Q4 2022 Globe Life Inc Earnings Call
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Hello, and welcome to the Globe life fourth quarter 2022 earnings call.
My name is George and I'll be a coordinator for today's event. Please.
Note. This conference is being recorded after the duration of the call your lines will be in listen only mode.
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Operator.
I'd now like to hand, the call over to your host today, Mr. Steven Mora <unk> Investor Relations Director. Please go ahead Sir.
Thank you good morning, everyone, joining the call today, a practice builder and Matt Doherty, our co chief Executive officers.
<unk>, our Chief Financial Officer, Mike Majors, our Chief strategy 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.
Please refer to our earnings release, 2021, 10-K, and any subsequent forms 10-Q on file with the SEC.
Some of our comments May also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures I will now turn the call over to Frank.
Thank you Steven and good morning, everyone.
Before getting started I want to let you know that due to the ice storms in the DFW area. We are doing this call from multiple locations so far.
Any issues with connections please bear with us.
But Matt and I would like to quickly take this opportunity to thank Gary Coleman, Larry Hutchison once again and acknowledge their accomplishments as globe life's co Ceos over the last 10 years, including 2022.
Other good year for Globe life.
Now to the results of the quarter.
In the fourth quarter net income was $212 million or $2 14 per share compared to $178 million or $1 76 per share a year ago.
Net operating income for the quarter was $221 million or $2 24 per share an increase of 32% from a year ago.
On a GAAP reported basis.
Turn on equity was 12, 3% and book value per share was $49 and 65 <unk>.
Excluding unrealized losses on fixed maturities return on equity for the full year was 13, 4% and book value per share as of December 31.
What $64 and one set up 9% from a year ago.
It is encouraging that our return on equity, excluding unrealized gains and losses for the fourth quarter was 14, 3%.
Selecting the lessening impact of excess life claims on our operations.
In the life insurance operations premium revenue for the fourth quarter increased 3% from the year ago quarter to $754 million.
For the full year 2022.
Premium income grew 4%.
Growth in premium income was challenged due to the lower sales growth. We've seen this year, primarily in our direct to consumer channel.
In addition to the impact of foreign exchange rates on our Canadian premiums at American income.
In 2023, we expect life premium to grow around 4%.
Life underwriting margin was $212 million up 45% from a year ago.
The increase in margin is due primarily to improved client experience.
With respect to anticipated underwriting income as we've talked about on prior calls underwriting margin will be calculated differently under the new L. D. T. I accounting rules and is expected to be substantially higher due to the changes required by the new accounting standards.
Tom will discuss the expected impact of L. D Ti in his comments.
In health insurance premiums grew 4% to $324 million and health underwriting margin was up 1% to $82 million.
For the full year 2022 premium grew 6%.
In 2023, we expect health premium revenue to grow around 3% lower than 2022 due to lower premium growth at our United American General Agency operations.
Administrative expenses were $78 million for the quarter up 12% from a year ago.
As a percentage of premium administrative expenses were seven 2% compared to six 7% a year ago.
For the year administrative expenses were 7% of premium compared to six 6% a year ago.
2023, we expect administrative expenses to be up approximately 3% and be around six 9% of premium due primarily to higher I T and information security costs.
Higher labor costs are expected to be offset by a decline in pension related employee benefit costs.
I will now turn the call over to Matt for his comments on the fourth quarter marketing operations.
Thank you Frank first step is American income life at American income life life premiums were up 5% over the year ago quarter to $381 million and life underwriting margin was up 27% to $130 million to higher underwriting margin is.
Due to the improved claims experience a higher premium.
In the fourth quarter of 2022 net life sales were $70 million.
One 6% from a year ago quarter.
The decline in sales resulted from reduced agent count and agent productivity.
The average producing agent count for the fourth quarter was 9243 down three.
3% from a year ago quarter and down 2% from the third quarter.
The decline from the third quarter, the fourth quarter is consistent with typical seasonal trends the decline in average agent count from a year ago is due to higher than expected attrition throughout 2022 as we have previously discussed.
While the agent count declined from a year ago I am encouraged as we are seeing parts of our creating momentum over the latter part of the fourth quarter at the beginning of this year. It also started to have some success with our new retention efforts.
I'll leave the agency compensation adjustments, we have made to emphasize recruiting and retention will help continue this momentum.
