.
As a percentage of premium administrative expenses were six 6%.
New revenue a year ago quarter.
For the full year, we expect administrative expenses to grow 8% to 9%.
It would be around six 7% of premium due primarily to higher <unk>.
And information security costs higher pension expense and a gradual increase in travel facilities.
All of these calls.
I will now turn the call over to Larry for his comments on the third quarter marketing operations.
Thank you Gary.
And just the overall agency results looking forward the version of virtual recruiting and selling opportunities, while continuing to enhance our ability to grow.
I will now discuss current trends at each distribution channel.
At American income life premiums were up 12% over the year ago quarter to $356 million and life underwriting margin was up 11% to $111 million.
Higher underwriting margin is primarily.
To improve persistency and higher sales in recent quarters.
In the third quarter of 2021 net life sales were $74 million.
Up 9%.
The increase in net life sales is primarily due to increased agent count.
The average producing agent count for.
The quarter was 9959 up 7% from the year ago quarter, but down 5% from the second quarter.
The producing agent count at the end of the third quarter was $9800.
I have often mentioned the stair step in nature of our agency growth it is normal.
For the <unk>.
The decline in agent counts after periods of high growth as attrition occurs and more emphasis is placed on training new agents I remain optimistic regarding our ability to grow this agency over the long term regardless of economic conditions.
Yes, but already national.
Black premiums were up 6% over the year ago quarter to $79 million and life underwriting margin was up 10% to $16 million.
The increase in underwriting margin was due primarily to higher sales in recent quarters and lower policy obligations net life sales increased 33.
So $18 million and net health sales were $7 million up 19% from the year ago quarter, due primarily to increased agent count and increased agent productivity.
The average producing agent count for the third quarter was 2706.
Up 6% from the year ago.
This quarter with flat compared to the second quarter.
The producing agent count at Liberty National ended the quarter at $2700.
We are pleased with Liberty National's continued sales growth.
Yeah.
At family Heritage Health premiums increased 8% over the year ago quarter to 87.
Personnel.
And health underwriting margin increased 9% to $24 million.
The increase in underwriting margin is due primarily to improved claims experience and improved persistency.
Net health sales were down 1% to $19 million due to a decreased patient count.
The average producing agent count for the third quarter was 1152 down.
16% from the year ago quarter, and down 6% from the second quarter.
Producing agent count at the end of the quarter was one <unk>.
192.
Our focus will continue to be on recruiting for the remainder of the year.
And our direct to consumer Division at Globe life life premiums were up 6% over the year ago quarter to $241 million, while life underwriting margin declined 65% to $12 million Frank will further discuss as a client and underwriting margin in his comments.
Net life sales were 30.
Again.
Down 25% from the year ago quarter.
We expected the sales decline as you recall there was a 50% increase in sales in the third quarter of 2020.
While there is a decline in full year sales growth compared to 2020.
The current full year 2000.
21 sales guidance is an increase of 19% over 2009 chain.
At United American General Agency Health premiums increased 3% over the year ago quarter to $118 million.
Health underwriting margin declined 3% to $18 million.
Net health sales were $12 million down, 8% compared to the year ago quarter.
Decline is due primarily to a more competitive market, we will continue to protect our margins and pursue this market in an opportunistic manner.
Yes.
It is difficult to predict sales activity and is uncertain.
Environment.
I'll now provide projections based on trends, we are seeing and knowledge of our business.
We expect the producing agent count for the full year for each agency at the end of 2021 could be in the following ranges.
American income flat.
Flat to an increase.
Increase of 2%.
Liberty National a decrease of 3% to an increase of 1%.
Family Heritage, a decrease of 14% to 18%.
Net life sales are expected to be as follows.
American income for.
For the full year 2021.
An increase of 12% to 16%.
For the full year 2022, an increase of 2% to 10%.
Liberty National for the full year 2021.
An increase of 29% to 33%.
With the full year 2022, an increase of 5% to 13%.
Direct to consumer for the full year 2021, a decrease of 6% to 12%.
For the full year of 2022, a decrease of 2% to an increase of eight.
8%.
Net health sales are expected to be as follows.
Liberty National for the full year of 2021, an increase of 13% to 17%.
For the full year 2022, an increase of 7% to 15%.
