Q2 2025 Globe Life Inc Earnings Call
Operator: earnings release call.
Laura: My name is Laura and I will be your coordinator for today's call. Please note this call is being recorded and for the duration of the call your lines will be on listen-only mode, however you will have the opportunity to ask at the end of the call. This can be done by pressing star 1 on your telephone keypad to register. If you require assistance at any point, please press star zero and you will be connected to an operator.
Hello and welcome to Global Life Inc. Second quarter, earnings release call. My name is Laura and I will be your coordinator for today's event. Please note, this call is being recorded and for the duration of the call, your lines will be unlisted and limo. However, you will have the opportunity to ask questions at the end of the call.
Stephen Mota: I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations, to begin today's conference. Thank you.
This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Stephen motor, senior director of investor relations to begin today's conference. Thank you.
Stephen Mota: Joining the call today are Frank Svoboda and Matt Darden, our co-Chief Executive Officers, Tom Kalmbach, our Chief Financial Officer, Mike Majors, our Chief Strategy Officer, and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements they provided for general guidance purposes only.
Stephen Mota: Accordingly, please refer to our earnings release 2024-10-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.
Frank Soda: Thank you. Good morning everyone. Joining the call today at Frank soda in Matt, Dourdan our code, chief executive officers, Tom kalmbach our Chief Financial Officer, Mike Majors, our chief strategy officer and Brian Mitchell. Our general counsel. Some of our comments are answers to your questions. May contain forward-looking statements, they provided for General guidance purposes. Only accordingly. Please refer to our earnings release 2024 10K and any subsequent forms 10 to you on file with the FCC.
Frank Svoboda: I will now turn the call over to Thank you, Stephen, and good morning, everyone.
Frank Soda: Some more comments may also contained on 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.
Frank Svoboda: In the second quarter, net income was $253 million, or $3.05 per share, compared to $258 million, or $2.83 per share, a year ago. Net operating income for the quarter was $271 million, or $3.27 per share, an increase of 10% over the $2.97 per share from a year ago.
Frank Soda: Thank you, Stephen, and good morning everyone.
Frank Soda: In the second quarter, net income was 253 million or 3.5 cents per share compared to 258 million or 2.83 cents per share a year ago.
Frank Svoboda: On a GAAP-reported basis, return on equity through June 30 is 18.8%, and book value per share is $66.07. Excluding Accumulated Other Comprehensive Income, or AOCI, return on equity is 14.4%, and book value per share as of June 30th is $90.26, up 10% from a year ago.
Frank Soda: Net operating income for the quarter was 271 million or 3.27 cents per share an increase of 10% over the $2.97 cents per share from a year ago.
Frank Soda: On a gap reported basis return on Equity through June 30th is 18.8% and book, value per share is $66.77.
Frank Svoboda: In our life insurance operations, premium revenue for the second quarter increased 3% from the year-ago quarter to $840 million. Life underwriting margin was $340 million, up 6% from a year ago. driven by premium growth and lower overall policy obligations. For the year, we expect life premium revenue to grow around 3.5%. As a percent of premium, we anticipate life underwriting margin to be between 43 and 45 percent, which is higher than our previous estimate due to continued favorable mortality.
Frank Soda: Excluding accumulated, other comprehensive income or aoci return on Equity is 14.4% and book, value per share. As of June 30th is $90.26 up 10% from a year ago.
Frank Soda: In our life insurance operations, premium. Revenue for the second quarter increased 3% from the year ago, quarter to 840 million
Frank Soda: Life underwriting margin was 340 million up 6% from a year ago.
Frank Soda: Driven by premium growth and lower overall policy obligations.
Frank Soda: for the year, we expect life premium Revenue to grow around 3.5%
Frank Svoboda: In health insurance, premium revenue grew 8% to $378 million while health underwriting margin was down 2% to $98 million due primarily to higher obligations than the year-ago period at United Americans.
Frank Soda: As a percent of Premium we anticipate life underwriting margin to be between 43 and 45% Which is higher than our previous estimate due to continued. Favorable mortality
Frank Svoboda: Tom will talk more about the Medicare supplement business in his comments, but I would like to point out here that we saw a slight reduction in utilization from the first quarter to the second quarter, resulting in an underwriting margin at United American as a percent of premium at the high end of our expectation.
Frank Soda: In health insurance, premium Revenue grew 8% to 378 million. While Health underwriting margin was down 2% to 98 million due primarily to higher obligations than the year ago period at United American.
Frank Svoboda: For the year, we expect health premium revenue to grow in the range of 8 to 9 percent and anticipate health underwriting margin as a percent of premium to be between 25 and 27 percent.
Frank Svoboda: Administrative expenses were $86 million for the quarter, an increase of approximately 5 percent over the second quarter of 2024. As a percent of premium, administrative expenses were 7.1 percent.
Frank Soda: For the year, we expect Health premium Revenue to grow in the range of 8 to 9% and anticipate Health underwriting margin as a percent of Premium to be between 25 and 27%.
Frank Soda: Administrative, expenses were 86 million for the quarter, an increase of approximately 5% over the second quarter of 2024.
Frank Svoboda: For the year, we expect administrative expenses to increase by about 4% over 2024 and be approximately 7.3% of premium, lower than noted on the last call.
Frank Soda: As a percent of Premium administrative expenses were 7.1%.
Matt Darden: I will now turn the call over to Matt for his comments on the second quarter marketing operation. Thank you, Frank.
Speaker Change: For the year, we expect administrative expenses to increase by about 4%, over 2024, and be approximately 7.3% are premium lower than noted on the last call. I will now turn the call over to Matt for his comments on the second quarter of marketing operations.
Matt Darden: I'd like to start by addressing recent agent count trends. Each of the exclusive agencies increased average agent count from the first quarter to the second quarter for a combined sequential growth rate of 6%, resulting in an average total agent count of 17,621 for the second quarter. We've seen strong results over the past several months in agent recruiting and onboarding.