I am optimistic regarding our long term growth potential of this agency division.
At Liberty National Life premiums were up 4% over the year ago quarter to $82 million and life underwriting margin was up 74% to $21 million.
The increase in the underwriting margin is primarily due to an improved claims experience net life sales increased 24% to $23 million and net health sales were $9 million up 14% from a year ago quarter.
Mainly to increased productivity in agent count.
The average producing agent count for the fourth quarter was 2946 up 8% from the year ago quarter, and up 6% compared to the third quarter Liberty.
Liberty continues to build on the momentum that's been generated over the past year and is well positioned for future growth.
At family Heritage Health premiums increased 7% over the year ago quarter to $94 million and health underwriting margin increased 2% to $26 million.
Net health sales were up 21% to $22 million due to increased agent count and agent productivity.
The average producing agent count for the fourth quarter was 1334.
Up 12% from the year ago quarter, and up 8% compared to the third quarter as.
As we've discussed before there was a shift in emphasis last year to recruiting and Middle management development. This has paid off nicely as we continue to see positive trends at family Heritage.
And our direct to consumer Division at Globe life life premiums were flat over the year ago quarter to $238 million, but life underwriting margin increased from $12 million and $39 million. The increase in underwriting margin is primarily due to improved claims experience net.
Net life sales were $31 million.
Down 9% from the year ago quarter due to declines in circulation of response rate. The sales decline is consistent with our expectations.
As we have mentioned in previous calls direct to consumer marketing is one facet of our business that has been impacted by the current inflationary environment with <unk>.
Had to pull back somewhat on circulation of mailings as increases in postage and paper costs impede our ability to achieve satisfactory return on our investment for specific marketing campaigns.
As an offset to this as we continue to generate more internet activity, which has lower acquisition cost than our direct mail marketing today electronic sales are approximately 70% of our business compared to 54% in 2019.
I am also encouraged to see some resiliency here is the average premium per issued policy has increased each year for the last several years elegant 16% higher in 2022 and 2019.
At United American General Agency Health premiums increased 5% over the year ago quarter to $137 million and health underwriting margin increased 1% to $20 million net.
Net health sales were $20 million down, 25% compared to the year ago quarter and this decline is due primarily to the market dynamics, we saw throughout 2022, including aggressive pricing by competitors on certain Medicare supplement products and a consumer movement to Medicare advantage.
Projections now based on the transfer that we are seeing in our experience with our business. We expect the average producing agent count trends, our 2023 to be as follows.
American income life high single digit growth Liberty National low double digit growth family Heritage high single digit growth.
Net life sales trends for the full year 2023 are expected to be as follows American income life relatively flat Liberty national high single digit to low double digit growth.
To consumer relatively flat.
Net health sales trends for 2023 are expected to be as follows Liberty National a high single digit to low double digit increase family heritage of high single digit increase United American General agency low single digit growth.
I will now turn the call back price.
Thanks, Matt we will now turn to the investment operations.
Excess investment income, which for 2022, we defined as net investment income less required interest on net policy liabilities and debt was $63 million up.
Up 7% from the year ago quarter.
On a per share basis, reflecting the impact of our share repurchase program excess investment income was up 10%.
Net investment income was $254 million.
Up 6% from the year ago quarter on a per share basis net investment income was up 9%.
With the adoption of L. D. Ti in 2023, we will begin viewing excess investment income as net investment income less only required interest.
For the full year 2023, we expect net investment income to grow approximately 5% as a result of the favorable rate environment.
With respect to required interest it will be substantially higher than reported in 2022 as a result of changes related to the adoption of L. DTI.
As mentioned previously Tom will further discuss L. DTI in his comments.
Now regarding the investment yield.
In the fourth quarter, we invested $239 million in investment grade fixed maturities, primarily in the financial municipal and industrial sectors.
We invested at an average yield of $6, 10% at average rating of a and an average life of 21 years.
We also invested $104 million in commercial mortgage loans and the limited partnerships 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 fourth quarter yield was 518% up one basis point from the fourth quarter of 2021 and up one basis point from the third quarter.
As of December 31, the portfolio yield was $5 one 9%.
Now regarding the investment portfolio.
Invested assets are $20 billion, including $18 3 billion of fixed maturities at amortized cost.
