Q2 2023 Globe Life Inc Earnings Call
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Okay.
Good day and welcome to Globe life second quarter, 2023 earnings release conference call.
Conference is being recorded for the duration of the call your lines will be in listen only however, you will have the opportunity to ask questions and this can be done by pressing star one on your telephone keypad to register your question if.
If you require assistance at any point, please press star zero and you'll be connected to an operator I will now hand, you over to Steven Mora Senior Director Investor Relations.
Thank you good morning, everyone joining the call today are French the boat at Darden.
Jordan, our chief Executive officers, Tom <unk>, our chief financial officers Mike.
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 purposes only.
Please refer to our earnings release, 2022, 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 Brett.
Thank you Steven and good morning, everyone.
In the second quarter, net income was $215 million or $2 24 per share compared to $224 million or $2.26 per share a year ago.
Net operating income for the quarter was $251 million or $2 61 per share an increase of 3% from a year ago.
On a GAAP reported basis return on equity was 22, 4% and book value per share is $41 at 44 sets.
Excluding accumulated other comprehensive income or OCI return on equity was 14, 6% and book value per share was $72 and nicer.
Up 10% from a year ago.
In our life insurance operations premium revenue for the second quarter increased 3% from the year ago quarter to $782 million.
For the year, we expect life premium revenue to grow around 4%.
Life underwriting margin was $296 million in the second quarter down 1% from a year ago at the midpoint of our guidance, we expect life underwriting margin for the full year to grow around 5% and as a percent of premium to be in the range of 37% to 39%.
In health insurance premiums grew 3% to $329 million and health underwriting margin was up 1% to $92 million.
For the year, we expect health premium revenue to grow around 3% at.
At the midpoint of our guidance, we expect health underwriting margin to be relatively flat and as a percent of premiums to be in the range of 28% to 30%.
Administrative expenses were $75 million for the quarter up 2% from a year ago.
As a percentage of premium administrative expenses were six 8% same as the year ago quarter for.
For the full year, we expect administrative expenses to be up approximately 3% and be around six 9% of premium.
Higher labor and it costs are expected to be largely offset by a decline in pension related employee benefit costs.
I will now turn the call over to Beth for his comments on the second quarter marketing operations. Thank.
Thank you Frank first American income life.
Where life premiums were up 5% over the year ago quarter to $395 million and life underwriting margin was up 2% to $180 million in.
In the second quarter of 2023, net life sales were $82 million down 4% from a year ago quarter. However.
However, as a reminder, we produced very strong sales in the first half of 2022 with a L. Posting sales growth of 16% for the second quarter of 2022.
Makes for a tough quarter over quarter comparable however, I see good momentum with installation and I anticipate strong sales growth in the latter half of this year the.
The average producing count for the second quarter was 10488 up 8% from the year ago quarter and up 8% from the first quarter.
While sales declined from the year ago quarter, we have seen sequential growth in average producing agent count over the past few quarters and I'm excited to see the continued momentum in recruiting as agent count growth is a driver of future sales growth.
At Liberty National Life premiums were up 7% over the year ago quarter to $87 million and life underwriting margin was up 2% to $28 million net life sales increased 21% to $23 million and net health sales were up $8 million, which is up.
18% from the year ago quarter, due primarily to increased agent count.
The average producing agent count for the second quarter was 3180, which is up 17% from the year ago quarter Liberty National continues to produce strong sales and recruiting activities.
At family Heritage Health premiums increased 8% over the year ago quarter to $98 million and health underwriting margin increased 14% to $33 million. The increase in underwriting margin is primarily due to higher premiums and improved claims experience net.
Net health sales were up 19% to $23 million.
Primarily due to increased agent count.
The average producing agent count for the second quarter was 1345.
Up 15% from the year ago quarter.
The ongoing emphasis on recruiting continues to generate strong growth in this division.
And our direct to consumer Division at Globe life life premiums increased 1% over the year ago quarter to $249 million, while life underwriting margin declined 8% to $56 million decrease.
And underwriting margin is primarily due to higher policy obligations and acquisition expenses.
