Q3 2023 Globe Life Inc Earnings Call

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Hello, and welcome to the Globe life incorporated third quarter 'twenty 'twenty free earnings release Conference call. Please note that this conference is being recorded as far as duration of a coal your lines will be on listen only however, you will have the opportunity to ask questions. Please can be done.

By pressing star one on your telephone keypad to register your question. If you require assistance at any point, Please press star zero and you'll be connected to an appraisal.

I hand, you over to your host Stephen Moore senior.

Senior Director Investor Relations to begin today's conference. Thank you.

Thank you good morning, everyone. Joining the call today are Frank Svoboda, Matt 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 that are provided for general.

<unk> purposes, only accordingly, 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.

Frank.

Thank you Steven and good morning, everyone.

In the third quarter net income was $257 million.

Or $2 68 per share compared to $191 million or $1 94 per share a year ago.

Net operating income for the quarter was $260 million or $2 71 per share an increase of 24% from a year ago.

The strong growth in net income and net operating income is due in part to the remeasurement loss taken in the year ago quarter due to the unlocking of assumptions under L. DTI.

Tom will discuss this further in his comments.

On a GAAP reported basis return on equity through September 30th is 22, 6% and book value per share is $48 51 chess exclude.

Excluding accumulated other comprehensive income or LCI return on equity is 14, 7% and book value per share as of September 30th at $74 31 up 11% from a year ago.

In our life insurance operations premium revenue for the third quarter increased 4% from the year ago quarter to $788 million for.

For the year, we expect life premium revenue to grow between three 5% to 4%.

Life underwriting margin was $300 million.

Up 21% from a year ago.

The increase in life underwriting margin was due in part to a remeasurement gain recognized this quarter due to improved claims experience versus a remeasurement loss taken in the year ago quarter.

At the midpoint of our guidance, we expect life underwriting margin for the full year to grow a little over 5% and as a percent of premium to be approximately 38%.

In health insurance premiums grew 3% to $331 million and health underwriting margin was down 4% to $97 million.

Due in part to a remeasurement gain recognized in the third quarter of 2022 that was greater than what was recognized in the current quarter.

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 percentage of premium to be around 29%.

Advent of administrative expenses were $75 million for the quarter down 1% from a year ago, primarily due to a decrease in pension and other employee related costs.

As a percentage of premium administrative expenses were six 7% compared to 7% a year ago.

For the full year of 2023, we expect administrative expenses to be a price by six 8% of premium in line with our previous expectations.

I will now turn the call over to Matt for his comments on the third quarter of marketing operations.

Thank you Frank first I'm going to start with American income life here life premiums were up 6% over the year ago quarter to $400 million and life underwriting margin was up 8% to $181 million.

In the third quarter of 2023 net life sales were $81 million, which is up 6% from the year ago quarter, primarily due to growth in agent count.

The average producing agent count for the third quarter was 10990, 316% from the year ago quarter and up 5% from the second quarter.

I'm encouraged to see the growth in agent count and sales, we're seeing positive results from the recruiting and sales initiatives put in place at the end of last year.

At Liberty National Life premiums were up 7% over the year ago quarter to $88 million and life underwriting margin was up 39% to $27 million.

Net life sales increased 31% to $24 million and net health sales were $9 million, which is up 19% from the year ago quarter due primarily to an increase in agent count.

The average producing agent count for the third quarter was 3339 up 20% from the year ago quarter Liberty continues to generate positive momentum through a strong recruiting and agency leadership growth.

Ongoing implementation of new technology over the past few years has enabled agency leadership to more effectively monitor and manage agent activity.

Now family Heritage here, the health premiums increased 8% over the year ago quarter to $100 million.

While the health underwriting margin declined 3% to $36 million.

Net health sales were up 15% to $25 million.

<unk> increased agent count and productivity.

The average producing agent count for the third quarter was 1323 up 7% from the year ago quarter.

Moving forward. This agency will continue to focus on recruiting with additional initiatives to incentivize agency middle management growth, which will lead to growth in new offices in agent count.

In our direct to consumer Division at Globe life life premiums increased 1% over the year ago quarter to $248 million.

And life underwriting margin increased 86% to $63 million due to lower policy obligations.

Net life sales were $26 million down 8% from the year ago quarter, primarily due to declines in direct mail and insert media activity.

While we will continue our efforts to grow direct to consumer sales activity. Our primary focus will be maximizing the underwriting margin dollars on new sales at managing the rising advertising and distribution costs associated with acquiring this new business.

In addition to the ability to produce new business at a healthy margin the direct to consumer Division provides significant support in the form of brand impressions and sales leads to our agencies that is critical to the strong growth that you're seeing.

At United American General Agency here, the health premiums increased 2% over the year ago quarter to $137 million health underwriting margin at $15 million or 11% of premium is flat from the year ago quarter net.

Net health sales were $16 million at 20% over the year ago quarter due to a 6% increase in individual Medicare supplement sales and increased activity at globe life benefits.

Arthur projections are 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, and increase of around 12% at Liberty National and increase of around 18%.

Family Heritage and increase of around 11%.

Net life sales for the full year 2023 are expected to be as follows.

<unk> income life, we anticipate approximately 15% growth in the fourth quarter, which will result in full year growth of approximately 4% Liberty.

Liberty National and increase of around 23% and direct to consumer a decrease of around 5%.

Net health sales for the full year 2023 are expected to be as follows.

Liberty National and increase of around 17%.

Family Heritage and increase of around 18% and.

And United American General agency and increase of around 20%.

Now for 2024 at the midpoint of our 2024 guidance, we expect sales growth for the full year of 2024 to be as follows.

For life sales American income high single digit.

City National mid teens growth and direct to consumer relatively flat as we continue to focus on profitability.

Our health sales, we expect Liberty national to have mid teens growth family heritage low double digit growth and United American General Agency low single digit growth I'll now turn the call back to Frank.

Thanks, Matt.

We will now turn to the investment operations.

Excess investment income, which we define as net investment income what's required interest was $34 million.

Up from $10 billion from the year ago quarter.

Net investment income was $267 million up 8% or $20 million for the year ago quarter due to higher yields on fixed maturities and short term investments.

And an increase in floating interest rates on our commercial mortgage loans, including those held in limited partnerships.

Wired interest is up 5% 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 7% due to the combination of the favorable rate environment and steady growth in our invested assets and expect excess investment income to grow approximately $25 million.

Now regarding our investment yield.

In the third quarter, we invested $427 million in investment grade maturities, primarily in the municipal and financial sectors.

We invested at an average yield of six 5% an average rating of a plus at an average life of 27 years, taking advantage of opportunities in the municipal sector to obtain higher yields as well as higher quality.

We also invested approximately $100 million in commercial mortgage loans and limited partnerships that have debt like characteristics. These.

These investments are expected to produce additional yield and are in line with our conservative investment philosophy.

For the entire fixed maturity portfolio, the third quarter yield was 519% up two basis points for the third quarter of 2022 and up one basis point from the second quarter.

As of September 30, the portfolio yield was five 3%.

Now regarding the investment portfolio.

Invested assets are $27 billion, including $18 9 billion of fixed maturities at amortized cost.

Of the fixed maturities $18 4 billion.

Our investment grade with an average rating of a minus overall.

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 loan investments.

Our fixed maturity investment portfolio has a net unrealized loss position of approximately $2 6 billion.

Due to the 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 and is mostly interest rate driven.

We have the intent and more importantly, the ability to hold our investments to maturity.

Bonds rated triple b or 48% of the fixed maturity portfolio compared to 52% from the year ago quarter.

While this ratio was the lowest it has been in over 10 years. 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 held by our peers.

Additionally, unlike many of other insurance companies, we do not have any exposure to direct real estate investments or private equities.

We believe that Triple B securities that we acquire generally 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 of $493 million.

Compared to $543 million a year ago.

Percentage of below investment grade bonds. The total fixed maturities is only two 6%.

At the midpoint of our guidance for the full year 2023, we expect to invest approximately $1 $1 billion in fixed maturities at an average yield of five 9% and approximately $310 million in commercial mortgage loans and limited partnership investments with debt like characteristics at an average yield of our.

Approximately eight 3%.

Also at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around $5, one 9% for the full year 2023, and slightly higher at approximately five 3% for the full year 2024.

We expect.

With respect to our commercial mortgage loans and limited partnerships, we anticipate the yield impacting net investment income to be in the range of seven 1% to seven 2% for both 22023 and 2024.

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, Greg.