Of the fixed maturities is $17 $8 billion are investment grade with an average rating of a minus overall the total portfolio is rated a minus same as a year ago.
Our investment portfolio has a net unrealized loss position of approximately $1 8 billion due to the high <unk>.
Higher current market rates on our holdings, then book yields.
We are not concerned by the unrealized loss position and is it mostly interest rate driven.
We have the intent and more importantly, the ability to hold our investments to maturity.
Bonds rated triple B or 51% of the fixed maturity portfolio down from 54% from a year ago.
While this ratio is in line with the overall bond market. It is relatively 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.
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 $542 million compared to $702 million a year ago.
The percentage of below investment grade bonds to fixed maturities is 3%.
This is as low as this ratio had been for more than 20 years.
In addition below investment grade bonds, plus bonds rated triple b or 54% of fixed maturities the lowest ratio. It has been in eight years.
Overall, we are comfortable with the quality of our portfolio.
Because we primarily invest log a key criteria utilized in our investment process is that an issuer must have the ability to survive multiple cycles.
During 2022, we executed some repositioning of the fixed maturity portfolio to improve yield and quality.
Over the course of last year, we sold approximately $359 million of fixed maturities with an average rating of triple B and.
The proceeds in higher yielding securities with an average rating of a plus.
Overall, we believe we are well positioned not only to withstand the market downturn.
But also to be opportunistic and purchased 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 2023, we expect to invest approximately $940 million in fixed maturities at an average yield of five 5%.
And approximately $310 billion in commercial mortgage loans and limited partnership investments with debt like characteristics at an average cash yield of 7% to 8%.
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 sensitive.
Now I will turn the call over to Tom for his comments on capital liquidity and L. D Ti com.
Thanks, Greg.
So in the fourth quarter. The company purchased 490000 shares Globalized, Inc. Common stock for a total cost of $56 million.
At an average share price of $115 in <unk> and ended the fourth quarter with liquid assets of approximately $91 million.
For the full year, we spent approximately $335 million to purchase three 3 million shares at an average price of $100 90.
The total amount spent on repurchases included $55 million of parent company liquidity.
In addition to the liquid assets of the parent the parent company will generate additional excess cash flows during 2023, the company's excess cash flows 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 $410 million to $450 million and is available.
<unk> to return to its shareholders in the form of dividends and through share repurchases.
This amount is higher than 2022, primarily due to lower COVID-19 life losses incurred in 'twenty, two which will result in higher statutory income in 'twenty, two as compared to 2021.
Thus, providing higher dividends to the parent in 2023 that were received in 2022.
As previously noted we had approximately $91 million of liquid assets.
$91 million of liquid assets as compared to the $50 million or $60 million of liquid assets, we have historically targeted with.
With the $91 million of liquid assets plus.
$410 million to $450 million of excess cash flows expected to be generated in 2023.
We anticipate having $500 million to $540 million of assets available to the parent in 2023.
Of which we anticipate distributing approximately 80 million to $85 million to our shareholders in the form of dividend payments.
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 the primary use of parents excess cash flow after the paint.
A shareholder dividends.
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 issue new insurance policies.
<unk> and modernization of our information technology and other operational capabilities.
As well as to acquire new long duration assets to fund our future cash needs.
The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program for 2023.
In our earnings guidance, we anticipate between $360 million and $400 million of share repurchases will occur during the year.
Now with regard to capital levels at our insurance subsidiaries. Our goal is to maintain our capital levels necessary to support current ratings wildlife targets, a consolidated company action level RBC ratio in the range of 300% to 320%.
For 2022 since our statutory financial statements are not yet finalized our consolidated RBC ratio is not yet known however, we anticipate the final 200 to 2022 RBC ratio will be near the midpoint of this range without any additional capital contributions.
Okay.
As noted on the previous call the new SAIC factors became effective in 2022 related to mortality risk also known as <unk>.
Given the consistent generation of strong statutory gains from insurance operations and given our product portfolio. These new factories will simply result in even stronger capital adequacy at our target RBC ratios.
Now I would like to provide a few comments related to the impact of excess policy obligations on fourth quarter results.
Overall fourth quarter excess policy obligations were in line with our expectations.
In the fourth quarter, the company incurred approximately $5 million of Covid life claims related to approximately 31000 U S. Covid deaths are occurring in the quarter as reported by the CDC and was in line with expectations.
