Q3 2022 Globe Life Inc Earnings Call
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Thank you for joining today's call. Please stay connected and the call will begin shortly.
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Hello, and welcome to the Q3 at 2022, Hello, Blyth, Inc earnings call.
My name is Jack and that'll be all coordinator for today's event.
Well the duration of the call your lines will be on listen only however that will be the opportunity to ask questions.
This can be done by pressing star one on your telephone keypad. So if I just to your question at any time.
If at any point you require assistance, please press star zero and Youll be connected to an operator.
I will now hand over to you Mike majors to begin today's call. Thank you.
Thank you and good morning, everyone. Joining the call today are Gary Coleman, Larry Hutchison, our co Chief Executive officers, Frank Svoboda, Our Chief Financial Officer, Matt Darden, Our Chief strategy Officer, and Brian Mitchell, Our General Counsel.
So all 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 and 10-K.
Subsequent forms 10-Q on file with the SEC.
Our comments May also contain non-GAAP measures. Please see our earnings release and website for a discussion of these terms and reconciliations to GAAP measures I'll now turn the call over to Gary Coleman.
Thank you, Mike and good morning, everyone.
Before we get into the third quarter results I want to note are separate announcement yesterday that boiler.
Darden has been appointed as co Ceos effective January one 2023.
Gary and I will continue to serve as co chairman.
We are very pleased to hand, the reins over to Frank and Matt.
You may recall that in April of this year, we appointed to the newly created titles senior Executive Vice President.
There's significant contributions and leadership.
As noted in the announcement I can Matt bring a vast range of experience and skill sets to the company.
Yesterday's announcement is a conclusion of a long planned succession strategy that is a result of a thoughtful and deliberate process undertaken by the board.
We believe this outcome best positions globally for the next chapter of growth and value creation, while ensuring that our executive leadership structure continues in a way that allows us to best serve all our stakeholders, including our employees agents and policyholders as well as our shareholders.
Larry.
Long with the board looked forward to this transition.
And with that I'd like to begin the discussion of the third quarter results.
In the third quarter, net income was $187 million or $1.90 per share compared to $189 million or $1.84 per share a year ago.
Net operating income for the quarter was $211 million or $2 15 per share and.
An increase of 21% from a year ago.
On a GAAP reported basis return on equity was 11, 2% and book value per share is $44 50 success.
Excluding unrealized losses Opex maturities return on equity was 13, 1% and book value per share is $62, one sets up 9% from a year ago.
In our life insurance operations premium revenue increased 4%.
From the year ago quarter to $755 million.
Life underwriting margin was $208 million up 28% from year ago.
The increase in margin is due to improved claims experience.
For the year, we expect life premium revenue to grow around four 5% and at the midpoint of our guidance, we expect underwriting margins to be up around 23% due primarily to a decline in COVID-19 and excess mortality for the full year.
And health insurance premium revenue grew 7% to $319 million and health underwriting margin was up 4% to $80 million.
For the year, we expect health premiums grow around 6%.
And at the midpoint of our guidance, we expect underwriting margins to be up around 5%.
Administrative expenses were $75 million for the quarter.
Up 10% from year ago.
As a percentage of premium administrative expenses were 7% compared to 6.6% a year ago.
For the full year, we expect administrative expenses to be up around 11% and be around six 9% of premium due primarily to higher <unk>.
And information security costs employee costs, and the addition of the globalized benefits Division.
I will now turn the call over to Larry for his comments on the third quarter marketing operations. Thank.
Thank you Gary I would like to Echo your comments about the appointment of a frac and Matt is ex co Ceos of worldwide Frac.
<unk> mass have worked closely with Gary I may over the past several years have helped develop and execute the company's strategy.
Ever report that will ensure the co CEO structure continues divesture of globe Life's employees agency owners and industry force policyholders and shareholders.
I look forward to working closely with Gary Frac.
Frac is Matt over the coming weeks to help facilitate a seamless transition.
Okay. It's a court at American income life.
Premiums were up 6% over the year ago quarter to $378 million Wi.
Our life underwriting margin was up 16% to $128 million.
The higher underwriting margin was primarily due to improved claims experience.
Third quarter of 2022, net life sales were $76 million up 4%.
The average producing agent count for the third quarter was 9477 down 5% the year ago quarter and down 2% from the second quarter.
Producing agent count at the end of the third quarter was 9441.
Client average agent count resulted from higher than expected attrition.
While patient count is down I am confident regarding the long term growth potential of this agency regardless of economic conditions American income will grow overtime, because we saw coverage at customers that are vastly underserved Margaret really needed okay.
We can generate sustainable agency growth over the long term because we have more than 60 years of experience with American income distributions had its products.
As we have said before agency growth is typically a stair step process asbestos compare Asia counts over multiple years to evaluate agency growth.
At Liberty National Life premiums were up 5% over the year ago quarter to $82 million and life underwriting margin was up 17% to $19 million.
The increase in underwriting margin is primarily due to higher premiums and improved claims experience net.
Net life sales increased 2% to $19 million and net health sales were $7 million up 5% from the year ago quarter due mainly to increased agent counts.
The average producing agent count for the third quarter was 2784 up 3% from the year ago quarter, and up 3% compared to the second quarter.
The producing agent count at the re national ended the quarter at 2850 chairs.
We are pleased by the continued growth of Liberty National.
At family Heritage Health premiums increased 6% from the year ago quarter to $92 million and health underwriting margin increased 1% to $25 million net health sales were up 14% to $22 million due to both increased agent count and agent productivity.
The average producing agent count for the third quarter.
There's 1233 up 7% from the year ago quarter, and up 5% compared to the second quarter.