First let me 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 third quarter with liquid assets of approximately $69 million.

In the third quarter the company repurchased approximately 755000 shares of Globe Life, Inc. Common stock for a total cost of $84 million.

The average share price for these repurchases was $111 52.

To date, the fourth quarter, we have purchased 165000 shares for a total cost of $18 million at an average share price.

Of $108 30 success, resulting in repurchases year to date of $2 9 million shares for a total cost of $321 million at an average share price of $111 63.

In addition to the liquid assets held by the parent the parent company generated excess cash flows during the third quarter and will continue to do so for the remainder of 2023.

The parent company's excess cash flow as we define it resulted 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 $425 million and available to return to its shareholders in the form of dividends and through share repurchases.

As previously noted we had approximately $69 million of liquid assets at the end of the quarter.

Slightly above a $50 million to $60 million of liquid assets, we have historically targeted.

In addition to the $69 million of liquid assets, we expect to generate 35 to $40 $40 million of excess cash flows in the fourth quarter of 2023, providing us with approximately $90 million.

Of assets available to the parent for the remainder of 2023 after taking into consideration the approximately $18 million of share repurchases to date in the fourth quarter.

We anticipate distributing approximately $21 million.

To our shareholders in the form of dividend payments for the remainder of 2023.

As mentioned.

As mentioned on previous calls, we will use our cash as efficiently as possible we.

We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives.

We anticipate share repurchases will continue to be 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 company from our insurance operations is after our subsidiaries have made substantial investments during the year to generate new sales expanded modernize our information technology and other operational capabilities as well as to acquire new long duration assets to fund there.

Future cash needs.

The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain a share repurchase program for 2023.

And our earnings guidance, we anticipate approximately $465 million will be returned to shareholders in 2023, including approximately $380 million through share repurchases.

Now with regards to capital levels at our insurance subsidiaries.

Our goal is to maintain our capital levels necessary to support our current ratings globe life targets, a consolidated company action level RBC ratio in the range of 300% to 320%.

As discussed on previous calls our consolidated RBC ratio was 321% at the end of 2022.

In light of credit losses incurred to date, we anticipate our overall year end RBC ratio to be at the midpoint of our range or approximately 310%.

At this point, we do not anticipate any significant credit losses are downgrades for the remainder of the year, but to the extent any do occur we are well positioned to address any capital needed by our insurance subsidiaries to maintain RBC levels at the midpoint of our range.

Now with regards to policy obligations for the current quarter.

As we've discussed on prior calls we have included the historical operating summary results under <unk> for each of the quarters in 2022 was within the supplemental financial information available on our website at.

In addition, we included an exhibit that details the remeasurement gain or loss by distribution channel. The total re measurement gain of $19 million for the quarter reflects both current period fluctuations and experience from expected and the impact of assumption changes made in the quarter.

Also as noted on prior calls life and health assumption changes were made in the third quarter of 2022 with an expectation of higher mortality in the life segment and more favorable favorable claim trends in the health segment.

In the third quarter of 'twenty, three we again updated dose both our life and health assumptions laps mortality and morbidity.

And as we expected the overall impact of <unk> on.

<unk> third quarter results was not significant with a combined decrease in total life and health obligations of approximately $3 million.

The life assumption changes increased life obligations by approximately $2 million in the quarter, while health assumption changes decreased health obligations by approximately $5 million.

In addition to the assumption changes the remeasurement gain or loss also indicates experience fluctuations for the third quarter life policy obligations were favorable when compared to our assumptions of mortality and persistency.

A remeasurement gain related to experience fluctuations for the life segment resulted in $13 million of lower life policy obligations and $3 million of.

Lower health policy obligations, primarily as a result of favorable claim experience versus expected.

Now with regards to guidance earnings guidance for 2023.

We are projecting net operating income per diluted share will be in the range of $10 49 to.

To $10 65 for.

For the year ending December 31 2023.

At $10 50 midpoint of our guidance is 10 cents higher than what we had indicated last quarter largely due to favorable policy obligations in the third quarter our guidance anticipated an.

Our guidance anticipates that continuation of recent favorable short term trends, although at a lower level than the third quarter.

For the full year 2023, we anticipate life underwriting margins to be approximately 38% of premium and health underwriting margins to be approximately 29% premium total acquisition cost, including the amortization of deferred acquisition costs as well as non deferred acquisition cost of commissions are expected to be 21% of premium.

Which is consistent with the third quarter.

Now with regards to 'twenty for guidance for the full year 2024, we estimate net operating earnings per diluted share will be in the range of $11 to $11 60.

Representing 7% growth at the midpoint of the range, we anticipate life and health underwriting income to grow consistent with premium growth with life and health underwriting margins as a percentage of premium to fall within the same ranges as 23 or about 37%, 39% for life and 28% to 30% for health.

Unknown Executive: Hello and welcome to the Globe Life Incorporated Third Quarter 2023 earnings release conference call. Please note this conference is being recorded, and for the duration of the call, your lines will be only an only. However, you'll have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero, and you'll be connected to an operator.

At the midpoint of our guidance, we anticipate life premiums growing at approximately 5% and health premiums growing at around 7% and.

In addition, higher interest rates are expected to favorably impact excess investment income as we anticipate it to increase 7% to 9% at the midpoint of our guidance.

Stephen Mota: I will hand you over to your host, Stephen Mota, Senior Director, Investor Relations, to begin today's conference. Thank you. Good morning, everyone.

Although 2023 results are not final for the year at this time, we anticipate parent excess cash flows available to return to shareholders in 2024 will be a little over $400 million.

Stephen Mota: Joining the call today, Frank Svoboda and Matt Darden, our Co-Chief Executive Officers, Tom Combach, 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. Accordingly, please refer to our earnings release 2022-10K and any subsequent forms 10Q on file with the SEC. Some of our comments may also contain non-GAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAP measures.

Slightly lower than 23 due in part to the impact of 2023 statutory income.

Realized losses in the cost of agency sales growth offsetting the benefits from favorable mortality trends and higher investment yields.

Finally, let me comment on the merger announcement of every health earlier in the month, we announce Andrew.

Entering into a merger agreement with every health a small regional health care companies locally focused in the major urban areas of Texas.

Frank Svoboda: I will now turn the call over to Frank. Thank you, Stephen, and good morning, everyone. In the third quarter, net income was $267 million, or $2.68 per share, compared to $191 million dollars, or $1.94 per share a year ago. Net operating income for the quarter was $260 million dollars, or $2.71 per share, an increase of 24% from a year ago.

Every is a startup with a technology focus to provide outstanding customer experience and results in positive health outcomes.

We previously had made a small investment in every and recently had the opportunity to acquire the whole company. We believe full ownership will allow <unk> to grow but more importantly allow us to directly assess how we can utilize every technology to enhance club's customer experience and service offerings. We do not expect every tablet <unk>.

Frank Svoboda: The strong growth in net income and net operating income is due in part to the remeasurement loss taken in the year-ago quarter due to the unlocking of assumptions under LDTI. Tom will discuss this further in his comments. On a GAP-reported basis, return on equity through September 30th is 22.6% and book value for share is $48.51. Excluding accumulated other comprehensive income or AOCI, return on equity is 14.7% and book value for share as of September 30th is $74.31, up 11% from a year ago.

<unk> impact on 2023 or 2024 results. Those are my comments I'll now turn it back to Matt. Thank.

Thank you Tom those are our comments and we will now open up the call for questions.

Thank you.

As a reminder, if you'd like to ask a question or micro contribution on todays call. Please press star one on your telephone keypad. If you change your mind and once withdraw your question. Please press star two please I'm sure you're all lines all unmerited locally.

You'll be prompted went to ask your question.

Our first question comes from the line of Wes Carmichael from Wells Fargo.

Frank Svoboda: In our life insurance operations, premium revenue for the third quarter increased 4% from the year-ago quarter to $788 million. For the year, we expect life premium revenue to grow between 3.5 to 4%. Life underwriting margin was $300 million, up 21% from a year ago. The increase in life underwriting margin was due in part to a remeasurement gain recognized this quarter due to improved claims experience versus a remeasurement loss taken in the year-ago quarter.

Go ahead.

Hey, good morning, I, just had a question on mortality trends and what Youre seeing so for 2024 it sounded like the life underwriting margin is expected to be kind of the same as 2023, but I think when 2023 guidance came out you had some expectation for COVID-19 related mortality. So just wondering what youre seeing in terms of your expectation for exit.

