Globe Life Inc. Q1 2023 Earnings Call
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Hello, and welcome to Globalize fourth quarter 2022 earnings call. My name is Melissa and I will be your coordinator for today's event. Please note. This conference is being recorded and for the duration of.
Call your lines will be listen only however, you will have the opportunity to ask questions towards the end of the call. This can be done by pressing star one on your telephone keypad to register your question it would be.
You require assistance at any point, please press star zero and you'll be connected to an operator I will now hand, the call over to your host Steven Mora Senior director of customer relations Jupiter to begin today's conference. Thank you Steven you may begin.
Thank you good morning, everyone joining the call today, Frank Svoboda in that Darden, our co chief Executive officers, Tom <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. They are provided for general guidance purpose.
<unk> only accordingly, please refer to our earnings release and 2022 10-K 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.
Thank you Steven and good morning, everyone.
I would note here that our reported results for the first quarter of 2023 and 2020 to reflect the adoption on January one 2023 of the new L. D G I accounting guidance.
First I want to thank the many members of our accounting actuarial investment and technology teams for getting us ready to adopt this new accounting guidance this quarter.
What the substantial project and they did a fantastic job.
Rob will discuss the new guidance in more detail in his comments.
In the first quarter net income was $224 million or $2 28 per share compared to $237 million or $2.37 per share a year ago.
Net operating income for the quarter was $248 million or $2 53 per share an increase of 4% from a year ago.
On a GAAP reported basis return on equity was 22.9% and book value per share is $39 74 says.
Excluding accumulated other comprehensive income or OCI.
Return on equity was 14, 6% at book value per share is $70 34 sets up 10% from a year ago.
In life insurance operations premium revenue for the first quarter increased 3% from the year ago quarter to $773 million.
For the year, we expect life premium revenue to grow around 4%.
Life underwriting margin was $291 million up 1% from a year ago.
At the midpoint of our guidance, we expect life underwriting margin as a percent of premium to be in the range of 37% to 39% as we've discussed on prior calls underwriting margin is different under the new L. L. B T I accounting rules.
In health insurance premiums grew 2% to $322 million and health underwriting margin was up 4% to $91 million.
For the year, we expect health premium revenue to grow around 3% at the midpoint of our guidance, we expect health underwriting margin as a percent of premium to be in the range of 28% to 30%.
Administrative expenses were $74 million for the quarter up 2% from a year ago as a percentage of premium administrative expenses were six 7% compared to six 8% a year ago for.
For the full year, we expect administrative expenses to be up between two and 3% and be around 6.9% of premium due primarily to higher I T and information security costs.
Higher labor and other 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 first quarter marketing operations. Thank.
Thank you Frank at American income life life premiums were up 5% over the year ago quarter to $388 million and life underwriting margin was up 2% to $176 million.
In the first quarter of 2023 net life sales were $83 million down 2% from the year ago quarter, while first quarter sales declined slightly from a year ago. They grew 19% from the fourth quarter of last year.
The average producing agent count for the first quarter was 9714 at 4% from the year ago quarter and up 5% from the fourth quarter and is consistent with our expectations discussed on the last call I am very encouraged with the sales and agent count trends and see a lot of positive momentum.
In this division.
At Liberty National Life premiums were up 6% over the year ago quarter to $85 million and life underwriting margin was up 3% to $28 million.
Net life sales increased 27% to $22 million and net health sales were $7 million up 14% from the year ago quarter due to increased agent count and productivity there.
The average producing agent count for the first quarter was 3011.
Up 13% from a year ago quarter.
I'm very pleased with the results here as Liberty continues to successfully generate strong sales and recruiting activity.
At family Heritage Health premiums increased 7% over the year ago quarter to $96 million and health underwriting margin increased 15% to $32 million.
The increase in underwriting margin is primarily due to higher premiums and improved claim experience.
Net health sales were up 21% to $23 million, primarily due to increased agent count.
The average producing agent count for the first quarter was 1298 up 18% from the year ago quarter. As we've mentioned previously this agency has shifted focus over the last several quarters to recruiting and middle management development.
Now in our direct to consumer Division life premiums increased 1% over the year ago quarter to $248 million.
But life underwriting margin declined 3% to $56 million.
The decrease in underwriting margin is primarily due to an increase in lead related non deferred acquisition expenses.
Net life sales were $32 million down 4% from the year ago quarter.