We also incurred 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 effects of the pandemic. So as the number of Covid deaths has moderated so has the number of deaths from other causes in the fourth quarter.
Impact of excess non Covid policyholders life policy obligations were generally in line with our expectations at about $6 million.
For the full year the company incurred approximately $49 million of Covid life policy obligations related to approximately 243000 U S. Covid deaths in average of two 2 million per 10000 U S. Deaths. In addition, we estimate non Covid claims resulted in approximately <unk> <unk>.
$69 million of higher policy obligations for the full year.
The $118 million combined impact of Covid and higher non covered policy obligations was around 4% of total life premium in 2022 down from approximately 6% in 2021.
Based on the data. We currently have available we estimate incurring approximately $45 million of total excess life policy obligations from both Covid and non Covid claims in 2023, we estimate that the total reported U S deaths from Covid will be approximately.
$105000 at the midpoint of our guidance.
Yes.
Finally, with respect to earnings guidance for 2023.
As noted on prior calls the new accounting standard related to long duration contracts is effective January one 2023.
From this point forward, we will report 2023 results and guidance under new accounting under the new accounting requirements.
I will do my best to bridge the gap as there are many changes with these new requirements.
So we are projecting net operating income per share will be in the range of $10 20.
To $10 50 per diluted common share for the year ending December 31 2023.
The $10 and 35 at the midpoint of our guidance is lower than what we had indicated last quarter when including the impact of <unk> adoption.
The reduction is primarily due to a reduction in the expected impact from the adoption of <unk> as we get more information and have refined our assumptions and estimates impacting both 2022 and 2023.
In addition to the lower <unk> impact, we anticipate slightly lower premiums higher customer lead and agency expenses as well or as well as higher financing costs, which are reflective of higher short term yields than previously anticipated.
We estimate the after tax impact of implementing the new accounting standard resulted in an increase in 2023 net operating income in the range of $105 million to $115 million.
We are still in the process of determining the full 2022 results under the new standard once finalized that could affect the 2020 through 2023 estimated U box.
Going forward fluctuations in experience and changes in assumptions or resulted in changes in both future policy obligations and the amortization of DAC as a percent of premium.
The largest driver of the increase as lower amortization of deferred acquisition costs or DAC than under the prior accounting standard due to the changes in the treatment of renewable commission the elimination of interest on debt balances the updating of certain assumptions and the methods of amortizing debt.
Due to the treatment of deferred renewal commissions on amortization and our captive agency channels. We do expect that acquisition cost as a percentage of premium will increase slightly over the next few years.
In addition to the changes affecting the amortization of debt the new accounting standards changes our policy obligations are determined under the new standard life policy up life policyholder benefits reported in 2021, and 2022 will be required to be restated to reflect the new requirements and will incur.
The impact of unlocking and updated prior assumptions.
For 2023 absent any assumption changes, we expect the following impacts.
Life obligations as a percent of premiums will be in the range of 45% to 42, 5%. This is consistent with the average life policy obligation ratio over the last five years.
Health obligations as a percent of health premiums will be in the range of 50% to 52%. This is about 3% to four 5% lower than the average health policy obligation percentage over the last five years.
For the life and health lines, combined commissions amortization and non deferred acquisition cost as a percent of premiums will be in the range of 20% to 21, 5% approximately 8% to nine 5% lower than the recent five year averages.
The resulting life underwriting margin as a percent of premiums are expected to be in the range is up 37% to 38% and health underwriting margins as a percent of premiums in the range of 28% to 29%.
Offsetting the increases in underwriting income will be a reduction to excess investment income to the elimination of interest accruals and DAC balances that historically have reduced net required interest.
In 2022 interest on DAC balances was approximately $260 million in.
In 2023, this will be zero under the new standards as compared to between 275, nine and $285 million of.
Of interest accruals on DAC under historical GAAP that we would have anticipated.
In addition required interest will change due to the changes in reserve balances at transition and restated balances in 2021 and 2022 under the new requirements.
We anticipate that required interest in 2023 will be in the range of $910 million to $920 million.
With respect to changes in ALC, we noted in the past few quarters that under the new accounting standard there is a requirement to re measure the companys future policy benefits each quarter utilizing a discount rate that reflects the upper medium grade fixed income instrument yields.