Sure. So we'll continue to see excess mortality even in the third quarter. What I would say is the third quarter was quite favorable and favorable it direct to consumer. So I think really we just want to see.

Frank Svoboda: At the midpoint of our guidance, we expect life underwriting margin for the full year to grow a little over 5% and as a percent of premium can be approximately 38%. In health insurance, premium grew 3% to $331 million and health underwriting margin was down 4% to 97 million, dollars.

Those trends continue before we would make any adjustments to our excess mortality assumptions.

Yes.

If you recall I did indicate on an earlier call that we do expect excess mortality to drop in 2024. So that is reflected in our in our guidance.

Frank Svoboda: Due in part to a re-measurement gain recognized in the third quarter of 2022, that was greater than what was recognized in the current quarter. For the year we expect health premium revenue to grow around 3%. At the midpoint of our guidance, we expect health underwriting margin to be relatively flat and as a percent of premium to be around 29%. Administrative expenses were $75 million for the quarter, down 1% from a year ago, primarily due to a decrease in pension and other employee related costs.

Please stay connected while we're trying to reach out to you speakers.

Frank Svoboda: As a percentage of premium, administrative expenses were 6.7%, compared to 7% a year ago. For the full year of 2023, we expect administrative expenses to be a price with 6.8% of premium in line with our previous expectations.

Okay.

Please go ahead with your question and answer.

Matt Darden: I will now turn the color of the mask for his comments on the third quarter marketing operations. Thank you, Frank. First, I'm going to start with American income life. Here, life premiums were up 6% over the year ago quarter to $400 million. And the life underwriting margin was up 8% to $181 million. In the third quarter of 2023, net life sales were $81 million, which is up 6% from the year ago quarter, primarily due to growth in agent count.

Okay.

Yes.

I'm sorry is there a question West did you get your question answered.

Your next question comes from the line of Jimmy <unk> from J P. Morgan. Please go ahead.

Maybe before I ask the question I just wanted to clarify on your on your assumption embedded.

<unk> for mortality embedded in your 2020 for guidance.

I think you mentioned that you are assuming an improvement in excess mortality, but.

Matt Darden: The average producing agent count for the third quarter was 10,983 of 16% from the year ago quarter, and up 5% from the second quarter. I am encouraged to see the growth in agent count in sales. We are seeing positive results from the recruiting in sales and issues put in place at the end of last year. At Liberty National, life premiums were up 7% over the year ago quarter to $88 million, and life underwriting margin was up 39% to $27 million.

I'm, assuming you're still assuming some level of BR.

Beyond what used to be the case pre pandemic or are you not yes.

Yes, that's correct I mean, we still expect some excess mortality in 2024.

That's all that's all reflected in our assumptions that are included in guidance.

Okay and then.

On the you had a couple of other questions on sales in direct response I would've been clear that you are reducing marketing spending and that's actually holding back your sales.

Are you continuing to increase reduced marketing spending more and more incrementally because sales are now going to be down like three years in a row and I would've thought that at some point did stabilize they might not grow but they wouldn't keep declining so what's driving the ongoing decline off of.

Matt Darden: Net life sales increased 31% to $24 million, and net health sales were $9 million, which is up 19% from the year ago quarter due primarily to increase in agent count. The average producing agent count for the third quarter was 3,339 of 20% from the year ago quarter. Liberty continues to generate positive momentum through strong recruiting in agency leadership growth. On going implementation of new technology over the past few years has enabled agency leadership to more effectively monitor and manage agent activity.

Also fairly easy comps.

Yes, I would say one of the things you'd have to look at is we had significant increases in sales during the pandemic years so in 'twenty.

20.

Last half of 2020, one and so part of the sales declines in the last year or so have been really getting back to pre pandemic levels. After those unusual highs during the pandemic.

Matt Darden: Now family heritage, here in the health premiums increased 8% over the year ago quarter to $100 million, while the health underwriting margin declined 3% to $36 million. Net health sales were up 15% to $25 million due to increased agent count and productivity. The average producing agent count for the third quarter was 1,323 of 7% from the year ago quarter.

Our sales are really anticipated to be relatively fat to where we were from a pre pandemic perspective, and as Ed mentioned in the prepared remarks, we're reducing that marketing spend to make sure that it meets our profit targets and margin objectives on the new business that were set.

And we just as we've talked about on the prior calls have that inflationary pressure are particularly related to postage and paper costs said significant increases in postage we have.

Matt Darden: Moving forward, this agency will continue to focus on recruiting with additional initiatives to incentivize agency middle management growth, which will lead to growth in new offices in agencies. In our direct-to-consumer division at Globe Life, life premiums increased 1% of the year-go quarter to $248 million and life underwriting margin increased 86% to $63 million due to lower policy obligations. Net life sales were $26 million, down 8% from the year-go quarter, primarily due to declines in direct mail and insert media activity.

Had over 10% increase in postage costs. During 2023 that was following 2022 in the summer there was a 7% increase.

And so just really trying to pare back to make sure that those sales.

Our consistent with what our profit expectations are and then as Ed mentioned from a 24 perspective, whereas we're anticipating essentially flat sales and focused on profit margins. So we anticipate that leveling out here over the.

Next year or so.

Matt Darden: While we will continue our efforts to grow direct-to-consumer sales activity, our primary focus will be maximizing the underwriting margin dollars on new sales by managing the rising, advertising and distribution costs associated with acquiring this new business. In addition to the ability to produce new business at a healthy margin, the direct-to-consumer division provides significant support in the form of brand impressions and sales leads to our agencies that is critical to the strong growth they are seeing.

Okay.

Then if I think about lapses on an year over year basis.

Direct response is increasing a little bit or increase a little bit this quarter.

The agency channel actually improve so.

Do you have any thoughts on what's driving that and are you seeing any sort of afford affordability issues. There is inflation affecting disposable income and.

Intention of people hold on to the policy.

Might have booked.

Jimmy.

PTC metric, we just feel like lapse rates for the quarter. There are really just fluctuations we do have some seasonality and there's generally an uptick in lapses in the third quarter, but at this point nothing to indicate any anything.

Matt Darden: At United American General Agency, here are the health premiums increased 2% over the year-go quarter to $137 million, health underwriting margin of $15 million or 11% of premium is flat from the year-go quarter. Net health sales were $16 million, 20% over the year-go quarter due to a 6% increase in individual Medicare supplement sales and increased activity at Globe Life Benefits.

Anything else. So really we just believe its fluctuations at this point.

And we're also seeing I would say just from a inflationary pressure perspective, we are seeing our premium per policy actually increasing which is.

It's kind of an offset of we're not seeing that inflationary pressure from a sales side our productivity.

Matt Darden: On to projections. Now based on the trends that we are seeing in our experience with our business, we expect that average producing aging count trends for the full year 2023 to be as follows. At American income life, an increase of around 12%, at Liberty National, an increase of around 18%. A family heritage, an increase of around 11%. Net life sales for the full year 2023 are expected to be as follows. American income life, we anticipate approximately 15% growth in the fourth quarter, which will result in full year growth of approximately 4%.

For the most part on a per agent per sale basis is also up across the board. So again, we're just really not seeing that inflationary pressure from a sales side and I agree with Tom I think.

Some of the.

A lapse experience is really just a fluctuation not a trend I think the good thing about PTC renewal lapses theyre very stable right and so.

So we're pleased to see that stability and those lapse rates.

Thank you.

Okay.

Our next question comes from the line of Bill My Budd <unk> from Raymond James. Please go ahead.

Matt Darden: Liberty National, an increase of around 23% and direct-to-consumer a decrease of around 5%. Net health sales for the full year 2023 are expected to be as follows. Liberty National, an increase of around 17%. A family heritage, an increase of around 18% and United American General Agency, an increase of around 20%.

Then my Buddies from Raymond James. Please go ahead with your question.

Hey, Good morning, you guys have been talking this year about how a key driver of strong agent count growth across the three channels has been focused on growing middle Middle management.

Could you quantify or provide more details on the middle management growth in each of the channels.

Sure at American income year to date, our Middle management count is up 20%.

Matt Darden: Now for 2024, at the midpoint of our 2024 guidance, we expect sales growth for the full year of 2024 to be as follows. For life sales, American income, high single digit, Liberty National, Midteens Growth, and direct-to-consumer relatively flat as we continue to focus on profitability. For health sales, we expect Liberty National to have midteens growth, family heritage, low double digit growth, and United American General Agency, low single digit.