As we have mentioned on previous calls direct to consumer marketing is one facet of our business that has been impacted by the current inflationary environment. We've.
We've had to pull back somewhat on circulation in mailings as increases in postage and paper costs impede our ability to achieve satisfactory return on our investment for specific marketing campaigns.
There is an offset to this as we continue to generate more internet activity, which has lower acquisition cost than our direct mail marketing in fact electronic sales have grown at a five 8% compounded annual growth rate since 2019 and are currently approximately 70% of our new business.
Yeah.
Onto United American General Agency here, the health premiums increased 1% over the year ago quarter to $133 million and health underwriting margin of $13 million, which is 10% of premium is consistent with the year ago quarter.
Net health sales were $15 million at 13% in the year ago quarter.
The increase in net health sales is primarily due to the sales growth at globe life benefits.
Projections.
Now I want to talk about based on the trends that we're seeing and the experience with our business. We expect the average producing agent count Trans for 2023 to be as follows.
At American income life, low double digit growth at Liberty National low double digit growth and family heritage low double digit growth, we're very nice to have.
I'm pleased to projects that all three of our exclusive agencies are going to have low double digit growth through the remainder of the year.
Net life sales for the full year 2023 are expected to be as follows American income life low single digit growth Liberty national low double digit Roes and direct to consumer slightly down to a relatively flat for the full year.
Net health sales for the full year of 2023 are expected to be as follows at Liberty National low double digit growth family heritage low double digit growth and at United American General Agency mid single digit growth.
I'll now turn the call back to Frank.
Thanks, Matt, we'll now turn to the investment operations.
Excess investment income, which for 2023, we define as net investment income less all the required interest.
Was $29 million up 13% from the year ago quarter.
On a per share basis, reflecting the impact of our share repurchase program excess investment income was up 15%.
Net investment income was $257 million up 5% from the year ago quarter.
Required interest as adjusted to reflect the impacts of the adoption of L. D. T. I is up 4% over the year ago quarter in line with the increase in net policy liabilities.
For the full year, we expect net investment income to grow approximately 5% as a result of the favorable rate environment and steady growth in our invested assets and excess investment income to grow between 10 and 12%.
Now regarding our investment yield.
In the first quarter, we invested $311 billion in investment grade fixed maturities, primarily in the in the municipal industrial and financial sectors. We invested at an average yield of 584% an average rating of a and an average life of 25 years.
We also invested $45 million in commercial mortgage loans and limited partnerships that have that light characteristics. These.
These investments are expected to produce additional yield and are in line with our conservative investment philosophy I will further discuss our commercial mortgage loans momentarily.
For the entire fixed maturity portfolio. The first quarter yield was 5.18% up three basis points from the first quarter of 2022 and flat versus the fourth quarter as of March 31, the portfolio yield was.
Five point to 1%.
Now regarding the investment portfolio.
Invested assets of $22 billion, including $18 5 billion of $6 million of fixed maturities at amortized cost.
Of the fixed maturities $17.9 billion are investment grade with an average rating of a minus overall the total portfolio is rated a minus same as a year ago.
I would like to make a few comments regarding our banking and commercial mortgage loan investments.
Total bank investments or 7% of our fixed maturity portfolio.
We realized an after tax loss of roughly $21 billion during the first quarter on signature bank bonds.
We also hold $39 million of first Republic bank bonds, which had been impaired in the second quarter due to recent developments.
We did not have any exposure to the Silicon Valley bank or the credit Suisse 81 bonds that defaulted.
Regarding our commercial mortgage loans, we have $204 million net book value of CML directly held on our balance sheet, which is 1% of our total investment portfolio.
We also have $454 million of limited partnership funds or 2.4% of the total investment portfolio that invest in CML.
These limited partnerships are carried at fair value, which is updated quarterly and managed by Pimco and Metlife.
E mails, we hold directly and most of our limited partnership CML investments are transitional or bridge loans that generally have a floating rate three year maturities and two optional one year extensions if certain criteria are met.
We prefer the risk return profile of these types of loans over traditional commercial mortgage loans and believe they provide good diversification away from corporate securities.
Transitional or bridge loads are typically used to renovate or otherwise improve a particular property.
For loans that are on our balance sheet oftentimes the appraised values reflected in our regulatory filings reflect the original as is appraisal at the time, the transitional modal initiated which does not take into account any increases in value. After the renovations are completed.