And affects the changes with the effects of the change to be recognized in <unk>.
A component of shareholders equity.
The upper medium grade fixed income yields generally consist of single a rated fixed income instruments at a relative reflective.
Reflective of the current state and tenor of the insurance liability cash flows.
As of year end 2022 had the new accounting standard that in place we anticipate the after tax impact on ALC I would have decreased reported equity in the range of $1 3 billion to $1 4 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 future profits will be recognized and that none of the changes will impact our premium rates the amount of premium we collect nor the amount of claims will ultimately pay. Furthermore, it has no impact on our staff.
Tori earnings statutory capital where required to maintain for regulatory purposes, or the parent company's excess cash flows nor will it cause us to make any changes in the products we offer.
As of my comments I'll now turn it over to Max.
Thank you Tom those are our comments, we will now open the call up for questions.
Thank you very much sir.
Ladies and gentlemen.
If you wish to ask any audio questions. Please press star one to four key highlights just make sure. Your mute function is activated to allow you to switch your equipment.
Our first question is coming from Jimmy <unk> from Jpmorgan. Please go ahead Sir.
Hey, good morning.
So I had a question first on direct response sales.
They've been weak for the last several quarters I'm wondering how much of it is.
A reduction in your part on mailings and circulations versus just.
The consumer demand with the higher inflation.
Yes, it's really on the distribution side as we've talked about in the past scaling back our mailings and other print media is associated with the higher cost these days.
The postage in paper, what we're seeing on the consumer side that I mentioned in my comments is actually the.
Sales amount on a per policy basis, the premium amount for each sale is actually going up slightly so that would indicate to me that it's really more of a reduction of that.
Cost in the amount of a.
Things that we are distributing because we are really going to make sure that each one of those mailings and all of our campaigns are profitable and thats. What the benefit is of switching more of our distribution over time to more of the electronic media side versus the sales side.
I do want to remind everyone that.
All of these channels work together and with the mail that support and drive activity through our other channels such as the call center as well as just online.
Okay.
And then maybe with the economy and inflation overall, there had been concerns about policy retention and.
And it seems like lapses are now.
Ulta historical levels, but do you expect the bill go up above where they were pre pandemic.
Yes, Jimmy I think back.
Back to the last level of and you're right. The fourth quarter did really trend favorably versus the third quarter.
While there is still higher than <unk>, 2020 one.
We're actually back to <unk>.
In the fourth quarter around the lapses the persistency levels.
Pretty much where they were in the fourth quarter of 2019, but looking forward I think for the most part.
We do think they'll trade back here to pre pandemic levels during 2023.
I'd, probably a direct to consumer.
Probably see those maybe sticking around at slightly higher.
Higher lapse rates than what we've had pre pandemic, but.
Not that significantly.
Liberty for first year lasted back to pre pandemic levels as well.
Okay, Thanks, and if I could just ask one more on MVP I, obviously its affecting the timing of income GAAP income it doesn't really change the underlying economics, but deals.
And I'm, assuming that had you not been growing if you don't grow the business at some point in the next several years.
Would actually have a negative impact on your results.
But how do you think about with the normal growth could you reach a point, where <unk> goes from being.
<unk> been through it a drag on your results do you see that happening in the next like 345 years or so.
Yes.
Jimmy.
We did take a look I think this is the same question that I had asked last year last quarter as well last quarter.
Take a look at that and actually you know for that DAC amortization to turnaround it takes.
2030 years out there in the future.
Before we ended up actually where it is.
The amortization under the LD Ti ends up being greater than what we would've anticipated under historical GAAP.
It's actually a long ways out there.
Okay. Thank you.
Okay.
Thank you Mr.
We'll now go to Erik bass with Autonomous research. Please go ahead.
Hi, Thank you. So it looks like recruiting has turned nicely at Liberty and family Heritage and you're starting to see the growth in the agent count there, but it hasnt come through in American didn't come yet I realize the fourth quarter can have some noise with the holidays I was hoping you could just talk more about the trends youre seeing in both recruiting and retention and what steps you're taking.
To improve those at American income in 2023.
Yes as we.
We had mentioned in the past there has been some adjustments to the incentive side of the compensation at American income those went in very late in the year and then obviously, it's going to continue through 2023, we are seeing it's in the early stages, but we are seeing some positive development there we have.