Net life sales were $32 million down 3% from the year ago quarter, primarily due to declines in direct mail.
And in certain media activity.
However, electronics sales grew over 4% from the year ago quarter electronics sales continue to be an important part of our direct to consumer division as the electronic channel currently represents approximately 70% of new sales.
And this channel has grown at an approximate 6% compounded annual growth rate since 2019.
At United American General Agency, where health premiums increased 1% over the year ago quarter to $137 million health underwriting margin was $15 million or 11% of premium down from 12% from the year ago quarter net health sales were 13 million.
Dollars up 4% compared to the year ago quarter.
Now onto projections.
Based on the trends that we're seeing in our experience with our business. We expect the average producing agent count trends for the full year 2023 to be as follows.
At American income life, low double digit growth.
Liberty National mid teens growth at family Heritage low double digit growth.
Net life sales for the full year of 2023 are expected to be as follows American income life low single digit growth.
Pretty national mid teens growth direct to consumer slightly down to relatively flat.
Net health sales for the full year of 2023 are expected to be as follows Liberty national mid teens growth family heritage low double digit growth.
In the United American General Agency mid single digit growth.
I'll now turn the call back to Frank.
Thanks, Matt.
I'll now turn to the investment operation.
Excess investment income, which for 2023, we define as net investment income less all the required interest on policy liabilities.
Was $31 million up $7 billion from the year ago quarter.
Net investment income was $261 million up 7% or $16 million for the year ago quarter due to higher yields on our fixed maturities and short term investments and an increase in floating rate interest floating interest rates on our commercial mortgage loans, including the hotel did limited partnerships.
I would point out here that while we benefit from the higher floating rates on the commercial loans. These investments do have rate floors that mitigates the impact of a decline in rates.
Required interest as adjusted to reflect the impact from the adoption of L. DTI is up 4% over the year ago quarter in line with the increase in net policy liabilities for.
For the full year, we expect net investment income to grow approximately 6% as a result of the favorable rate environment and steady growth in our invested assets and expect excess investment income to grow in the range of $11 million to $12 million.
Now regarding our investment yield.
In the second quarter, we invested $359 million in investment grade fixed maturities, primarily in the municipal and industrial sectors.
We invested at an average yield of 575% an average rating of double a minus and an average life of 24 years, taking advantage of opportunities in the municipal sector to obtain higher yields as well as higher quality.
We also invested $39 million in commercial mortgage loans and 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 second quarter yield was 5.18% up two basis points for the second quarter of 2022 and flat from the first quarter.
As of June 30, the portfolio yield was $5 two 1%.
Now regarding the investment portfolio.
Invested assets are $23 billion, including $18 $6 billion of fixed maturities at amortized cost.
Of the fixed maturities 18.1 billion are investment grade with an average rating of AA minus.
Overall, the total portfolio is rated a minus same as a year ago.
As a reminder, we have information on our website regarding our banking and commercial mortgage loan investments as we've mentioned previously during our first quarter earnings call. We took it through $30 million after tax provision for credit loss early in the second quarter as a result of the default of first Republic Bank.
Our fixed maturity investment portfolio has a net unrealized loss position of approximately $1 6 billion due to current market rates being higher than the book yield on our holdings.
As we have historically noted we are not concerned by the unrealized loss position added is primarily interest rate driven.
We have the intent and more importantly, the ability to hold our investments to maturity.
Bonds rated triple b or 49% of the fixed maturity portfolio compared to 53% from the year ago quarter.
This is the lowest this ratio has been in over 10 years. 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 equities 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 part to our ability to hold securities to maturity, regardless of fluctuations in interest rates or equity markets.
Below investment grade bonds are 400, designers and $6 million compared to $585 million a year ago.
The percentage of below investment grade bonds to fixed maturities is two 7%.
This is as lowest this ratio has been in more than 20 years.
In addition below investment grade bonds, plus bonds rated triple b or 52% of fixed maturities the lowest ratio. It has been in over 15 years.
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.
Because we primarily invest along 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 at our multiple scenarios on both our fixed maturity portfolio and our commercial mortgages held directly and through limited partnerships, Tom will address the potential capital implications of the stress test in his comments.