The loan to value method, we consider in evaluating the property what we call stabilized appraised value is the basis, we use in the supplemental information we provided on our website and reflects appraisals that take into consideration the effect such renovations are expected to have on the property's value.
Using market comps and other standard appraisal techniques at the time the loaner.
Voter origination.
Thus the stabilized appraised values are typically higher than the original appraised value is reflected in the regulatory filings.
With respect to the CML tell directly on our balance sheet $115 million of gross book value were originated prior to 2022.
We have $59 million of bonds with maturities in 2023 of which $22 million of optional extensions subject to satisfaction of certain criteria.
Of the loans with maturities in 2023, all the $8 million are related to office properties, plus $2 million related to the pro rata office portion of mixed use properties.
The average loan to value ratio of the 2023 maturities that 64% with none greater than 90%.
Our expected lifetime losses for our CML portfolio, which is equivalent to our CML Cecil allowance is $3 $1 million or 1.5% of book value.
Based on both the underlying structure of our direct and indirect CML investments and the specific properties involved we believe that the incremental risk inherent in these investments is more than offset by the additional yield they generate.
As mentioned in our earnings release, we have provided additional information regarding our banking and CML investments on our Investor Relations website under financial reports and other financial information.
These investments have been included in our portfolio stress testing that Tom will discuss in his comments.
Our fixed maturity investment portfolio has a net unrealized loss position of approximately $1.3 billion due to the current market rates being higher than the book yield on our holdings as we have historically notice we are not concerned by the unrealized loss position at it's 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 compared to 55% from the year ago quarter. While this ratio is in line with the overall bond market. It is high relative to our peers. However, keep in mind that we have little or no exposure to higher risk assets such as derivatives common.
These residential mortgages clo's and other asset backed securities.
Additionally, unlike many other insurance companies, we do not have any exposure to direct real estate equity investments or private equities.
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.
Yes.
Hello, and good investment grade bonds are $596 million compared to $583 million a year ago.
The percentage of below investment grade bonds to fixed maturities is 3.2% still there still near historical lows.
In addition below investment grade bonds, plus bonds rated triple b or 54% of fixed maturities the lowest ratio. It has been in over eight years.
Finally, the amount of our fixed maturity portfolios subject to either negative outlook or negative watch by the rating agencies is that the lowest levels since 2010.
Overall, 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.
We primarily invest long a key criteria utilized in our investment process is that an issuer must have the ability to survive multiple cycles.
We have performed stress tests under multiple scenarios on both our fixed maturity portfolio and our commercial mortgages held directly and through limited partnerships.
As previously noted Tom will address the potential capital implications of these stress tests and his comments.
At the midpoint of our guidance for the full year, we expect to invest approximately $1 billion in fixed maturities at an average yield of approximately five 6% and.
And approximately $250 million in commercial mortgage loans and limited partnership investments with debt like characteristics.
At an average 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 to our future policy benefit since they are not interest sensitive.
Now I'll turn the call over to Tom for his comments on capital liquidity and L. D Ti.
Thanks, Brian .
First I want to spend a few minutes discussing our share repurchase program available liquidity and capital position.
The parent began the year with liquid assets of $91 million in the first quarter. The company repurchased one 2 million shares of Global Life, Inc. Common stock for a total cost of $135 million, which includes the acceleration of approximately $35 million of our annual repurchase plan.
To take advantage of recent lower share prices.
Average share price for these purposes was $115.04 and we ended the first quarter with liquid assets of approximately $77 million.
Year to date, we have purchased one 4 million shares of Globalized, Inc. Common stock for a total cost of $158 million at an average share price of $114.04.
In addition to the liquid assets held by the parent the parent company generated excess cash flows during the first quarter and we'll continue to do so throughout 2023.
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.
We anticipate the parent company's excess cash flow for the full year will be approximately $420 million to $440 million and is available to return to its shareholders in the form of dividends and through share repurchases.
This amount is higher than 2022, primarily due to the lower life losses incurred in 'twenty, two which resulted in higher statutory income in 2022 as compared to 2021, thus providing higher dividends to the parent in 2023 that were received in 2022.
So as previously noted we had approximately $77 million of liquid assets at the end of the quarter as compared to $50 million to $60 million of liquid assets that we have historically targeted at.
In addition to the $57 million of liquid assets, we expect to generate $295 million to $315 million of excess cash flows for the remainder of 2023, providing us with approximately $350 million to $370 million of assets available to the parent for the remainder of two to 2000.