I previously indicated the family heritage, we concentrate on recruiting and we are seeing the results from those efforts the producing agent count at the end of the quarter was 1300 <unk>.
We continue to be encouraged by the sales and recruiting trends at family Heritage.
And our direct to consumer Division of Globe life life premiums were up 1% for the year ago quarter to $243 million and life underwriting margin increased from $12 million to $39 million an.
The increase in operating margin is primarily due to improved claims experience.
Life sales for 'twenty about $29 million down 13% from the year ago quarter due to lower response rates and lower paid initial premium.
As a reminder, director consumer provides a reduced premium introductory offers and we do not record a sale until the first full premium is received as.
As I have mentioned on previous calls sales in this division are impacted by the record inflation we are seeing.
Our typical direct to consumer customer is at a lower income brackets at our agency customers and generally has less discretionary income to purchase or retain assurance.
We have also had to reduce our circulation and mailings as increases Appulse Ctrip paper cost compete our ability to achieve a satisfactory return on investment for specific marketing campaigns.
At United American General Agency Health premiums increased 13% over the year ago quarter to $134 million and health underwriting margin increased 12% to $20 million net health sales were $13 million up 11% compared to the year ago quarter.
I will now provide projections based on transfer sands and knowledge of our business.
We expect the producing agent count for each agency at the end of 2022 to be in the following ranges.
American income life, a decline of 4% to a decline of 1%.
International an increase of 3% to 7%.
Family Heritage, an increase of 13% to 22%.
Net life sales included in our guidance are as follows.
American income life for the full year 2022, an increase of 8% to 12%.
For the full year 2023 relatively flat.
It is difficult to predict sales activity. This early and it is a tough comparable for next year.
Due to the very strong sales we've had the last few years.
Liberty National for the full year 2022, an increase of 6% to 8% for.
For the full year 2023, a high single digit increase.
Direct to consumer for the full year 2022, a decrease of 17% to a decrease of 13%.
For the full year 2023 relatively flat.
These five sales are projected for 2023 and are incorporated into our projections of a four or 5% growth in total life premiums for the full year 2023.
Net health sales included in our guidance are as follows.
Liberty National for the full year 2022, an increase of 6% to 8%.
Full year 2023, a high single digit increase.
Family Heritage for the full year 2022.
An increase of 11% to 13%.
For the full year 2023 high single digit growth.
United American individual Medicare supplement for the full year 2022, a decrease of 14% to a decrease of 8%.
For the full year 2023, low single digit growth.
I will now turn the call back to Gary.
Thanks, Larry we will 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.
It was $56 million.
Down 5% from the year ago quarter.
On a per share base.
Collecting the impact of our share repurchase program excess investment income was down 2%.
For the full year, we expect excess investment income to decline between one and 2% but to be up around 3% on a per share basis.
After three consecutive years of declining excess investment income, we expect to see growth in 2023 of 10% to 12%.
Due primarily to the impact of higher interest rates on the investment portfolio.
Regarding investment yield in the third quarter, we invested $431 million in investment grade fixed maturities, primarily in the financial and municipal sectors.
We invested at an average yield of 556% an average rating of AA and an average life of 18 years.
We also invested $21 million in limited partnerships that have that wide 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 third quarter yield was 517% down.
Down four basis points from a year ago, but up one basis point from the end of the second quarter.
As of September 30, the portfolio yield was five 8%.
Invested assets were $19 8 billion, including.
Including $18 2 billion of fixed maturities at amortized cost.
Of the fixed maturities $17 6 billion are investment grade with an average rating of a minus.
Overall, the total portfolio is rated a minus same as a year ago.
Okay.
Our investment portfolio has a net unrealized loss position of approximately $2 2 billion due to the higher treasury rates and spreads.
We are not concerned with the unrealized loss position as us.
I'm really interest rate driven.
We have the intent and more importantly, the ability to hold our investments to maturity.
Bonds rated triple b or 52% of the fixed maturity portfolio compared to 54% from the year ago quarter.
While 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.
Those and other asset backed securities.
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.
Below investment grade bonds are $543 million compared to $782 million a year ago.
The percentage of below investment grade bonds to fixed maturities is 3%.
This is as low as this ratio has been for more than 20 years.
Below investment grade bonds, plus bonds rated triple b or 55%.
Fixed maturities the loss ratio has been in eight years.
Overall, we are comfortable with the quality of our portfolio.
During 2022, we have executed some modern repositioning of the fixed maturity portfolio to improve yield and quality.
In the last few quarters, we sold approximately $324 million of fixed maturities with an average rating of triple B and reinvested the proceeds in higher yielding securities with an average rating of a plus.
Because we primarily invest long a key criterion utilized in our investment process is that an issue or most of their ability to survive multiple cycles.
We believe we are well positioned not only to withstand the market downturn, but also to be opportunistic and purchase higher yielding securities in such a scenario.
I would also mentioned that we have no direct investments in Ukraine, or Russia, and do not expect any material impact to our investments and multinational companies that have exposure to these countries.
At the midpoint of our guidance for the full year of 2022, we are expecting this approximately $1 4 billion in fixed maturities and an average yield of five 1%.
And approximately $200 million and limited partnership investments with debt like characteristics at an average yield of seven 9%.
Also at the midpoint of our guidance, we expect the yield on the fixed maturity portfolio debride around five 6% for the full year in 2022 and $5 one 9% in 2023.
While the expected increase is just three basis points. It is noteworthy and encouraging as this will be the first time, we have seen the portfolio yield increase since 2008.
As we've said before we are pleased to see higher interest rates. As this has a positive impact on operating income by driving up net investment income.
With no impact on our future policy benefits since they are not interest system.
Now before turning to Frank to review the financials, we want to invite Matt to say a few words.
