Q1 2022 Globe Life Inc Earnings Call
Please standby we're about to begin.
Good day and welcome to the first quarter 2022 earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mr. 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, Frank Svoboda, 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 2021, 10-K, and any subsequent forms 10-Q on file with the SEC.
All 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 first quarter net income was $164 million or $1.64 per share compared to $179 million or $1 70 per share a year ago.
That operating income for the quarter was $170 million or $1 70 per share an increase of 11% per share from a year ago.
On a GAAP reported basis return on equity was eight 5% and book value per share is $69.16.
Excluding unrealized gains and losses on fixed maturities return on equity was 11, 5% and book value per share is $59.65.
Up 10% from a year ago.
In our life insurance operations premium revenue increased 7% from a year ago to $755 million.
Life underwriting margin was $150 million up 10% from a year ago.
The increase in margin is due primarily to increased premium.
For the year.
We expect life premium revenue to grow around 6% and.
And at the midpoint of our guidance, we expect underwriting margin to grow around 23% due primarily to an expected decline in COVID-19 lifeboats.
And health insurance.
Premiums grew 8% to $317 million.
The health underwriting margin grew 10% to $79 million.
The inquiries and the underwriting margin is due primarily to increased premium and improved claims experience.
For the year, we expect health premium revenue to grow six 7%.
And at the midpoint of our guidance, we expect underwriting margin to grow around 5%.
Administrative expenses were $73 million for the quarter.
10% from a year ago.
As a percentage of premium administrative expenses were six 8% compared to six 6% a year ago.
For the full year.
We expect administrative expenses to grow 10%, 11% and be around $6 nine per cent of premium that's due primarily to higher IC and information security calls employee cost.
The increase in traveling Sylvie calls.
And the addition of the globe life benefits.
I will now turn the call over to Larry for his comments on the first quarter marketing operations.
Thank you Gary at American income life premiums were up 10% over the year ago quarter to $370 million.
Life underwriting margin was up 13% to $111 million.
A higher premium is primarily due to higher sales in recent quarters.
In the first quarter of 2022 net life sales were $85 million up 23%.
The increase in net life sales is due to increased productivity slash a gradual improvement and issue rates are some challenges and underwrite such as staffing and speed of obtaining medical records and other information are resolved.
The average producing agent count for the first quarter was 9385 down 5% from the year ago quarter and down 2% from the fourth quarter.
The producing agent count at the end of the first quarter with 9543.
We are confident American income will continue to grow.
The agent count was trending up the last several weeks of the quarter.
We also have seen improvement in personal recruiting.
<unk> yields better candidates as our retention and other recruiting sources. In addition, we have made changes to the bonus structure designed to improve agency middle management growth.
Yes.
However, international life premiums were up 7% over the year ago quarter to $81 million and.
Underwriting margin was up 35% to searching.
The increase in underwriting margin is primarily due to an improved claims experience.
Net life sales increased 7% to $17 million and net health sales were $6 million up.
6% from a year ago quarter due to increased agent productivity.
The average producing agent count for the first quarter was 2656 down 3% for the year ago quarter, and down 2% compared to the fourth quarter.
<unk> patient count of the rain nationals and as of quarter at 2687.
We've introduced new training systems to help improve patient retention and updated our sales presentations to help the agent productivity.
We are pleased with the continued growth at Liberty National.
At family Heritage Health premiums increased 7% over the year ago quarter to $90 million.
Health underwriting margin increased 9% to $24 million.
The increase in operating margin is due to increased premium and improved claims experience.
Net health sales were up 19% to $19 million due to increased agent productivity.
The average producing agent count for the first quarter was 1100 <unk>.
Down, 14% from the year ago quarter, and down 8% from the fourth quarter.
The producing agent count because he ended the quarter was 1130.
We have modified our agency compensation structure.
Our accretion our focus on agency Middle management development to drive accretive growth going forward.
We are pleased with our record level of productivity at family Heritage.