And then in 'twenty three after taking into consideration the approximately $23 million of share repurchases to date in the second quarter.
We anticipate distributing approximately 60 to 65 billion to our shareholders in the form of dividend payments for the remainder of 2023.
In may.
We have approximately $166 million of senior debt maturing in.
In April the company closed on 170 million dollar 18 month term loan. The proceeds of this term loan will be used to retire the seven 875% senior notes maturing on may 15th 2023.
We want to continue to monitor debt markets and our capital needs. Our current plan is to issue new long term debt long term senior debt in 2024 to pay off the term loan reduced other short term debts and meet long term capital needs.
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 the other alternative.
Other available alternatives.
Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flows.
After the payment of shareholder dividends. It should be noted that the cash received by the parent from our insurance operations is after our subsidiaries have made substantial investments during the year to issue new insurance policies expanded modernize our information technology and other operational capabilities as well as to acquire new long.
<unk> assets to fund their future cash needs.
The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program in 2023.
In our earnings guidance, we anticipate between 370 and $390 million of share repurchases will occur during the year.
With regard to capital levels at our insurance subsidiaries. Our goal is to maintain our capital levels necessary to support our current ratings.
Life targets, a consolidated company action level RBC ratio in the range of 300% to 320% at.
At the end of 2022, our consolidated RBC ratio was 321%.
At this RBC ratio our subsidiaries had at that time, approximately $125 billion of capital over the amount required to meet the low end of our consolidated RBC target of 300%.
When adjusted for first quarter realized losses of $24 million in.
Paid $30 million after tax loss related to first Republic bank. The RBC ratio is reduced approximate to 312% and this is near the midpoint of our targeted RBC range of 300% to 320%.
We are well positioned to address any additional capital needed by our insurance subsidiaries due to potential downgrades and additional defaults that may occur due to a recession or other economic factors as.
As Frank mentioned, we routinely perform stress tests on our investment portfolio under multiple scenarios.
Under the stress test, we anticipate various levels of downgrades and defaults in our fixed maturity portfolio and include a provision for losses, and our CML portfolio that reflect loss rates in excess of those and the fed's severely adverse scenario.
Under our scenarios, we do not anticipate that all the downgrades defaults and losses in our CML portfolio would occur in 2023, but rather anticipate they would emerge over an extended period, which could be as long as 24 months.
Even if the losses under our internal stress test occurred before the end of the year, we estimate only between 30 million to $55 million of additional capital would be needed to maintain the low end of our consolidated RBC target of 300%.
The parent has sufficient capital risk capital sources of liquidity to meet this capital if it is needed to maintain our consolidated RBC ratio within our target range, while continuing our dividend and share repurchase program as planned.
Now I'd like to provide a few comments related to policy obligations in the first quarter results as we've talked about on prior calls. We are included in the supplemental financial information available on our website historical operating summary results under LD Ti for each of the quarters in 2022 in.
In the third quarter of 'twenty, two we updated both our life and health assumptions the life assumption updates reflect our current estimates of continued excess mortality, particularly in the near term.
For the first quarter the life policy obligations showed slightly favorable fluctuations when compared to our assumptions of mortality and persistency.
This resulted in a small life remeasurement gain in the quarter the supplemental supplemental financial information available on our website provided exhibits which shows the remeasurement gain or loss by distribution channel.
The remeasurement gain or loss shows the current period fluctuations inexperienced and the impact of <unk> and the impact.
Fact of assumption changes if any.
<unk> are allocated to the current quarter as well as past periods and the absence of assumption changes is indicative of experience fluctuations.
The remeasurement gain for the life segment was $2 7 million lower policy obligations, reflecting favorable fluctuations for the quarter, while for the health segment resulted in $2 million higher policy obligations, reflecting unfavorable fluctuations for the quarter and the first quarter, we had no changes to long term assumptions.
Finally, with respect to our earnings guidance and 2023.
We are projecting net operating income per share will be in the range of $10 28.
To $10.52 per diluted common share for the year ending December 31 2023.
10, 40 midpoint of our guidance is higher than what we had indicated last quarter. The increase in our expectations for 2023 is largely due to the impact of lower share price and slightly higher life margins as a result of lower policy obligations than previously anticipated.
Consistent with our guidance on the last call and Frank's comments for the full year 2023, we anticipate life underwriting margins to be in the range of 37% to 39% and health underwriting margins to be in the range of 28% to 30%.