Larry and Gary for the current Congress.
As the Chief strategy officer, and a deep understanding of our marketplace and an appreciation for the operations and team driving the success of globe life and humbled to be chosen as one of the next has CES of globe life, along with Frank.
I believe we bring a strong and well rounded approach that will help deliver on our value creation objectives for the long term.
We will continue to adapt to change and modernize our operations and a firm believer in glad its unique business model.
Cited to continue the successful execution of our strategy.
Look forward to sharing more as we progress throughout next year right. Yes, Thanks, Matt I am excited to work with maps and we engaged more deeply together and globalized strategies, both financial and operational and to capitalize on the many opportunities we have for continued growth I.
I am confident that our collective knowledge of the business and its functions will help continue to globalize success at history of shareholder value creation.
I sure Mats view on our business model. It has served the company very well over the years and I firmly believe that it provides us the best opportunity to succeed in the future.
Look forward to hitting the ground running as co CEO and getting even more involved in the business through the transition period and beyond.
Now looking at the quarter, let me spend a few minutes discussing our share repurchase program available liquidity and capital position.
In the third quarter the company repurchased 564000 shares of Globe Life, Inc. Common stock at a total cost of $56 million at an average share price of $99 43.
For the full year through September 30, we have utilized approximately $279 million of cash to purchase two 8 million shares at an average price of $98 and 46 tests.
The parent ended the third quarter with liquid assets of approximately 141 billion.
Down from $318 million in the prior quarter.
The decrease is primarily due to the redemption September of the $300 million outstanding principal amount of our three 8% senior notes.
In addition to these liquid assets the parent company will generate additional excess cash flow during the remainder of 2022.
The parent 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.
We anticipate the parent company's excess cash flow for the full year will be approximately $360 million of.
Of which approximately $32 million will be generated in the fourth quarter of 2022.
This amount of excess cash flows, which again is before the payment of dividends to shareholders.
It's lower than the $450 million received in 2021, primarily due to higher Covid life losses in 2021, plus the nearly 15% growth in ice fluids of agency sales.
Both of which resulted in lower statutory income in 2021, and thus lower cash flows to the parent in 2022.
Taking into account the liquid assets of $141 billion Athena in the third quarter was $32 million of excess cash flow is expected to be generated in the fourth quarter. We will have approximately $173 million of assets available to the parent for the remainder of the year out of which we anticipate distributing approximately 20.
To our shareholders in the form of dividend payments.
The remaining about is sufficient to support the targeted capital within our insurance operations and maintain a share repurchase program 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 provide the best return or yield to our shareholders over other available alternatives.
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 fully fund new insurance policies expansion and modernization of our information technology and other operational capabilities and.
And acquisition of new long duration assets to fund their future cash needs.
As discussed on prior calls we have historically targeted 50% to $60 million of liquid assets to be held at the parent.
We will continue to evaluate the potential capital needs and should there be excess liquidity, we anticipate the company will return such excess to the shareholders.
And our earnings guidance, we anticipate approximately $415 million will be returned to shareholders in 2022, including approximately $335 million through share repurchases.
With regards to capital levels at our insurance subsidiaries.
Our goal is to maintain our capital at 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%, providing approximately $85 million of capital over the amount required at the low end of our consolidated RBC target of 300%.
During 2022.
NTIC is adopting new RBC factors related to longevity and mortality risks also known as C. Two factors.
While the longevity risk factors that primarily relate to life contingent annuities will have little impact on our subsidiaries.
The higher mortality factors will apply to our products and will increase our company action level required capital by approximately $30 million or about 5% of our required capital.
We believe the conservative statutory reserve levels held for our life insurance products already provide for very strong capital levels.
Given the consistent generation of strong statutory gains from operations from our product portfolio.
These new factors will simply result in even stronger capital adequacy at our target RBC ratios.
At this time, while we do not anticipate that any additional capital will be required to maintain the low end of our targeted RBC ratio. The parent company does have sufficient liquid assets available should additional capital would be required to maintain our targeted level.
Now I'd like to provide a few comments related to the impact of excess policy obligations on third quarter results.
In the third quarter, the company incurred approximately $7 $6 million of Covid life claims related to approximately 40000 U S COVID-19 deaths occurring.
<unk> as reported by the CDC.
However, these incurred claims were fully offset by favorable true up of Covid life claims incurred in prior quarters.
Just on the additional clients payment data, we now have available we estimate that our average cost per 10000 U S deaths in the third quarter was approximately $1 9 million.
Down from the $2 $8 million average cost previously estimated on our last call consistent with the shift in COVID-19 deaths towards older Ages in recent quarters.
Year to date through September 30, we have incurred approximately $44 million in Covid life claims on approximately 215000 U S. Covid deaths as reported by the CDC.
Or an average of $2 million per 10000 U S deaths.
This average cost is similar to the average cost of our Covid life clients in 2020 and much lower than in 2021.
As a result of downward revisions for prior quarters in both the number of U S deaths reported by the CDC.
And our average cost for 10000 U S deaths.
Net Covid life claims reported in the third quarter were not significant overall or at any of the individual distributions.
As stated on prior calls we also continued to incur excess deaths as compared to those expected based on pre pandemic levels from non COVID-19 causes including deaths due to lung disorders heart and circulatory issues and neurological disorders.
We believe the higher level of mortality, we have seen is due in large part to the pandemic.
As the number of Covid deaths has moderated so has the number of deaths from other customers in.
In the third quarter, we estimate that our excess non COVID-19 life policy obligations were approximately $15 million down from $28 million in the second quarter.
For the full year, we anticipate that our excess life policy obligations will be approximately $70 million.
Or around 2% of our total life premium.
Substantially all of the tighter obligations relate to the direct to consumer channel.