Matt Dourdan: Thank you Frank. I'd like to start by addressing
Matt Dourdan: Recent agent, count Trends, each of the exclusive agencies increased average agent count from the first quarter to the second quarter for a combined sequential growth rate of 6% resulting in an average total agent count of 17,621, for the second quarter.
Matt Darden: While rapid increases in new agents can have an impact on productivity in the short term, this bodes well for sustainable future growth. The exclusive agencies are the strength of Globe Life, and the ability to maintain and grow an exclusive agency force is a core competency of our company. While we frequently see short-term fluctuations, there is a very close correlation between sales and agent count over the long term.
Matt Dourdan: We've seen strong results over the past, several months, in agent, recruiting and onboarding, while rapid increases in new agents, can have an impact on productivity in the short term this bodes well for sustainable future growth.
Matt Dourdan: The exclusive agencies are the strengths of global life and the ability to maintain and grow. An exclusive agency force is a core competency of our company.
Matt Darden: Now I'll discuss each of the distribution channels.
Matt Dourdan: While we frequently see short-term fluctuations, there is a very close correlation between sales and agent count over the long term.
Matt Darden: At American Income Life, life premiums were up 5% over the year-ago quarter to $446 million, and the life underwriting margin was up 6% to $205 million. In the second quarter of 2025, net life sales were $96 million, up 2% from a year ago.
Matt Dourdan: Now, I'll discuss each of the distribution channels.
Matt Darden: And as a reminder, we had a difficult comparable this quarter as American income had a 16% increase in life sales in the year-ago quarter. The average producing agent count for the second quarter was 12,241, up 3% from a year ago. I am confident we will continue to see growth in this agency as we move forward.
Matt Dourdan: At American Income Life, Life premiums were up 5% over the year ago, quarter to 446 million and the life underwriting margin was up. 6% to 205 million in the second quarter of 2025 Net. Life. Sales were 96 million of 2% from a year ago
Speaker Change: And as a reminder, we had a difficult comparable, this quarter as American Income had a 16% increase in life sales in the year ago quarter.
Speaker Change: The average producing agent count for the second quarter was 122,241 up 3% from a year ago.
Matt Darden: At Liberty National, the life premiums were up 5% over the year-ago quarter to $97 million. and the life underwriting margin was up 8% to $33 million. Net life sales decreased 5% to $25 million, and net health sales were $8 million, down 2% from the year-ago quarter.
Speaker Change: I am confident. We will continue to see growth in this agency as we move forward.
Speaker Change: At Liberty, National the life. Premiums were up 5% over the year ago, quarter to 97 million
Speaker Change: and the life underwriting margin was up 8% to 33 million.
Matt Darden: The decreases were primarily due to lower agent productivity. Additionally, we had a higher comparable this quarter as Liberty National had an 11% increase in life sales in the year-ago quarter. The average producing agent count for the second quarter was 3,882, up 5% from a year ago. Liberty National continues to have positive agent count growth, which is a good leading indicator for continued sales growth.
Speaker Change: Net Life sales decreased 5% to 25 million and net Health sales were 8 million down 2% from the year ago quarter.
Speaker Change: The decrease in primarily due to lower agent productivity.
Speaker Change: Additionally, we had a higher comparable this quarter as Liberty National had an 11% increase in life sales in the year ago quarter.
Speaker Change: The average producing agent count for the second quarter was 3,882 up 5% from a year ago.
Speaker Change: Liberty National continues to have positive agent, count growth, which is a good leading indicator for continued sales growth.
Matt Darden: At Family Heritage, the health premiums increased 9% over the year-ago quarter to $116 million and the health underwriting margin increased 12% to $41 million. Net health sales were up 20% to $30 million due to an increase in agent count and productivity. The average producing agent count for the second quarter was 1,498, up 10% from a year ago.
Speaker Change: At Family Heritage the health premiums increase 9% over the year. Go quarter to 116 million
And the health underwriting margin increased 12% to 41 million.
Speaker Change: Net, Health sales were up 20% to 30 million due to an increase in agent, count and productivity.
Matt Darden: And I'm excited to see this continued growth, as this is four consecutive quarters of strong agent count growth for Family Heritage.
Speaker Change: The average producing agent count for the second quarter was 1498 up 10% from a year ago.
Matt Darden: Now in our direct-to-consumer division, here the life premiums were down 1% over the year-ago quarter to $246 million. while life underwriting margin increased 8% to $69 million. Net life sales were $31 million.
Speaker Change: And I'm excited to see this continued growth as this. This is 4 consecutive quarters of strong agent, count growth for family heritage
Speaker Change: Now, in our direct to Consumer division, here are the life premiums. We're down 1% over the year ago, quarter to 246 million.
Speaker Change: While life underwriting margin increased 8% to 69 million.
Matt Darden: And this is up 2% from the year ago quarter and up 24% from the first quarter. I am very pleased to see these results as this is a turnaround of a declining trend in recent years.
Speaker Change: Net Life sales were 31 million and this is up 2% from the year ago quarter and up 24% from the first quarter.
Matt Darden: As we mentioned on the last call, we have been working on implementing new technology to enhance our underwriting automation. This technology is helping improve the conversion of inquiries into sales. The resulting improvement in return on marketing investment could allow us to reinstate some of the marketing campaigns that were discontinued in the past due to high marketing costs.
Speaker Change: I am very pleased to see these results as this is a turnaround of a declining Trend in recent years.
Speaker Change: As we mentioned on the last call, we have been working on implementing new technology to enhance our underwriting automation.
Speaker Change: This technology is helping improve the conversion of inquiries into sales, the resulting Improvement in return on marketing investment,
Matt Darden: Now as a reminder, the value of our direct-to-consumer business is not only those sales directly attributable to this channel, but the significant support that is provided to our agency business through brand impressions and sales leads. We expect this division to generate approximately 1 million leads during 2025, which will be provided to our three exclusive agencies. Improved conversion of our direct-to-consumer leads across the enterprise will allow us to increase our marketing spin and increase future lead volume and marketing campaigns.