Given that our assumptions were recently updated we believe first quarter obligation ratios are indicative of emerging policy obligations over the year.
We will be reviewing assumptions and anticipate making updates in the third quarter. Each year at this time, we do not believe them to be significant.
Total acquisitions in the first quarter as a percentage of premium is 21%, including both amortization and non deferred acquisition cost and commissions.
We expect the full year to be consistent with this 21%.
While the new GAAP accounting changes or significant it is important to keep in mind that to changes only impact the timing of when our future profits will be recognized and that none of the changes impact our premium rates the amount of premiums we collect and the amount of claims will ultimately pay. Furthermore, it has no impact on our statutory earnings the statutory cap.
We are 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 that we offer those are my comments I'll now turn it back to Matt.
Thank you Tom.
Those are our comments, we will now open the call up for questions.
Okay.
Okay.
Okay.
Melissa we're ready to open up the call for questions now.
Okay.
As a reminder, if you'd like to take a question asked a question on todays call. Please press star one on your telephone keypad to withdraw your question you May Press Star two.
And I think we can have a few questions in the queue.
Okay.
And our first question will come from Jimmy Buhler.
Jimmy You May Please go ahead hi.
The first just a question on investment losses and their potential impact on.
Statutory income and distiller dividend capacity and share buybacks next year should we assume that the.
The loss that you took on signature bank in the upcoming lots from first Republic will have an impact on buybacks as you going into next year.
Yeah, Jimmy we would expect statutory earnings to be lower from our subsidiaries in 2023, which would impact the dividends that the parent receives in 2024 and as a result of those losses.
It's stope and really to tell it's too early really tell what the impact on our buybacks plans are for 2024.
Okay.
And then on the debt.
The decline in third income should be commensurate with the losses on the dual banks, assuming nothing else.
So that is right. So as you think about the total realized losses that we had in the first quarter.
There was the the one bank we did have a smaller.
Small bond related to AR.
University of Georgia property that was included in the.
Net $24 million in there as well.
But that of Guangzhou Republic would go through the statutory income in 2023 on an after tax basis.
Okay, and then Jim and then get a note that Jimmy I just got a note that you know that there's other as we think about the.
Changes in our loss claims so we still have a certain amount of your expectations with respect to the payments of.
We've talked in the past on access obligations, whether it be from Covid or COVID-19 related and obviously as those kind of subsides, a little bit early to see.
The initial anticipation was that those would be the lower in 'twenty three than what they were at 22. So you.
Typically have for growth in our statutory.
Earnings as well over time.
We'll see how that how that plays out over the course of the year.
Okay.
And then just on direct response, obviously it seems like the Internet business is growing but the mailing business should we assume that.
And that as inflation comes down a decent amount.
And there shouldn't be much of a change in your circulation volumes in your sales activity.
Yes.
You're correct those two are offsetting each other are.
As we've mentioned in the past we are reducing some of our circulation and in mail and we will continue most likely do that through the remainder of 'twenty three in.
Because of those cost associated with the higher production costs as that channel, but we're trying to offset that of course with increase in internet sales and so that's why we've guided to essentially flat may be a slight decline from a sales perspective for 2023.
Okay, and then just lastly could you comment on the recruiting environment I would have thought with the tight labor market.
The agent growth would've been stunted, but it's actually been fairly strong across the various channels recently.
Yes, as we talked about in the past you know we've been able to successfully recruit and a variety of different economic environments and as we think about it we really look at what are the things that we're doing because.
Because we always have good sources of recruits and said, we really focus on how effectively can we onboard.
New agents and as we've mentioned that growth in the Middle management count.
He is doing a lot of the recruiting of new agents training them and getting them on boarded you know that's a key aspect that we're focused on growing to be able to grow that agent count. So we're really not seeing an impact from a macroeconomic environment from an employment perspective, and if you reflect back on.
We had strong agent count growth and family Heritage and Liberty in Q3, and Q4 of last year that momentum is continuing on and then as we talked about on the last call AI ill. Some of the things that we've put in place right at the end of the year.
Are showing some fruits here in the first quarter and so we've upped our projections for the agent count growth.
A L and in fact across all three of the agencies just based on the individual things that we're putting in place.
In each of those divisions.
Thank you.
Thank you and our next question comes from Wes Carmichael of Wells Fargo Fargo. Sir. Please go ahead.