Family Heritage for the full year 2021.
An increase of 1% to 5%.
For the full year 2022, an increase of 3% to 11%.
United American individual Medicare supplement for the full year 2021.
A decrease of 6%.
But.
For the full year 2022, a decrease of 1% to an increase of 7%.
I will now turn the call back to Gary.
Thanks, Larry.
Turning to our investment operations.
Excess investment income, which we define as.
Investment income less required interest on policy obligations and debt.
With $59 million flat compared to a year ago.
On a per share basis, reflecting the impact of our share repurchase program.
Excess investment income grew 5%.
For the full year, we expect.
Net investment income to decline approximately 2%.
But be up 1% to 2% only per share basis.
In the third quarter, we invested $325 million investment grade fixed maturities, primarily in the municipal industrial and financial sectors.
We invested.
Average yield of three 9% an average rating of a plus and an average life of 29 years.
We also invested $56 million in limited partnerships that have debt like characteristics.
These investments are expected to produce incremental additional yield Android.
<unk>.
Our conservative investment philosophy.
For the entire fixed maturity portfolio, the third quarter yield was $5 two 1%.
Down 10 basis points from the third quarter of 2020.
As of September 30, the fixed maturity portfolio yield was five.
One zero.
Invested assets are $19 billion, including $17 6 billion of fixed maturities at amortized cost.
Of the fixed maturities is $16 8 billion are investment grade with an average rating of a models and below investment.
We are grade bonds are $782 million compared.
Compared to $840 million a year ago.
The percentage of below investment grade bonds to fixed maturities is four 4%.
And excluding net unrealized gains in the fixed maturity portfolio below investment grade bonds as a percentage of equity or 13.
Two.
Overall, the total portfolio is rated a modest compared to triple B plus a year ago.
Bonds rated triple b or 54% of the fixed maturity portfolio.
While this ratio was in line with the overall bond market. It is high relative to our peers.
However, we have little or no exposure to higher risk assets, such as derivatives equities residential mortgages.
Those and other asset backed securities.
It causes me invest long.
Key criteria and utilized in our investment process is there.
On an issue or have the ability to survive.
Percent multiple cycles.
We believe that the triple B securities that we acquire provide the best risk adjusted capital adjusted returns due in large part to our unique ability to hold securities to maturity, regardless of fluctuations in interest rates or equity markets.
Low interest rates continued to pressure investment income.
At the midpoint of our guidance, we're assuming an average new money rate for fixed maturities of around 345% for the fourth quarter.
And a weighted average rate of around three 9% through 2022.
At these new money rates, we expect the annual yield on the fixed maturity portfolio to be around $5 two 1% for the full year 2021.
511.
In 2022.
Fortunately the impact of lower new money rates on our investment income is somewhat limited as we expect to have.
Turnover of less than 2% per year in our investment portfolio over the next five years.
While we would like to see higher interest rates going forward low blood can drive on a lower for longer interest rate environment.
Now I will turn the call over to Frank for his comments on capital.
Capital and liquidity.
Thanks, Gary.
First I want to spend a few minutes discussing our share repurchase program.
Available liquidity and capital position.
In the third quarter, the company repurchased 1 million shares of global I think common stock at a total cost of $96 5 million.
At an average share price of $94 13 tests for the full year, we have utilized approximately $310 million of cash to purchase three 2 million shares at an average price of $97 17.
The parent ended the third quarter with liquid assets of approximately 200.
$80 million down from $545 million in the prior quarter the.
The decrease is primarily due to the redemption of the $300 million outstanding principal amount of our six and one 8% junior subordinate debentures due 2056.
In addition to these liquid assets.
The parent company will generate excess cash flow during the remainder of 2021.
The company's excess cash flow as we define it results primarily from the dividends received by the parent from its subsidiaries less the interest paid on debt and the dividends paid to globalize shareholders.
We anticipate.
Company's excess cash flow for the full year to be approximately $360 million of which approximately $25 million will be generated in the fourth quarter of 2021.
Taking into account the liquid assets of $280 million at the end of the third quarter plus $25 million of.
The parent cash flow is expected to be generated in the fourth quarter, we will have approximately $305 million of assets available to the parent for the remainder of the year.