Thats accelerated here over the last half of the year, we anticipate ending around 10% to 15% and middle management count growth for the full year 'twenty three liberty.

Liberty National is also had strong middle management count grows it's up 9% on a year to date basis, and anticipate ending the year at around nine or 10% as well at family Heritage is about flat from our middle management count growth that they had acceleration in that middle management growth in 2022.

Frank Svoboda: Chief Growth. I'll now turn the call back to Frank. Thanks, Matt.

With 9% growth and we anticipate ending the year around 2% to 4% Middle management count growth.

Frank Svoboda: We will now turn to the investment operations. Access investment income, which we define as net investment income must required interest, with $34 million, up from $10 million from the year ago quarter. Net investment income was $267 million, up 8% or $20 million from the year ago quarter due to hired yields on fixed maturities and short-term investments, and an increase in floating interest rates on our commercial mortgage loans, including those held in limited partnerships.

We take those assumptions and really the trends that we're seeing as a reminder, strong recruiting as that first level agent and then it takes a period of time to get into the Middle management. So that's in our assumptions for the sales guidance that we issued for 2024 and just looking at that agent count growth.

And how that translates into middle management count growth over a period of time.

Frank Svoboda: Required interest is up 5% 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 7%, due to the combination of a favorable rate environment and steady growth in our invested assets, and expect excess investment income to grow approximately $25 million.

Your next question comes from the line of Ryan Krueger from K B W. Please go ahead.

Hey, Thanks, Good morning, I had a couple.

Questions on the 2020 for guidance.

Thank you.

Frank Svoboda: Now regarding our investment yield. In the third quarter, we invested $427 million in investment-grade maturities, primarily in the municipal and financial sectors. We invested at an average yield of 6.15%, an average rating of 8 plus and an average life of 27 years, taking advantage of opportunities in the municipal sector to obtain higher yield as well as higher quality. We also invested approximately $100 million in commercial mortgage loans and limited partnerships that have debt-like characteristics.

You kind of provided work.

<unk> expense expectations as well as the buyback expectation of near 24 guidance.

Yeah, Ryan I thought with respect to admin expenses, we do see those probably ticking up just a little bit as a percentage of premium.

May be getting closer to 7% for the year, we're seeing continued investments in our it operations.

<unk> first we have some additional depreciation for some projects.

But that were in place and then we're saying probably at a higher.

Frank Svoboda: These investments are expected to produce additional yield and are in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the third quarter yield was 5.19% up to basis points from the third quarter of 2022, and up one basis points for the second quarter. As of September 30, the portfolio yield was 5.23%.

The expectations around the postage increases for the year that are probably driving as a percentage up a little faster than what we're seeing in premium growth.

With respect to that.

Tom.

Buybacks, yeah, so with the lower excess cash flow as well as lower excess liquid assets at the parent.

We're just slightly above that $50 million to $60 million that we target we would expect the amount available to shareholders would be lower in 'twenty four.

Frank Svoboda: Now regarding the investment portfolio. Invested assets are 20.7 billion dollars, including 18.9 billion dollars of fixed maturities at amortized cost. Of the fixed maturities, 18.4 billion dollars are investment-grade with an average rating of 8 minus. Overall, the total portfolio is rated 8 minus, same as a year ago. As a reminder, we have information on our website regarding our banking and commercial loan investments. Our fixed maturity investment portfolio has a net unreliable loss position of approximately $2.6 billion, due to the current market rates being higher than the book yield on our holdings.

What was in 'twenty, three and now the year's not final. So we don't have our final assess story for the year, but we'd expect repurchases to be in the range of $325 million to $350 million.

Thanks, and then just how much is the $400 million of free cash flow, how much is being depressed by things like credit losses and excess mortality.

Frank Svoboda: As we have historically noted, we are not concerned by the unreliable loss position and is mostly interest rate driven. We have the intent, and more importantly, the ability to hold our investments to maturity. Bond's rated triple B are 48% of the fixed maturity portfolio, compared to 52% from the year ago quarter. While this ratio is the lowest it has been in over 10 years, 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, CLOs, and other asset-backed securities held by our...

At 2024, just trying to think about.

I guess when you roll forward a year to a more normalized level.

Yes, it's not the only thing thats, but its about $50 million for the credit losses, and then we've had quite.

Quite strong sales and the sales growth in the year that adds a little bit of strain as well. So it's really kind of those two factors.

Okay, great. Thanks, and then just if I can sneak in.

One last one.

I just wanted to clarify on mortality.

I guess.

I really am I reading this correctly that you, yes, you are still seeing some level of.

Mortality, but.

Better than the excess mortality that you had assumed in your projects.

It is better than more so.

So yes, yes on both accounts, we are still seeing excess mortality.

Frank Svoboda: Heirs. Additionally, unlike many other insurance companies, we do not have any exposure to direct real-estate investments or private equities. We believe that triple B securities that we acquire generally 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. We low investment grade bonds are $493 million, compared to $543 million a year ago. The percentage of below investment grade bonds to total fixed maturity is only 2.6%.

Good thing is we've seen no deaths from cancer and heart and circulatory disorders.

<unk> come down a bit.

They're still higher than where we've seen them historically, so they are still elevated.

Yeah.

The second part of your question was on the.

What was the second part there.

I was just saying that you have already assumed excess mortality in the near term in your in your cash flow assumption, so youre seeing excess mortality, but it's not as bad as what you would have to assume is that right. Yes, that's correct and you can see that in.

The remeasurement gains to the extent that we have.

Frank Svoboda: At the midpoint of our guidance for the full year 2023, we expect to invest approximately $1.1 billion in fixed maturity at an average yield of 5.9% and approximately $310 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average yield of approximately 8.3%. Also, at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.19% for the full year 2023 and slightly higher at approximately 5.23% for the full year 2024.

Lower obligations do new fluctuations that's indicative of favorable.

Mortality or lapse experience.

And so you can see that kind of historically and then if you backed out the assumption changes that were made in the in the third quarter of 22% and 23, you can see that will come in at a little bit favorable from what our underlying assumptions are.

So.

Thanks, a lot yes, one of the things I would just add to that Ryan is that like like Tom said you know so we are seeing the actual experience coming up and a little bit lower than those of the expectations. There is still running a little bit elevated as Tom indicated, but we are seeing some positive trends in light in that just like what we thought.

Frank Svoboda: We expect with respect to our commercial mortgage loans and limited partnership, we anticipate the yield impacting net investment income to be in the range of 7.1% to 7.2% for both 2023 and 2024. As we said before, we are pleased to see higher interest rates, as this has the 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.

But we I kind of think about those fluctuations away. We've always had fluctuations its just that difference between the assumptions and that actual experience really hasn't had a changed so far in our long term expectations.

And that's what's really driving the assumption changes so.

Even though we're seeing some positive in the near term, we really want to and I think Tom mentioned is we really want to see some of that stick around for a while longer before we start to think is there really anything different.

Tom Kalmbach: Now, I will turn the call over to Tom for his comments on capital and liquidity. Thanks, Frank. First, let me 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 third quarter with liquid assets of approximately $69 million. In the third quarter, the company repurchases to approximately $755,000 shares of global income and stock for a total cost of $84 million.

That we need to think about with respective of long term assumptions.

Got it that's helpful. Thank you.

The next question comes from the line of Maxwell Fitzgerald from tourists Securities. Please go ahead.

Hi, good afternoon.

For Mark here.

My question was asked last quarter, but I just wanted to get your updated broad outlook on recruiting with agent count being up in all channels and the labor market still being tight.

Tom Kalmbach: The average share price for these repurchases was 111 in 52 cents. To date the fourth quarter, we have purchased 165,000 shares for a total cost of $18 million at an average share price of $108 in 36 cents, resulting in repurchases year to date of 2.9 million shares for a total cost of $321 million at an average share price of $111.63. In addition to the liquid assets held by the parent, the parent company generated excess cash flows during the third quarter and will continue to do so for the remainder of 2023.

Yes, what we historically have seen and continue to see with this economic cycle.

Is that we are able to recruit strongly and in these type of environments and I think that's shown in 2023, and we anticipate that momentum carrying forward in 2024 as a reminder, we're not recruiting individuals that are unemployed. We're really recruiting people that are looking for a different in <unk>.

Better opportunity and particularly an entrepreneurial opportunity and an inflation actually can be.

It helped to us and the fact is that we provide an opportunity where folks are more in control of their income based on their activity in outfit and so they have an opportunity to make more money than maybe a fixed income job that they're currently and so we see strong recruiting growth associated with that the other thing that we see.