Hey, Good morning, I think you mentioned a senior debt maturity, that's coming up here in May and I think that's going to be met with a draw on the term loan, but I think theres also some commercial paper around $285 million coming due so are you expecting that to also be satisfied with a term loan draw or is that going to be met by the way.
We generally have commercial paper out there.
Maturing and then.
Issuing again, so we would expect to just reissue that commercial paper as well too and we generally will maintain that $285 million to $300 million of commercial paper out there.
Got it Thats helpful.
On the CMO portfolio outside the limited partnerships you mentioned, they're transitional bridge loans for the most part and I think 5% is shown in the office bucket, but it looks like a good portion of the mixed use.
But it is also related to office so within your stress test your thoughts like how are you thinking about any higher capital charges on that portfolio either from drift in cm ratings are due to potentially having to take on some of those loans is unreal.
Yes, the west.
We did look at the stress tests on those.
We did take into consideration both the.
You know potential drift and the downgrades along with you know a downgrade than we would have within our fixed maturity portfolio. We've looked at that the same way.
You know if we did have some drip.
Drift in those as well, but then we we took a look at the at the loss rates on those that actually assumed it kind of are.
The high end severe stress about a 15% loss rate, which is about two times the.
You know fed severely adverse scenario I think theirs is around six 8% or so.
So we doubled that with respect to what we included in our stress test.
Got it thanks.
You touched on this a little bit with the press release didn't have anything related to COVID-19 or excess mortality I think previously maybe you guided to around 105 U S. Debt. This year is that still the case has that changed and how much of that excess mortality is embedded at the midpoint of the 10 40 EPS guidance.
Yeah. Good question, so we still think.
Covid deaths for the year will be around in the U S. Around 105000, we haven't changed for that estimate.
While we updated our assumptions last year, we reflected what.
What we thought from an excess deaths perspective from from the pandemic, both from Covid and non Covid causes so that's embedded in our the midpoint of our guidance.
Thank you.
Thank you and our next question comes from John Barnidge of Piper Sandler Sir. Please go ahead.
Thank you very much for the opportunity and good morning.
We could stick with the investment portfolio a bit can you maybe talk about <unk>.
Occupancy rates of that office and mixed use and then compare it to central business district versus suburban.
Okay.
And just in general on the.
On the broad 200.
I'm talking about.
I am talking specifically around the office and then that 45% of the ask juices.
Yeah. So on the on the ones that are maturing here in 2023, So we got about $8 million of.
That you are 100% office.
One of those located in Washington D. C. One of those in New York City, and then on the mixed use theres about a $2 million allocation to office use out of that particular prop of that particular property.
So there's only three properties that make up that entire amount. That's due here in 2020 or its maturing twenty-three one of those is.
In the process of doing renovations they are in the process of actually extending that for TUI for another 24 months.
So that'll be extended into 2025.
The other one that's 100% office is around.
It's a little bit, it's a little bit different they're actually taking it and selling it into condo style offices, they're in the process of selling that and as they sell those offices as they are.
Prepaying back down you know a portion of that goes to.
The payback on the loan.
Given some of the current.
For the sale of bump from that particular property that kind of points to actually a loan to value ratio of around 42%. So it's something we're not very concerned there and then on the mixed use.
I've actually got it's actually 100% leased and occupied at this point in time.
That's really helpful. My follow up on mortality some have talked about an early flu peak.
In the fourth quarter, others have suggested that didn't occur can you maybe talk about your seasonal experienced in the quarter. Thank you.
Yes, just I've mentioned that we had a small favorable fluctuation in mortality during the quarter. So we were pleased with the kind of the overall mortality results very early very consistent with our expectations with slightly positive.
Thank you very much I appreciate the answers.
Thank you and our next question comes from Eric Sherbet of Autonomous Research. Please go ahead.
Hi, Thank you.
First question just when you give your free cash flow guidance for the year do you have any place holder.
For credit losses in that or is your assumption just said if those occur they would be borne by the excess RBC ratio in the subsidiary.
It really the ladder that are we.
We don't reflect any excess losses.
And we do anticipate losses in general during the course of the year, we'll have some realized gains and losses, but.
So our base case does assume some but not a not a significant portion so in general I'd say any subsequent losses would would be the more.
And my other liquidity resources and the surplus that we have and are in the excess in our RBC ratio that we currently have.
Got it which is I guess why with these losses.
All your brings the RBC ratio to the mid point of your range, but theres really no impact on your free cash flow expectations.