And our direct to consumer division of Coke life life premiums were up 3% over the year ago quarter to $251 million and life underwriting margin increased 3% to $9 million.
Net life sales were $34 million down 15% from the year ago quarter.
Spec sales to clients due to the 22% sales growth experienced in the first quarter of 2021.
Wholesale suppliers from the first quarter of 2020 was we're still pleased with this quarter's sales results.
At United American General Agency Health premiums increased 13% over the year ago quarter to $133 million and health underwriting margin increased 6% to $20 million.
Net health sales for Searchingly AD dollars flat compared to the year ago quarter.
It's difficult to predict sales activity in this uncertain environment I will now provide projections based on trends, we're seeing and knowledge of our business.
We expect distribution agent count for each agency at the end of 2022 to be at the following ratios.
American income a decrease of 2% to an increase of 3%.
Liberty National.
That show an increase of 14%.
Family Heritage, an increase of 8% to 25%.
Net life sales for the full year 2022 are expected to be as follows American.
American income an increase of 9% to 17%.
Liberty National an increase of 4% to 12%.
Direct to consumer a decrease of 13% to a decrease of 3%.
Net health sales for the full year 2022 are expected to be as follows.
International and increases 3% to 11%.
Family Heritage, an increase of 4% to 12%.
And Iron America individual Medicare supplement a decrease of 5% to an increase of 3%.
I will now turn the call back to Gary.
Thanks, Larry.
Now turn to the investment operations.
Excess investment income, which we define as net investment income less required interest on net policy liabilities and debt.
With $61 million up 1% from a year ago.
On a per share basis, reflecting the impact of our share repurchase program excess investment income was up 5%.
For the full year, we expect excess investment income to decline between one and 2%.
But be up around 2%.
Sure basis.
As to investment yield in the first quarter, we invested $351 million in investment grade fixed maturities, primarily in the municipal and financial sectors.
We invested at an average yield of 3.97% an average rating of a.
And an average life of 27 years.
We also invested $118 million and limited partnership that have debt like characteristics.
These investments are expected to produce additional yield and are in line with our conservative investment philosophy.
For the entire fixed maturity portfolio, the first quarter yield was 515% down nine basis points from the first quarter of 2021.
As of March 31st the portfolio yield was also 5.15%.
Regarding the investment portfolio invested assets were $19 $5 billion, including $18 billion of fixed maturities at amortized cost.
Of the fixed maturities $17 4 billion are investment grade with an average rating of baby bonds.
And below investment grade bonds are $583 million compared to $802 million a year ago.
The percentage of below investment grade bonds to fixed maturities of three 2%.
And I would add that this is the lowest ratio has been for more than 20 years.
Excluding net unrealized gains in the fixed maturity portfolio below investment grade bonds, as a percentage of equity or 10%.
Overall, the total portfolio is rated a minus same as a year ago.
Bonds rated triple b or 54% of the fixed maturity portfolio.
This ratio is 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 clo's and other asset backed securities.
Because we primarily invest long.
A key criterion utilized in our investment process is that an issue or a must have the ability to survive 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 ability to hold securities to maturity, regardless of fluctuations in interest rates or equity markets.
I would also mentioned.
I mentioned that we have no direct exposure.
Two investments in Ukraine or Russia.
And we do not expect any material impact to our investments in multinational companies that have exposure to those cookies.
Okay.
For the full year at the midpoint of our guidance, we expect to invest approximately $1 $1 billion.
Fixed maturities.
At an average yield of around four 3%.
And approximately $200 million and limited partnership investments with debt like characteristics at an average yield of around 7.7%.
We are encouraged by the recent increase in interest rates and the prospect of higher interest rates in the future.
Higher new money rates will have a positive impact on operating income by driving up net investment income.
We're not concerned about potential unrealized losses that are interest rate driven since we would not expect to realize them.
We have the intent and more importantly, the ability to hold our investments to maturity.
In addition, our life products have fixed benefits, they're not interested.
Now I will turn the call over to Frank for his comments on capital and liquidity.