As I'll discuss in more detail in just a few moments. This amount is sufficient to support the targeted capital levels within our insurance operations and to maintain the share repurchase program.
<unk> said remainder of the year.
As noted on previous calls we will use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be a primary use of the parent's excess cash.
Flows.
At this time, the midpoint of our earnings guidance reflects $90 million to $100 million of share repurchases in the fourth quarter.
In addition, we anticipate using approximately $90 million to $100 million of the parent's assets to maintain our insurance subsidiaries RBC levels.
Ram for the thus taking into account the expected $305 million of assets available at the holding company.
Less of 180 to 200 million.
<unk> be used for buybacks and subsidiary capital needs. We expect to have in the range of $105 million to $125 million of available assets that.
The company at the end of the year.
This is approximately $55 million to $75 million in excess of the $50 million of liquid assets, we have historically targeted at the holding company.
We will continue to evaluate the potential impact of the pandemic on our capital needs How's.
However, we expect that.
The holding if not all of this excess liquidity will be returned to the shareholders in 2022 absent other more favorable alternatives.
Now regarding capital levels at our insurance subsidiaries.
Our goal is to maintain our capital at levels necessary to support our current ratings as noted.
Most of it gets calls globalized targets, a consolidated company action level RBC ratio in the range of 300% to 320%.
At December 31, 2020, our consolidated RBC ratio was 309% at this RBC ratio our insurance subsidiaries have approximately.
May $550 million of capital over the amount required at the low end of our consolidated RBC target of 300%.
This excess capital along with the $305 million of liquid assets that we expect to be built.
Payable at the parent provide sufficient capital to fund future capital needs.
So drivers of additional capital needs in 2021, primarily relate to investment downgrades changes in the newly adopted NTIC RBC C. One investment factors.
<unk> of our business and higher Covid claims.
With respect to downgrades are year to date downgrades of totaled.
$291 million.
But it's been offset by $224 million in upgrades, including a net upgrade of $110 million in the third quarter.
At this time in our base scenario, we are not expecting any significant NTIC one notch net downs.
Or material credit losses in the fourth quarter consistent with the favorable outlook, we continue to see in our portfolio.
In August the NTIC fully adopted the new and expanded <unk> investment factors.
The adoption of these factors will result in higher amounts of required capital for our portfolio.
In addition, higher sales growth of our in force business and higher Covid claims also increased our capital needs as I mentioned previously, we anticipate $90 million to $100 million will be needed at our insurance subsidiaries to maintain the midpoint of our consolidated RBC target for 2021.
So, including the estimated $50 million of capital relating to the higher <unk> charges.
As previously noted the parent company has ample liquidity to cover this additional capital.
At this time I'd like to provide a few comments related to the impact of COVID-19 on third quarter results.
Through September 30, the company has incurred approximately $82 million of Covid life claims, including $33 million in the third quarter on approximately 95000 deaths reported by the CDC.
The claims incurred in the third quarter were significantly higher than anticipated.
Early due to the significant impact the Delta area has had an infection rates and that totals, especially in southern states and in younger ages that earlier in the pandemic.
Our third quarter Covid life claims include approximately $17 million incurred in our direct to consumer division.
Primary or approximately seven 1% of its third quarter premium income.
Approximately $8 $4 million of Covid life claims incurred in Liberty National 10, 6% of its premium for the quarter.
And approximately $6 $7 million at American income.
Or one 9% of.
<unk> third quarter premium.
As indicated on prior calls.
We estimated that we would incur COVID-19 life claims of roughly $2 million for every 10000 U S deaths.
While this was a good benchmark for our claims incurred through June 30th.
Debenture the spread of the Covid.
The variant has impacted our in force book of business differently than the effect of Covid in prior quarters.
In the third quarter Covid desk shifted to a younger population, where global life has higher risk exposure. Both in terms of number of policies and average face amount.
In addition, we're also seeing.
<unk> Delta concentration of Covid deaths in the southern region of the United States, where a greater proportion of our enforced policies reside.
Given our experience to date and available information on the Covid deaths from the CDC and other sources, including the observed changes to the geography of the pandemic and the ages of people dying.
A greater Covid, we now estimate that our incurred losses in the second half of this year will.
It will be approximately $3 $5 million for every 10000 U S deaths.