Exactly and in addition, we just our liquidity resources that we have available to us if those losses did occur we have the resources available.
Got it and remember again from the free cash flow from the excess cash flow, that's really again driven by the dividends out of our subsidiaries from last year's statutory earnings and so any of those losses don't affect that cash flow.
Any lots that we have this year.
You'll simply affect next year's cash flow.
But again as we so those would be included in our stress test and again as we think about the stress test.
We're trying to really look at what maybe could happen as were doing a bottoms up approach not necessarily what we think will happen.
Because when we look at our at our particular.
Portfolio, we don't necessarily.
I think that will end up in a gigs we have that ability to hold especially on the fixed maturity side. So we don't anticipate lots of that would actually be occurring during the year.
Got it. Thank you and then can you talk about the decision to use the term loan to pay off the debt maturity as opposed to issuing senior debt now and I guess as you think of liquidity management, you'll now have the term loan maturity next year to deal with does that change at all how you think about kind of how much liquidity you want to hold their need to hold.
Yeah, you know as we were thinking about the best way to refinance the debt that was maturing we looked at a number of options and <unk>.
Just one of the things that we're trying to do is to look at our maturity ladder as well and so we thought it best to issue debt in 2024 to space out some of our maturities going.
Going forward.
Got it thank you.
Thank you and our next question comes from Ryan Krueger of K BW. Sir. Please go ahead.
Hi, Good morning, I, just wanted to understand the under <unk>.
Given that you already made an assumption for some level of continued excess mortality.
Is that is there.
Thank you Kevin.
39% underwriting margin guidance does that actually is that being.
Negatively impacted at all by by the excess mortality or did the assumption change that you made last year basically reflect that upfront already.
Yeah, the substrate last year last year ends up being reflected in that 37% to 39% underwriting margin. So its already embedded.
Got it I guess, maybe the question maybe asked another way.
How much upside would there be to that margin if the excess mortality.
Fully subsided.
Yeah, it's probably about 1%.
Our freemium.
Okay got it got it and then.
Just one more.
Okay.
How are you thinking about your leverage capacity, if we did end up.
<unk>, where we had more credit losses.
Do you think you could end up issuing additional debt and maintain the buyback.
That's helpful.
Yeah, our debt capital ratio as of the first quarter was 23, 9%. So we have quite a bit of debt capacity over 700 million 700 $800 million.
To be below a 30% debt cap ratio, which is kind of where moody's.
That's their their limit so quite a bit of debt capacity and we would actually expect that respect that that capital ratio to go down during the course of the year as well to give us even more debt capacity.
Thank you.
Thank you and our next question comes from Andrew <unk> of Credit Suisse. Sir. Please go ahead.
Morning.
Interesting.
<unk> income agent count up 6%.
The average producing agent.
It was up for us.
And guidance this year for sales and light.
Is is low single digit I'm kind of curious about.
Youre recruiting how that's coming along.
And just kind of that.
The seasoning of these these new recruits and could we expect to really nice number next year as a result.
Yes.
Probably go back in history, just a little bit is far is if you look at the increase in life sales for <unk> L. In Q1 of last year. So Q1 of 2022, we had a 23% increase in life sales and then in the second quarter of 2022 at a 16% increase in.
<unk> sales so we've got tough comparables.
So to speak when you look at.
The first quarter in the second quarter of this year as compared to the prior year, but as we've talked about in the past the agent count.
In the recruiting is a is a leading indicator for sales yet to come and so we're very pleased about is just stacked growths in the agent count.
Throughout the first quarter of this year and in fact.
Each week in the month of March we were over 10000 agents again in American income so that momentum is those agents get at producing and as we've talked about in the past.
More experienced agents obviously are more.
<unk> from a sales perspective, so as those.
New onboard agents get more experience, we expect the sales growth to accelerate in the last half of this year and then obviously.
Now with carryover into into 2024.
Okay very helpful. And then just staying on that topic.
You mentioned.
And I didn't get the exact numbers.
Increasing the branch managers and maybe you could talk a little bit about those initiatives within American income.
The Delta there.
And how impactful leader.
Okay.
As far as our middle management growth at American income.
At 10% in the first quarter of this year. So that's what we're very pleased with so that that 10% growth in the middle management again helps us from a recruiting.
Respective as well as training and Onboarding agents and that's very good and we anticipate as far as just new.