As a reminder, a significant increase in our agent count during the pandemic went from approximately 7500 agents to over 10000, and so our attrition has been a little bit higher here in the recent quarters.
And what we would like in these programs that we've put in place.
Seem to be working we've got some while it's still early early indications that there has been a turnaround in our retention as well as recruiting efforts at American income. So we're positive.
Where that's headed from a 2023 perspective and.
As was noted really feel like that is in our control because we do have strong agent growth at our test to other agencies and so.
Not really impacted by environmental factors that really believe this is in our control to maintain.
Thank you and then appreciate all the color you gave on the L DTI impacts.
Quick question when do you expect to release that have been updated financial supplement with recast financials.
Yes, we would do that along with our first quarter results is that our intended plan at this point.
Okay.
Got it so.
Yeah. So we said we shouldnt expect that.
In advance so should kind of model based off of the numbers you walked through on the call.
Exactly.
Yes.
Talk again after first quarter, we will have quite a bit of detail around the impact on the various distribution channels and lines of business. So.
That'll be the time to talk more about those details.
Got it and one of the things one of the things Eric we ought to be able to be careful about is we can't do.
Be releasing some of the numbers on the restated 'twenty one 'twenty two until its actually get audited so we get into a little bit of a timing, especially around the first quarter. So as Tom said that we're really at tinder.
We'll provide more of the detail on that.
We said later on.
Got it.
Right.
Thank you so much sir.
We'll now move to Mr. Ryan Krueger colleagues from <unk>. Please go ahead Sir.
Hi, Thanks, good morning.
I.
Now the LPTA guys. My first question is actually <unk>, I think last quarters guidance, which was <unk>. It had a 935 midpoint, if we back out the <unk> impact this quarter. It looks like the midpoint is more like 920.
So just curious if you can give us any perspective on kind of why that ex <unk> guidance seem to come down a little bit.
Yeah right.
Tom.
Yes, we say that.
At the midpoint more like 995.
So drop by about 10 cents and really the main drivers there are the lower premium growth that we had with previous that we mentioned and then we are.
Say, a little bit higher lead costs and agency expenses impacted by inflation.
Travel starts increasing in its meetings sort of increasing and we have some additional training and recruiting costs. We're incurring we just had that ticked up a bit.
As I mentioned also of higher cost on that given.
The higher costs for commercial paper, just the rates are a bit higher and then given the share repurchase program.
Slightly higher share count than what we had previously estimated in our in our prior guidance work.
Great. Thanks, and then.
The port.
Oh go ahead.
I'll just say one thing I'd just add on that is with the higher share count.
Was it from the amount that we were anticipating but just the higher with the higher share price that we're at at this time versus where we were back at the time. The last call. Obviously, we're just getting fewer shares purchased with the same amount of dollars.
And then on the free cash flow guidance of $4 10 to $4 50.
Is there is there.
Dragging that still from.
From Covid and non Covid excess claims that occurred in 2022, I'm trying to think about.
If there would be further bounce back as we go beyond 2023 to a more normalized level yes.
Yes, the way that we think about that as a <unk>.
Last year, we had combined in 2022, we had combined COVID-19 non COVID-19 of about $118 million.
And in 'twenty, three we expect about $45 million, so kind of the difference between those two should result in higher statutory earnings.
2023, which was therefore lead to higher higher.
Dividends to the parent in 2024.
Okay. So the difference between those two and then tax affected would be additive to free cash flow in 2020.
24 exactly yes.
Okay, great. Thank you.
Thank you so much sir.
We'll now move to John Barnidge, calling from Piper Sandler. Please go ahead.
Thank you very much my question is around <unk>.
Direct to consumer in the mail liens it seems like increased postage and paper costs as more of a secular trend are there areas that can be developed beyond just mailings that can be incorporated into the direct to consumer.
Our marketing efforts.
Yes.
As I've mentioned, we're really focused on growing our internet and electronic media inquiries in which results in additional applications and sales and so that's been the offset is that as I've mentioned in my comments continue to grow.
And is much more significant part of the business and it was just even three or four years ago. So really that's the offset as leads decline based on profitability and our models. The direct mail operation that we've offset that with an increase on the electronics side. So overall those.