Thanks, Gary first I want to spend a few minutes discussing our share repurchase program available liquidity and capital position.
The parent began the year with liquid assets of $119 million.
In addition to these liquid assets the <unk>.
Parent company will generate excess cash flows in 2022.
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 parent company debt.
During 2022.
We anticipate the parent will generate $350 million to $370 million of excess cash flows.
This amount of excess cash flows, which again is before the payment of dividends to shareholders is.
Is lower than the $450 million received in 2021, primarily due to higher COVID-19 life losses, and the nearly 15% growth in our exclusive agency sales in 2021.
Both of which result in lower statutory income in 2021.
And thus lower cash flows to the parent in 2022, then will received in 2021.
Obviously, while an increase in sales trace a drag to the past cash flow in the short term.
Higher sales will result in higher operating cash flows in the future.
Including the excess cash flows and the hiring of $19 million of assets on hand at the beginning of the year. We currently expect to have around $470 million to $490 million of assets available to the parent during the year.
Out of which we anticipate distributing a little over $80 million to our shareholders in the form of dividend payments.
In the first quarter the company repurchased 880000 shares of Globe Life, Inc. Common stock at a total cost of $88 $6 million.
And at an average share price of 100 and up $100 70.
Year to date, we have repurchased $1 billion at 97000 shares for approximately $110 million at an average price of $100 76.
We also made a $10 million capital contribution to our insurance subsidiaries during the first quarter.
After these payments, we anticipate the parent will have $270 million to $290 million of assets available for the remainder of the year.
As noted on previous calls we will use our cash as efficiently as possible. We still believe that share repurchases provides 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.
Along with the payment of shareholder dividends.
It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to issued new insurance policies.
Spanned and modernize our information technology and other operational capabilities and acquired new long duration assets to fund their future cash needs.
As discussed on prior calls we have historically targeted $50 million to $60 million of liquid assets to be held at the parent.
We will continue to evaluate the potential impact of the pandemic, all our capital needs and should there be excess liquidity, we anticipate the company will return such access to the shareholders in 2022.
In our earnings guidance, we anticipate between 400 and $410 million will be returned to shareholders in 2022.
Including approximately $320 million to $330 million through share repurchases.
Now with regard to our capital levels at our insurance subsidiaries.
Our goal is to maintain our capital levels necessary to support our current ratings.
Global life targets, a consolidated company action level RBC ratio in the range of 300% to 320%.
For 2021, our consolidated RBC ratio was 315%.
At this RBC ratio, our subsidiaries have approximately $85 million of capital over the amount required at the low end of our consolidated RBC target of 300%.
At this time I'd like to provide a few comments related to the impact of COVID-19 on first quarter results.
In the first quarter the company incurred approximately $46 million of Covid life clients equal to six 1% of our life premiums.
The claims incurred in the quarter were approximately $17 million higher than anticipated due to higher levels of COVID-19 deaths that are expected.
Partially offset by a lower average cost per 10000 U S deaths.
The center for disease control and prevention or CDC Rip.
<unk> reported that approximately 155000 U S deaths occurred due to COVID-19 in the first quarter.
The highest quarter of Covid deaths in the U S. Since the first quarter of 2021.
This was substantially higher than the 85000 deaths, we anticipated based on projections from the IH Ebony.
At the time of our last call, we utilize IHS projection of 65001st quarter U S test and added a provision for higher deaths in January as reported by the CDC, but that were not reflected in ihop's projections.
IHA made projections anticipated a significant drop off in desk starting in mid February obviously, the decline in death did not occur as quickly as anticipated, especially during the latter half of the quarter.
With respect to our average cost per 10000 U S deaths based.
Based on data. We currently have available we estimate COVID-19 losses on deaths in the first quarter were at the rate of $3 million per 10000 U S deaths, which is at the low end of the range previously provided.
This reflects an increase in the average age of Covid deaths and a decrease in the percentage of those deaths are occurring in the south.
The first quarter Covid life claims include approximately $25 million in claims incurred in our direct to consumer division or 10% of its first quarter premium income.