Speaker Change: In the past due to high marketing cost.
Speaker Change: And I was a reminder the value of our direct to Consumer business is not only those sales directly attributable to this channel, but the significant support that is provided to our agency. Business through brand Impressions and sales leads.
Speaker Change: We expect this division to generate approximately 1 million leads during 2025.
Which will be provided to our 3 exclusively.
Improved conversion of our direct to Consumer leads. Across the Enterprise will allow us to increase our marketing, spend and increase future lead volume and marketing campaigns.
Matt Darden: Now on to United American General Agency. Here, the health premiums increased 10% over a year ago quarter to $164 million. And this is driven by strong prior year sales growth and premium rate increase.
Matt Darden: Health underwriting margin was $12 million, down $4 million from the year-ago quarter due to higher claim costs. Net health sales were $25 million, up approximately $7 million over the year-ago quarter. We continue to see strong individual Medicare supplement sales activity.
Speaker Change: Now on to United American General agency here are the health premiums increase 10% over a year ago, quarter to 164 million and this is driven by prior Year Strong prior year sales growth and premium rate increases.
Health underwriting margin was 12 million down 4 million from the year go quarter due to higher claim costs.
Net Health sales were 25 million up approximately 7 million dollars over the year ago quarter.
Matt Darden: Now I'd like to discuss projections and based on these recent trends in our experience with our business. We expect the average producing agent count trends for the full year 2025 to be as follows. At both American Income and Liberty National, mid-single-digit growth. At Family Heritage, high-single to low-double-digit growth.
Speaker Change: We continue to see strong individual Medicare supplement sales activity.
Speaker Change: Now, I'd like to.
Speaker Change: Projections and based on these recent Trends in our experience with our business.
Speaker Change: We expect the average producing agent count trends for the full year 2025 to be as follows.
Speaker Change: At both American Income and Liberty National mid, single digit growth.
Matt Darden: Net life sales for 2025 are expected to be as follows. At American Income and Liberty National, both mid single-digit growth. Direct-to-consumer, low single-digit growth.
Speaker Change: At Family Heritage High single to low double digit growth.
Speaker Change: Now, life sales for 2025 are expected to be as follows.
Matt Darden: Net health sales for 2025 are expected to be as follows. Liberty National, Mid-Single-Digit Growth Family Heritage, Low-Double to Mid-Teens Growth, and United American Double-Digit Growth.
Speaker Change: At American Income and Liberty National, both mid single digit growth, direct to Consumer low, single digit growth.
Net health, health sales for 2025 are expected to be as follows.
Speaker Change: Liberty. National mid single-digit growth.
Frank Svoboda: I'll now turn the call back to Frank. Thanks, Matt.
Speaker Change: Family, Heritage low, double to Mid teens growth and it United American double digit growth.
Frank Svoboda: We'll now turn to the investment operation. Excess investment income, which we define as net investment income, less only required interest, was $35 million, down approximately $8 million from the year-ago quarter. Net investment income was $282 million, down 1%, and average invested assets were relatively flat. Required interest is up approximately 2% over the year-ago quarter, consistent with growth in average policy liability.
Frank Soda: I'll now turn the call back to Frank.
Frank Soda: Thanks Matt.
Frank Soda: We'll now turn to the investment operations.
Speaker Change: Excess investment income which we Define as net investment income. Let's only required interest with 35 million down approximately 8 million dollars from the year ago quarter.
Speaker Change: Net investment income was 282 million, down 1%, and average invested assets were relatively flat.
Frank Svoboda: The growth in average invested assets and average policy liabilities are lower than normal, primarily due to the impact of the annuity reinsurance transaction in the fourth quarter of last year, which involved approximately $460 million of annuity reserves being transferred to a third party, along with supporting invested assets. Net investment income was also negatively impacted by lower average earnings rates on our commercial mortgage loans and limited partnership investments in the current quarter as compared to a year ago.
Speaker Change: required, interest is up approximately 2% over the year ago, quarter consistent with growth in average policy liabilities
Speaker Change: The growth in average invested assets and average policy liabilities are lower than normal primarily, due to the impact of the annuity reinsurance transaction in the fourth quarter of last year, which involved the approximate 400660 million of annuity. Reserved being transferred to a third party along with supporting invested assets.
Frank Svoboda: For the full year 2025, we expect net investment income to be up about 1% and required interest to grow around 2.5%, resulting in a decline in excess investment income of around 10-15% for the year. While the growth in average invested assets will be lower than normal for the full year due to the impact of the annuity reinsurance transaction last year, as well as higher dividend distribution from the insurance companies, we do anticipate sequential growth in the third and fourth quarters, which should set us up well for more normalized growth in 2026.
Net investment income with also negatively impacted by lower average, earnings rates on our commercial mortgage loans, and limited partnership investments in the current quarter as compared to a year ago.
Speaker Change: For the full year 2025, we expect net investment income. To be up about 1% and required interest to grow around 2 and a half percent resulting. In a decline in excess investment income of around 10 to 15% for the year.
Speaker Change: While the growth in average invested assets will be lower than normal for the full year, due to the impact of the annuity reinsurance transaction last year as well as higher dividend distributions from the insurance companies.
Speaker Change: We do anticipate sequential growth in the third and fourth quarters, which should set us up. Well, for more normalized growth in 20126.
Frank Svoboda: Now regarding our investment yields. In the second quarter, we invested $263 million in investment-grade fixed maturities, primarily in the industrial and financial sectors. These investments were at an average yield of 6.44%, an average rating of A, and an average life of 34 years. We also invested $68 million in commercial mortgage loans and limited partnerships with debt-like characteristics and an average expected cash return of approximately 9.7%. None of our direct investments in commercial mortgage loans involve office property. These non-fixed maturity investments are expected to produce additional cash yields over our fixed maturity investments, while still being in line with our conservative investment philosophy.