While continued changes in the mix of depth in terms of geography or the age of those impacted by Covid will impact this estimate.
<unk> forward.
We anticipate the level of losses per U S desk to range from 3 million to $4 million for every 10000 U S deaths in 2022.
At the midpoint of our guidance for 2022, we have assumed $3 $5 million of incurred losses.
But going out and deaths.
To date, we have experienced low levels of Covid claims of policies sold since the start of the pandemic and.
In fact over two thirds of our clients through September 30th relate to policies issued before 2010.
Of the nearly 3 million.
TIB policies sold since March one 2020.
Only 231 Covid claims have been paid through the end of the third quarter totaling approximately $2 $8 million and death benefits.
Yeah.
In addition to Covid losses, we continued to experience higher policy obligations.
Non COVID-19 causes of death and lower policy lapses.
The increase from non Covid causes of death are primarily relate are primarily medical related including heart and circulatory non lung cancer and neurological disorders.
The losses, we are seeing are elevated.
Over 2019 levels due at least in part we believe to the pandemic and the existence of either delayed or unavailable health care.
In the third quarter the policy obligations relating to the non COVID-19 causes of death, and lapses were just slightly more than we anticipated primarily due to higher.
<unk> reserves associated with better persistency at our direct to consumer channel.
Higher than expected non COVID-19 claims at direct to consumer during the quarter were mostly offset by lower than expected non COVID-19 claims experience at Liberty National.
For the full year.
Higher than we anticipated on our last call that we would incur approximately $70 million an excess policy obligations in 2021.
With about $42 million of those related to higher reserves due to lower policy lapses in 2020 and 2021 we.
We now anticipate that our total.
Access obligations will be approximately $78 million of which approximately $48 million relate to higher reserves from lower lapses.
Finally, with respect to our earnings guidance for 2021 and 2022.
After taking into account.
At our best estimates of Covid deaths in the U S in the fourth quarter.
We estimate fourth quarter Covid deaths of approximately 75000 to 125000.
Resulting in approximately $25 million to $45 million of Covid incurred losses.
At the midpoint of our guidance.
Count estimate approximately $35 million of Covid losses on 100000 U S deaths.
The 100000 U S deaths is consistent with the October 15th projection by the HMA.
As a result of the higher Covid claims in the second half of this year than previously anticipated.
We are lowering the midpoint.
Since we items from $7 44.
To $6 95.
With a range of $6 85 to $7 five for the year ended December 31 2021.
The 49% decrease in the midpoint is almost entirely due to an increase in COVID-19 incurred.
<unk> of nearly $63 million.
Or <unk> 48 of.
<unk> earnings per share over the amount previously anticipated.
Looking forward to 2022.
We anticipate that Covid deaths will continue to be with us throughout the year, but at a lower level than in 2021.
Last we estimate Covid desk could range from 100000 deaths for the year to 200000 and that our losses per 10000 U S deaths could range from $3 $3 3 million to $4 million.
At the midpoint of our guidance, we anticipate between $50 million to $55 million.
Hours of Covid incurred losses at approximately 150000 U S deaths, most of which are expected to occur in the first half of the year.
Absent the impact of Covid.
We believe our core earnings should be strong buoyed by premium growth in the 6% to 8% range as a result of strong.
Sales in 2022, and 2021 and continued favorable persistency.
We also anticipate that the level of excess policy obligations will moderate somewhat resulting in underwriting margins as a percentage of premium excluding COVID-19 losses, returning to pre pandemic.
<unk> level of around 28%.
We also anticipate our health underwriting income to increase 4% to 7% during the year with underwriting margins as a percent of premium approximately 24% to 25%.
Overall, we estimate our earnings for two.
<unk> to 'twenty, two will range from $7 95.
To $8 75.
With a midpoint of $8 35.
The wider that historical range is to take into account the wide range of potential impacts of Covid in 2022, which are largely dependent on.
To thousands of new various adoption and effectiveness of available vaccines and therapeutics masking practices and many other factors.
Our 2022 results also reflect a full year of operations for our newest acquisition Beasley benefits, which has been rebranded as globe life benefits.
The acquisition, which we closed upon in the third quarter is expected to add over $50 million of health premium in 2022 and over $11 million of underwriting income.
We are excited about the future of this new acquisition and the ability to grow this business over the long term.