With respect to our earnings guidance for 2022.
We are projecting net operating income per share will be in the range of $8 to $8 20 for the year ended December 31.
2022.
The $8 intense at midpoint, it's consistent with the guidance provided last quarter.
For the full year and at the midpoint of our guidance. We now estimate we will incur approximately $50 million of Covid life clients.
This estimate assumes approximately 35000 U S COVID-19 deaths in the fourth quarter at an average cost per 10000 deaths of approximately $1 9 million.
While our estimated COVID-19 losses are lower than we previously anticipated our estimate of total excess clients from all causes of death has remained largely consistent with last quarter.
For the year ending December 31 2023.
Excluding the impact of the adoption of the new <unk> standard.
We anticipate that our guidance that our excess mortality will be substantially reduced from 2022 levels.
While still very early and level of claims activity in the fourth quarter could influence our views at the midpoint of our guidance. We estimate total excess obligations will be around one 5% of life premium down from approximately 4% expected in 2022.
This includes an estimated $20 million related to Covid, which we.
I currently anticipate will exist in an endemic state through 2023.
Due to the reduced impact of excess mortality in 2023, we anticipate our life underwriting margins again before any impact of the new <unk> accounting to grow in the 13% to 17% range and be approximately 27% to 29% of life premium.
Driven by the anticipated growth in life underwriting margin and the favorable impact of higher interest rates on excess investment income noted by Gary.
We estimate our 2023 net operating earnings will be in the range of $9 to $9 70.
Under current accounting guidance, representing 15% growth at the midpoint of the range.
As noted on prior calls we will adopt on January one 2023, the new <unk> accounting guidance related to long duration contracts.
Under the new standard we expect our GAAP earnings will be higher in 2023, then what would would be reported under existing guidance.
The largest driver of the increase is lower amortization of deferred acquisition costs or DAC that under current guidance due to changes in the treatment of renewal commissions the treatment of interest on DAC balances.
The updating of certain assumptions and the methods of amortizing DAC.
Due to the treatment of deferred renewal commissions and our captive agency channels. We do expect that acquisition cost as a percent of premiums will increase slightly in the first few years after adoption.
In addition to the changes affecting the amortization of DAC, the new guidance changed the manner in which policy obligations are determined.
Under the new guidance life policyholder benefits reported for 2021 at 2022.
We'll be required to be restated to reflect the new guidance and are expected to be significantly lower in those years than under the current guidance due to the treatment of Covid life claims and other fluctuations in claims experience as well as changes in assumptions in those years.
This is expected to result in slightly higher policy.
Policy benefits as a percent of premium in 2023 than what would otherwise be expected under our current guidance.
Overall, we currently estimate that the changes required from the adoption of the new <unk> guidance will increase 2023 net operating income after tax in the range of $105 million to $130 million, almost all of which relates to the lower amount of DAC amortization.
Of course, 2022 is not yet complete and actual sales claims experience and other events in the fourth quarter. This year could impact our assumptions and projected impact of 2023 results.
Going forward fluctuations in experience and changes in assumptions will result in changes in both future policy obligations and amortization of debt as a percent of premium.
With respect to changes in the balance sheet and LTI.
We noted last quarter that the new guidance adopt a new requirement to re measure of the company's future policy benefits each quarter utilizing a discount rate that reflects upper medium grade fixed income instrument yields with the effects of the change to be recognized in the OCI a component of shareholders equity.
The upper medium grade fixed income instrument yields generally consist of single a rated fixed income instruments that are reflective of the currency and tenor of the insurance liability cash flows.
The expected impact of the adoption of the new guidance is a transition date or January one 2021 will be an after tax decrease in <unk> of seven five to $8 5 billion.
Since that time, our weighted average discount rate has increased and we estimate that the after tax impact on LTI at September 32022, all else being equal, but using current discount rates as of the end of the third quarter would be only approximately $1 billion to $1 6 billion.
While the GAAP accounting changes will be significant it is very important to keep in mind that the changes impact the timing of when our future profits will be recognized and that none of the changes will impact our premium rates.
Out of premiums, we collect nor the amount of claims we ultimately pay.
Furthermore, it has no impact on statutory earnings.
Thats toward capital, we are required to maintain for regulatory purposes, or the parent's excess cash flows nor will it cause us to make any changes in the products we offer as.
As such the accounting change will in no way modify the way, we think about or manage our business.
Before I turn the call back to Larry.
Once again, thank Gary and Larry for their many years of service to Torchmark and Globe life.
While both of them had been part of these earnings calls for a number of years I.
I would be remiss, if I did point out that Gary has participated in every earnings call. Since February of 1995, a strained up 112 straight quarters.
Truly impressive it has been a pleasure working with both of them and I think they have done a remarkable job.
Thank you Frank those are our comments, we will now open the call up for questions.
If you would like to ask a question. Please press <unk>.
One on your telephone keypad.
Ladies and Joel Your line is on mute Lucky assay will be advised when to ask your question.
The first question comes from the line of Jimmy <unk> from J P. Morgan. Please go ahead.
Hi, good morning, and before I get into my questions I, just wanted to Gary and Larry It's been nice working do you guys I was going to say happy retirement, but I guess, that's not appropriate.
And good luck Frank.
As well.
So I had a question first on just the recruiting and retention environment.
So the tight labor market and we saw your agent count actually is.
At American income was down but should we assume that it can be challenging to grow the agent count.
In the near term if the labor market does remain tight.
Hey, Jeremy I'm going to take us for the tight labor market American income actually had a strong recruiting quarter.
6% growth of our crews over the prior year.
But we had were higher terminations are expected.
To address this we're restructuring compensation and middle management bonuses to address agent retention.