Speaker Change: Now, regarding our investment yields.
Speaker Change: In the second quarter, we invested 263 million in investment grade fixed maturities, primarily in the industrial and financial sectors.
These Investments were at an average yield of 6.44%.
Speaker Change: And average rating of a and an average life of 34 years.
We also invested 68 million in commercial mortgage loans, and limited Partnerships with debt like characteristics and an average expected cash return of approximately 9.7%.
None of our direct investments in commercial mortgage loans, involve office properties.
Frank Svoboda: For the entire Fixed Maturity Portfolio, the second quarter yield was 5.29%, up three basis points from the second quarter of 2024. As of June 30th, the portfolio yield was 5.26%. Including the investment income from our commercial mortgage loans and limited partnerships, the second quarter earned yield was 5.38%.
Speaker Change: These non-fixed maturity Investments are expected to produce additional cash, yields over our fixed maturity Investments, while still being in line with our conservative investment philosophy.
Speaker Change: % of 3 basis points from the second quarter of 2024.
Speaker Change: As of June 30th, the portfolio yield was 5.26%.
Speaker Change: Including the investment income from our commercial mortgage loans and limited Partnerships. The second quarter earned yield was 5.38%.
Frank Svoboda: Now regarding the investment portfolio. Invested assets are $21.5 billion, including $18.9 billion of fixed maturities at amortized costs. Of the fixed maturities, $18.4 billion are investment grade with an average rating of A-. Overall, the total fixed maturity portfolio is rated A-, the same as a year ago. Our Fixed Maturity Investment Portfolio has a net unrealized loss position of approximately $1.6 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, as it is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years.
Now, regarding the Investment Portfolio.
Invested assets are 21.5 billion, including 18.9 billion dollars of fixed maturity at a time cost.
Speaker Change: Of the fixed maturities. 18.4 billion are investment grade with an average rating of a minus.
Overall, the total fixed maturity portfolio is rated A minus the same as a year ago.
Speaker Change: Our fixed maturity Investment. Portfolio has a net net. Unrealized loss position of approximately 1.6 billion dollars due to the current market rates being higher than the book yield on our Holdings.
Frank Svoboda: We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprise 44% of the fixed maturity portfolio, compared to 46% from the year-ago quarter. This percentage is at its lowest level since 2006. As we have discussed on prior calls, we believe the BBB 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 interest rates or equity markets. While the percent of our invested assets comprised of BBB bonds might be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets, such as derivatives, equities, residential mortgages, CLOs, and other asset-backed securities.
Speaker Change: As we have historically noted, we are not concerned by the unrealized loss position and it is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years.
Speaker Change: We have the intent and more importantly, the ability to hold our investments to maturity.
Speaker Change: bonds, rated, Triple B comprised, 44% of the fixed maturity portfolio, compared to 46% from the year ago quarter
Speaker Change: This percentage is at its lowest level. Since 2006.
Speaker Change: As we have discussed on prior calls, we believe 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 interest rates or Equity markets.
Speaker Change: while the percent of our invested assets comprised of triple bonds might be a little higher than some of our peers, remember that we have little or no exposure to other higher risk assets
Frank Svoboda: The low-investment-grade bonds remain at historical lows at $503 million, compared to $564 million a year ago. The percentage of below investment grade bonds to total fixed maturities is just 2.7%. are below investment grade bonds as a percent of equity, excluding AOCI, are at their lowest level in over 30 years.
Such as derivatives equities Residential, Mortgages, Coos and other asset backed securities.
Speaker Change: The low investment grade bonds remain at a historical lows at 503 million compared to 564 million a year ago.
Speaker Change: the percentage of below investment grade bonds to Total fixed maturities is just 2.7%
Frank Svoboda: While there are clearly uncertainties as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn. Due to the long duration of our fixed policy liabilities, we invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles.
Speaker Change: Our below investment grade bonds, as a percent of equity, excluding aoci, or at their lowest level, in over 30 years.
Well there are clearly uncertainties as to where the UF economy is headed. We are well positioned to a stand a significant economic downturn.
Due to the long duration of our fixed policy, liabilities, we invest in long-dated assets.
Frank Svoboda: In addition, we have very strong underwriting profits and long-dated liabilities, so we will not be forced to sell any of our bonds in order to pay claims. With respect to our anticipated investment acquisitions for the full year, at the midpoint of our full year guidance, we assume investment of approximately $900 million to $1 billion in fixed maturities at an average yield of around 6.2%.
Speaker Change: As such a critical and foundational part of our investment. Philosophy is to invest in entities, that can survive through multiple economic Cycles.
Speaker Change: In addition, we have very strong underwriting, profits and long-dated liabilities
Speaker Change: So we will not be forced to sell any of our bonds in order to pay claims.
Frank Svoboda: and approximately $200 to $300 million in commercial mortgage loans and limited partnership investments with debt-like characteristics at an average expected cash return of 7 to 9 percent.
Speaker Change: With respect to our anticipated investment Acquisitions for the full year at the midpoint of our full year guidance. We assumed investment of approximately 900 million to 1 billion dollars in fixed app, fixed maturities and an average yield of around 6.2%.
Tom Kalmbach: Now, I will turn the call over to Tom for his comments on capital and liquidity. Thanks, Frank. I'll spend a few minutes discussing our available liquidity, share repurchase program, and capital positions. The parent began the quarter with liquid assets of approximately $90 million and ended the quarter with approximately $105 million of liquid assets. We anticipate concluding the year with liquid assets in the range of $50 million to $60 million. For the second quarter, the company repurchased approximately 1.9 million shares of Globe Life common stock for a total cost of approximately $226 million at an average share price of $121.13.
Speaker Change: And approximately 200 to 300 million dollars in commercial mortgage loans, and limited partnership. Investments with Deadlight characteristics, add an average expected cash, return of 7 to 9%,
Tom Kalmbach: Now, I will turn the call over to Tom for his comments on Capital and liquidity.