Approximately $4 million at Liberty national or five 5% of its premium for the quarter.
An approximate $15 million at American income or 4% of its first quarter premiums.
We continue to experience relatively low levels of Covid claims on policy sold since the start of the pandemic.
Approximately two thirds of covered claim counts come from policies issued more than 10 years ago.
For business issued since March of 2020.
We paid 624 Covid life claims with the total amount paid of $93 million.
The 624 policies with Covid claims.
Price on the 0.0% to 1% of the approximate 4 million policies issued by globalized during that time.
These levels are not out of line with our expectations.
As noted on past calls in addition to Covid losses, we continued to experience higher life policy obligations from lower policy lapses and non COVID-19 causes of death.
The increase from non Covid causes of death are primarily primarily medical related.
Including deaths due to lung ailments heart and circulatory issues and neurological disorders.
The losses, we are seeing continued to be elevated over 2019 levels due at least in part we believe to the pandemic and the existence of either delayed or unavailable healthcare and potentially side effects of having contracted COVID-19 previously.
In the first quarter the life policy obligations related to the non COVID-19 causes the desk and favorable lapses were approximately $7 million higher than expected primarily due to higher non COVID-19 deaths are deep and our direct to consumer Division then than we anticipated.
For the quarter, we incurred approximately $22 million in excess life policy obligations.
Of which approximately $15 million relates to non Covid life claims.
For the full year, we anticipate that our excess life policy obligations will now be approximately $64 million.
Our two 1% of our total life premium.
Two thirds of which are related to higher non COVID-19 causes of death.
This amount is approximately $11 million greater than we previously anticipated.
With respect to our earnings guidance for 2022.
We are projecting net operating income per share will be in the range of $7 85 to.
To $8 25 for the year ended December 31 2022.
The $8 <unk> midpoint is lower than the midpoint of our previous guidance of $8 25.
Primarily due to higher Covid life policy obligations related to higher expected U S desk during the year.
We continue to evaluate data available from multiple sources, including the IH Emmy and CDC.
To estimate total U S deaths due to COVID-19 and to estimate the impact of those deaths are enforced book.
At the midpoint of our guidance, we estimate we will incur approximately $71 million of Covid life claims assuming approximately 245000 COVID-19 deaths in the U S.
This is an increase of $21 million over our prior estimates.
This estimate assumes daily deaths will diminish somewhat from recent levels, but remain in an endemic state throughout the year.
With respect to our cost per 10000 deaths. We now estimate we will incur COVID-19 life claims at the rate of $2 5 million to $3 $5 million for 10000 U S. Covid deaths for the full year or approximately $2 $8 million for 10000 U S deaths over the final three quarters of the year.
Those are my comments I will now turn the call back to Larry.
Thank you Frank those are our comments, we will now open the call for questions.
Thank you to signal for a question. Please press star one on your telephone keypad.
So if 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'll pause for just a moment to give everyone the opportunity to signal.
We will take our first question from Jimmy <unk> with J P. Morgan.
Hi, good morning.
I had a couple of questions first if you could talk about the decline in the agent count.
And I guess, it's multiple sectors, but to what extent does the difficulty finding new agents in this labor market versus just.
Yeah.
Sort of departures of people that <unk> hired over the past.
<unk>.
For other jobs.
And then the.
How do you think.
For sales.
This is something that will pressure sales as you get into late this year and into next year.
And the second part.
Okay.
So let me I'll address the first question first Im not sure. The second part is true that recruiting has been challenging because there's so many work opportunities.
I'd also remind everyone. There's typically a decline in agent count sequentially from the fourth quarter of the first quarter because of seasonality of the holidays.
Affect American and calling family Heritage you also have open our rollouts.
At Liberty National Association of the holidays, given our focus on alcohol is trying to period I do believe continue to see growth.
Because of our agencies seller underserved middle income market also theres, absolutely no shortage of underemployed workers, Okay for a better opportunity.
Historically, we've been able to grow the agency's regardless of economic conditions.