The agency.
Fits well into our overall business model as they offer group supplemental health insurance solutions to employer groups through brokers and thus is complementary to our existing agencies to focus more on individual sales.
Their underwriting results will be reflected in our other health lines, along with our United American General Agency.
<unk> Division.
Those are my comments I will now call return the call back to Larry Thank.
Thank you Frank those are our comments, we will now open the call up for questions.
<unk>.
Thank you to signal for a question. Please press star one on your telephone keypad also with you are using a speaker phone.
Please make sure that your mute button is turned off to allow your signal to reach our equipment. Once again. It is star one at this time for questions and we will pause to give everyone the opportunity to signal.
Okay.
We will take our first question from Jimmy Buhler with J P. Morgan.
Yes.
Hi, Good morning, first just had a question on margins in the life business and it seemed like direct response margins have declined a lot more.
Then another channels and.
Obviously, COVID-19 had something to do with it but it's the makeup geographic and each group.
For direct response.
<unk> that much different than the other channels.
The only reason, causing it or is it something other than COVID-19 thats driving that sharp drop in margins that drip. This morning.
Okay.
Well, Jimmy as you think about direct to consumer.
You'll remember that they just have a higher mortality.
Aspects of their business.
Then.
Our other channels, but.
But when you look at.
The impact of Covid.
In the third quarter, they did have about a 7%, but liberty national AD at 10, 6%, which really reflected.
One, it's a little bit higher concentration in the southern part.
<unk>.
And then they also add.
And the agents that were impacted a little bit more.
By the Delta variant, which tend to be maybe like in the 40% to 50 year old They just have a little bit more exposure proportionately.
Then direct to consumer dip, but drug to consumers also being hit pretty.
With if you will.
With the excess COVID-19 compared to the other other lines of business in the for the full year with direct to consumer.
We kind of expect that to have maybe like five 7% higher policy obligations, which most of that is due to lapses or a little over half of that.
That's due to lapses.
Versus the excess nonprofit clients, whereas in <unk>.
City National and American income.
<unk>.
Excess non Covid claims.
Range from.
Pretty flat to one 5% or so.
Okay.
And then how do.
Do you think about your ability to be able to.
Within the agency that you've hired through the pandemic, especially early on you had seen a big pickup in recruiting because.
The tight labor.
Labor market and now it seems like labor market has improved even in some of the previously troubled sectors, such as travel and hospitality.
Fidelity is still is there a risk that as the economy recovers further debt.
The agenda growth becomes an issue beyond.
2000, and beyond beyond this year and any sort of metrics are you able to share.
Retention would be helpful as well.
Jim in terms of annual free cash and we think.
As south and visual presentation.
As reservation opportunity more attractive and therefore, we are seeing an increase in retention and particularly to our American income.
Versus the prior two years, how agents are not able to make more presentations they spend less time away from holiday incur far fewer travel expenses.
The digital.
She is also a member of the geographic restriction.
On shell Beach.
So.
Virtual recruiting will continue to be effective we can reach more recruits virtual training.
It will be well accepted and efficient.
Estimate right now that 80% to 85% of the sales of our <unk> virtual.
President we think that will continue past the pandemic.
Yes.
Thank you.
Okay.
<unk>.
And moving on we'll go to Andrew <unk> with credit Suisse.
Hi, good morning, everyone.
<unk>.
A couple of questions.
On the direct to consumer and I know you've been.
Touching on a number of pieces of it notably that only 231 of the Covid Queen's.
Came from business.
Whitney.
<unk> 2019, and that was for all the businesses so with that as a backdrop.
I'd like to know.
What portion.
Portion of claims from <unk>.
29, new and I'm, sorry, post 2019, vintages indirect to consumer where and.
And your thoughts around.
Whether whether these claims in direct to consumer that spiked up.
A function of the adverse selection.
Or as you were talking about.
I'll use the term adverse persistency.
Yes, Andrew I really.
The 200 and.
30 some.
<unk> clients roughly half of that.
Is it at.
Is that direct to consumer.
So it's not not.
Substantially all just within that line.
With respect to.
The second part of your question I'm.
I'm not sure exactly whats.
Well I think that just more of the of the numbers there.
I don't have any particular reason as to why.
From their total claims are.
Okay.