Tom Kalmbach: Thanks Frank. I'll spend a few minutes discussing our available liquidity share purchase program and capital position.
The parent began the quarter with liquid assets of approximately 900 million and ended the quarter with approximately 105 million of liquid assets.
Tom Kalmbach: We anticipate including the year with liquid assets, in the range of $50 million to $60 million.
Tom Kalmbach: Thus, including shareholder dividend payments of $22 million for the quarter, the company returned almost $250 million to shareholders during the second quarter of 2025. This amount is greater than what we indicated on the prior call as we took advantage of declines in the price of our stock which created market conditions more favorable for repurchases during the quarter. The parent's liquid assets at the end of the quarter, along with excess cash flow expected to be generated for the second half of the year, will provide the parent with $240 million to $290 million that we expect to return to shareholders in the form of dividends or share repurchases after meeting the anticipated needs of the parent.
Tom Kalmbach: For the second quarter, the company repurchased approximately 1.9 million shares of global life, common stock for a total cost of approximately 226 million at an average share price of 121.113.
Tom Kalmbach: Thus, including shareholder dividend payments of 22 million for the quarter, the company returned, almost 250 million to shareholders during the second quarter of 2025.
Tom Kalmbach: This amount is greater than what we indicated on the prior call. As we took advantage of declines in the price of our stock, which could be created market conditions, more favorable for repurchases, during the quarter,
Every purchases after meeting the anticipated needs of the parent.
Tom Kalmbach: We will continue to 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 flow after the payment of shareholder dividends. We also intend to reduce the outstanding commercial paper balances over the course of the year to be more aligned with historical levels.
Tom Kalmbach: We will continue to use our cash as efficiently as possible.
We still believe that share repurchases provide the best returner yield to our shareholders over other available alternatives.
Thus we anticipate share repurchases will continue to be the primary use of the parents excess, cash flow after the payment of shareholder dividends.
Tom Kalmbach: For the full year, we anticipate share repurchases will total $600 million to $650 million, and we intend to distribute $80 million to $90 million to our shareholders in the form of Remaining share repurchases will be spread over the remainder of the year with approximately $100 million to $125 million expected in the third quarter.
Tom Kalmbach: We also intend to reduce the outstanding commercial paper, balances over the course of the year to be more aligned with the historical levels.
Tom Kalmbach: for the full year, we anticipate share repurchases will total 600 million to 650 million and we intend to distribute, 80 million to 90 million dollars to our shareholders, in the form of dividends,
Tom Kalmbach: Remaining share repurchases will be spread over the remainder of the year with approximately 100 million to 125 million expected in the third quarter.
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 issue new insurance policies, implement new technologies, and enhance operational capabilities and modernize existing information technology, as well as to acquire new long-duration assets to fund their future cash needs.
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 issue new insurance policies. Implement, new technologies, and enhance, operational capabilities and modernize existing Information Technology as well as to acquire new long duration assets to fund their future cash needs.
Tom Kalmbach: At the beginning of the third quarter, we strengthened our financial preparedness through the issuance of a 30-year, $500 million contingent capital funding arrangement. This arrangement complements our existing capital resources and enhances our financial flexibility by providing an additional source of committed long-term capital, regardless of capital market and economic conditions. This transaction has no impact on the company's debt and has financing costs of just under nine million dollars pre-tax per full year. Overall, we believe that financial strength is paramount to our company's success, and this arrangement will simply add to our already strong capital generation capabilities that exist within our insurance company.
At the beginning of the third quarter, we strengthened our financial preparedness through the issuance of a 30 year million dollar contingent Capital funding arrangement.
This Arrangement complements our existing capital resources and enhances our financial flexibility by providing additional source of committed long-term capital regardless of Capital Market and economic conditions.
This transaction has no impact on the company's debt.
And has financing costs of just under 9 million dollars, pre-tax portfolio.
Tom Kalmbach: Overall, we believe that Financial strength is Paramount to our company's success, and this Arrangement will simply add to our already strong Capital generation capabilities that exist within our insurance companies.
Tom Kalmbach: With regards to the capital of our insurance subsidiaries. Our goal is to maintain capital within our insurance operations at levels necessary to support our current rating. targets a consolidated company action level RBC ratio in the range of 300% to 320%. As of year 2024, our consolidated RBC ratio was 316%, which provides approximately $100 million of capital, more than what is needed to meet our minimum target capital of 300%. As we do every quarter, we perform stress tests in our investment portfolio under multiple economic scenarios. Anticipating various levels of downgrades in the fall.
Tom Kalmbach: With regards to the capital levels, our insurance subsidiaries.
Tom Kalmbach: Our goal is to maintain Capital within our insurance operations at levels necessary to support our current ratings.
Tom Kalmbach: Globe, Life targets are Consolidated company Action level RBC ratio in the range of 300% to 320%.
Tom Kalmbach: As of year, end 2024, our Consolidated RBC ratio was 316%, which provides approximately 100 million dollars of capital more than what is needed to meet our minimum Target capital of 300%.
Tom Kalmbach: As we do every quarter, we perform stress tests in our Investment Portfolio under multiple economic scenarios.
Tom Kalmbach: If all of the estimated losses under our stress tests were to occur before year-end, which we believe is highly unlikely, we have concluded sufficient capital resources exist within our subsidiaries and the parent to maintain our target RBC ratios and our share repurchases as planned. For 2025, we intend to maintain our consolidated RBC within the targeted range of 300% to 320%.
Tom Kalmbach: Anticipating various levels of downgrades in defaults.
Tom Kalmbach: If all of the estimated losses under our stress tests were to occur before year end, which we believe is highly unlikely. We have concluded, sufficient capital resources exist within our subsidiaries, and the parent to maintain our Target, RBC ratios, and our share repurchases as planned.