Sample during the economic downturn and high unemployment of 2008 to 2010.
American income has had very strong agency growth in 2018 in 2019.
S experienced record low unemployment.
Erica income Liberty National family Heritage has strong growth.
Our long term ability to grow the agency's Jimmy.
It depends on growing middle management.
Spanning a new office openings and providing additional sales tools for our agents during.
During 2022.
Anticipate opening new offices.
And the number of general managers in all three agencies. We're also providing additional sales technology to support our agents.
Could you repeat the sales question I don't think I heard the sales question. It was it was just that.
Obviously to the extent that you are losing people who were recently hired there.
Then you don't lose a lot of production from them because they hadn't ramped up but how do you think that like that.
The decline in the agent count.
Both people, leaving are already agents and difficulty in hiring new agents does that make you less optimistic about sale later this year and into next year.
Well it doesn't make it less optimistic no new agents was less productive and veteran agents.
As you look across the three Asia as the increases in sales or partially explained by the increase in productivity. As example, our largest clients of family heritage.
And we had a 16% increase in the percentage of Asia submitting business also had a 22% increase in the average premium written for Asia.
Is that level of productivity that comes from the veteran Asia positioning agents and.
At American income in the first quarter, we saw personal recruits increase about 15% versus the first quarter of 2021.
That's important because personal recruits.
Are they stay twice as long are twice as productive as they re crews from other sources, so I have confidence even though the agent.
The increase will be slower this year, we'll still have the sales within the range that I gave during the script.
Okay, and then any comments on what Youre seeing in terms of noncore, but mortality.
Because it seems like claims for a number of life companies had been elevated even beyond go a bit because of either how pictures are related issues related to potentially the corporate but not directly COVID-19 claims.
Yes, Jimmy I mean that is really consistent with what we're seeing right now as well and that we are seeing especially in the first quarter, we really did see elevated levels.
At especially at our direct to consumer but.
Side across the distributions and really across all of that.
Several different causes of death.
Primarily as I mentioned in the heart and circulatory.
Yes.
Some of the neurological disorder.
Type areas.
We really do attribute.
To the various side effects of Covid and whether its just not had getting care when they needed it.
Throughout 2021 or.
Side effects us having had it in.
The client health.
The survivors of Covid.
As well as we're looking at in.
In 2022, and you know looking back we saw some early trends back in December that kind of led us to believe that we would start to see that.
A decrease in those claims in 2022, and so we had originally anticipated.
Those kind of trending back.
To more normal levels over the course of the year.
In the first quarter really wasn't worse than what we've seen in the past a little bit elevated.
Elevated but not substantially so but it was just greater than what we had anticipated.
Do think over time that diesel again, you kind of revert back to normal levels, but probably a little bit more slowly.
Then what we had originally anticipated.
And then just lastly on the accounting changes do you have any sort of initial commentary on what you expect the impact to be both in terms of the balance sheet then on the income statement.
Yes, no no updates from what we had talked about on the last quarter.
We do anticipate giving some more quantitative.
Disclosure.
After the end of the second quarter and we're still in the process of finalizing if you will or our model's doing the testing, making sure our controls are in place.
Looking at.
The various various.
Aspects of.
Validating our numbers as well.
So as I said on the last call.
We do anticipate.
A favorable impact.
Mine operating earnings perspective, primarily through.
Reduced the changes being made on the amortization side of the balance sheet or the income statement.
And then with respect to the equity on the OCI that there will be some decrease there clearly from.
Just the changes in the interest rate impact.
Yes.
Thank you.
And moving on we'll go to Andrew <unk> with credit Suisse.
Hi, good morning.
I thought I would go back to the.
Producing agent count numbers.
So the new targets for American income or negative two to positive three that's versus three to eight at your last quarterly guidance.
Liberty National Zero to 14 is versus three to 18 last time and then.
Family Heritage, 8% to 25 versus 12 to 30 last time, So I guess the question is.
Was it was at the tight labor market that's primarily.