At the midpoint of our guidance for the full year, we expect to invest approximately $1 $1 billion in fixed maturities and an average yield of five 7% at approximately $325 million in commercial mortgage loans and limited partnership investments with debt like characteristics at an average yield.
Seven five to eight 5%.
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 benefits since they are not interest sensitive.
Now I will turn the call over to Tom for his comments on capital and liquidity.
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 and ended the second quarter with liquid assets of approximately $74 million.
In the second quarter the company repurchased approximately 780000 shares of Globe Life, Inc. Common stock for a total cost of $84 million.
The average share price for these repurchases was $107 26.
And to date in the third quarter, we purchased 133000 shares for a total cost of $15 million at an average share price of $111.01, resulting.
The resulting in repurchases year to date of $2 1 million shares for a total cost of $234 million at an average share price of $111 88.
In addition to the liquid assets held by the parent the parent company generated excess cash flows during the second quarter and will continue to do so through the second half of 2023.
The parent company's excess cash flow as we define it primarily results from 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 $420 million to $440 million and will be available to return to its shareholders in the form of dividends or share repurchases.
As noted in previous calls this amount is higher than 2022.
As previously noted we had approximately $74 million of liquid assets at the end of the quarter as compared to the $50 million to $60 million of liquid assets, we have historically targeted.
In addition to the $74 million of liquid assets, we expect to generate $140 million to $160 million of excess cash flows for the second half of 2023, providing us with approximately $200 million to $220 million of assets available to the parent for the remainder of 2020.
Three and this is after taking into consideration the approximately $15 million of share repurchases to date in the third quarter.
We anticipate distributing approximately 40 to 45 billion to our shareholders in the form of dividend payments for the remainder of 2023.
As noted in previous calls we will use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders over other available available alternatives.
Thus, we anticipate share repurchases will continue to be the primary use of parent's excess cash flows after the payment of shareholder dividends.
It should be noted that cash received by the parent company from our insurance operations.
After our subsidiaries have made substantial investments during the year to generate new sales.
Span and modernize our information technology, and other operational capabilities as well as to or acquire new long duration assets to fund 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.
Globalized 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 million of capital over the amount required to meet the low end of our consolidated RBC target of 300%.
When adjusted for credit losses on fixed maturities occurred in the first half of the year. The RBC ratio has reduced slightly below the midpoint of our targeted RBC range of 300% to 320%.
We are 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 the recession or other economic factors.
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 ratios in excess of those of the federal reserve's severe severely adverse scenario.
Under our scenarios, we do not anticipate that all of the downgrades defaults and losses in our investment portfolio would occur in 2023, but rather anticipate they would emerge over an extended period of time, which could be as long as 24 months.
Even if these losses under our internal stresses occurred before the end of the year, we estimate only 25 million to $50 million of additional capital would be needed to maintain the low end of our consolidated RBC target of 300%.
The company has sufficient resources of liquidity to fund 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.
With regards to policy obligations for the second quarter as we've discussed on prior calls we have included it included this historical operating summer results.
Under L DTI for each of the quarters in 2022 within the supplemental financial information available on our website.
In the third quarter of 2022, we updated both our life and health assumptions lapsed mortality and morbidity the life assumption updates reflected our current estimates of continued excess mortality, particularly in the near term.
For the second quarter life obligations were slightly favorable when compared to our assumptions of mortality persistency. This resulted in a life remeasurement gain for the quarter.
The supplemental financial information available on our website provides an exhibit which shows the remeasurement gain or loss by distribution channel.
The remeasurement gain or loss shows the current period fluctuations that experience from those expected and the impact of assumption changes, if any which are allocated to the current quarter and past periods.
In the absence of assumption changes the remeasurement gain or loss is indicative of experience fluctuations.
The re measurement gains for the life segment resulted in $24 million lower life policy obligations and $2 $6 million lower health policy obligations, $2 4 million, sorry, sorry, $2 4 million lower life policy obligations and $2 6 million lower health policy obligations on slightly lower claims than anticipated.
