Q3 2024 Globe Life Inc Earnings Call
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Ellen: Welcome to the Globe life, but what does 2024 earnings release Conference call. My name is Ellen and I'll be accordingly for today's event. Please note. This call is being recorded and for the duration your lines will be on listen only how they will you will have the opportunity to ask questions at the end of this can be done.
Ellen: By pressing star one on your telephone keypad. If you require assistance at any time, Please press star zero and Youll be connected to an operator I'll now hand, you over to your host Stephen water to begin today's conference. Thank you.
Stephen water: Thank you good morning, everyone. Joining the call today are Frank Svoboda and mountain Darden, our co Chief Executive officers, Tom <unk>, Our Chief Financial Officer, Mike Majors, our Chief strategy Officer, and Brian Mitchell, Our general counsel to.
Stephen water: Some of our comments or answers to your questions may contain forward looking statements that are provided for general guidance purposes only.
Stephen water: Accordingly, please refer to our earnings release 2023 10-K, 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.
Frank Svoboda: Thank you Steven and good morning, everyone.
Frank: In the third quarter net income was $303 million or $3 44 per share compared to $257 million or $2 68 per share a year ago.
Frank: Net operating income for the quarter was $308 million or $3 49 per share an increase of 29% from a year ago.
Frank: On a GAAP reported basis return on equity through September 30 is 22, 4%.
Frank: And book value per share is $54 65 sets X.
Frank: Excluding accumulated other comprehensive income or a OCI return on equity is 15, 3% and book value per share as of September 30th is $83 92, SaaS up 13% from a year ago.
Frank: In our life insurance operations.
<unk> revenue for the third quarter increased 4% from the year ago quarter to $819 million.
Frank: Life underwriting margin was $387 million.
Frank: Up 29% from a year ago.
Frank: With the increase in life underwriting margin due primarily to a remeasurement gain.
Frank: Unlocking of assumptions.
Speaker Change: Tom will have more in his comments on this re measurement gain.
Speaker Change: For the year driven by strong premium growth in both our American income and Liberty National divisions, We expect life premium revenue to grow between 4.0 at four 5% at the midpoint of our guidance and life underwriting margin to grow between 12 at 12, 5%.
Speaker Change: As a percent of premium we anticipate life underwriting margin to be around 41%.
Speaker Change: And health insurance premium revenue grew 7% to $354 million and.
Speaker Change: And health underwriting margin was down 10% to $87 million.
Speaker Change: Due primarily to a remeasurement loss related to an unlocking of assumptions.
Speaker Change: For the year, we expect health premium revenue to grow approximately six 5% to 7%.
Speaker Change: At the midpoint of our guidance for the full year, we expect health underwriting margin to be flat and as a percent of premium to be around 27%.
Speaker Change: Administrative expenses were $88 million for the quarter.
The increase is primarily due to higher information technology costs related to maintaining it software and services.
Speaker Change: <unk> related costs and legal expenses.
Speaker Change: For the full year, we expect administrative expenses to be approximately seven 3% of premium.
Speaker Change: I will now turn the call over to Matt for his comments on the third quarter marketing operations.
Matt: Thank you Frank.
Matt: At American income life here, the life premiums were up 7% over the year ago quarter to $428 million and life underwriting margin was up 22% to $221 million.
Matt: In the third quarter of 2024 net life sales were $97 million up 19% from a year ago, primarily due to the strong growth in agent count.
Matt: The average producing agent count for the third quarter was 12031 and this is up 10% from a year ago. This growth is due to the ongoing recruiting efforts as well as improvement in a late new agent retention.
Matt: This agency continues to generate positive momentum.
Matt: At Liberty National Life premiums were up 6% over the year ago quarter to $94 million.
Matt: And life underwriting margin was up 63% to $45 million.
Matt: Net life sales increased 1% to $24 million and net health sales were $8 million down 6% from the year ago quarter.
Matt: The average producing agent count for the third quarter was 3794, and this is up 14% from a year ago.
Matt: Liberty National continues to generate strong agent count growth, which is driven by our investments in technology and the growth in middle management.
Matt: Despite the flat flat sales for the quarter I am very pleased and optimistic with the trends that liberty's.
Matt: The strong middle management growth has resulted in an emphasis on recruiting and training and is reflected in the continued and meaningful agent count growth for this division.
Matt: Bodes well for future sales growth.
Matt: As I've discussed before agent count growth is a leading indicator for future sales growth, we focus on year over year growth in sales and agent count and recognize it quarter to quarter results may fluctuate as the agency operations switch focus between recruiting and sales throughout the year.
Matt: In addition, I'd also point out that we had a difficult comparable this quarter as Liberty had a 31% increase in life sales and a 19% increase in health sales than a year ago quarter.
Matt: Now on to family Heritage here, the health premiums increased 8% over the year ago quarter to $108 million and health underwriting margin declined 4% to $34 million.
Matt: Net health sales were up 16% to $29 million due to an increase in agent count and agent productivity.
Matt: The average producing agent count for the third quarter was 1429 and this is up 8% from a year ago I am pleased to see that this agency's efforts in recent quarters to emphasize recruiting and middle management development are now driving agent count growth, which bodes well for growth.
Matt: In 2025.
Matt: And our direct to consumer Division at Globe life life premiums were down 1% over the year ago quarter to $246 million, while life underwriting margin increased 40% to $88 million.
Matt: Net life sales were $24 million down 9% from the year ago quarter as.
Matt: As we've previously mentioned the decline in sales is primarily due to lower customer inquiries as we did reduced our marketing spend on certain campaigns that did not meet our profit objectives. Our focus in this area is having a positive impact on our overall margin as we continue to focus on maximizing the underwriting margin.
Matt: Dollars on new sales at managing the rising advertising and distribution costs associated with acquiring new business now.
Matt: Now the value of our direct to consumer business is not only those sales directly attributable to this channel.