The other factor here is that if you look at the other two agencies they've had growth in the agency this year.
But the other two agencies have had growth in the middle management.
For the year of Middle management is projected at family Heritage.
<unk> by 5% to 8%.
3% to 6% and Liberty National.
But middle manager will be flat in American income it's.
So it's really not economic conditions of the labor market effects recruiting.
It's really the real drivers of recruiting push the company develops little manage risks, we opened new offices will drive better technology or sales support for the field.
And then on sales in direct response can you talk about what's driving the weakness there and what your outlook.
Let's say the weakness there has really been inflation.
We've talked about in the past.
The sales.
Sales levels.
Sorry, it depended on our circulation, our mailings and the Internet traffic if you look for the year.
Our expectation is.
Insert media decreased 6% to 10%.
Yes, sure circulation will decrease of about 9% to 10% internet enquiries or flat to up 3%.
Volumes were down $8 11 per share for 2022, this really as a result of inflation.
Accretion.
The accretion of the cautious paper increase the cost of postage.
And those those increases effect.
The above items that I referred to.
Because you don't have the return on investment for the lower.
Producing segments of that business and I think it will.
As inflation placement short place.
With the recession.
Our higher interest rates as we see it as a cost stabilize.
We expected sales route.
Also stabilized in 2023.
Yes.
Okay, and just lastly for Frank on L. D D I b.
There's the benefit because the amortization.
<unk> that you mentioned on earnings in the near term how should we think about.
When that benefit becomes more of a headwind in the sense that.
If you'd like.
The airports does your normal amortization expense under the current under the new accounting goes the amortization expense would be.
Or is that like in the next.
Could you just frame like next five to 10 years or longer or shorter than that.
Yes, Jimmy I'm not sure if at what point it actually becomes a strain because as we start putting on new business that you start thinking about.
The treatment of renewal Commission, we know that it's going to be probably an increase and that the DAC amortization percent as a percentage of premium.
Somewhere maybe a half a percent.
A year for the first few years as some of that as we started having to capitalize the renewal commissions and getting that into the strain.
But that as we start putting on new business and that has the.
Lower initial commissions that are getting capitalized there will be a point that it will start to stabilize.
I don't have right now when exactly when that will be or if we actually get to the point to where it's if you will worst then.
Current guidance.
But it should like I think as we look into future years than some of the inputs runs off the tailwind at a minimum should.
Even if that growth.
Go ahead Ben.
At some point that seems logical just not sure exactly if that's in at this point in time, we haven't gotten quite far enough along to see where that really.
If that will occur or if it even will occur yet.
Okay Alright. Thank you look at that we should build that.
Give some more guidance on that as we get.
You know a little bit further along on this and kind of really finalized our 'twenty two and start to look a bit longer we can take a look at that.
Okay. Thanks.
Next question comes from the line of <unk> from Raymond James. Please go ahead.
Hi, This is rhonda congratulations to the co Ceos.
My first question is.
Is there could you provide some rationale behind keeping the co CEO structure with with Gary and Larry with Berry.
Yeah, Matt and I can touch on that.
Yes.
The arrangement has worked out really well, we believe for globe life and.
The teamwork that Gary and Larry have been able to demonstrate.
And then really the structure that they put together here from an executive management team.
Globe has been set up very well under them and it really seemed logical for us to be able to maintain that existing structure.
In order to maintain that continuity going forward. So are some of the Madden I really talked about.
But as our willingness and ability to really work together, but thought that isn't really in the best interests of the organization to make that that structure.
Continue to work.
Frank I was going to say it continues with the existing management structure thats in place minimal disruption to that and we're focused on continuing to execute our strategy.
And the best way, we see fit in this structure seems to support that.
That sounds great.
Your question about.
Share repurchases. So it seems like the capital position at the end of the year <unk>.
Pretty high, especially with no need to put capital in the subs for the Cta charges is that I think the current guidance implies about $55 million of share repurchases in <unk>.
So should we expect a higher number.
Yes, we are anticipating right now at the midpoint of our guidance at 50 $555 $56 million.
In that range.
We will take a look at where there are a few moving parts seaborne says cta charges being one of them.
Also we haven't completed yet our third quarter statutory financial statements. So we'll rely on those to kind of get a better sense of where ours are.
Our actual statutory income and that capital will be at the end of the year.
Yes.
If it does turn out that we don't need any additional amount of capital as of the end of the year I would anticipate potential some of that could come out before the end of the year if not.
We'd anticipate it coming out of 2023.
Okay. Thank you.
The next question comes from the line of John Brian H from Piper Sandler. Please go ahead.
Thank you very much and congrats again as well.
My first question on the lapse activity.
To increase and I know, we'll go back to probably the pre Covid experience can you maybe dimension inflationary or recent product.
Maybe as an example is labs activity for 2020, one sold product higher than 18, and 19 sold product was in the first and second years after sale. Thank you.
Excuse me.
What we're saying is.
We're seeing a slightly higher lapse rates, so when compared to the two.
2000 1919 periods of.
There.
It is quite a bit higher when compared to 'twenty to 'twenty, one, but those two years or.
We are very very favorable lapse rates that was unusual.
We think that.
Well, we know that the higher lapse rates are primarily in policy years, one through three and once we get past that.
<unk>.
Lapses or either at or near the historical levels. We think one reason for that is people that bought policies in 2020 'twenty one.
With Covid now listening may think they don't need the coverage. We think that's certainly a factor, but also we think that inflation is having some impact as well.
But if we look back.
In the past is remember back into 2010 11 period, when it was a down economy.
We had a little bit of a spike in lapses, there, but it didn't it didn't last long.
This bike isn't as much as what we experienced back then.
And we think two at some point it will get back to what we call normal lapses.