And in the second quarter, we had no changes to long term assumption.
We are currently in the process of finally, finalizing our review of long term assumptions and we'll make updates if needed in the third quarter. We do not expect these updates to be significant overall.
Finally, with respect to our earnings guidance for 2023.
We are projecting net operating income per share will be in the range of $10 37.
To $10 50.
57.
<unk> per diluted common share for the year ending December 31 2023.
The $10 47 said midpoint of our guidance is higher than what we had indicated last quarter and is largely due to higher investment income from our commercial mortgage loans and limited partnership investments.
For the full year of 2023, we anticipate life underwriting margins to be in the range of 37% to 39% slightly higher than the 2022 life underwriting margin percentage when restated for the full year.
Life underwriting margins health underwriting margins to be in the range of 28% to 30%.
The life and health anticipated underwriting margins are unchanged from last quarter's guidance.
We believe the year to date obligation ratios are indicative of emerging policy obligations over the remainder of the year.
As previously noted we'll be reviewing assumptions and anticipate making updates next quarter again, we do not expect these updates to be significant overall.
Total acquisition costs in the second quarter as a percent of premiums are 21%, including both amortization and non deferred acquisition cost and commissions, we expect the full year to be consistent with this 21%.
Those are my comments I will now turn it over to Matt.
Thank you Tom.
Those are our comments and we will now open the call up for questions.
Thank you.
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Please take the first question from with Carmichael from Wells Fargo.
Hey, good morning, or good afternoon, I had a clarification question on your comments on the investment portfolio.
The fixed maturity portfolio I think the allowance for credit losses went up about $40 million in the quarter is that is that related to the losses on first Republic I just want to make sure that that's not being driven by something else yes.
Yeah, no that's exactly what that if that was about on a gross basis about $39 $6 million worth of losses.
Pod first Republic.
Got it thanks, and just a follow up.
Do you have any updated plans regarding issuing new long term senior debt to pay off the term loan for April and just wondering what youre thinking kind of in terms of size of new debt issuance.
Yeah, we would actually consider doing that our thoughts right now are to consider doing that in 2024.
Yeah, and I think west where we do take a look at that clearly we have the term loan out there for the 170 and we'll have to consider.
Bob.
You know what the what the size of that might be and what we'll definitely consider whether that needs to be a 300 billion dollar issue or some of the larger just make an index eligible, but we'll see what kind of the needs are at that point in time.
Great. Thanks.
The next question comes from Jimmy <unk> from J P. Morgan.
Hi, I had a question first on the direct channel. So like I guess your comments on sales for the agency channels are fairly optimistic.
Given the growth in the agent count, but in the direct channel should we assume that as long as inflation is high that sales are going to be weak because I think you've cited.
Sort of reduced marketing spending and also just.
Lower disposable income.
High inflationary environment as reasons for why sales have been weak there.
Yes.
Direct to consumer channel it is.
Subject to inflationary pressures, particularly on the marketing and distribution side.
As we've noted in the past and they continue to note the reduction in our I'll call. It traditional channels from our mail and print media perspective, we are continuing to reduce that circulation based upon the cost that we're incurring too.
The market in that channel.
And that is being offset by growth in our digital channel as I noted in the comments our growth in the digital channel is at 4%. So we've got a couple of competing factors going on there, but that is really we're focused on just making sure that we maintain our target.
Margins in that distribution and to the extent that certain marketing campaigns, particularly on the print side don't meet those profit objectives, and we are scaling back in that area.
I would say.
Just to add onto that related to just an inflationary pressure from a consumer perspective.
The sales are actually up on a per policy basis. So the premium per policy is actually.
So we're really not seeing a deterioration from <unk>.
Consumer demand perspective related to inflationary pressure, it's really on the marketing side.
Okay.
And then you saw a significant increase in the agent count across all your channels I would've assumed that with the sort of tight labor market. It would be a tougher recruiting environment.
Because you had an easy time recruiting when things are bad, but what's really driving that and what's your outlook if conditions remain the way they are for the for the next year.
Yes, what's really driving that is just some things that we've put in place.