Matt: This significant support that is provided to our agency business through brand depressions and sales leads.
Matt: We continue to invest in our capability to generate significant lead volume that translates into sales for our agency business.
Matt: During 2025, we anticipate we will generate over 750000 leads which will be provided to our three exclusive agencies from the direct to consumer division the.
Matt: The value contributed to the agencies by the direct to consumer Division will continue to grow as we expect to see steady growth in our Omnichannel marketing approach for the globe life brands.
Matt: Now on to United American General Agency.
Matt: Here, the health premiums increased 9% over the year ago quarter to $150 million driven by strong prior year sales growth of 23% health.
Matt: Health underwriting margin was $14 million down $1 million from the year ago quarter due to higher claim costs as a result of higher utilization net.
Matt: Net health sales were $16 million down 1% over the year ago quarter.
Speaker Change: Now I'd like to move on to discuss projections now based on what we're seeing and the experience with our business. We expect the average producing agent count trends for the full year of 2024 to be as follows.
At American income, an increase of around 11% and Liberty national and increase of around 14%.
Speaker Change: And at family Heritage and increase of around 5%.
Speaker Change: Net life sales for 2024 are expected to be as follows at American income an increase of around 16% Liberty.
Speaker Change: Liberty National and increase of around 4% and direct to consumer a decrease of around 8%.
Speaker Change: Net health sales for 2024 are expected to be as follows Liberty national and increase of around 1% family heritage and increase of around 11% and United American General Agency and the increase of around 10%.
Speaker Change: Now lets discuss 2025 at the midpoint of our 2025 guidance, we expect sales growth for the full year of 2025 to be as follows.
Speaker Change: For life sales, we expect American income for high single digit growth.
Speaker Change: Pretty national low double digit growth and direct to consumer low to mid single digit growth.
Speaker Change: And on the health sales side, we expect Liberty National family Heritage and the United American General Agency to all have low double digit growth.
Speaker Change: Now before I turn the call back over to Frank for investment operations I'd like to make a few brief comments regarding the inquiries made by the FCC and the Doj that we've previously discussed.
Speaker Change: There have been no material developments and while these inquiries are still open we have responded to the requests received to date.
Speaker Change: Neither organization has asserted any claims or made any allegations against globe life, our IL and we are not aware of any actions being contemplated by the FCC or the Doj.
Speaker Change: To the extent, there's further information as share we'll update you accordingly.
Speaker Change: As we previously disclosed regarding data privacy and a threat actor extortion attempt we are working with federal law enforcement and an active investigation as.
Speaker Change: As you can understand out of respect for this process.
Speaker Change: We will not be hitting antispyware effects and have nothing further to add beyond what was included in our 8-K filing last week.
While these investigations are ongoing there has been no material impact on the company systems and business operations I'll now turn the call back to Frank.
Frank: Thanks, Matt we will now turn to investment operations.
Excess investment income, which we define as net investment income less all the required interest was $40 million up $6 million from the year ago quarter net.
Frank: Net investment income was $285 million up 7% or $18 million from the year ago quarter.
Frank: This increase is largely due to the 5% growth in average invested assets over that period.
Frank: In addition, higher interest rates also contributed to the higher growth rate.
Frank: Wired interest was up five 3% over the year ago quarter slightly higher than the 5% growth in average policy liabilities.
Frank: For the full year, we expect net investment income to grow between seven five and 8%.
Frank: Due to the combination of the favorable interest rate environment and steady growth in our invested assets while required interest is anticipated to grow around 5%.
Frank: This combination of our net investment income growing at a higher rate than our required interest resulted in the growth of excess investment income by approximately 25% to 27%.
Frank: Now regarding our investment yield.
Frank: In the third quarter, we invested $82 million in investment grade fixed maturities, primarily in the financial and industrial sectors.
Frank: These investments were at an average yield of six 2% an average rating of AA minus and an average life of 30 years.
Frank: This amount is lower than normal this quarter as we invested approximately $120 million in commercial mortgage loans as limited partnerships with that like characteristics at an average expected cash return of approximately nine 6%.
Frank: <unk> contributed $200 million of joined New company owned life insurance program, which is expected to provide enhanced risk adjusted capital adjusted returns over time.
Frank: None of our direct investments and commercial mortgage loans involved office properties.
Frank: These non fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments, while still being in line with our conservative investment philosophy.
Frank: For the entire fixed maturity portfolio.
Frank: The third quarter yield was five 5% up six basis points from the third quarter of 2023, but down one basis point from the second quarter as of September 30, the portfolio yield was $5 two 4%.
Frank: The cash yield from our commercial mortgages and limited partnerships the third quarter earned yield was 543%.
Now regarding the investment portfolio.
Frank: Invested assets are $21 $5 billion, including.
Frank: Including $19 1 billion of fixed maturities at amortized cost.
Frank: Of the fixed maturities $18 5 billion are investment grade with an average rating of a minus.
Frank: Overall, the total fixed maturity portfolio is rated a minus same as a year ago.
Frank: Our fixed maturity investment portfolio has a net unrealized loss position of approximately $743 million.
Frank: Due to the current market rates being higher than the book yield on our holdings.
Frank: As we have historically noted we are not concerned by the unrealized loss position as it is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years, we have the intent and more importantly, the ability to hold our investments to maturity.
Frank: Bonds rated triple B comprised 46% of the fixed maturity portfolio compared to 48% from the year ago quarter.
Frank: This percentage is now at its lowest level level since 2007.
Frank: A portion of our fixed maturity portfolio comprised of Triple B Securities has declined in recent periods as we have been able to find better relative value in higher rated securities given current spreads.
Frank: This ratio is still high relative to our peers. A reminder, that we have little or no exposure to higher risk assets held by many of our peers such as derivatives equities residential mortgages real estate equities Clo's and other asset backed securities.