I will say at the midpoint of our guidance for 2023, we assume that over the course of the year that we will move back to.
What we would call historical levels of lab solution.
We don't know for sure, but Thats, our best guess at this point.
That's fantastic color.
My follow up question I can't help but notice.
As it relates to the 2023 guidance.
It's initially 70 cents wide a year ago was initially 80 cents wide how should we be thinking about this narrow and in light of maybe.
The pandemic being endemic.
And then within that with the L. P and Ti guide are you wanting us maybe model towards that or just have and understanding around the parallel guidance. Thank you.
Yes, with respect to kind of the range, we did bring it down a little bit from where we were at this point in time last year do you feel there.
You know a little bit better certainty around.
You have COVID-19 and some of the impacts of Covid and feel a lot more comfortable with it being an endemic state and what the impact of that really made me still some fluctuation we still let the little wider if you will that we've had it.
In some years in the past pre COVID-19 again kind of recognizing some of the uncertainty around new variants.
Such that potentially could could pop up.
With respect to the <unk> the range kind of about $105 million to $130 million. After tax it's really more intended to be kind of our estimate at this point in time more in the middle If you will of the rates are still a lot of moving parts, but wanted to get some sense.
Two all in on what we see as being that net income impact for 'twenty three we don't really anticipate that.
Rodney the range that we need to have it.
So that variability if you will.
That I have from the impact of the L. DTI.
Think that that would really be it will fit within that overall range.
Yet we provided under deal as under the old guidance.
Thank you.
Next question comes from the line of Erik Bass from Autonomous Research. Please go ahead.
Hi, Thank you I was hoping you could talk about what you're assuming for 2023 free cash flow than what your guidance assumes for share repurchases next year.
Yes.
It's still a little bit early.
With respect to coming up with our excess cash flows for next year, we do anticipate them being a little bit.
For our share repurchases anyway at the mid point of our guidance being a little bit higher than where we were this year.
If you recall that as I noted earlier, we had about $360 million.
Overall of excess cash flows before our shareholder dividends.
We had about $80 million of shareholder dividends here in 2022. So after that was like $280 million of essentially available for buybacks.
In 2022, we will we do anticipate our statutory earnings in 2020.
Will it be higher.
And at the end of the day having.
Share buybacks, probably a little bit north of where we were this year.
Got it thank you and I guess should we think of.
As you're kind of Covid claims normalize and sales get to serve a more normal growth cadence that youre free cash flow should kind of on a lagged basis get back to kind of where it had been previously over the next couple of years.
Yes, I think that's that's fair to say that we would anticipate yes. It clearly is.
What appeared we've got one more year here of normalization. If you will of the Covid claims and we would expect next year to be.
Lower the more we had anticipated this year so.
I do anticipate that excess cash flow more normalizing.
At that point in time.
Got it. Thank you and then just ask one on the investment our excess investment income I think you're guiding to 10% to 12% growth next year or so was hoping to get a little bit more color on the driving pieces of that I think you've talked about the portfolio yield being up three basis points and just maybe a little bit of change in interest expense, but any other moving pieces, we should think about.
Eric first of all on the investment income side.
We're thinking.
It will be up around.
5% to 6% and that is because.
Because of the higher yields on our fixed maturities, but also higher yields on those.
The long term investments that we have.
And thats, 5% inquiries when in the past couple of years, we've had about a 3% increase in investment income. So that's definitely a factor.
But also on the required interest.
Sure.
This year will be.
Between four 5%.
We're thinking next year that will be a little bit lower than say, the 4% range and also on the interest expense.
Interest expense was higher this year because of the negative carry that we have we will go back to a more normal.
Increase in interest expense so the higher.
The higher increase in investment income and a lower increases in required interest and interest on debt.
When you add all that up that's where you come up to the 10% to 12% increase.
Perfect. Thank you.
The next question comes from the line of Ryan Krueger from K B W. Please go ahead.
Hi, Thanks, Good morning, Congrats everyone on the succession plan I just had a few questions on guidance items for 2023 that I don't think you had given yet.
Can you give us the expected growth and health underwriting margin and health premiums in 2023.
Yeah, Ryan we anticipate health underwriting excuse me to help premiums to be up in that 3% to 5% range.
And then really anticipate the underwriting margin to <unk>.
<unk> being flat to up two or 3%.
Large part why Youre, a little lower decrease in the underwriting margin from the <unk>.
The increase in premiums that we have experienced some favorable experience on the on the health side, especially at family Heritage family Heritage Here. The last couple of years, we see that normalizing just a little bit we probably expect family heritage to not be quite as high of underwriting margin next year.
As it did this year just kind of coming back on it's just a little bit so.
So we don't see the underwriting margin growing quite as much as the premiums.
Got it and then.
What are you expecting admin expenses to grow in 2023.
Right now, we're anticipating admin expenses to grow on the around 2% and being around six eight or six 9% of premium kind of the low.
The impact of the reason for the low growth. If you will is that with the higher interest rate. Our pension expense is also expected to be.
Will decrease.
Expected to decrease in 2023.
From where it was this year and so without that that increase would have been.
A bit higher.
Got it thanks, and then just one last one on the life underwriting margin you've got it to 27% to 29% and I think that includes the 150 basis point drag from excess policy obligations.
Thanks, I guess I would suggest something more like 28% to 30 or even a little bit above that if we believe if we refer to fully normalize.
I think thats a couple.
<unk> hundred or 200 basis points higher than it was pre pandemic, but I was curious if you had any.
Commentary I kind of whats driven up here normalized.
Normalized margin expectations in the life business.
I mean, I think that's right I mean, generally I would say kind of at the mid point of all that it kind of points to around 29%.
If you will on the.