Agency owners, New office has been open and American Ian can still predict that for throughout 2023 to be in the three to five number range. So good growth.
There as well.
Excellent Thanks, a lot.
Okay.
Thank you. Our next question comes from Wilmar Burtis of Raymond James. Please go ahead.
Hey, Good morning, just a quick question on the health margin that increased a little bit could you talk through.
A little bit more on what happened there.
Yes, we kept the one we kept the bottom end of the range the same but we do see the potential for it to move up a little higher we're seeing a little bit favorable experience on family heritage and we feel like if that continues.
Our health margins could go up overall on the.
The UA side, we have seen a little bit of first quarter, a little bit higher claims and I think others have seen that as well and that's fairly consistent with the seasonality of Medicare supplement, but we think that family heritage actually provides kind of.
That opportunity for some upside.
Great and it seems like all of the recruiting and sales numbers that came up a little bit which is great to see but I guess my one quick question is.
If theres any recessionary impacts that could could kind of flow through and pressure sales a little bit this year.
Generally in the past as we've looked through different economic trends, we really haven't.
Seen that.
Our sales growth is really driven by agent count growth and in agent count growth is really driven by middle management growth and so.
That's why you're seeing us revise our just the momentum that we're seeing in our onboarding of new agents as well as the growth in the management count across the three agencies.
Is really what's driving our sales projections for the year.
Thank you.
Okay.
As a reminder, if anyone has the final question you can press star one on your keypad now.
We do have one remaining one for now Wes Carmichael of Wells Fargo. Please go ahead.
Hey, Thanks for thanks for taking my follow up call actually I had a technical one as we're thinking about stress testing and I'm really thinking about the RBC framework, but it does kind of give you credit through diversification benefit of the sea risks. So I think you guys are pretty situ heavy company I was just wondering if there's any way to think about a rule of thumb.
The diversification benefit within T. One if you'd see any credit drift if that makes sense.
There would be some overall and you're right about 50% of <unk>.
C N belzer sit there and see them to an end or are you.
<unk>.
Maybe I misunderstood your question here.
Just the.
Yes, I'm just thinking about.
Sure. So like if you think about the growth <unk> charges.
And then you can do that math to your 300% to 320% RBC target within when you actually put it into the RBC formula The square root calculation gives you some some offset against those growth factors. So I'm just thinking about is there a rule of thumb. We can use so we're not overestimating the credit drift.
Impact to globe for RBC.
Yeah, I'll be honest I'm not sure that I'm able to give you that what that rule of thumb would be I mean, there is definitely as we do think about the C. One.
Charges, we look at what we think about the size diversification and we work with that quite a bit and and then trying to get the diversification.
Across the portfolio.
Obviously, I don't have that something I have Andy that too to try to give you that rule of thumb.
Okay.
And just last one on <unk> it looks like there might've been a favorable impact on on retained earnings and book value exiting OCI. Just wondering is there a way to quantify that I did my math was right.
Moving pieces, but I thought it was around $4.50 a share versus prior guidance is that in the ballpark.
If you Havent handy.
I didn't put it in that framework, but we are definitely seeing.
Retained earnings as a result of restating 2021, and 2022 earnings under Ti.
It was and then the traditional balance sheet change was relatively small this like that that was about $12 million.
So and we had previously guided to.
The early Ti would increase.
Earnings by 100.
$5 million to $115 million and so I think actually what might be helpful to you as it is to look in the supplemental financial information, where we've restated the 2022 earnings numbers and.
That will that will help guide you, but 2021 was about $187 million favorable over historical in 2022 was about 253 million favorable over historical so that's adding about $428 million to retained earnings just because of the restatement.
Of the prior prior historical numbers yet to the to the retained earnings as of 12 31 F. 'twenty two.
Right so.
That's right.
That's perfect My math was 429, so it sounds like we're.
Same ballpark, but thank you and I appreciate the follow ups.
Yes, you're on a large part of that of course as you're thinking about restating on those prior years. It is because we had the the.
The large fluctuations with Covid and both of those years, so under L. D T ice they got.
Good chunk of that got pushed out into future years as well as then the impact from the.
Lower amortization.
Thank you.
Thank you and as we have no further questions I'd like to hand, it back over to Steven Mora for any closing remarks.
Alright. Thank you for joining us. This morning, those are our comments and we will talk to you again next quarter.
Yes.
Thank you everyone that concludes our call you may now disconnect.
These standby.
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