Dynamics are going on but.
If inflation, depending on how that market dynamic plays out over the next several quarters, we will continue to adjust throughout the year based on the returns that we're seeing in the profitability. So overall, we wanted to make sure that we're maintaining our profitability targets on each of these campaigns and we're flexible enough.
We can adjust that throughout the year as market conditions warrant.
Great. Thank you and a follow up question I know the indirect mortality within the <unk> estimate.
Is that.
Tapered over the year or as president at an equal level throughout the year, just trying to dimension if further away that from.
From the pandemic portion of it that degrades.
Okay.
For 2043.
Yes, correct. Thank you.
Yes, so for 2023.
We expect a little bit higher COVID-19 deaths in the first quarter than we would for the third second third and fourth quarter. So that's.
We do think that will be front loaded a little bit during the course of 'twenty three.
Great. Thank you.
Yes.
Thank you very much sir.
Next question is from Mr. Andrew <unk>, calling from credit Suisse. Please go ahead, Sir your line is open.
Good morning.
First question is around.
American income and.
Completely understand kind of 2023 being kind of a digestion period of having 10000 producers.
As you go into this.
New incentive strategy different initiatives do you think in 2024 and I know, it's early for guidance, but.
Is there reason to believe Youll kind of.
Get back on track to that kind of.
Mid single digit producer growth, maybe mid upper single digit sales growth I mean is there any reason to believe you can't get there in 2000 and for that maybe it'll take longer.
No. That's a great question is we do believe we can get back there as a reminder.
<unk> count and average agent count for the quarters is a leading indicator and it takes time to get these new agents on boarded trained and producing and then obviously the longer they've been here the more effective they are from a production perspective, and so that's why you'll see in our guidance as we <unk>.
Have growth.
Projected on the agent count side, but the sales are lagging that a little bit.
More towards flat, we do believe that we can get to the middle management growth in 2023, it will drive that longer term.
Rose in on the sales side in in 'twenty. Four we also anticipate opening at three to five offices in American income over this next year and that too will set us up for good growth in 2024 and I also wanted to just clarify when we talk about compensation.
Adjustments there is two primary components to the compensation for agents. One is just the base Commission on sales and then we also have incentive based compensation that's targeted at specific behavior and we do that throughout our history. So when we talk about changing the compensation.
We're really not changing the total amount of compensation that is in our overall pricing and profitability targets that really were targeting two specific activities and behavior that we're trying to influence. So I just wanted to clarify that overall our compensate.
<unk> and acquisition costs are going to be consistent with what we've experienced in the past.
Super helpful.
Shifting over to the health lines.
Particularly United American.
Yeah.
With sales down 25% and.
I think that was due to pressures not only in mid stuff, but also like med.
Med advantage gaining share.
We look at a number of companies the online players some of them are subsets. The other insurers we cover.
Many of them seem to be pulling back in.
In that kind of online Medicare advantage.
Hi.
And so as I look at United American down in the agency channel.
Wondering.
Where is the competition coming from.
<unk>.
Yeah, I guess, it's just where is the competition coming from as I kind of think the players seem to be getting more disciplined.
Yes, I'll say, what we saw throughout 2022 was just more aggressive pricing by certain competitors and we're focused on maintaining our profitability targets and underwriting margins in this area and we're really not going to chase the sales so to speak.
And we are also seeing and experiencing a movement toward and Medicare advantage plans as well I will say that we've been in this business since the program started and we've seen these market dynamics happen.
Over time, and so we anticipate that some of that will abate as we move forward but.
Mike do you want to add anything to that <unk> been running this area for quite some time.
Yes, I think while there may have been some that have pulled back and meet overall, we are seeing movement into Medicare advantage plans.
And in this in this line of business Theres big carriers or small carriers.
The cost of entry is low because it's not a capital intensive business.
Couldnt speak to which are particularly pulling back or not but overall there is a move on the group side in individual side Medicare advantage plans I think the.
The current economic environment could contribute to that.
I would assume that people.
I will now.
Medicare supplement doesn't have provider network with Greg disease, or referral requirements to go to a cheaper managed care.
And we know we've been in this business since <unk> started in the sixties, we'd seen the swings back and forth over the year. So it's not really unusual or surprising.
We're going to maintain that disciplined approach.