Let me from.
So you wouldn't.
I guess again I need to kind of sharpen my pencil after the call, but so let's say it's half of 231.
Claims at direct to consumer.
Is that a number that would appear.
That's the adverse selection on the amount of business written post 2019 or would that be in a normal number.
Relative to everything else on business written post.
Post 2019 or into the pump.
It seems like.
Normal Covid number.
To be additive to everything else.
Yes, im going to say that might be just a little bit higher but it does not a number that gives us great pause with respect to looking at that level of claims over that period of time on that business. We're always going to have some claims that come in.
Especially in our direct to consumer business.
But there'll always be some claims that will happen in the first and second.
Duration, if you will after the policy has been issued.
And so that level really doesn't give us any real concern if you will.
Just wondering I want to hear.
Are you talking about you've been talking.
Post March 20, or nine chain that Covid began March 'twenty.
In terms of adverse selection.
Since that time, we've monitoring uncommon insurance applications.
The changes in the risk profile.
Monitoring influence factors like age amount of insurance and geography at this point.
<unk> seen any material change in the risk profile is it.
We're comfortable with those direct to consumer sales today.
Thanks, All right. That's good to hear and then just one follow up on American income.
Year over year, the agent count looks fine.
It was up seven.
We have not sent but.
Sequentially. The American income ending agents were down 5% in the third quarter and I'm wondering if this implies any recruiting retention concerns.
We'd love to have your feedback on that.
Sure the.
The decrease in agent Count is primarily driven by lower new agent recruiting there has been a negative impact on recruiting across the three agencies because theres. So many work opportunities.
This current economy.
We believe this COVID-19 declines in economic conditions normalize our recruiting will return to normal levels.
And again as I stated.
It earlier to Jimmy <unk> ability to show the visual presentation.
The Asian opportunity much more attractive.
Agents are now able to make.
More presentations that can utilize plays better.
Work from home.
Fewer travel expenses and things that will help with retention and recruiting as we move forward.
Yeah.
Okay.
Excellent. Thank you.
And next we'll go to Erik bass with autonomous research.
Hi, Thank you can you talk about your expectations for 2022 free cash flow and what you have assumed in your guidance for share repurchases.
Okay.
Yes.
Cash flow is actually.
Going to be down a little bit we would anticipate in 2022 and be in the range of 280 million to $320 million.
Down from roughly the $360 million that we're seeing in.
'twenty, one really do.
Merrily to that $50 million of fiery COVID-19.
Covid losses, Covid claims that were seeing here in 2021.
Versus 2020.
But also really due to the significant growth that we've had in the.
2000, <unk> and the agency businesses in their sales and so of course, and we've talked about in past calls that when you have the.
Especially double digit growth in those agencies, that's going to have an additional strain in that first year, but of course very good long term so.
It doesn't surprise surprises.
The age of that is down a little bit but.
So again kind of at that midpoint around 300, there and then we've assumed for buybacks somewhere in the range.
$340 million to $380 million over the course of the year anticipating that we would use some of that.
It goes.
Surplus cash at the holding company.
Got it thank you.
And then just to clarify for the health business the growth in margin that you talked about does that include the Beasley business.
So the $11 million.
Yes.
And the premium side, the $50 million of premiums as well.
Got it and then I guess lastly, just around expenses.
Talk about what your assumption is for admin expenses, which I think were a bit elevated this year from some of the it investments and other things do you see that continuing.
Or will that start to revert to a more normal level.
Yes, hi, Eric administrative expenses.
For 2022, we expect to be up around 8%.
It.
That includes about 4 million easily excrete expenses.
So it would be up 7% and it's again.
We are still we will see higher information.
Technology and information security costs also slightly higher travel utility costs as well.
Got it thank you.
We'll take our next question from Orion Kruger with a B W.
Hi, Thanks, good morning.
Couple more numbers questions can you give us your excess net investment income guidance for for 2022.
[noise] yeah.
The mood board of the guns were looking at excess investment income being down around 2%.
Oh for sure bases there'll be a one to two per cent.
Thanks on the in the life business.
A 28% margin excluding COVID-19 was that just excluding direct COVID-19 claims or did you also make an adjustment for any indirect impacts.
That is just the direct Covid class.
Excluding that for the year.