Frank: We believe that the Triple B Securities, 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 instead of it's in but I'm not sure.
Frank: Yes.
Frank: Below investment grade bonds remained at historical lows of $556 million.
Frank: Compared to $493 million a year ago.
Frank: The percentage of below investment grade bonds to total fixed maturities is two 9%.
Frank: At the midpoint of our guidance for the full year of 2024, we expect to invest approximately one one to $1 $3 billion in fixed maturities at an average yield of five 8% to five 9% enterprise from a 4% to $500 million in commercial mortgage loans and <unk>.
Frank: Limited partnerships investments with debt like characteristics and an average expected cash return of 8% to 10%.
Frank: Also at the midpoint of our guidance, we expect the average yield earned on our fixed maturity portfolio to be around $5 two 5% for the full year 2024, and slightly lower at approximately $5 two 4% for the full year 2025.
Frank: With respect to our commercial loans limited partnerships in company owned life insurance.
Frank: Participating yield impacting net investment income to be in the range of 8% to 9% for 2024 and 7% to 8% for 2025.
Speaker Change: Now I will call the call over to Tom for his comments on capital and liquidity.
Tom Unk: Thanks, Brian.
Tom Unk: First let me spend a few minutes discussing our share repurchase program available liquidity and capital position.
Tom Unk: In the third quarter, the company repurchased approximately $5 8 million shares of Globalize, Inc. Common stock for a total cost of just over $580 million at an average share price of $100 34.
Tom Unk: To date in the fourth quarter, we have purchased approximately 190000 shares for a total cost of approximately $20 million at an average share price of $104 74.
Tom Unk: Again repurchases year to date of $9 9 million shares for a total cost of $930 million at an average share price of $93 57.
Tom Unk: For the quarter share repurchases were higher than anticipated as we took the opportunity to accelerate and increase share repurchases given the favorable market conditions and the additional capital raised during the quarter as the net proceeds from refinancing the term loan and the issuance of the senior note or about $100 million higher.
Tom Unk: Than previously assumed.
Tom Unk: Including share dividend payments of $22 million for the quarter. The company returned approximately $602 million to shareholders. During the third quarter of 2024 and has returned approximately $995 million year to date for 2024.
Tom Unk: We anticipate distributing approximately 20 $21 million to our shareholders in the form of dividend payments for the remainder of 2024.
Tom Unk: The company's excess cash flows as we define it results primarily from dividends received by the parent from its subsidiaries less the interest paid on debt and is available to return to shareholders in the form of dividends through share repurchases.
Tom Unk: At this time, given the acceleration of share repurchases during the year, we anticipate using our remaining excess cash flow to reduce our commercial paper balances to more normal levels as such at the midpoint of our guidance, we do not anticipate additional share repurchases.
Speaker Change: Now, let me provide an update on a couple of initiatives to increase available capital.
Speaker Change: During the quarter, we executed two external reinsurance transactions the.
Speaker Change: The first amended an existing financial reinsurance agreement and the second is a reinsurance agreement to reinsure approximately $460 million of our in force annuity reserves, which is anticipated to be effective on November one.
Speaker Change: These transactions are expected to provide.
Speaker Change: $100 million of additional excess cash flow at the parent by the end of the year. In addition, we continue to evaluate the opportunity to manage capital under an economic framework available in Bermuda and we expect to conclude this work in 2025.
Speaker Change: In terms of parent liquidity, the parent began the quarter with liquid assets of approximately $35 million and ended the quarter with approximately $85 million of liquid assets.
Speaker Change: We anticipate ending the year with liquid assets within our targeted range of $50 million to $60 million.
Our goal is to maintain our capital at levels necessary to support our current ratings globalized targets, a consolidated company action level RBC ratio in the range of 300% to 320%.
Speaker Change: As discussed on previous calls our consolidated RBC ratio was 314 at the end of 2023 for.
Speaker Change: For 2024, we currently estimate that no additional capital as needed to maintain our consolidated RBC target of 300% to 320%.
Speaker Change: Now with regards to policy obligations for the current quarter.
Speaker Change: As we discussed on prior calls we are included within our supplemental financial information available on our website and exhibit that details the remeasurement gain or loss by distribution channel.
Speaker Change: As a reminder, in the third quarter each year, we update both our life and health reserve assumptions. The Remeasurement exhibit provides detail on the overall impact of the assumption changes by distribution channel.
Speaker Change: For the quarter. The overall remeasurement gain of $61 million reflects a 46 billion gained from life and health assumption changes and a 15 million dollar gain from experience fluctuations in the quarter.
Speaker Change: For the quarter the life re measurement gain of $71 million resulted in lower life policy obligations 57 million was related to the assumption changes.
Speaker Change: This is higher than what we had anticipated and reflects recent experienced trends for mortality and lapses.
Speaker Change: The health Remeasurement loss of $10 million resulted in higher health policy obligations and was primarily related to assumption changes.
Speaker Change: These updated help assumptions anticipated higher future claims as a result of product changes primarily at family Heritage life and AI all designed to enhance the value of these policies to our policyholders.
Speaker Change: Now with respect to earnings guidance for 2024 for the full year 2024.
We estimate net operating earnings per diluted share will be in the range of $12 20.
Speaker Change: To $12 40.
Speaker Change: The $12 30 midpoint is higher than our previous guidance.
And reflects the favorable.
Speaker Change: The recent favorable underwriting income results and the higher share repurchases than previously anticipated for the year.
Speaker Change: With regards to 2025 guidance for the full year of 2025.
Speaker Change: We estimate net operating earnings per diluted share will be in the range of $13 20.
Speaker Change: <unk> to $13 90.
Speaker Change: Representing 10% growth at the midpoint of the range.
Speaker Change: At the midpoint of our guidance, we anticipate premium revenue growing at four 5% to 5% for life and seven 5% eight 5% for health.