<unk> really focused on growing our middle management count putting more tools in the hands of our agents' managers and agency owners to be able to.
Get better line of sight into activity.
And so there's just been a strong growth as we've grown that middle management count who are responsible in many ways for that new agent recruiting onboarding and training. So the growth is as you've noted is we're very pleased with that in all three channels and things that will continue and don't really see headwinds at this.
Point dip.
Pins on which economists you believe that it looks like theres predictions for the labor market potentially cooling a little bit.
If that's the case that's generally been.
Additional tailwind for us in the recruiting area. So we're very pleased with the things that we've put in place.
And believe there the growth is driven more by our activities in the overall economic or market and I think indicative of that is if you look at.
Just some of the industry trends from our agent count growth that we believe we're outpacing that so we're very pleased with the results that we're getting Jimmy just one thing I'd add onto that really quick just to remember.
That we recruit to a new opportunity a better opportunity. So we've never really been.
One is trying to take advantage of those and the unemployment markets and that type of a thing in a while.
Loosening of the labor market might be a little bit of a tailwind we're able to recruit in all markets. Because again, we're really recruited to a better opportunity and there is still plenty of folks out there looking for a better opportunity.
And one thing I would add to that is some of the feedback that we're hearing from the field is one of the dynamics that is going on out there is the return to work from an office perspective, our opportunity as a flexible opportunity.
It's much more entrepreneurial in nature in we seem to be attracting additional individuals that are looking for that ability to manage their own schedule and have an opportunistic approach to grow their income and an entrepreneurial manner. So I think that's a dynamic that's going on out there.
That's more influential of our particular.
Experienced in really the labor market areas that being tight.
No.
And just lastly on you've had elevated investment losses through the first couple of quarters should we assume that there's going to be a commensurate impact of that on free cash flow next year or are there any offsets.
Their stat income won't be impacted to the same extent that Scott.
Yes, it's a little early right now for us too.
Give clear guidance on what we believe excess cash flow to be next year, but just as we think about it we think it would be kind of in a similar range of where excess cash flow is this year, just given some of those realized losses.
Okay. Thank you.
The next question comes from John Barnidge from Piper Sandler. Please go ahead.
Okay.
Thank you very much for the opportunity.
Given the cost of direct mailings and less effectiveness along with electronic sales growing are there newer these PC distribution channels or methods that really haven't been pursued previously there.
Now being pursued more.
With more gusto.
Well I would say that we're always looking for additional channels. There is a lot of opportunities on the electronic media side.
Different methods of distribution from an online perspective, as well is that supported by our agent call centers. So we're always looking at new and different platforms and there's a lot of testing that goes on in that area as we test into it. So as you can see as Ed mentioned.
70% plus of our sales. These days are from an electronic source and you just go back very few years ago. It was about 50%. So we're definitely growing that piece as we continue to scale back on the traditional print media side, but there.
To the extent that we were getting profitable sales in the print media side, we'll continue to do that.
Obviously the growth engine is going to be more on the electronic side.
Okay.
Great. Thank you my follow up question Oftentimes I believe competition for global lifestyle can often be discretionary income.
How do you think through student loan payments restarting potentially impacting demand for our products. Thank you.
Sure.
Really literally look at is just kind of as you had mentioned the share of the wallet.
Obviously, there from a macro perspective is going to have potentially some impact to tightening of that I don't see that impacting our particular demographic too much what we're continue to see.
Is an increase in all of our distribution channels, including our direct to consumer channel, which is generally a lower income demographic or sale.
Premium per sale is still going up and as a reminder, we charge them.
The policies have a low premium per months perspective, so it's not a big share of the wallet that we're talking about in our DTC channel. It may be 20 or $40 a month as an example, and so really I don't think thats going to have too much of an impact on our particular segment of the market.
But as we think about our future sales.
Okay.
Thank you.
The next question is from Erik bass from Autonomous research.
Hi, Thank you.
Health insurers have talked about seeing increased benefit utilization as more seniors are undergoing elective procedures that were put off either due to the pandemic or a lack of capacity. So I'm curious if that's something that you're seeing in your bed sub block at all.