Tom Kalmbach: The parent company's excess cash flow, as we define it, results in primarily from the dividends received by the parent from its subsidiaries less than interest paid on debt. We anticipate the parent company's excess cash flow for the full year will be approximately $425 million and available to return to its shareholders in the form of dividends and through share repurchases.

Is.

People want an opportunity to have flexibility and as you see more and more companies announcing returned to the office and in some of those.

Tom Kalmbach: Services. As previously noted, we had approximately $69 million of liquid assets at the end of the quarter. Slightly above the $50 to $60 million of liquid assets we have historically targeted. In addition to the $69 million of liquid assets, we expect to generate $35 to $40 million of excess cash flows in the fourth quarter of 2023, providing us with approximately $90 million of assets available to the parent through the remainder of 2023 after taking into consideration the approximately $18 million of share repurchases to date in the fourth quarter.

Type of scenarios, we're seeing more people being attracted to the flexible Oxford community that we provide in that more entrepreneurial opportunity and I would just point to we.

Go back and look at how have we performed during other economic cycles Amir.

American income as an example.

We had double digit growth in 2002.

2008, and nine also had double digit growth and so during those economic cycle as we typically see a very strong recruiting growth, which translates into strong sales growth. So we anticipate that moving forward into 2024 as well.

Tom Kalmbach: We anticipate distributing approximately $21 million to our shareholders in the form of dividend payments for the remainder of 2023. As mentioned on previous calls, we will use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. 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.

Thank you and sorry, if I missed it but did you guide to a full year 2020 for agent count number.

No. We typically don't do that on this particular call level, where we really wanted to see how the fourth quarter.

Comes out because that that agent count trend and the momentum that we have in the fourth quarter really determines how the rest of the year shakes up so we generally discuss that on our next call.

Tom Kalmbach: It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to generate new sales, expand and modernize our information technology, and other operational capabilities as well as to acquire new long duration 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 for 2023.

Okay. That's all I have thank you very much.

Our next question comes from the line of Tom Gallagher from Evercore ISI. Please go ahead.

Good morning.

Wanted to circle back on the experienced gains in life insurance.

I must be doing something wrong, when I'm calculating that because.

At least the way I'm trying to understand this it looks to me like your mortality experiences.

Tom Kalmbach: In our earnings guidance, we anticipate approximately $465 million will be returned to shareholders in 2023, including approximately $380 million through share repurchases. Now with regards to capital levels at our insurance subsidiaries, our goal is to maintain our capital levels necessary to support occurred ratings. Globe life targets a consolidated company in action level RBC ratio in the range of 300% to 320%. As discussed on previous calls, our consolidated RBC ratio was 321% at the end of 2022.

Favorable probably as good if not better than pre pandemic levels.

So if you could help help correct the math here.

Or at least explain.

The proper way to think about it.

I follow the logic on the experience gains and mortality for the quarter I would've gotten.

3 million negative for the assumption review for life, which would mean, the 11 million gains would have been $14 million of experience gains.

Does that.

Am I thinking about that part of it correctly, yes.

Tom Kalmbach: In light of credit losses incurred today, we anticipate our overall year end RBC ratio to be at the midpoint of our range or approximately 310%. At this point, we do not anticipate any significant credit losses or downgrades for the remainder of the year, but to the extent any do occur, we are well positioned to address any capital needed by our insurance subsidiaries to maintain RBC levels at the midpoint of our range.

Yes. It was it was $2 million for life. So it will be $13 million of of favorable experience in the third quarter for life.

And then is the way the $13 million representative of around 30% of the experience and then 70% gets capitalized and amortized.

Does that is that still a proper way to think about the smoothing aspect to this we're now does that is that is a smooth number. So that's the that's.

Tom Kalmbach: Now with regards to policy obligations for the current quarter, as we have discussed on prior calls, we have included the historical operating summary results under LVTI for each of the quarters in 2022, within the supplemental financial information available on our website. In addition, we include an exhibit that details the re-measurement gain or loss by distribution channel. The total re-measurement gain of $19 million for the quarter reflects both current period fluctuations in experience from expected and the impact of assumption changes made in the quarter.

That's one 7% impact on as a percentage of premium to the obligation ratio and what I'd say is third quarter was.

Very favorable from a mortality perspective across each of the distribution channels. So that's something we're keeping an eye on to see if that continues or not or whether it was just some timing but.

But yes, it wasn't it wasn't favorable quarter from a mortality perspective.

Okay. So I'm not I'm not misunderstanding that if I just isolated Q3.

Tom Kalmbach: Also as noted on fire calls, life and health assumption changes were made in the third quarter of 2022 with an expectation of higher mortality in the life segment in more favorable, favorable claim trends in the health segment. In the third quarter of 23, we again updated those both our life and health assumptions, laps, mortality and morbidity. And as we expected, the overall impact on three on third quarter results was not significant with a combined decrease in total life and health obligations of approximately $3 million.

And I looked at the.

The claims experienced this to me it looks like the best quarter, you've had I don't know three or four years is that is that fair.

If you look back to.

I mean, it's relative to the assumptions that we have underlying it but if you look back to like second quarter. The remeasurement gain on life was favorable by $2 4 million that seems more normal to me. So thats why third quarter was particularly favorable in the first quarter of 'twenty three it was $2 6 million so again.

Tom Kalmbach: The life assumption changes increased life obligations by approximately $2 million in the quarter, while health assumption changes decreased health obligations by approximately $5 million. In addition to the assumption changes, the remeasurement gain or loss also indicates experience fluctuations. For the third quarter, life policy obligations were favorable when compared to our assumptions of mortality and persistency. The remeasurement gain related to experience fluctuations from the life segment resulted in $13 million of lower life policy obligations and $3 million of lower health policy obligations, primarily as a result of favorable claim experience versus expected.

Yeah really indicative of a third quarter, that's quite favorable.

Okay and then.

And again not not to not to get too in the weeds on this but.

Am I thinking about it correctly, if I was to say what was the actual experience what I would it be around $45 million of favorability on the total claims, but the majority of that get smooth or.

Like is that is that the gross claim number that would be favorable that I should be thinking about here.

That's alive, along the lines of a rule of thumb right, which is we said 25% of volatility comes through.

But there's.

There is quite a bit of it really is quite a bit of really it depends on where that experienced emerged as far as what the impact is in the quarter. So that's a rule of thumb, but I think there is dealt with the details as we dig deeper into that so I wouldn't I wouldn't jump to that conclusion.

Tom Kalmbach: Now with regards to guidance earnings guidance for 2023, we are projecting net operating income per diluted share will be in the range of $10.49 to $10.65 for the year ending December 31, 2023. The $10.50 midpoint of our guidance is 10 cents higher than what we had indicated last quarter, largely due to favorable policy obligations in the third quarter. Our guidance anticipated and our guidance anticipates the continuation of recent favorable short-term trends, although at a lower level in the third quarter.

Okay.

Alright, yes, so so suffice to say, though if you were to repeat at this quarter for a while then they would be probably some consideration given changing future assumptions.

A brief.

Yes, okay.

Its rise accessories, you want to look and say what does that long term trend you're seeing that many quarters in a row and that would really be more indicative of something in there that were that the assumptions arent arent quite as one.

Tom Kalmbach: For the full year 2023, we anticipate life underwriting margins to be approximately 38% of premium and health underwriting margins to be approximately 29% of premium. Total acquisition costs, including the ammarization of deferred acquisition costs, as well as non deferred acquisition costs and commissions are expected to be 21% of premium, which is consistent with the third quarter.

Okay, alright, thanks for the help.

Yes.

Our next question comes from the line of Wes Carmichael from Wells Fargo. Please go ahead.

Hey, good morning, I'm, sorry, I got disconnected earlier, but I wanted to kind of still follow up on the mortality trim question, then I am curious.

Tom Kalmbach: Now with regards to 24 guidance, for the full year 2024, we estimate net operating earnings per diluted share will be in the range of $11 to $11.60 representing 7% growth at the midpoint of the range. We anticipate life and health underwriting income to grow consistent with premium growth, with life and health underwriting margins as a percentage of premium to fall within the same ranges as 23 or about 37 to 39% for life and 28 to 30% for health.

To Tom's point, it was a good quarter favorable but.

What are you thinking for 2024 in terms of assuming excess mortality is that just informed by the pandemic or are you expecting COVID-19 deaths going forward or any other cause of death that you might be able to help us with in your expectation.