Driving this change in guidance is there something else what are some of the key drivers of this new guidance.
Thanks for American and kind of one of the key drivers.
It's just the amount of Asia growth, we had in 2020 in 2021 as you recall, we had greater than 20% agency growth.
In Asia growth is always a stair step process. So.
I wouldn't expect the same level of agency growth in 2022 that we had in 2020 through 2021.
I think the uncertainty really is around the other two agencies has to do with Covid.
You recall.
Liberty National.
Really sells the majority of the sales of Worksite presentations and Allstate places.
Placement business and also appointments a bit more difficult to set during the pandemic.
If COVID-19 continues to decline in the Asia count growth at Liberty National with mediocre another range, because you'll be able to recruit to and add business sale of Covid doesn't have acquired or expect.
Our guidance would be at the heart of the rash.
Family Heritage.
They don't sell life insurance with ways, they sell and the whole physically as a whole where at the business.
And those appointments were very difficult to ship during the pandemic.
So again I'll call it continues to decline.
Agent count growth of family Heritage with the upper end of that range, because we've been able to recruit to and at home.
This is sales as COVID-19 dozens of clients expect family Heritage.
Florida the range, what's encouraging I think as the sales levels we had.
In the first quarter with a 19% sales growth at family Heritage.
It's really easy to recruit too because the agents are having such success.
Likewise, we saw Worksite sales increase.
10% quarter over quarter first quarter of 'twenty, two versus 21, so that's easier to recruit to win or more prospects.
Worksite market.
Yes.
That makes a lot of sense, particularly liberty and family Heritage.
Yes, again on American income.
You knew about the agency growth that was so strong in 2020 , one and yet you gave the guidance of 3% to 8% now.
It's off a bit sharply.
Anything else.
Larry.
Mike.
They changed your thinking in the course of two or three months.
No not in the two or three months, but I'd remind you of American income.
We had.
Large number of our offices opened in 2018 in 2019.
And that recruiter that resulted in the higher agency grocery those new offices during COVID-19 is more difficult to open those new offices.
He is lower.
New office renovation in 2022 than we had in <unk> and 'twenty, one and 'twenty two excuse me in 'twenty, one 'twenty two.
18 and 19.
And again I will say that when you look at American Echo with approximately 10000 agents.
<unk>, 3% increase was 300 Asia, such a large number of agents to bring in and train and.
Engineered systems.
So again.
<unk> process, which are slower Asia growth following the faster growth. If you go back to 17 and 18 you.
You will see that at American income.
The areas, we had almost zero Asia growth in those two years.
And then in 19 of 28, we had the accelerated Asia growth. So this follows a pattern that historically, we've seen at all three agencies.
I see okay and then.
You talked a little bit about going forward some.
Building out the middle management and.
And increasing the opposite further as we go through 'twenty two could you put any numbers around it or any any further color.
For the year for all three agencies, we expect to increase metal management of 5% to eight percentage that is so important because middle management.
It really drives most of the recruiting and on all three agencies. So.
The lack of Asian growth.
Family Heritage.
Our middle management growth during 2022, as we see the Asian growth accelerate.
More people will take that opportunity and move into middle management.
Again, we've got such.
Rapid Asian growth at American income.
The 5% to 8% growth is certainly.
A reasonable number to assume for a reasonable range to assume for 2022.
At family Heritage or excuse me Liberty National's received the Worksite sales increase will shoot assume an increase in middle management.
And I guess lastly, you were just touching on how.
So all of those.
Elevated.
Non COVID-19 the Covid related claims.
Reverting back over time, and we've heard that from some of the Big U S life reinsurers as well.
Anything further there is it just once COVID-19 subsides. All these these kind of situations where people are getting.
Getting medical checkups upset et cetera that will just kind of subside with COVID-19 .
And anything else that gives you confidence that.
We will revert over time.
No I think Andrew that that's largely when you think about getting back to access to health care.
And.
Generally people feeling you are getting more comfortable with.
Getting out of their homes and getting back into the Doctor's office and the care that they need to take care of their conditions.