Under the <unk>.
If we didn't have the excess obligations and really kind of the difference is that because of the higher premium that we've had with the favorable persistency AD sales growth premium growth that we had in 2020 one are.
Our amortization overall as a percentage of that premium is about 1% lower than what it was under.
Then what was under pre pandemic levels, so that kind of takes us from where we are right before the pandemic, we were around 28% kind of on a kind of at the mid point of that then absent the excess obligations kind of place to 'twenty nine.
Got it thanks a lot.
The next question comes from the line of Andrew <unk> from Credit Suisse. Please go ahead.
Hey, good morning, we still Askmen and good morning.
A first big congrats to Matt and Frank.
And I'm expecting the continued excellence that we've seen under Gary's and Larry's leadership, so maybe jumping into the question and I think following on to what Ryan was asking a moment ago.
I'm thinking about the excess non COVID-19 mortality and.
Clarify for me, because I might be off but I think the guidance for the year 2022 with $64 million.
It appears you've bumped it up to 70, and then if I look at the $50 million in the first half of the year. Another 15.
This year.
In the third quarter, rather than when we get to the fourth quarter, we can only look.
Only going to expect about $5 million of excess non COVID-19 nine.
19 mortality and then based on that.
That's not a lot let me just get to 'twenty three.
You talked about the one 5%.
If 20 $20 million of that is COVID-19 and that would imply just a mere 28 million of non COVID-19 for all of next year. So it sounds like Youre expecting.
This.
Kind of indirect impacts from Covid to really subside as we were.
Work through next year so.
A lot to pack in in my right on 'twenty two.
Yes.
<unk> thousand three number and do you really expect it will really dissipate as we get through thank you.
Yes, Andrew your numbers are really good.
Oh good.
Yes.
No you're exactly right and that we had the 15 were anticipating around 70 for the full year as Karen pointed that $5 million and then it is somewhere in that 25% to $30 million range, while we kind of anticipate for 2023 on the non COVID-19 excess piece.
I really do anticipate a large case just two.
Our expectation right now that Covid has kind of isn't that endemic state we've kind of pointed that but it may be three times, the slew rate kind of pointed.
100 <unk>.
105000 deaths or so in 2023, and so that has an impact in our minds of tampering both to cover the losses as well as advanced covered losses that I will also note that we kind of look at the trends of it that out of.
The 15 in Q3 about $4 million of that related to some prior quarters.
Yeah, I'll start off with kind of putting it into kind of a correct quarters.
We're really C&I really good trend coming down from the first half of the year into the second half of the year as we anticipated. So it's good to see that it's right now any way consistent with what we were anticipating.
That's great to hear and maybe just a little bit.
The specifics on.
American income I don't know if you can share it but but just as you you try to rectify counted Bob in.
Can you talk about stair step so it felt like this quarter with the.
Dropped Boston.
Reducer can step.
A step backward.
And.
I think Larry was talking about.
Different incentives in terms of retention is there any color maybe you could provide around those incentives just so that we could get a sense of how.
How it might influence.
The producer count.
Yes, again, I want to point out that the.
Recruiting was strong in quarter over quarter.
This was a 7% of recruits.
The terminations were a little bit of a surprise higher than expected.
That goes hand in hand with effective management growth.
And so when you change those incentives and an increase in compensation youre shifting compensation effects behavior.
Which we're trying to do is encourage you'll middle managers to better train those new recruits and what's a better training there is more activity and the training is I'm just trying to show that encourage greater activity with those new recruits in Asia.
As there is greater activity better training.
I make more money because you have higher sales levels and you retain more Asia.
So again the color is this if you look at let's compare family Heritage to American income.
The first quarter the hit pretty slow sales just shifted.
Some of their frustrations their they had an emphasis on recruiting.
In developing our middle managers, they are 5% five 8% men measures for the year, we had a 13% increase of sales this quarter.
American income again has a little bit of a tough comparable because we had a 20% increase in the agency force in 2020 one.
The stair step when you have that kind of at a record increase you expect to have some leveling of recruiting.
And again I have every confidence in American income will grow.
But the focus will be on developing leadership development more middle managers and our growth will come as they develop more middle management.
So there is some type of compensation for doing more training.
It's a little higher is that the takeaway.
It's not just training and it's really the middle manager is focused on three to four agents.
And I was curious where agents are trained but theyre also encourage to review the data virtuous circles show you just how much how many presentations they make in a week.
Because of course, they are monthly average or so of average premium.
And as little as you study that data.
What needs to be addressed as a training issue is of activity issue is a closing issue.
No.
Those are all factors really changes in Asia by agency and when we say American income.
A little flatter in their recruiting or their agent growth.
Remember Theres 99 offices in Pan American income similar to <unk> had an outstanding year, they've had good growth and so again with the sales leadership is doing in American income.
Identifying those officers that have not done so well and then we'll work with them to provide them data with respect to even the managers plus the successful middle managers for the success of the agents.
They adjust as we go forward those justice has a crush of processes with respect our training systems or activity models and.
<unk> is a long term growth.
I see okay.
Just so I'm clear Larry so, it's not saying Hey, we're going to give you more money if you retain somebody it saying here's the data here is the analytics and here's how you can be more effective.
The bonus is not paying more money, it's paying for the correct behaviors paying for success.
The question is much like the.
The agent the agent.
The agent more money to have more activity the agent gets more money more money as a result of more activity and better sales. So the way. This is much the same principle youre just affecting behaviors through shift to compensation.
It overtime.
The focus right, we are trading versus recruiting or right for us.
A lot of factors within the agency.
So commercially.
The agency.
Agency owners as well as the home office.
Leadership, we're looking at one of the bankers ready to modify and they shift the conversation to encourage that behavior.