Yes.

The excess death assumption that we have that underlies our assumptions.

Tom Kalmbach: At the midpoint of our guidance, we anticipate life premiums growing at approximately 5% and health premiums growing at around 7%. In addition, higher interest rates are expected to favorably impact excess investment income, as we anticipated to increase 7 to 9% at the midpoint of our guidance. While the 2023 results are not final for the year, at this time, we anticipate parent excess cash flows available to return to shareholders in 2024 will be a little over $400 million. Slightly lower the 23 to impart the impact of 2023 statutory income, and realized losses and the cost of agency sales growth offsetting the benefits from favorable mortality trends and higher investment yields.

<unk> off over time over the next few years. So in 2024, we expect excess mortality to great off be lower than this was in 'twenty three to be lower in 2024.

And then again, we would expect to be a little bit lower in 2025 as well. So we are kind of underlying thought here is set at Cisco. It takes some time to go back to more normal mortality levels.

Got it and then west.

If our if actual experience ends up being it's.

As Tom said that you'll have the basic assumptions underlying our 2020 for projections.

And if actual experience does continue to be.

A more favorable than that then that is what will pop out there in the future quarters.

A revaluation gains.

Tom Kalmbach: Finally, let me comment on the merger announcement of every health. Earlier in the month, we announced entering into a merger agreement with every health, a small regional healthcare company locally focused in the major urban areas of Texas. Every is a startup with a technology focus to provide outstanding customer experience and results in positive health outcomes. We previously had made a small investment in every and recently had the opportunity to acquire the whole company.

And again to keep it at a little bit of perspective keep in mind that our life obligations are.

23 of $400 million on a quarterly basis. So you look at it if we're looking at $2 million to $3 million of fluctuation.

In a particular quarter, that's not our goal.

A real high level of difference between those.

Those expectations.

Tom Kalmbach: We believe full ownership will allow every to grow but more importantly allow us to directly assess how we can utilize every technology to enhance globe's customer experience and service offerings. We do not expect every to have a significant impact on 2023 or 2024 results.

Understood.

And then a different question, but to the extent and I know you don't really expect this but to the extent you see any additional credit losses or ratings drift.

Would you would you let the RBC ratio fall below 300% low end or would you expect to kind of temporary the buyback program to kind of maintain the capital itself.

Tom Kalmbach: Those are my comments.

Matt Darden: I'll now turn it back to Matt. Thank you Tom.

Yep.

Unknown Executive: Those are our comments and we will now open up the call for questions. Thank you. As a reminder, if you'd like to ask a question or make a contribution on today's call, please press star one on your telephone keypad. If you change your mind and want to withdraw your question, please press star two. Please ensure your lines are unmuted locally. As you'll be prompted when to ask your question.

We would not let it drop below 300% that would not be our plan, we would probably have some short term financing to to shore up capital levels at the subsidiaries.

I would say that you think of it at that point in time, if we're we would make the commitment to maintaining a minimum level of RBC, but then we would think of it as a financing transaction at that point in time, what how do we finance that what's our best way of doing that we would look to alternative sources more cheaper sources, if you would.

Wesley Carmichael: Our first question comes from a line of West Carmichael from Wells Fargo. Let's go ahead.

Rather than the buybacks and those would be our first line.

Frank Svoboda: Good morning. I just had a question on mortality trends and what you're seeing. So for 2024, it sounded like the life underwriting margin is expected to be the same as 2023. But I think when 2023 guidance came out, you had some expectation for COVID-related mortality. So just wondering what you're seeing in terms of your expectation for access. Sure. So we're continuing to see access mortality even in the third quarter. What I would say is the third quarter was quite favorable and favorable at direct consumer.

Frank Svoboda: So I think really we just want to see those trends continue before we would make any adjustment to our access mortality assumptions. And if you recall, I did indicate on an earlier call that we do expect access mortality to drop in 2024. So that is reflected in our guidance. Please take an active while we're trying to reach out to your speakers. Please go ahead with your question and answer. I'm sorry. Is there a question? Wes, did you get your question answered?

Our sourcing and OLED, if we weren't able to find alternative sources. We then do know that we have the buybacks available to us. So we're not concerned about our ability to do so.

But we would we would.

Seek to use other sources of financing before using that buyback.

Got it and maybe on the financing topic any update to your expectation for issuing debt. I think you said previously you might you might be $300 million, maybe a little bit more in 2024.

Yes, I havent really solidified or around an amount, but again would confirm with probably do at least 300 million to be index eligible and we'll just continue to look at market environments. One of the best time to do that is.

Yes.

Thank you.

Before we proceed to the next question a final reminder, if you'd like to ask a question. Please press star one.

The next question comes from the line of Sumit Kumar from Jefferies. Please go ahead.

Yes, thanks, good morning.

So just going back to last quarter. I think you guys talked about a stress test of $25 million to $50 million of potential credit losses that I don't recall hearing an update there. So I just wanted to see if there was one and then somewhat related to I think <unk> question. What are you building in for potential investment losses, as we think about 2024.

So I would say well both of those.

With respect to the stress testing no real material change to our <unk>.

<unk> around that.

We have updated that we always do kind of a bottom up approach with respect to what we think potential downgrades would be.

Overall, we feel really good about where the portfolio is we've had seven straight quarters of net upgrades in the portfolio.

We've positioned it pretty well.

To where of course, we have.

Jamminder Bhullar: The next question comes from a line of Jimmy Bhullar from JP Morgan. Please go ahead. Maybe before I ask the question, I just wanted to clarify on your on your assumption embedded assumption for mortality embedded in your 2024 guidance. I think you mentioned that you're assuming an improvement in excess mortality, but are you I'm assuming you're still assuming some level of excess that's beyond what used to be pre the case pre pandemic or are you not?

Potential for downgrades and would expect if in fact, there's some economic downturns.

Jamminder Bhullar: Yeah, that's correct. I mean, we still expect some excess mortality in 2024. That's all reflected in our assumptions that are including guidance. Okay, and then on the I had a couple of other questions on sales and direct response, I would have and you've been clear that you're reducing marketing spending and that's actually holding back your sales. Are you continuing to increase or reduce marketing spending more and more incrementally? The sales are now going to be down like three years in a row and I would have thought that at some point they have stabilized they might not grow but they wouldn't keep declining.

Some downgrades and we.

With the potential for some default.

But right now in our base case for 2024, we don't anticipate any defaults with respect to that now if we have any anticipate that there could be some took overall net downgrades, but those would be in our expectations around capital and capital requirements and feel comfortable with our ability to manage that.

That doesn't really have an impact if you will on the earnings guidance.

For 2024.

Got it Okay. And then just you may have mentioned this and I may have missed it.

What are you assuming for just interest rates for next year, obviously you have a.

Investment income assumption built into your guidance, but are you assuming kind of current forward curve or what sort of if you could just unpack that a little bit.

For 2024, we basically take a look at the Bloomberg survey of economists and where they are projecting both bench and overall.

Jamminder Bhullar: So what's driving the ongoing decline off of fairly easy comps? Yeah, I would say one of the things you'd have to look at is we had significant increases in sales during the pandemic years so in you know, last half a 20 and 21 and so part of the sales declines in the last year or so have been really getting back to pre pandemic levels off of those unusual highs during the pandemic.

Index rates.

Four we tend to look at that Triple B Triple B plus.

Space, if you will and around booking at 30 year Phil.

Figure that our overall maturities are probably in that 20% to 25% to 30 year range. We do see that they generally are predicting it to decreased over the course of 2020 for most of that.

Jamminder Bhullar: So our sales are really anticipated to the relatively fat to where we were from a pre pandemic perspective and as I mentioned in the prepared remarks, we're reducing that marketing spend to make sure that it meets our profit targets and margin objectives on the new business that we're selling and we just as we've talked about on the prior calls have that inflationary pressure particularly related to postage and paper costs. We've had significant increases in postage.

In the second half of the year and on average.

We are anticipating.

Expectation on average about five 7% for the year.

Okay, that's your new money rate yes.

Yes, Yes got it and then just one last one if I could.

Just given the strong recruiting that you guys have done do you have a rule of thumb around what percentage of life sales and then held sales come from new recruits.

I think you may have said that in the past, but I just wanted to ask.

Jamminder Bhullar: We had over 10% increase in postage cost during 2023. That was following 2022 in the summer there was a 7% increase and so just really trying to pair back to make sure that those sales are consistent with what our profit expectations are. And then as I mentioned from a 24 perspective, we're anticipating essentially flat sales and focused on profit margins so we anticipate that leveling out here over the next year or so.