Tom Kalmbach: As I said in prior calls, I would like to share an update with our progress towards establishing a Bermuda Reassurance Affiliate. During the quarter, we submitted a preliminary business plan to the Bermuda Monetary Authority, or the BMA, to establish an affiliate reinsurer in Bermuda for the purpose of reinsuring a portion of new business and enforce life insurance policies issued by Globe Life affiliates. An updated business plan, along with a formal licensing application, will be submitted in the third quarter.
For 2025, we intend to maintain our Consolidated RBC within the targeted range of 300% to 320%.
Tom Kalmbach: As I said in Prior calls, I would like to share an update with our progress towards establishing, a Bermuda, reassurance affiliate.
Tom Kalmbach: During the quarter, we submitted a preliminary business plan to the Bermuda monetary Authority, or the BMA.
Tom Kalmbach: To establish an affiliate reinsure in Bermuda. For the purpose of reinsurance, the portion of new business, and enforced life, insurance policies issued by global life. Affiliates.
Tom Kalmbach: We anticipate establishing a Bermuda Reinsurance Entity and executing the first reinsurance transaction by the end of the year. During the finalization of the application and licensing process, we will continue to have dialogue with regulators, as well as rating agencies, and we will continue to provide additional information as warranted on future calls. This initial reinsurance transaction is currently intended to reinsure a relatively small block of life reserves to get the company up and running. However, we anticipate that over time, approximately one quarter of total statutory life reserves may be ceded to our Bermuda subsidiary as a portion of new business and additional in-force business is reinsured.
Tom Kalmbach: An updated business plan, along with a formal licensing, application will be submitted in the third quarter.
And we anticipate establishing a Bermuda, reinsurance entity, and executing the first reinsurance transaction by the end of the year.
Tom Kalmbach: During the finalization of the application and Licensing process, we will continue to have dialogue with Regulators, as well as rating agencies, and we will continue to provide additional information as warranted on future calls.
Tom Kalmbach: Of course, we have not completed our evaluation, and our final business plan has not been approved, so this may change over time.
This initial reinsurance transaction is currently intended to reinsure. A relatively small block of Life reserves to get the company up and running. However, we anticipate that over time, approximately 1 quarter of total statutory life, reserves may be seated to our Bermuda, subsidiary of the portion of new business, and additional enforce business is reinsured,
Tom Kalmbach: At this time, we are not contemplating any changes to our overall investment strategy will be needed.
Tom Kalmbach: Of course, we have not completed our evaluation and our final business plan has not been approved. So this may change over time
Tom Kalmbach: At this time, we are not contemplating any changes to our overall investment strategy will be needed.
Tom Kalmbach: Our decision to pursue this new Bermuda Captive Reinsure is for the following strategic reasons. Bermuda's economic capital framework will better support Globe Life's continued sales and premium growth rates, which are generally above industry average. We are also very comfortable with Bermuda's statutory framework as it is consistent with U.S. GAAP and capital is determined under an economic framework. This supports earnings emergence consistent with GAAP earnings, which, over time, will provide additional dividend capacity to the parent, enhancing the parent's overall financial strength and flexibility.
Tom Kalmbach: Our decision to pursue this new Bermuda captive, reinsurer is for the following strategic reasons, reasons first.
Tom Kalmbach: Which are generally above industry average.
Tom Kalmbach: We are also very comfortable with Bermudez statutory framework, as it is consistent with us. Gaap
Tom Kalmbach: In addition, Bermuda is an established and stable regulatory environment with international insurance. Industry Experience. Bermuda regulators have been actively engaged in discussions with us and have developed a good understanding of our business and the insurance products we intend to re-insure with the new entity. Following approval of reciprocal jurisdiction, which we will seek to obtain as soon as possible, we currently estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. This additional excess cash flow will enhance our financial strength of the company and provide additional flexibility for the company to meet various capital and liquidity needs of the parent.
Tom Kalmbach: and capital is determined under an economic framework. This supports earnings emergence consistent with gaap earnings, which over time will provide additional dividend capacity to the parent, enhancing the parents overall Financial strength and flexibility.
Tom Kalmbach: In addition, Bermuda is an established and stable regulatory environment with International Insurance, IT industry experience.
Tom Kalmbach: Bermuda. Regulators have been actively engaged in discussions with us and have developed a good understanding of our business and the insurance products we intend to reinsure with the new entity.
Tom Kalmbach: Following approval of reciprocal jurisdiction, which we will seek to obtain as soon as possible. We currently estimate parent excess cash flow increase from incremental earnings from our us and Bermuda subsidiaries over time as the reinsurance block grows.
Tom Kalmbach: There is still a lot of work in front of us as we work with regulators and rating agencies to finalize plans. While we don't anticipate any additional parent excess cash flows until 2027, we do see the potential for additional distributed earnings from our subsidiaries to the parent trending over time towards $200 million annually as earnings emerge from reinsuring additional in-force and new business. This would provide additional financial flexibility for the parent to support our growth.
Tom Kalmbach: This additional excess cash flow will enhance our financial strength of the company and provide additional flexibility for the company to meet various capital and liquidity needs of the parent.
Tom Kalmbach: There are still a lot of work in front of us as we work with regulators and rating agencies to finalize plans.
Tom Kalmbach: Well, we don't anticipate any additional parent excess cash flows until 2027. We do see the potential for additional distributable earnings from our subsidiaries to the parent trending over overtime, towards $200 million annually as earnings emerge from reinsured, additional enforce and new business,
Tom Kalmbach: This would provide additional Financial flexibility for the parent to support our growth.
Tom Kalmbach: Now with regards to policy obligations for the current quarter. As we discussed on prior calls, we have included within our supplemental financial information available on our website an exhibit that details remeasurements gained and losses by distribution channels. For the quarter, we continue to experience favorable mortality results. Resulting in life remeasurement gains. The life remeasurement gain was 16.7 million, reflecting mortality and lapse experience for the quarter. This was favorable to management's estimates and resulted in lower life policy obligations than anticipated. The health remeasurement gain was about 3.9 million, was favorable to management's estimates, and contributed to favorable obligation trends at Family Heritage and experienced fluctuations for other health lines, including Medicare Supplement.