Speaker Change: The anticipated underwriting margins as a percent of premiums to be in the range of 39% to 42% for life.
Speaker Change: And 26% to 28% for health.
Speaker Change: In addition.
Speaker Change: We anticipate net investment income to experience flat to low single digit growth next year and required interest to grow in the range of three to three 5% due to the reduction in assets and policy reserves related to the annuity reinsurance transaction.
Speaker Change: Although 2024 statutory results are not final for the year at this time, we anticipate parent excess cash flows available to return to shareholders in 2025 will be approximately $575 million to $625 million.
Speaker Change: This is higher than 2024 to the anticipated increases in statutory earnings in 2024 over 2023 and reflects the favorable impact of statutory valuation changes.
Speaker Change: Those are my comments I will now turn the call back to Matt.
Matt: Thank you Tom for some of our comments I am very encouraged with the company's overall operational performance and financial results. This year and I believe that we are well positioned for strong growth in 2025.
Matt: With that we'll now open up the call for questions.
Matt: <unk>.
Matt: Thank you.
Speaker Change: Like to ask a question or make a contribution on todays call. Please press star one on your telephone keypad to withdraw your question. Please press Star UBS.
Speaker Change: You'll be at wise when to ask your question.
Speaker Change: We will take our first question from Jimmy Bruno.
Speaker Change: P. Morgan Your line is open. Please go ahead.
Jimmy Bruno: Hi, Good morning. So first just a question on life margins, if we take out the remeasurement gain the margin is still better than it's been in a while and so I'm wondering if it's just an aberration than normal volatility in claims experience or are you seeing anything that would suggest that.
Jimmy Bruno: Claims there may be declining colbert or non Covid claims.
Speaker Change: Yes, Jimmy Thank you for the question.
Speaker Change: I think we're seeing of course.
Speaker Change: James improve so I think we're seeing continued favorable claims and so.
Speaker Change: We'd like to see that continue for a few more quarters, but are pleased with kind of where it's where it is right now.
Speaker Change: And then on the.
Jimmy Bruno: I thought overall your results were pretty strong the one negative was just the higher lapses in our Aif and in direct response.
Speaker Change: Any color on what's going on there and what your expectations are for those businesses.
Jimmy Bruno: Sure.
Jimmy Bruno: Important to note that lapses fluctuate from quarter to quarter.
Speaker Change: Were actually fairly pleased with the resiliency of the business in face of all that we've been going through and actually I think we are seeing an impact of some of the continued general economic conditions to our customers. So I think a L.
Jimmy Bruno: Yes.
Jimmy Bruno: In times of economic stress, we do see some higher lapses that I think the results are fairly consistent with the lapse rates, we've seen in times of economic stress. So that's kind of where kind of the way that we're thinking about it right now Jamie.
Speaker Change: And then just lastly on your guidance you mentioned no no additional share buybacks.
Speaker Change: I'm, assuming you were mentioning you were talking about 2024, but what's the buyback assumption embedded in your 2025 bps guidance.
Speaker Change: We'll give more guidance on the buyback assumption.
Speaker Change: And our next call, but we.
Speaker Change: We did kind of we did give guidance on the excess cash flows which is up about $200 million, which is indicative of some additional buybacks that we would anticipate next year as well.
Speaker Change: Yes, Jim in the cash flow number youre, referring 600 millions the number you're referring to it.
Speaker Change: Yes, yes, yes, and Jamie I would say that just to confirm that Tom's comment did relate to just for the remainder of 2024.
Speaker Change: So we do have the excess cash flow anticipated at $5 75 to six in a quarter for 2025 and again absent some other.
Speaker Change: Use of those funds we would anticipate.
Speaker Change: We'd be using those for buybacks.
Speaker Change: We will anticipate.
Speaker Change: Yes.
Speaker Change: Going back to our normal process of Hey, we've got excess cash flow coming in throughout the year.
Speaker Change: Going to evaluate the use of those funds and absent better alternative uses.
Speaker Change: Using those continuing to use those to fund buybacks.
Speaker Change: And then Jimmy I was going to say Youre correct Q4 no.
Jimmy Bruno: No more planned other than the $20 million that leads are completed so far.
Speaker Change: Okay. Thanks again.
Jimmy Bruno: Okay.
Speaker Change: We will take our next question from Wes Carmichael.
Speaker Change: And almost research your line is open with Goldman.
Speaker Change: Hey, Thanks, good morning.
Speaker Change: Army unlocking related to the assumption review and lights can you just talk about what drove.
Wes Carmichael: What drove that in terms of the assumptions I think you mentioned mortality and lapse.
Speaker Change: Is there also any impact go forward run rate earnings.
Speaker Change: Well I think.
Speaker Change: Clearly the assumption on marketing is related to <unk>.
Speaker Change: Our views are latest views of mortality and lapse and and that does actually impacts a bit of a more favorable run rate from a policy obligation perspective.
Speaker Change: So that's reflected in the guidance I gave you as far as our.
Speaker Change: Our underwriting margin ranges, so that's fully reflected within those ranges.
Speaker Change: And that makes sense I guess I guess I just think about you know theres been a string of kind of favorable re measurement gains, but like with the assumption unlocking does that kind of reset that to where you wouldn't really expect any more favorable kind of re measurement gains coming through the P&L.
Speaker Change: Yes.
Speaker Change: It does reset that the assumptions reflects our latest estimates for mortality morbidity and lapses.
Speaker Change: They are based on our observable long term trends and not just the last couple of quarters that have been favorable.
Speaker Change: So as we update and get additional experience will continue to update those assumptions.
Speaker Change: So I think we're clearly the mortality of <unk>.
Speaker Change: Expectations have improved.
Speaker Change: <unk>.
Speaker Change: In the last couple quarters near term results have been favorable right. So if they continue then we're likely to see.