Okay and did you did you assume.
Can you quantify what you assumed for any sort of indirect yeah told me to impact yeah like 22.
Yeah for 2022.
Total about one 5% of premium.
Is what we're anticipating at the midpoint with about.
Half of that roughly 8% or so due to the continued heidorn lapses and then and then the other 0.7 being still a little bit of elevated claims.
Predominantly stylista DTC market channel.
Got it so so if you excluded that to you would actually expect a.
29% plus plus merchandising in life.
That's exactly right and so yeah.
Excluding both the Covid add though what we've seen in higher other higher policy obligations, we would say around 29 629 and a half.
Little bit higher than where we were in 2019 really because with the strong persistency again and the higher premium base.
Then the amortization percentages of being a little less as a percent of premium.
And that's probably elevated that'd probably be 115% lower than some of those historic levels of the 2019 levels anyway.
Okay, great. Thank you.
Uh-huh.
Our next question will come from China, Barnidge with Piper Sandler.
Yeah.
Thank you most of my questions have been answered, but I do have one sadly COVID-19 remained around longer than we thought where we sat probably at the beginning of the year and a year ago.
Given that what are you doing to encourage maybe wellness programs among your life insurance maybe.
Maybe better.
Deal with it from a long term perspective.
Yeah.
Sure.
Uh-huh.
I will say that we do continue from.
An organization perspective continue to support those organizations that are.
Around.
Good health practices in helping to support those types of.
Lifestyle.
But.
I would say nothing specific if you will around.
Some of the more sensitive areas around masking and some of those politically charged.
Topics.
Okay. Thank you.
Okay.
And once again star one for questioning smoking, we'll go to Tom Gallagher with Evercore ISI.
Good morning, just just had a few follow up questions on on free cash flow C.
Just want to confirm the $280 million to $320 million you mentioned the 2022 that does not include your common dividend. So I should add that back to think about total.
Shareholder that will say capital generation is that yes.
That is correct and and we would anticipate somewhere in that $82 million of common dividends in 2022.
Gotcha see so I guess my my question is when I look at.
You're free cash flow conversion.
And I and I heard your comment on the.
Overall the sale.
Covid impact and then the sales screen.
But when I when I, just look at the ratio and I compare it to the proportion of GAAP earnings.
Now drifting below 50%.
And you know.
Historically, it's been a little bit higher but that that that number is actually been coming down the.
Is there.
Have you thought about that as a corporate strategy at all improving on that ratio.
Now part of it is a high class problem right when you're growing their sales trained and you have to pay for that but.
You know when I compare how.
How ya ratio looks versus peers.
Like the Metlife through the world better now up to 70%.
You know, you're I guess, you're proportion of cash flow and relative to GAAP earnings is is looking like an outlier on the on the lower side is that is that something you've thought at all about as a way to maybe enhance that.
Well, we do we do think about that and we do recognize that but I do recognize that.
It was down from historic level, where we've been more of that 70, 80% pre tax law change back in 2018, and as we've talked about really in the past what that tax law did with they're reduced or increased our GAAP earnings because of the lower tax rate, but it really didn't change our stature.
Tori.
Income very much because our statutory taxes largely as they changed the tax base.
It really didn't change the amount of cash taxes that we're paying out so I didn't have a big statutory impacts within that knocked down a little bit from those levels. Because we are are are statutory capital.
Changed significantly.
With the onset of Covid here in the last couple of years, coupled with really low interest rates.
Our basic statutory income.
Is not does not growing as much and when you look at the and this is the part that.
None of US here want to change, which is that growth in sales and when you look at that statutory drained and money that we're investing in those new sales.
That's going to.
Maintain really strong premiums for the long term.
It does kind of have in the near term an adverse impact on our ability to return.
Some of that excess cash flow.
As a percentage of on GAAP earnings but.
But we think in the long term and those statutory earnings will once we get past Covid, we feel really good about where we're at from a statutory income perspective, and what to expect that to improve.
In future years as we.
As we get out of this.
Okay alright, thank you.
And there are no further questions I'd like to turn it back to management print any additional or closing comments.
Alright, Thank you for joining us this morning, and we will talk to you again next quarter.
Thank you and that does conclude today's conference we'd like to thank everyone for their participation you may now disconnect.