Tom Kalmbach: Now, with regards to policy obligations for the current quarter,
Tom Kalmbach: As we discussed our prior calls, we have included within our supplemental financial information available on our website and exhibit the details remeasurement scheme and losses by distribution Channel.
Tom Kalmbach: For the quarter, we continue experience. Favorable mortality results.
Resulting in life. Re-measurement gains the Life. Free measurements gain was 16.7 million, reflecting mortality and Laps experience for the quarter. This was favorable to Management's ex estimates and resulted in lower life policy obligations than anticipated.
Tom Kalmbach: The health re measurement gain was about 3.9. Million was favorable to Management's estimate.
Tom Kalmbach: and contributed to favorable obligation trends, that family heritage and experience fluctuations for other health lines, including Medicare supplement
Tom Kalmbach: There have been no changes to our long-term assumptions this quarter, as we will update life and health assumptions in the third quarter of 2025. Due to the continued favorable mortality we are experiencing, we are increasing our estimate on the margin impact for the third quarter. Life Assumption Updates as recent mortality and lapse experiences are incorporated into these assumptions. Although we have not finalized our Assumption Updates, we have updated and revised our estimates for the anticipated impacts. At this time, our guidance anticipates a total remeasurement gain in the third quarter related to both Life and Health Assumption Updates to be in the range of $110 million to $160 million.
Tom Kalmbach: There have been no changes to our long-term assumptions. This quarter as we will update life and health assumptions in the third quarter of 2025,
Tom Kalmbach: Due to the continued favorable mortality, we are experiencing we are increasing our estimate on the margin impact for the third quarter.
Life assumption updates as recent mortality and lapse experiences are incorporated into these assumptions.
Tom Kalmbach: At this time, our current estimates for life assumption updates reflect future mortality levels generally in line with pre-pandemic levels. It should be noted that recent mortality experience is favorable to pre-pandemic levels overall, and to the extent this continues, we would expect continued quarterly remeasurement gains even after updating long-term assumptions. For the health segment, as expected, health margins as a percent of premium increased from the first quarter. This was largely driven by anticipated margin increases for the Medicare supplement business as 2025 premium rate changes became fully effective. In addition, we saw some improvement in Medicare supplement claims, which were favorable to our expectations.
Although we have not finalized our assumption updates, we have updated and revised our estimates for the anticipated impacts at this time, our guidance anticipates, a total remeasurement gain in the third quarter related to both life and health assumption updates to be in the range of 110 million to 160 million.
Tom Kalmbach: At this time, our current estimates for Life, assumption updates, reflect future mortality levels. Generally in line with pre-pandemic levels, it should be noted that recent mortality experience is favorable to pre-pandemic levels overall and to the extent this continues, we would expect continued quarterly remeasurement gains even after updating long-term assumptions.
For the help segment as expected Health, margins.
Tom Kalmbach: as a percent of Premium increase from the first quarter,
Tom Kalmbach: This was largely driven by anticipated margin increases for the Medicare supplement business as 200. As 2025 premium rate changes, became fully effective.
Tom Kalmbach: The claim cost trends continue to run higher than those reflected in our recent rate filings. We intend to reflect these higher trends in our 2026 rate filings to improve long-term profitability consistent with those needed to achieve historical margins as a percent of premium. Our estimate for total remeasurement gains related to Assumption Updates includes an estimate of $5 to $15 million related to the health segment.
In addition we saw some improvement in Medicare supplement claims, which were favorable to our expectations.
Tom Kalmbach: A claim cost Trends continue to run higher than those reflected. In our recent rate filings, we intended to reflect these higher Trends in our 2026 rate, filings to improve long-term profitability. Consistent with those needed to achieve historical margins as a percent of Premium
Tom Kalmbach: Our estimate for total remeasurement. Gaines related to assumption updates includes an estimate of 5 to 15 million dollars related to the health segment.
Tom Kalmbach: Finally, with respect to our earnings guidance for 2025, for the full year 2025, we estimate net operating earnings per diluted share will be in the range of $14.25 to $14.65, representing 17% growth at the midpoint of our range and 10% growth when excluding the impact of remeasurement gains from assumption updates in both 2024 and 2025.
Tom Kalmbach: Finally, with respect to our earnings guidance for 2025.
For the full year, 2025 we estimate net operating earnings per diluted share will be in the range of 14.25 to $14.65 representing 17% growth at the midpoint of our range.
Tom Kalmbach: The midpoint is higher than our previous guidance due to the anticipation of continued favorable mortality experience and the updated anticipated impact of third quarter assumption updates. In addition, we anticipate health margins will improve slightly relative to our prior expectations.
Tom Kalmbach: In both 2024 and 2025.
Tom Kalmbach: Those are my comments.
The midpoint is higher than our previous guidance. Due to the anticipation of continued, favorable mortality experience and the updated anticipated impact of third quarter, assumption updates. In addition we anticipate Health. Margins will approve slightly prior to relative to our prior expectations.
Tom Kalmbach: I will now turn it back to Matt. Thank you, Tom.
Those are my comments. I'll now turn it back to Matt.
Matt Darden: Those are our comments.
Matt Darden: We will now open the call up for questions. Thank you, ladies and gentlemen.
Matt Dourdan: Thank you, Tom, those are our comments. We will now open the call up for questions.
Operator: As a reminder, if you would like to ask a question, please press star 1 on your Jelly Bean keypad. Thank you.
Matt Dourdan: Hi, thank you.
Jack Matten: We will now take our first question from Jack Matten of BMO Capital Markets. The line is open, please go ahead. Hi, good morning. Just the first one on the higher earnings guidance for this year. I guess how should we think about that translating to stat earnings and cash flows looking ahead to next year? I guess is there a significant portion that's related to the actual experience this year that we would see come through immediately?
Speaker Change: Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Thank you.