Speaker Change: Those being more favorable than our long term assumptions and would result in a re measurement gains. So I think if the near term results continue we'll see some we could see some favorable re measurement gains relative to the assumptions and.
What I'd say is again, our guidance kind of anticipates.
Speaker Change: The range of the guidance anticipates, what we believe would be variations within that.
Speaker Change: I think it is really important.
Speaker Change: To think about that the assumptions.
Speaker Change: <unk> are getting reset are really based on overall long term assumptions in the modeling that we have based on our book of business and while the really the recent results are an input into that model you adult each year just reflect those assumptions based on really what we're seeing in the last few quarters. So it's.
Speaker Change: It's based on a much longer view of that and we are seeing some really favorable results right now and while clearly the long term assumptions.
Speaker Change: We think they are improved from where we were a year ago.
Speaker Change: As Tom said, if we continue to see some.
Speaker Change: Some of mortality at the levels that we're we've been experiencing in the last couple of quarters.
Speaker Change: We very well could have some remeasurement gain still in the future.
Speaker Change: Got it that's really helpful. Thank you.
Speaker Change: And then my last question I guess I think you filed an 8-K in the quarter regarding the EOC and I think the issue perhaps relates to your agents and whether they should be classified as independent contractors employees, but can you maybe just talk about where that issue stand and any other recent developments there.
Speaker Change: Don't have any significant update from what we put in there, but just as a reminder, the <unk> investigation findings are not binding and theres administrative processes.
Speaker Change: Could lead to a resolution on that and we didn't have a long history of successful outcomes, where courts have previously previously agreed with our position and determined that American income sales agents are independent contractors.
Speaker Change: And as we noted in an 8-K three of the individual complainants.
Speaker Change: Asserted title seven claims against Us and private litigation in each of those claims have been dismissed with prejudice.
Speaker Change: Thank you.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: We will take our next question from John Bonnie Piper Sandler. Your line is open. Please go ahead.
John Bonnie: Good morning, Thank you for the opportunity maybe on the actuarial assumption review.
John Bonnie: With recent headlines talking about obesity levels, having peaked are you now factoring impact from <unk>, one drugs into your forward assumptions on mortality.
John Bonnie: <unk>.
Speaker Change: Yes, John we are not factoring in.
Speaker Change: For an improvement in our mortality assumptions.
Speaker Change: From those drugs.
Speaker Change: Yes, I think that's.
Speaker Change: That's an area that.
Speaker Change: We're continuing to really look at it is steady and we will see how those actually emerge.
Speaker Change: As Tom said, we wont try to build those and from a future view and once we really start seeing the.
Speaker Change: The impact.
Speaker Change: That's how we take them into account I think one of the challenges that we have is.
Speaker Change: For our particular insured population, it's always getting as we've talked about our previous calls getting access to those types of drugs that having the affordability and availability to them. So yes.
Speaker Change: We want to make sure that it's hitting our insured base before we start working those yes.
That makes sense and my follow up question.
Speaker Change: On 25 guidance does that include.
Speaker Change: Our view on freed up capital.
Speaker Change: From our Bermuda platform and how do you view the total addressable market for that platform with global liabilities.
Speaker Change: Yes, John It does not include anything related to.
Speaker Change: Any final conclusions on Bermuda, we're still in the evaluation phase, we expect to conclude that in 2025.
Speaker Change: And then one of the benefits of Bermuda is.
Speaker Change: Does take a little bit of time to get the benefits through reciprocal jurisdiction status. That's that's required so it'll be it'll be over time that that if we conclude the move liabilities to Bermuda.
Speaker Change: We'd see benefits to it.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Andrew can you Gilman TD Cowen. Your line is open. Please go ahead.
Speaker Change: Hey, good morning.
Speaker Change: So I'm looking at.
Speaker Change: The average.
Speaker Change: Quarterly average producing agent count and.
Speaker Change: American income and Liberty 14 family Heritage.
Speaker Change: Could you give a little backdrop, I mean, I know you've touched on middle management.
Speaker Change: But how sustainable is that.
Speaker Change: Without giving guidance.
Speaker Change: And Ken can you keep adding middle management can you keep adding producers are these numbers that are one off or are they potentially sustainable over the next few years.
Speaker Change: Well, what we like to see is that growth in the middle management count because that really is the sustainable growth going forward.
Speaker Change: Does the middle managers that are out in the field recruiting training and Onboarding new agents and so that's one of the key metrics, we generally look at.
Speaker Change: And so.
Speaker Change: As we reflected more so on the sales guidance kind of have to add strong growth on the agent count side to support that.
My guidance for 2025 on the sales growth in the agencies I think saw very robust and you look at we've had quarter over quarter agent count growth, it's been sustainable, particularly at American income and Liberty.
Speaker Change: If I go back to the last quarter.
Speaker Change: Q2 American income had 13% growth in agent count.
Speaker Change: Liberty had 16% count agent count growth and in Q1.
Speaker Change: American income had 15% growth and Liberty had 14% growth. So those are all in my mind very sustainable and going forward, because it's supported by double digit management count growth underneath that.
Speaker Change: So that's why we kind of look at that agent count growth as a leading indicator to our future sales growth. So we like the momentum that we're seeing on the agent count side.
Speaker Change: It should translate well into 2025.
Speaker Change: Very helpful. And then just shifting over to the health margins.
Speaker Change: With globe, writing a lot of.
Medicare supplement.
Speaker Change: I imagine thats really what.
Speaker Change: And you hit on the margins could you talk about your ability to reprice that book.
Speaker Change: What.
Speaker Change: What you would need to go through with regulators to change the pricing.
Speaker Change: Yes.
Speaker Change: We actually.
Speaker Change: Look at rate increases look at the medical under medical trends of each year and we actually go through our book and file rates rate increases if needed with regulatory authorities, we've had really good.