I think as as time goes on obviously, we'll start to see get more experience in the numbers and be able to get a little better sense of that I think at this point in time it's.
Where if you look at this elevated level and you kind of see the situation as it is more from the.
Our belief that over time.
As we get past the Covid pandemic.
Again use of health care it gets back to normal levels, that's where we would anticipate that it would.
Given that the non COVID-19 deaths would get back into kind of normal levels as well at least until we start to see.
Some.
Something in the numbers that would indicate otherwise.
That seems very encouraging for 2003, and 2023 and 2004 anyway. Thank you very much for answering the questions.
Sure. Thanks.
And once again it is star one for questions next we will go to Erik bass with autonomous research.
Hi, Thank you it looks like the lapses ticked up a little bit from where they've been running in the life business. So I was just wondering are you starting to see persistency begin to normalize and is that something you would expect to continue.
Okay.
Eric I think Thats true.
True Liberty National peers.
We're getting back more towards the pre pandemic level lapses.
The direct to consumer side.
Uh huh.
The lapse rates were a little bit higher first year lapse, there was little bit higher than.
It had been in the.
Late 2020, and 2021, but it along with the renewal so lapse rates are still favorable compared to where we were pre pandemic.
American income I think we've had a fluctuation there this quarter. The first year lapse rate was a little over 10% which is dormant.
Less and less than 9%.
I think we are.
I think that'll settle down as we go forward.
Like direct to consumer.
Yes.
He writes their American income will be a little bit higher than what we experienced in 'twenty, one, but still favorable versus pre pandemic levels.
Got it. Thank you and then can you remind me I think one of the other factors driving the excess life claims that you're assuming as the.
Better persistency.
Kind of provide a reminder of what you're assuming there and how that works through.
Yes.
About a third I have mentioned in the opening comments that for the year. We have total excess policy obligations, we're estimating around $64 million and about a third of that is due to the higher lapses.
Over time I mean, we are.
Bringing that down if you will over over the course of 2022 and as Gary indicated, we still and we still anticipate having favorable persistency.
Versus pre pandemic levels, but we are kind of draining that back over time that by the end of the year still anticipating some favorable persistency in that favorable persistency does result in some higher policy obligations.
Normal so.
Over time again, we're kind of discrete and adapt slowly though.
Of course of the year.
Thanks, and if I could sneak one more in on your excess investment income I think it was up year over year. This quarter and your guidance is still for it to decline on a dollar basis was there anything unusual in the investment income this quarter.
Yes, Eric we had.
The income from limited partnerships that we had was about two and a half million dollars higher than expected.
And I think that's a little bit of a timing thing so.
The investment income that investment it was weighted heavier towards the first quarter then it will be later in the year.
Got it thank you.
Okay.
Moving on we'll go to Ryan Krueger with K B W.
Hi, good morning on the $15 million of non Covid excess mortality claims in the quarter.
You.
Give that by division.
Division I guess I'm curious.
If it was more concentrated in direct to consumer like here, but like the direct Covid claims work.
Yes, it could.
The total excess obligations I think I indicated were about $7 million higher.
Four hours.
We're looking forward to the debt.
The $15 million.
I think you said there was $20 million of indirect.
Policy obligations and $15 million whats problem mortality.
Okay, yes and about about.
$10 million of that was from related to DTC.
And about $2 million each from.
It's about $11 million DTC is $2 million each from <unk> and <unk>.
Got it I guess is there any as you dug into the data.
Is there are there any conclusions as to why you think youre seeing more concentration in both.
Direct and indirect Covid claims indirect to consumer relative to the agent driven.
<unk>.
Yes.
I think just in general as we look at it you know remember that direct to consumer is just a higher mortality.
Business. So just in the normal course of time.
Their policy obligations make up about $54 55% of their.
Total premium, whereas for both Liberty and American income they are in that 30% to 35% range kind of on a on a pre pandemic level.
So just from a from a proportion perspective DTC has just has just that higher mortality.