Okay. So there is some okay got you perfect and then just.
A quick fro Lake question I'm kind of curious.
I mean, the higher inflation affecting direct to consumer taste paper and postage costs, how much year over year has that gone up Ben and.
Are there other customer acquisition costs on the online.
Hi.
Going up quite dramatically, maybe you have a percentage there I'd just be curious if you have some some numbers that you might be able to have my head I can't tell you, which.
The <unk> increase was percentage of the paper cost.
For Christ Shoe this quarter gave us the guidance in terms of where we see a mail volume.
We saw the answer really volume coming down.
And.
The costs are reflected within the analytics as we do the different campaigns.
We look at those costs, we look at the cash.
And to see a 10% decrease this is ample mailings.
As a result of the analytics. So that just reflects the cost increase in both propulsion and paper I guess the response rates.
Out of that is the.
Net effect and it really hurts when you look at as you look at the cost of the investment within that campaign.
The expected response rate for that of course, we expect to issue right. If youre not meeting those expectations and the tests that have reduced those mailings. So its not you'll look at postage costs were up 5%, therefore, we reduce something 5% distressed.
Yes, just the end of that process of the analytics and the campaigns.
Determined what your volumes are going to move it only affects what's your sales level will be.
I want to make the point there too that in direct response as well.
It's an issue really is spending more money to increase sales.
Because the.
Profitability or an increase of sales is a function of the cost of acquiring the business.
And so if.
Do you spend more money, it's not really necessarily.
Indicate higher response rates.
The response rate doesn't grow up with additional spending again is when you think about direct response, I think about that differently than agency.
Your acquisition cost is on the front end not the back end of the sales process.
So they're constantly using analytics and testing to make sure that we have in Edinburgh return on that investment.
Makes sense, thanks, a lot.
The next question comes from the line of Tom Gallagher from Evercore. Please go ahead.
Good morning, or sorry, good afternoon.
Just a few follow up questions on the.
The.
The non Covid access do you suspect these are mainly long COVID-19 claims because I heard you reference part in one.
And the reason I ask is just.
In the beginning I think all the excess non COVID-19 was by most of your peers were being.
Assume that it was driven by a care deferral.
It doesn't sound like this is a really care deferral, but just curious if you have a view on that.
Yeah, we don't really have any.
You all seem to appoint exactly to what it might be.
It's fair that probably some portion of it might be.
Long Covid, if you think about it from a standpoint of complications that arise from having covered in the first place.
We still think there is some possibility of there being some delayed care deferred care.
Even though.
As you get further down the road as you said, there's probably less impact of that but I do think theres probably than just some.
Impact on how one of our thinking about they're getting classified where there was probably it.
Whether the.
Our our data is based upon when a client comes in and if it's if the.
A desk certificate notes that its a COVID-19 deaths that that's what we count as the Covid deaths in.
We're now there may be certain situations, where it's more.
The real cause of death as go into the Truecar that there was a heart ailment or something like that that's that it's getting coated.
Perhaps a little bit differently as well.
Okay, and then just Relatedly, you said $15 million of excess non Covid claims that was about two times higher than what you were.
I guess, assuming where COVID-19 claims this quarter.
And I guess for next year, if I heard you correctly in response to Andrew's question.
You're assuming $25 million to $30 million of excess.
Non COVID-19, which is closer to I guess, it's a little bit higher than that than the COVID-19 assumption, but it's not to wax that do you.
It's the punch line there that you're just assuming this was a bit anomalous that that ratio that you would expect that the excess non COVID-19 did decline in proportion.
Yes, I think Thats right I mean, when you look at the full year 2022, we're sitting at about $70 million versus $70 million of non COVID-19 versus $50 million.
Covid and then we are looking around that 25% or so as compared to $20 million of Covid.
So that ratio is coming together in our minds, there I mean, they're really independent calculations, but that is.
That relationship.
<unk> is narrowing I guess.
Okay, and then just final question.
Thank you mentioned most of those excess non COVID-19 claims came in direct to consumer.
Yes.
If that's true and I normalize for that I'd be getting margins north of 20%.
Which I think is a lot better than the 18% that you had previously spoken to can you.
Maybe there's other adjustments there can you just speak to that.
Yes, I think it's out of for the total non COVID-19.
For direct response.
In the third quarter.
There was still about.
5% or so there was a <unk>.
<unk> of the non Covid in Q3 for all of US all of the 2022 really looking at around being around 6%. So.
While it was we would've been ex.
The non COVID-19 in 20 in the third quarter.
We would've been at a 2021% and but that's probably again theres a little bit favorable.
Amortization thats coming through there as well.
I think kind of as we look forward.
About DTC.
That particular channel at 2023, we probably think that Theres still you know that theyre going to have.
Around a 3% impact of higher.
Excess obligations.
And we kind of anticipate that their margins would be somewhere in that 16% to 17% range, so that kind of points to somewhere in that 19%.
18, lets just say, 18% to 20% somewhere in there as.
What they are proud of what it would be without some of the excess obligations.
Got you so that's getting.
We'll see an outsized benefit on the lower amortization in that segment.
Yes.
It's probably.
Overall in that segment, yes does having another percent.
Or so impact.
Or if there's actually a couple percentage points from where they were.
Back in pre Covid time, because were looking at amortization percentage there in between that 23, 24% range, where if you look back before 2000 pre COVID-19 years.
Their amortization percentage was in the mid 25 between 25% 26%.
Okay. That's helpful. Thank you.
There are no further questions in the queue. So I'll hand, the call back to you with some closing remarks.
Alright. Thank you for joining us. This morning, those were our comments and we'll talk to you again next quarter.
Thank you for joining today's call you may now disconnect your lines.