Third is to protect our margins. It's also to protect our customers we want to avoid.
Higher than necessary renewal rate increases, we've never been the lowest cost provider here.
We think that's that's fair to the customer to have the right price and have reasonable rate increases.
Remember eggs.
Price this business.
The price we have on our new business is the same as our renewals. So it's not like we can go in and have lower new business prices because if we were to do that that would impact the profitability of our in force block.
The United American ramp $500 million so again.
It's something that we've seen before.
Yes.
We are not particularly surprising.
And just to kind of for a little further clarification on that so you're seeing the competition across agencies.
Hi.
Is there any interest from <unk>.
Cool.
In terms of kind of transitioning to more Medicare advantage products as opposed to mix up.
I'm sorry, there was a lot of background noise could you repeat that.
Absolutely.
So in terms of distribution competitors is it pretty much across agency in online and then with that is globe likely to pivot more to med advantage as opposed to historically being in the mid south area.
Hi.
Matt do you want to.
When you take that one.
Let me start out saying.
We don't have plans to pivot into the Medicare advantage area.
The competition is coming from all pass we do have a little bit of our sales that are online as well. So we do see the competition in.
And the pricing in the agency and online channels, a bulk of our sales are in the.
Agency.
So.
Sure.
Yes.
Sure I think Medicare advantage, we don't use networks for one next week.
It would be a big change for us.
And it's just.
It's not a line of business that we've been in and I know, we considered a long time ago.
At one time, we were in the part D plan, which is similar and we exited that and it's.
Something that we wouldn't wouldn't want to do it's really I think harder for smaller players.
To do that and to get involved with your Medicare advantage of part D.
And I don't think that undertaking would make sense for us.
It seems like a thoughtful approach as usual.
Does that answer your question on <unk>.
Absolutely. Thank you thank.
Thank you very much sir.
We will now take question from Mr. Mark Hughes close watch list. Please go ahead Sir.
Yes. Thank you excuse me good morning, I don't know if you touched on that.
Paul.
Where do you think about.
Is there anything about the L DTI.
Accounting standard that impacts your growth on a go forward basis, you, obviously get a nice EPS benefit this year, but just the timing of the emergence of profitability.
Is it a changeover times so that there is a natural.
Acceleration or deceleration perhaps.
Time goes by that will impact your kind of trend line growth rate in future years.
Yeah, I'll answer that one probably the one thing as we think about the implementation of <unk> as the treatment of <unk>.
Future deferrals of renewal commission, so to the extent that there are a portion of renewal commissions are deferred.
The new rules require us now too.
And the historical GAAP, we would look at all anticipated future renewal commissions are determined an amortization rate that was an average that was needed to amortize both first year capitalized expenses as well as future renewal capitalized expenses.
Under the new method.
We're only allowed two.
We capitalized we're all.
We are forced to change the amortization rate apart each additional capitalization and so for Ral.
All lines of business, we do have some renewal commissions that we capitalize.
And we had kind of talked last last quarter.
For the block, we would expect kind of a 50 basis point increase in amortization and that's really driven by.
Two things is one is we have a mix of business, where we don't have any back on some of the business.
And on the other business, we have to act that is being amortized.
Block that we don't have any data on where we fully amortized with as that runs off the average amortization rate goes goes up but the other is is that as we get new.
Renewals commissions that are deferred.
We will see the amortization rate tick up a little bit.
In aggregate we.
We'd see probably that amortization rate tick up around 20 to 30 basis points over the next few years and then.
Or kind of even out.
And that increase would diminish over time as we put new business on the books.
Yes, Mark the one thing I would just add to that is I think really other than that and other than assumption changes that might come through.
From time to time I would expect.
Once this kind of gets reset then that the general level of growth rates should be.
Somewhat similar.
Okay, great. Thank you very much.
Thank you Mr Hughes.
Ladies and gentlemen, once again, if you have any questions for follow up questions. Please press star one it's helpful keypad.
We do not appear to have any further questions. At this time gentlemen, I'd like to turn the call back over to you Mr Motor for any additional or closing remarks.
Alright, Thank you for joining us this morning, as our comments, we will talk to you again next quarter.
Ladies and gentlemen that will conclude today's conference. Thank you. So much for your participation. You may now disconnect have a good day and goodbye.
Yes.