Other than just being part of that Theyre just tend to be.
A broader swath of the U S population, if you will add having just tends to be I'm going to say just be a little less healthy group of policyholders, just because we do less underwriting and members that yet simplified underwriting of direct to consumer.
You know that.
We don't really see anything else in the numbers, if you will that specifically point to.
Anything specific for DTC.
Thanks, and then when I look at.
Your if I take your life underwriting income in both 2021 and in the first quarter and if I, if I add back the.
Direct and indirect.
Covid and mortality impacts that you stated it looks like the margin would have been about 29% of premium if you add everything back.
Which is higher than it was running pre pandemic, which I think with more in that 27% 28% range.
Is is 29% more indicative of what you'd expect once the pandemic fully and are there some other offset.
Okay.
Yeah, Ryan I think when what additional piece there is that.
Where we are.
<unk> improved.
Our lower amortization of deferred acquisition costs because of the improved persistency.
And so that's that's the piece that gets you from the what we would say a normal 28 to two.
29 that you came up with.
Yes.
Okay understood. Thank you.
And as a final reminder, star one at this time if you do have a question next we'll go to John Barnidge with Piper Sandler.
Thank you very much cleaner and talk about how inflation changes the dynamics for distribution of products into your targeted demographic maybe at a bit differently. How do you think the sales persistency holding up in a soft economic environment driven by inflation.
I'll first talk about the impact of inflation.
It's really a different distribution for the agency channels.
We expect little impact on the level of sales due to inflation November we saw a need spaces.
Children favorably impacted the customers doing larger face amount.
Should a client need to purchase additional coverage.
One monthly premiums associated products for social was only a slight increase in premiums.
Our premiums are designed to comprise only a small percentage of the agents budget.
For direct to consumer inflation could be a negative for the mail in escrow channels.
Increases overall cost of ensuring no media due to postal rate and paper cost increases.
As such we will probably need to adjust mill volume should maintain profit margins.
However, we can expand the use of the internet and email channels to offset those decreases.
Medicare supplement at United American.
Inflation continued to hire medical trend is.
This higher trend will be all show with rate increases over time to achieve the lifetime loss ratios to the extent medical trends are higher than his shows.
Profit margins may actually improve as the fixed dollar acquisition costs become a lower percentage of premium.
That's very helpful and then.
Maybe on the investment portfolio as a follow up.
Hey, Mitch.
The rate environment has clearly changed a lot.
It does change maybe interest in floating rate securities versus more versus fixed at all or maybe you can talk about.
Rate change your view on investments.
Yeah.
Well John we.
As you know, we primarily invest long and that's the reason we do that is because our liabilities.
Yeah, we have seen especially in treasury rates we've seen.
In the quarter from the beginning of quarter during the quarter.
The curve flattening however.
However.
When you take in consideration.
Our spreads.
So the longer the 25 year bonds.
Bonds that were buying provider.
We will provide that.
The central yield enhancement over over the shorter bonds so but.
But we don't.
We're trying to look for.
Best opportunities, we don't rule out investing short.
They're especially tons.
So we won't improve diversification or quality or what are the.
We do go shorter.
And in fact, we are we are going with short term certain extent when you talk about.
Alternatives that we're investing in.
I mentioned that we're going to invest.
We invest approximately $200 million in 2022 entities.
Limited partnerships there are credit structure structured.
Structured credit type of arrangements.
Yes, they're shorter.
So give us a good yield.
But.
For the most part.
No.
When we're investing for assets to support our policy liabilities, we need to we need to invest.
You know, where we stand today as I mentioned.
50% will be go into the shorter the vessels, but that means 85% are still going to be in the longer investments.
Thank you very much for the answers best of luck in the quarter.
And there are no further questions I'd like to turn it back to Mr. Mike majors for any additional or closing comments.
Alright. Thank you for joining us. This morning, those are our comments and we will talk to you again next quarter.
Yes.
Thank you and that does conclude today's call we'd like to thank everyone for their participation you may now disconnect.