Yes.

It's a significant portion it depends on there is fluctuations in there. So you are right its kind of a rule of thumb, but it can generally be 30, or 40% or more of our new sales come from those agents that have been recruited in the first year and if you remember our business model is recruit.

Agents and then they start moving into those Middle management ranks and then their time is split between sales and recruiting training and Onboarding new agents and so that's why a lot of our sales are driven from those first year agents, because the middle management count or that middle manager.

Jamminder Bhullar: Okay. And then if I think about lapses on a near over your basis, direct response is increasing a little bit or increased a little bit this quarter. The agency channels actually improved. So if you do have any thoughts on what's driving that and are you seeing any sort of affordability issues or is inflation affecting disposable income and intention of people to hold on to the policy that they might have bought. Jimmy, at DTC, I meant to just feel like lapse rates for the quarter there are really dysfuxuations.

<unk> growth is driving more of the activity around recruiting training and development of those new agents.

Got it okay. Thank you.

There are no further questions I'll hand, you back to Stephen Mosley to conclude today's conference.

Alright. Thank you for joining us. This morning, those are our comments and we will talk to you again next quarter.

Thank you for joining today's call you may now disconnect. Your lines hosts please stay connected I'm a wage program instructions.

Jamminder Bhullar: We do have some seasonality, there's generally there's nothing in lapses in the third quarter, but at this point, nothing to indicate anything else. So really we just believe dysfuxuations at this point. And we're also seeing, I would say just from an inflationary pressure perspective, we're in seeing our premium performance. Policy actually increasing, which is kind of an offset of we're not seeing that inflationary pressure from a sales side. Our productivity for the most part on a per agent per sale basis is also up across the board.

Jamminder Bhullar: So again, we're just really not seeing that inflationary pressure from a sales side. And I agree with Thomas. I think some of the laps experience is really just a fluctuation, not a trend. I think the good thing about DTC renewal laps is they're very stable, right? And so we're pleased to see that stability in those laps rates.

Wilma Burdis: Thank you. The next question comes from a line of Wilma Burdis from Raymond James. Please go ahead. You guys have been talking this year about how a key driver of strong agent cow growth across the three channels has been the focus on growing middle management.

Matt Darden: Could you quantify or provide more details on the middle management growth in each of the channels? Sure. At American income year-to-date, our middle management count is up 20%. That's accelerated here over the last half of the year. We anticipate ending around 10 to 15% in middle management count growth for the full year, 23. Liberty Nationals also had strong middle management count growth. It's up 9% on a year-to-date basis and anticipate ending the year around 9% or 10% as well.

Matt Darden: Family heritage is about flat from a middle management count growth, but they had acceleration in that middle management growth in 2022 with 9% growth. And we anticipate ending the year around 2 to 4% middle management count growth. And we take those assumptions and really the trends that we're seeing as a reminder, strong recruiting is that first level agent and then it takes a period of time to get into the middle management. So that's in our assumptions for the sales guidance that we issued for 2024 of just looking at that agent count growth and how that translates into middle management count growth over period of time.

Ryan Krueger: Next question comes from the line of Ryan Krueger from KBW. Please go ahead. Hey, thanks. Good morning. I had a couple questions on the 2024 guidance. Just think a couple items you kind of provided were admin expense expectations as well as the buyback expectation in your 24 guidance. Yeah, Ryan, with respect to admin expenses, we do see the probably picking up just a little bit as a percentage of premium, maybe getting closer to seven percent for the year.

Ryan Krueger: We're seeing continued investments in our IT operations, plus we have some additional depreciation for the projects that were in place and then we're seeing probably a higher expectations around the postage increases for the year that are probably driving as a percentage up a little faster than what we're seeing in premium growth with respect to that.

Ryan Krueger: Tom, yeah, I'm going to buy next, yeah. So, with the lower excess cash flow as well as the lower excess liquid assets of the parent, because we're just slightly above that 50 to 60 million that we target. We'd expect the amount available to share will this would be lower in 24 than what was in 23. And the year's not final, so we don't have our final assessment for the year, but we'd expect repurchase in the range of 325 to 350 million dollars.

Ryan Krueger: Thanks, and then just how much is the 400 million of free cash? Well, how much is that being depressed by things like credit losses and excess mortality that is that has occurred in 2024 trying to think about. I guess when you roll forward a year to a more normal level. Yeah, it's not the only thing, but it's about 50 million for the credit losses. And then, you know, we've had quite strong sales in the sales growth in the year and that adds a little bit of strain as well. So it's really kind of those two factors.

Ryan Krueger: Okay, great. Thanks. And then just if I could sneak in one last one, I'm trying to clarify on mortality is, I guess, am I reading, am I reading this correctly that you, you're still seeing some level of excess mortality, but it's better than the excess mortality that you had assumed in your projection. It is better than, so yeah, yes, I'm both accounts. We are still seeing excess mortality. Good thing as we've seen, you know, deaths from cancer and heart and secondary disorders come in, come down a bit.

Ryan Krueger: Those are still higher than when we had seen them historically, so they're still elevated. And the second party question was on the second part there. I was just saying that you have already assumed excess mortality in the near term, in your cash flow assumption, so you're seeing excess mortality, but it's not as bad as what you would have to assume. Is that right? Yeah, that's correct. And you can see that in the remasgement gains to the extent that we have lower obligations due to fluctuations.

Ryan Krueger: That's indicative of favorable mortality or lapse experience. And so you can see that kind of historically, and then if you backed out the assumption changes that were made in the third quarter of 22 and 23, you can see that we're coming in a little bit favorable from what our underlying assumptions are. Yeah, one of the things I would just add to that, Ryan, is that like Tom said, you know, so we are seeing the actual experience coming in a little bit lower than those expectations.

Ryan Krueger: They're still running a little bit elevated as Tom indicated, but we are seeing some positive trends in like in that, just like what we thought. But I kind of think about those fluctuations the way we've always had fluctuations is just that difference between assumptions and that actual experience really hasn't had a change so far in our long term expectations, and I think Tom mentioned this. We really want to see some of that stick around for a while longer before we start to think, is there really anything different that we need to think about with respect to the long-term assumptions.

Ryan Krueger: That's helpful. Thank you.

Maxwell Fritscher: The next question comes from a line of Maxwell Fritscher from Truist Securities. Please go ahead.

Maxwell Fritscher: Good afternoon. I'm going to say for Mark Hughes, a smaller question with that last quarter, but I just wanted to get your updated broad outlook on recruiting with Agent Count being up in all channels and the labor market still being tight. What we historically have seen and continue to see with this economic cycle is that we are able to recruit strongly in these type of environments and I think that's shown in 2023 and we anticipate that momentum carrying forward in 2024.

Maxwell Fritscher: As a reminder, we're not recruiting individuals that are unemployed. We're really recruiting people that are looking for a different and better opportunity. Particularly an entrepreneurial opportunity and inflation actually can be helped to us in that fact is that we provide an opportunity where folks are more in control of their income based on their activity and output. They have an opportunity to make more money than maybe a fixed income job that they're currently in.

Maxwell Fritscher: We see strong recruiting growth associated with that. The other thing that we see is people want an opportunity to have flexibility and as you see more and more companies announcing return to the office and some of those type of scenarios, we're seeing more people being attracted to the flexible opportunity that we provide and that more entrepreneurial opportunity. I just point to, we go back and look at how have we performed during other economic cycles.

Maxwell Fritscher: American income as an example had double digit growth in 2002, 2008 and 2009 also had double digit growth. And so during those economic cycles, we typically see very strong recruiting growth which translates into strong sales growth. So anticipate that moving forward into 2024 as well.

Matt Darden: Thank you. And sorry if I missed it, but did you guide to a full year 2024 Asian count number? No, we typically don't do that on this particular call. We will, we really want to see how the fourth quarter comes out because that that agent count trend and the momentum that we have in the fourth quarter really determines how the rest of the year shakes up. So we generally discuss that on our next call.

Unknown Executive: Okay, that's all I have.

Unknown Executive: Thank you very much.

Ryan Krueger: Next question comes from Ryan of Tom Gallagher from Evercore I.S.I. Please go ahead. Good morning. I wanted to circle back on the experience gains in life insurance. I must be doing something wrong when I'm calculating this because at least the way I'm trying to understand this, it looks to me like your mortality experience is favorable, probably as good if not better than pre-pandemic levels, but you know, just search you can help correct the math here or at least explain the proper way to think about it.