Yes. Thank you, yes, we did.
See Unitedhealth care reported reported that and they have a large block of Medicare advantage coverage.
I wouldn't necessarily expect those trends to carryover to our Medicare supplement business that we are seeing a little bit higher than anticipated health cost trends in our Medicare supplement business that are impacting margins slightly but the good thing is the seasonality that we saw in the first quarter has subsided a bit.
And.
Also.
Where we have seen some increase utilization is really bad isolated to our our group retiree health business. So more on the group side than on the individual side.
If that does occur continues to occur those higher cost trends, we take into account in setting our renewal rates for 2024, and so we that's fully expect to be able to offset any of those in the future.
Got it and is there something different between Medicare advantage blocking bad Sop that would account for why you wouldn't expect to see the same thing or just defer.
Differences in your client base or get Medicare.
Medicare advantage is covering the full medical costs, where Medicare supplements a different clientele, but also we're covering more of the deductibles and items above what Medicare would not cover.
Got it. Thank you and then maybe if we could pivot to talking a little bit more about mortality experience.
It sounds like it was a little bit favorable to your assumptions this quarter and has that changed at all in terms of what youre seeing in terms of the level of excess population mortality is starting to normalize or.
Or anything else I guess it just any color you have there.
No you're right we did see.
Mortality slightly favorable from our expectations and our assumptions you can see that coming through the re measurement gain on the life business.
I would say is we've seen improvement in excess deaths.
However, we're still seeing some elevated excess deaths from what we did experience in 2019 so.
It is getting better, but it still seems a little bit elevated for some particular causes.
Particularly health it.
Heart and circulatory causes and cancer are lower than where 'twenty, one and 'twenty, two where which is a really good sign because those are some of the bigger causes of death.
And then I wanted to say that last quarter.
It's nice to see Covid deaths in the U S decline and we're probably seeing some benefit from those declines and COVID-19 deaths as well.
Got it. Thank you. So it's basically a U S were more conservative in your assumptions, so theres still some level of access.
Mortality that yet the population, but just less than you had assumed.
Yeah, we're definitely seeing some continued excess mortality, we probably expect that.
Continue for it.
At least.
For the remainder of this year and probably into the next couple of years.
But our current experience is a little bit less than our anticipated elevated amount exactly Matt.
Perfect. Thank you very much.
Next question is from Maxwell Fritcher from Truest Securities.
Hi, good afternoon, I am calling in today for Mark Hughes I was wondering if you could provide some color on the driver of the growth in life sales for Liberty National.
Was this just a function of agent growth.
It's primarily a function of agent growth, we had significant double digit.
<unk> growth are.
Growth in the agent count for Liberty really started accelerating in 2022 in the latter half and so.
Yes.
That's kind of a leading that agent count as a leading indicators those new agents come onboard become more productive so as those agents get on boarded and get more experienced and it drives the sales and we have a little bit of agent productivity gains is just the amount of premium that we're selling on a per agent basis, but.
A vast majority of its really just coming from that agent count increase.
Okay. Thank you and.
You mentioned this but.
I missed it.
What was the driver of excess investment income growth was this just higher yields in the quarter.
Yes, it's really predominantly.
The increases in the short term rates, which are really hitting our.
The floating rates impacting our commercial mortgage loans as well as the commercial mortgage loan.
That are in our limited partnership investments are about two thirds of our limited partnerships are in.
Our commercial growth.
Mortgage loans as well so we're seeing increases in those in those rates as.
As well as you know a little bit on the short term investments that we have is it's not at cigna.
Significant up but overall.
So we just saw Barry.
Very good growth in our net investment income in that.
Income grew at a faster pace than the invested assets.
And then also when you think of the excess investment income.
It's.
You take required interest into account. So you had investment as the net investment income is growing at a faster rate than our net investment income. So if we ended up with it.
Good increase in the excess investment income.
Great. Thank you.
Okay.
The next question is from Tom Gallaher from EPR.
Okay.
Good morning, sorry, good afternoon.