Speaker Change: Results, thus far is getting those rate increases through and so we're right in the middle of that process right now and we would expect those rate increases to become effective in 2025, there is a little bit of a lag sometimes between what we see the experience of when we get the rate increases. So we are.
Speaker Change: Playing a little bit of catch up right now, but we anticipate getting the appropriate rate increases for next year.
Speaker Change: Yes, Andrew the one thing I would just add to that is just a reminder, that on that med sub business. It does have that 65% minimum loss ratio that we need to see over time, and that's where our team is really as Tom mentioned very active and just trying to make sure that we.
Speaker Change: Get our annual reviews and rate increases.
Speaker Change: Put in you can have a little bit of a lag. So if we have to have a little bit higher claims, let's just say it. This year you put in your rate increases.
Speaker Change: It should make it up next year and then it just kind of depend.
Speaker Change: Depending on how then the utilization and cost trends.
Speaker Change: Take place in the following year.
Speaker Change: Super helpful. Thanks.
Speaker Change: We will take our next question from Alice Greenspan Wells Fargo. Your line is open. Please go ahead.
Alice Greenspan: Hi, Thanks. Good morning, My first question I guess it goes back to the capital discussion you guys were considering M&A earlier in the year before the stock pulled back is there a certain level, where you would consider transactions again and then on the capital side of things is the.
Alice Greenspan: The attention that you guys will start.
Alice Greenspan: Hang back your stock.
<unk>.
Speaker Change: Started the first quarter of next year.
Speaker Change: Yes.
Speaker Change: Let me start with M&A.
Speaker Change: M&A discussion historically, we focus and have been pretty selective on things that are properties.
Speaker Change: Our target market area.
Speaker Change: We like properties that have exclusive distribution or distribution.
Speaker Change: I think that we have expertise in being able to grow as well as products and in the market that middle income market.
Speaker Change: We compete in and so that's how we kind of think about it.
Speaker Change: Those opportunities.
Speaker Change: Come along every so often and we evaluate those and so we would continue to do that in the future to the extent that it met those criteria around our strategy from an from the acquisition.
<unk> and then I think as we've mentioned earlier related to the question on <unk>.
Speaker Change: Stock buybacks, we would go through next year and more so our ratable process, where we typically execute that throughout the year and I would anticipate that we would start that in the first quarter.
Speaker Change: And then it will kind of our cash management process that we have throughout the year is that we released that is where we're getting dividends up we will start getting dividends ordinary dividends from our subsidiaries in Q1 in a battle.
Speaker Change: Again that said as we evaluate that and that's another better alternatives I would see us starting notes again in Q1.
Speaker Change: Thanks, and then.
Speaker Change: Have you guys.
Speaker Change: Ed how much of your fixed income investments are in floating rate securities and as we start to see.
Speaker Change: Perhaps it will move down a bit more wood.
Speaker Change: Would you guys.
Speaker Change: In 25 expects to invest more in some of those other investments like commercial mortgage demand limited partnerships et cetera.
So pretty much all of our commercial mortgage loans and limited partnerships are in.
Speaker Change: Floating rate investments, so that's a little bit over $1 billion that we have in those floating rate assets.
Speaker Change: Currently.
Speaker Change: Those total ultimate call alternatives to fixed investment.
Speaker Change: Our fixed income securities. It was about seven 3%, we would anticipate probably.
Speaker Change: I think in 2025, 25% or 30% of our total <unk>.
Speaker Change: Vestments acquisitions that we'd be making over the course of the year and we would probably.
Speaker Change: Somewhere close to 1 billion $5.
Speaker Change: That we would look to invest in 2025, and so again, roughly 25% or 30% of that we would anticipate being in the CML and the Lps.
Speaker Change: And so we'd be growing our exposure into those a little bit.
Speaker Change: <unk> 25 as well.
Speaker Change: And just on the liability side, we do have floating rate debt as well so our commercial paper and our term loan are both floating rate debt that kind of offsets with lower financing cost if rates were to come down a little bit right.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: We will take our next question from William up Birdies Raymond James Your line is open. Please go ahead.
Speaker Change: Yes.
Speaker Change: Thank you. Good morning could you guys just go a little bit more into what drove the negative health re measurement gain.
Speaker Change: I thought you talked about something about product changes with it little bit underpriced can you just kind of talk more detail about that thanks.
Speaker Change: Sure well.
Speaker Change: So a couple of things drive that we've had some pretty favorable health experience over the last couple of years, particularly during the pandemic and so we want to make sure that our customers are receiving.
Speaker Change: Good value from their health products, and so we're making some product changes to enhance the value of the policyholders. The other piece of that is.
Speaker Change: On family Heritage.
Speaker Change: Largely those products have return of premium benefit.
Speaker Change: That return of premium benefit is net of claims paid so as.
Speaker Change: Given we've had favorable claims experience. The return premium benefit is also a little bit more valuable so we've updated our assumptions around that as well.
Speaker Change: Yeah, one thing I, just want to clarify that.
Speaker Change: That adjustment really is on those supplemental health products underwritten by our family Heritage a little bit from Liberty and American income doesn't impact.
Speaker Change: Any of the subtle.
Speaker Change: Medicare supplement products.
Speaker Change: That we have it.
Speaker Change: United American.
Speaker Change: Okay. Thank you and then could you talk a little bit about what you guys plan to deal with the leverage over time is there a target to get back to lower 20% range.
Speaker Change: And I guess sort of related to that is it possible to call out the amount of the valuation manual change.
Speaker Change: That will be reflected in 2025 cash flow. Thanks.
Speaker Change: Yes.
Speaker Change: Well, we'll still we're still targeting 23% to 27% debt cap ratio thats kind of the range that we've historically targeted so no change in that.
Speaker Change: Then.
Speaker Change: Valuation of manual changes alright.
Speaker Change: We estimate in excess of $120 million.
Speaker Change: Benefit yes.