Ryan Krueger: If I followed the logic on the experience gains and mortality for the quarter, I would have gotten three million negatives for the assumption review for life, which would mean the 11 million gains would have been 14 million of experience gains. Is that, am I thinking about that part of it correctly? Yeah, it was 2 million for life, so it would be 13 million of favorable experience in the third quarter for life.

Ryan Krueger: Okay. And then is the way the 13 million representatives of around 30% of the experience and then 70% gets capitalized and amortized? Is that still a proper way to think about the smoothing aspect to this or now? No, that is a smooth number, so that's 1.7% impact as a percent of premium to the obligation ratio. And what I'd say is third quarter was very favorable from a mortality perspective across each of the distribution channels.

Ryan Krueger: So, yeah, that's something we're keeping an eye on to see if that continues or not or whether it was just, you know, some timing, but yeah, it wasn't favorable quarter from a mortality perspective. Okay, so I'm not I'm not misunderstanding that if I just isolated Q3 and I looked at the claims experience, this to me looks like the best quarter you've had. I don't know in three or four years. Is that fair?

Ryan Krueger: If you look back to, I mean, it's relative to the assumptions that we have underlying it, but if you look back to like second quarter, the remesionment gain on life was favorable by 2.4 million. That seems more normal to me, so that's why third quarter was particularly favorable and in the first quarter of 23, it was 2.6 million. So again, you know, really indicative of a third quarter, that's quite favorable. Okay, and then and again, not not to not to get to in the weeds on this, but am I thinking about it correctly?

Ryan Krueger: If I was to say what was the actual experience, would I would it be around 45 million of favorability on the total claims, but the majority of that gets smooth or like is that is that the gross claim number that would be favorable that I should be thinking about here? You know, that's that's a lot along the line of our rule of thumb, right, which is we said 25% of volatility comes through, but There's quite a bit of, there's quite a bit of really depends on where that experience emerged as far as what the impact is in the quarter.

Ryan Krueger: So that's a rule of thumb, but I think there's dealt with the details as we dig deeper into that. So I wouldn't jump to that conclusion. Okay, all right. Yeah, so suffice to say though, if you had a repeated this quarter for a while, then there would be probably some consideration giving to changing future assumptions. Okay, I think that's right. That's what you want to look and say, what is that long-term trend? You know, you see in that many quarters in a row, and that would really be more indicative of something that the assumptions aren't quite as line. Okay, all right. Thanks for the help.

Wesley Carmichael: The next question comes from a line of Wes Carmichael from Wells Fargo. Please go ahead. Hey, good morning. And sorry, I guess I got disconnected earlier, but I wanted to kind of still follow up on the mortality trend question, and I'm serious. And, you know, to Tom's point, you know, it was a good quarter favorable, but you know, what do you think in for 2024 in terms of assuming access mortality? Is that just informed by, you know, the pandemic or are you expecting, you know, COVID deaths going forward or any other cause of death that you might be able to help us with in your expectation?

Wesley Carmichael: Yeah, the excess death assumption that we have that underlies our assumptions, grades off over time over the next few years. So in 2024, we expect access mortality to grade off below than this was in 23 to be lower in 2024. And then again, we'd expect to be a little bit lower in 2025 as well. So we are kind of underlying thought here is that it's just going to take some time to go back to more normal mortality levels.

Tom Kalmbach: Got it. And then whether I was, you know, so that if our if actual experience ends up being, you know, Tom said that you have that basic assumption that's underlying our 2024 projections. And if actual experience, you know, does continue to be, you know, more favorable than that, than that is what will pop up in the future borders in evaluation gains. And again, to keep it a little bit of perspective, you know, keep in mind that, you know, our life obligations are, you know, between three and four hundred million dollars on a quarterly basis. So you're looking at, if we're looking at two, three million dollars of fluctuation, you know, in a particular order, that's not a, you know, a real high level of difference between those, you know, those expectations.

Tom Kalmbach: Understood. And then a different question, but, you know, to the extent, and I know you don't really expect this, but to the extent you see any additional, you know, credit losses or ratings drift. Would you, would you let the RBC ratio, you know, fall below over 300% low end, or would you expect to kind of temper the buyback program to kind of maintain the capital. We would not let it drop below 300%.

Tom Kalmbach: That would not be our plan. We would probably use some short term financing to, to show up capital levels at the subsidiary. Yeah, I would say that you think of it at that point in time if we would make the commitment to maintaining that minimum level of RBC, but then we would think of it as a financing transactions at that point in time. How do we finance that? What's our best way of doing that?

Tom Kalmbach: We would look to alternative sources, more cheaper sources if you would, rather than the buybacks, and those would be our first line sourcing. And only if we weren't able to find out alternative sources, we then do know that we have the buybacks available to us, so we're not concerned on our ability to do so, but we would seek to use other sources of financing before using the buyback.

Tom Kalmbach: Got it, and maybe on the financing topic, any update to your expectation for issuing debt? I think you said previously you might be 300 million or maybe a little bit more in 2024. Yeah, I haven't really solidified around an amount, but again, we'd confirm we'd probably do at least 300 million to be indexed eligible, and we'll just continue to look at market environments and one of the best time to do that is.

Tom Kalmbach: Thank you.

Unknown Executive: Before we proceed to the next question, a final reminder, if you'd like to ask a question, please press star one.

Suneet Kamath: The next question comes from an item of Sunit Kamath from Jeffries. Good go ahead. Yeah, thanks, Gourning. So just going back to last quarter, I think you guys talked about a stress test of 25 to 50 million of potential credit losses. I don't recall hearing an update there, so I just wanted to see if there was one, and then somewhat related to, I think, Wes's question, what are you building in for potential investment losses as we think about 2024?

Suneet Kamath: So I would say, well, both of those, you know, with respect to the stress testing, no real material change to, you know, our thoughts around that. We have updated that. We always do kind of a bottom-up approach with respect to what we think potential downgrades would be. Overall, we feel really good about where the portfolio is. We've had seven straight quarters of net upgrades in the portfolio, and we've positioned it pretty well to where, of course, we have potentials for downgrades, and would expect if, in fact, there's some economic downturns.

Suneet Kamath: You know, some downgrades and at least a potential for some default, but right now in our base case for 2024, we don't anticipate any defaults with respect to that. Now, if we have any, you know, anticipate that there could be some, you know, some overall net downgrades, but those would be in our expectations around, you know, capital and capital requirements. It's still comfortable with our ability to manage that doesn't really have an impact, if you will, on the earnings guidance for 2024. Got it. Okay. And then just, you may have mentioned this, and I may have missed it.

Tom Kalmbach: What are you assuming for just interest rates for next year? I would say you have a, you know, investment income assumption built into your guidance, but are you assuming kind of current forward curve or what sort of, if you could just unpack that a little bit. Yeah. For 2024, we basically take a look at the Bloomberg Survey of Economists and where they are projecting, you know, both bench and overall index rates for, you know, we tend to look at that triple B, triple B plus, you know, space, if you will, and around booking it 30 year, figured that our overall maturities are probably in that 20 to 25 to 30 year range.

Tom Kalmbach: We do see that they generally are predicting it to decrease over the course of 2024. Most of that, you know, in the second half of the year, and on average, you know, we are anticipating our expectation on average about 5.7%. [inaudible] of the Year. That's your new money rate? Yes. Yeah, got it.

Matt Darden: And then just one last one if I could just given the strong recruiting that you guys have done, do you have a rule of thumb around what percentage of life sales and then health sales come from new recruits? I think I think you may have said that in the past, but I just wanted to ask. Yeah, it's a significant portion. It depends on your there's fluctuations in this. So you're right, it's kind of a rule of thumb, but it can generally be 30 or 40 percent or more of our new sales come from those agents that have been recruited in the first year.

Matt Darden: And if you remember, our business model is recruit agents and then they start moving into those middle management ranks and then their time is split between sales and recruiting training and onboarding new agents. And so that's why a lot of our sales are driven from those first year agents because the middle management count or that middle management growth is driving more of activity around recruiting training and development of those new agents. Got it.

Unknown Executive: Okay, thank you.

Stephen Mota: There are no further questions.

Stephen Mota: So I'll hand you back to Stephen Mota out to conclude the base conference. All right. Thank you for joining us this morning. Those are our comments and we will talk to you again next quarter. Thank you for joining today's call. You may not disconnect your lines.

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