Just had a follow up question on the excess mortality to make sure I'm understanding the way. This is kind of flow through accounting the new accounting. So if I remember correctly, the total COVID-19 and non Covid access plan for 'twenty three was around 45 million Bucks a year or so.
Let's call that a little over $10 million quarterly drag.
Is it is it as simple as just taking that remeasurement gain of $2 4 million.
And deducting that from the $11 million.
Ish quarterly drag you would expect from access and then you end up with eight or $9 million for this quarter would be.
The elevated still elevated ongoing COVID-19 is that does that makes sense to you like or is there some element of smoothing that's going on with the new accounting that doesn't make that exactly comparable.
Yes.
There's definitely an element of smoothing. So it's not it's kind of easy as you had indicated.
I think again, the remeasurement gains are reflecting fluctuations.
From our underlying assumption so the life businesses.
Performing better than those assumptions, what I'd say about our excess mortality assumptions as the other consistent with kind of that overall excess mortality.
We talked about the $45 million, but we also expect that to kind of wear off over time, and so that's kind of underlying those assumptions as well so it's difficult to kind of pinpoint that exactly.
How that will come through what I would say is when we see fluctuations.
So if we had it's generally in the current year, we see probably about a quarter of that come through.
Into the current quarter results.
And then the other thing to remember is we are going to look at updating our assumptions again coming up in this third quarter. We don't expect them to have a significant impact, but we will be revisiting our excess mortality assumption going forward as well.
Yes, I think just one thing to add to that just as an example.
And what Bob was saying is if you had $45 million and it turned out to be $35 million of excess that you actually kind of incurred the way that this new L. DTI impacts and as Tom said, roughly a quarter of that we'd probably always see it.
Roughly.
$2 $5 million of that actually flow through and actually hit current year early so.
It is.
Spread out if you will the expectation for those under the new accounting get spread out over a whole bunch of years and so the impact on the current year is much less.
That's really helpful.
I'm sorry, just a follow up there. So the 2.4 I just just so I'm clear on this the $2 4 million Remeasurement gain if it was on the old GAAP that would've been a bigger.
Favorite we'll call it favorable impact on the quarter by.
Yes.
So that would have been larger by three extra or something like that.
Yes, correct it would've been larger yes.
Okay, Alright, that's helpful. That's all I had thanks.
As a reminder to ask a question. Please press star one.
The next question comes from Sydney to come off from Jefferies.
Yeah, Hi.
I don't know if you disclosed this or talked about it in your prepared remarks, but do you have the year to date statutory operating income and statutory net income.
We don't have those yet we're finalizing the second quarter statutory results right now so.
So not at this time.
Okay, and then the comment about the capital under your stress test I think you had said $25 million to $50 million is that comparable to the $30 million to $55 million that you guys talked about last quarter or was that a different calculation.
So very.
Very comparable yes similar.
So it actually got better sequentially.
Yes, yes, just slightly yes got it okay and then the only other one I had is and again I don't know if this is going to affect you it but obviously over the past couple of weeks ago. We've learned about the FDA approving some of these are all new alzheimers drug and whether or not Medicare is going to cover that.
I think it's still an open issue.
Is that something that ultimately could affect you guys or is it not that material for you.
Yes.
We've actually.
It depends on whether it's covered by Medicare or not so Medicare.
Covers drugs administered in an office and these are drugs that are currently administered in the office.
We did anticipate some of that and.
Coming through in our Medicare supplement rates so.
It actually will be one of those considerations as we look for rate increases for 2024.
And medical expense trend is will incorporate estimates for what we think that will that will run.
And I think I was going to add to that I think.
Part of it too is just understanding what utilization may look like in the future. There is a lot of.
Risks that are currently disclosed related to those drugs as well, but as Tom said, we can we can price for that based upon what ultimate utilization.
And what we.
As we thought about our 'twenty three rates that are in effect right now, we'd actually like I said contemplated some of that.
We think those costs are pretty much in line with what we would expect.
Got it okay. Thanks.
Okay.
As there are no further questions I will hand, the call back over to your hosts 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.
Okay.
Thank you that will conclude today's conference call. Thank you for your participation ladies and gentlemen, you may now disconnect.
Okay.
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