Speaker Change: Yes, it will.
Speaker Change: I think.
Speaker Change: We kind of project, we'd be at the top end of.
Speaker Change: That range that kind of our target range at the end of 'twenty four and then just through normal growth that was tend to come down a little bit over 25, and so there will continue to look at that as that drops.
Speaker Change: How do we think about our leverage ratios going forward.
Speaker Change: Okay. Thank you.
Speaker Change: We will take our next question from Sunil Kumar Jefferies. Your line is open. Please go ahead.
Speaker Change: Yes. Thanks, Good morning, I know you are still.
Speaker Change: Contemplating use of our Bermuda.
Speaker Change: A subsidiary of Bermuda solution, but if you decide to pull the trigger on that should we think about that capital need.
Speaker Change: Being a potential use for some of that $5, 75% to 625% cash flow to the holding company.
Speaker Change: We don't know, but I would say no I think.
Speaker Change: Our.
Speaker Change: Our opportunity with Bermuda is to move towards.
Speaker Change: And economic valuation framework, which is likely to.
Speaker Change: Release, the need for capital, so a lower asset requirements.
Speaker Change: But what we need in the in the states. So we feel that as really an opportunity to raise capital rather than use capital right.
Speaker Change: Yes, I thought you had mentioned something about it might take some time or there might be a lag before you start to see the benefits. That's why I was asking the question. The lag is just.
Speaker Change: As you move business to Bermuda.
Speaker Change: Make sure that you have appropriate collateral for reserve credit and.
Speaker Change: And so Bermuda has.
Speaker Change: What's called <unk>.
Speaker Change: Reciprocal jurisdiction status, but it takes a few accounting periods to be able to qualify for that.
Speaker Change: Status, so we wouldn't anticipate that but one is that.
Speaker Change: Included in the 575% to 625 is no anticipated benefit from any Bermuda transaction and then I think specifically for your question it really should.
Speaker Change: Take from that anything that we're going to do although we may do in Bermuda.
Speaker Change: Got it okay that makes good okay.
Speaker Change: I was just going to say and if we did move forward as Tom mentioned, we'll be completing that analysis in 'twenty five and says that the lag on the benefit is more likely in 2026 timeframe.
Speaker Change: Okay.
Speaker Change: And then I guess I just wanted to come back to the guidance.
Speaker Change: Are you assuming that you get additional re measurement gains embedded in that 2025 guidance and if you are.
Is there a way to think about how much of that 10% growth midpoint to midpoint.
Speaker Change: Is from re measurement.
Speaker Change: Yeah, what I'd say is that our range of underwriting margin results really reflects kind of our view of obligation results, which clearly will have fluctuations during the course of the year and as I've mentioned earlier.
Speaker Change: Our near term results mortality results over the last few quarters continues we're likely to see re measurement gains and so we've tried to incorporate that view in the range of our underwriting margins.
Speaker Change: In the guidance.
Speaker Change: Got it and is it sort of like bottom end of the range is no incremental remeasurement and top end of the range has is that the right way to think about it.
Speaker Change: I think that's a good way to think about it okay.
Speaker Change: Right.
Speaker Change: Great. Thank you.
Speaker Change: Okay.
Speaker Change: We will take our next question from Tom Gallagher Evercore. Your line is open. Please go ahead.
Tom Gallagher: Good morning.
Tom Gallagher: First question just on the on the Bermuda capital.
Tom Gallagher: Possibility potential.
Tom Gallagher: Or are we talking about a few hundred million dollars of capital that might get freed up or do you think it might be much larger than that I. Just just wanted to get a broad sense for how consequential that might be.
Speaker Change: That's exactly the work that we're going through right. Now is just what is the opportunity. There are liabilities are long and in an economic framework sometimes.
Speaker Change: The requirements with with regards to long duration liabilities and asset portfolio, that's a little bit shorter those benefits aren't as big as what might be.
Speaker Change: Expected. So that's really where the evaluation is what is the potential there and that's kind of be the decision point as far as whether we move forward or not.
Speaker Change: Got it so thats still youre not youre not far along enough in the process to really get a sense for the range just yet is that fair correct correct right and they will evaluate it.
Speaker Change: Okay.
Speaker Change: As we think about.
Speaker Change: Your new assumptions are after going through the actuarial review are you still assuming some level of excess mortality persists here or have you pretty much eliminated that now are you assuming we're back to pre pandemic level going forward.
Speaker Change: Yes, we're not really back to pre pandemic levels at this point.
Speaker Change: We see causes that continued to be higher than pre pandemic levels. So we haven't we don't necessarily have an explicit.
Speaker Change: Assumption for excess mortality, what we've tried to do is build built into our assumption. Our current best view is as far as mortality and lapses.
Speaker Change: At the point in time based upon long term.
Long term experience that we've had and we'll continue to update as near term experience emerges.
Speaker Change: Got you and then just two other quick ones if I could.
Speaker Change: So if I heard you correctly to answer a wellness question.
Speaker Change: It sounds like we'll call it the sustainable amount of free cash flow that you expect to emerge in 2025 would be in the high $400 million range, maybe like $480 million. After you back out the benefit from the.
Speaker Change: The valuation changes is that is that about the right level to think about right now.
Speaker Change: I think we are.
Speaker Change: Maybe a little higher than that.
Speaker Change: Just because of them.
Speaker Change #100: I think the valuation metal changes, we will have continued benefit in 2025 that will carry into 2026. So I do think that there are some I think there'll be diminished over time, but I think there will be some additional benefits in the future.
Speaker Change #101: Got it so there's a little bit of a tail on that that process.
Speaker Change #101: There is.
Speaker Change #103: Okay, and then finally, just how much is the.
Speaker Change #104: Term loan pay down that you expect to do in Q4.
Speaker Change #104: I don't think its a term loan pay down just looking at reducing some of the commercial paper balances. So would you see that Ed.
Speaker Change #104: Popped up in Q3 as we were.
Speaker Change #104: Using that to I'm going.
Speaker Change #105: Say pre fund some of the repurchases into Q3, so we would anticipate bringing that down in that.
Speaker Change #104: <unk>.
Speaker Change #104: Sure.
Speaker Change #104: <unk>.
Speaker Change #104: $4 million $50 million to $100 million.
Speaker Change #104: Got you okay. Thank you.
Speaker Change #106: We will take our next question from Ryan Krueger <unk>. Your line is open. Please go ahead.
Ryan Krueger: Hey, Thanks, good morning.
Speaker Change #106: The admin expenses.
Ryan Krueger: They were pretty elevated in the quarter I think it looks like theyre going to be higher in the fourth quarter or two can you comment on what exactly is driving that and what is your expectation for 2025.
Yes.
Speaker Change #106: Got it.
Speaker Change #106: Yes.
Speaker Change #106: So.
Speaker Change #108: Admin expenses were higher than what we had anticipated.
Speaker Change #108: We are seeing a little bit higher employee costs.
Speaker Change #108: Included benefit costs.
Speaker Change #108: A bit more technology costs as we move to software as a service.
Speaker Change #108: As well as a.
Speaker Change #108: A little bit higher legal expenses.
Speaker Change #108: We see it.
Speaker Change #108: We've seen in the third quarter and we'd expect to continue in the third quarter and the fourth quarter as well. So those are kind of some of the reasons why we're a little bit higher than what we had anticipated.
Speaker Change #109: One thing I would add to that Ryan is when do we think about it as a big driver of that and we've really been making.
Speaker Change #109: A lot of investments over the last.
Speaker Change #109: Few years last couple of years, especially as we do think around Britain improve.
Speaker Change #109: Improving our data analytics capabilities and data management and a lot of that is moving it up outside.
Speaker Change #109: Two cloud and for them the cost of that are running higher as we think of that software as a service and.
Speaker Change #109: Rhetoric space out there if you will.
Speaker Change #109: But then we're really focused on in this and our admin areas around improving our customer experience and the digital experience and so we've had a lot of.
Speaker Change #109: Software applications and hardware involved with that and our policy administration, improving our customer service.
Speaker Change #109: Well those things setup.
Speaker Change #109: Came online here.
Speaker Change #109: In 2024.
Speaker Change #109: And so thats whats kind of really driving that.
Speaker Change #109: A decent portion of the bump.
Speaker Change #109: We think a 23% to 24.
Speaker Change #109: As we look forward to 'twenty five.
Speaker Change #109: We do see a probably drawing I think the admin as a percentage of premiums still being run at seven 4%. So roughly the same as where we have some roughly kind of growing if you will with premium growth.
Speaker Change #109: That's really what are our goals are to make sure we're keeping that as manageable as possible as we kind of.
Speaker Change #109: And making sure that we are realizing the value for some of these investments as well.
Speaker Change #110: Got it thanks and then.
Speaker Change #111: On the reinsurance you mentioned.
Speaker Change #112: I guess is there any cost we should be considering of doing so and do you see any additional opportunities for for reinsurance.
Speaker Change #112: I don't think I don't.
Speaker Change #112: Yes.
Speaker Change #113: Are there any clear cost that I think should be reflected so and I think we'll just continue to evaluate reinsurance.
Speaker Change #112: As we look at it.
Speaker Change #112: Capital alleging risk overall for the organization.
Speaker Change #114: Okay, great. Thanks.
Speaker Change #115: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
Speaker Change #115: Take our next question from Jimmy <unk>.
Speaker Change #117: J P. Morgan Your line is open. Please go ahead.
Jimmy Bruno: Hi, I just had a couple of other questions.
Jimmy Bruno: One is on <unk>.
Speaker Change #118: The med sup.
Speaker Change #118: Business It seems like land levels for many sea and air products Senior health products have increased.
Speaker Change #118: For a number of your peers in the health insurance and Theyre going to be higher this enrollment from med advantage plan. So are you seeing any of that.
Speaker Change #118: <unk> sure if that does happen should this helped sales of med sup lens.
Speaker Change #118: But to the extent.
Speaker Change #118: I think we've seen that in the past to the extent there is some disruption on the Medicare advantage side, there's typically a benefit for the Medicare supplement market.
Speaker Change #118: As you continue to see some of that disruption currently and we think that could be a tailwind for us over the coming periods. So.
Speaker Change #118: Little bit of wait and see that market as you know definitely volatile but.
Speaker Change #118: To the extent you see dis enrollments there it could benefit us on our Medicare supplement side.
Speaker Change #118: And then just lastly, you've had.
Elevated legal expenses.
Speaker Change #118: Not as part of operating but in net income.
Speaker Change #118: Fair to assume that that continues in the short term and if it does I'm assuming that that's not included in the or.
Speaker Change #118: Free cash flow numbers.
Speaker Change #119: Yes, I mean I do think.
Speaker Change #119: Jimmy that it probably will we do anticipate that it's probably going to continue.
Speaker Change #119: At some elevated levels.
Speaker Change #119: Here at least for the short term, there's really has been kind of a change in just how some of.
Speaker Change #119: The legal cases are being worked and becoming more complex in the system and just taking longer to resolve and adjudicate which are driving up.
Speaker Change #119: Some of those costs as well.
Speaker Change #119: And so it is actually.
Speaker Change #119: Reflected in our overall thoughts around access to our excess cash flows.
Speaker Change #119: Okay.
Speaker Change #120: Right. Thank you.
Speaker Change #121: Yes, no further question on the line. So I'll now hand, you back to the host for closing remarks.
Speaker Change #122: Alright. Thank you for joining us. This morning, those are our comments and we will talk to you again next quarter.
Speaker Change #122: Okay.
Speaker Change #122: [music].