Speaker Change: We will now take our first question from Jack mated of BMO Capital markets line is open. Please go ahead.
Frank Svoboda: Or is more of that benefit kind of lagged over time since it seems that there's a big remeasurement gain you're expecting in the life business that includes some favorable assumptions on a forward-looking basis? So what I would say is that the mortality experience that we're seeing, which has generally been favorable, continues to be favorable trends, that translates into additional statutory income. So we'll see that come through statutory income. Assumption changes, which are really only GAP related, so those are updates to GAP assumption changes, is really not an impact to statutory income levels overall. And then also, I think, given the slightly favorable trends that we saw in the second quarter, and then a little bit of favorable experience that we think in the remainder of the year for the health segment, that will come through statutory earnings as well.
Speaker Change: Good morning. Um, just the first 1, the the higher, um, earnings guidance for this year, I guess, how should we think about that that translating to to stat earnings and and cash flows? Looking at looking at the next year, I guess, is there is there a significant portion that's related to the actual experience issue that that we would see come through immediately or is is more of that benefit kind of lagged over time since it seems that there's a big um re measurement game. You're You're Expecting in the Life business. That includes some favorable assumptions on a forward-looking basis.
Speaker Change: Yeah, so yeah, the um, what I would say is that the, um, mortality experience that we're seeing, which is generally been, favorable continues to be favorable trends, that translates into additional statutory, um, uh, income. So we'll see that. Come through statutory income the uh,
Assumption changes which are really only Gap related. So, those are updates to Gap. Assumption changes is really, not a, an impact to statutory income levels overall,
Speaker Change: and then also, I think given the the um slightly favorable trends that we saw in the second quarter and then a little bit of favorable experience that we think in the the
Speaker Change: Remainder of the year for the health segment, um, we'll that will come through, uh, statutory earnings as well.
Jack Matten: That's helpful, thank you.
Jack Matten: And then follow up on the Bermuda affiliate, appreciate the details you gave. On the $200 million, I think, you know, potential incremental benefits to your cash flow over time, I guess, just any thoughts on the timeline towards getting to that run rate? And I guess, does that assume you move, I think I mentioned, like, a quarter of your life reserves over to that entity?
Frank Svoboda: And then I guess, just lastly, then, like, just curious how you got to the, like, one quarter target? And I guess, how are you thinking about that? And could it be revised over time?
Speaker Change: That's that's helpful. Thank you. And then, um, follow up on the, The Bermuda on the affiliate, appreciate the details, you gave um on the on the the 200 million. I think, you know, potential incremental benefits to your caches over time I guess just any thoughts on like the the timeline towards getting to that that run rate and I guess is that assume you you move. I think I mentioned like a quarter of your your life reserves over to that entity. And then I guess just lastly then like uh just curious how you got to the like, 1 quarter Target and I guess. Sorry. You're thinking about that and could it be revised over time?
Frank Svoboda: Yeah, as I mentioned, we still have a lot to do. So we're still in conversations with our regulators, as well as we'll have conversations with our rating agencies on the Bermuda subsidiary and the impacts there. So it's a little bit premature to talk about timing, but we will certainly provide updates once we have clarity later this year.
Speaker Change: Yeah, we've still, I mean, as I mentioned, we still have a lot to do. So we're still, um, in conversations with, uh, the, our Regulators, as well as, um, a lot of conversations with our rating agencies on, uh, the Bermuda subsidiary, and impacts there. So, it's a little bit premature to talk about, uh, timing. But, uh, we will certainly provide updates once we have Clarity, um,
Speaker Change: uh, later this year.
Frank Svoboda: As Tom mentioned, in the latter half of this year, in the third quarter, we'll be finalizing an updated business plan with the regulators and as a result of that work we'll be able to update you here on the next one or two calls as we get more of those plans finalized and approved. Thank you.
Speaker Change: it's Tom mentioned in the latter half of this year and the third quarter will be finalizing and updated business plan with the regulators and
Speaker Change: as a result of that work we'll be able to update you here on the next um 1 or 2 calls as we get more of those plans finalized and approved.
Speaker Change: Thank you.
Andrew Kligerman: We will now take our next question from Andrew Kligerman of TD Securities. Please go ahead. Hi, good morning, everyone.
Speaker Change: We will not take our next question. From Andrew klickman of TD security. Please go ahead.
Andrew Kligerman: My first question is around the sales. It appears you've got a bit lower guidance on the light insurance sales. And Matt, I think you mentioned 8% agent count growth.
Andrew Kligerman: So. I guess two things.
Andrew klickman: Hi. Hi, good morning everyone. My first question is around the sales. It's appears you, you've got a bit lowered guidance, uh, on the life insurance sales. And, um, Matt, I think you mentioned 8%, uh, agent, count growth.
Speaker Change: so,
Matt Darden: Given that you've lowered the guidance a bit, what do you add confidence that the back half of the year will bump up from what we saw in the first half of the year? And should we use that 6% agent count growth as an indication? I know you're not giving guidance yet, but that would be a ballpark expectation for next year. Yeah, I was commenting on the 6% was an overall growth rate of Q2 compared sequentially to Q1. I'd mentioned on the last call just kind of what we were seeing early stages as we moved into the second quarter.
Speaker Change: I guess 2 things, uh, given that you've lowered, the guidance of the, what gives you that confidence that the back half of the year?
Speaker Change: Will will bump up from what we saw in the first half of the year. And should we use that 6% agent count growth as an indication? I know you're not giving guidance yet, but that would be a ballpark expectation for next year.
Matt Darden: So just wanted to comment overall, that was very positive growth from our perspective for just one quarter. You're correct, we're revising down slightly on the sales side, still in that mid-single digit growth. As we've talked about before, the agent count growth, which has been very strong if you look at over the last 6-12 months, that is a leading indicator in sales. And so we're still having that strong agent count growth, which does, as I'd mentioned, impact productivity. What we see sometimes in the near term is our more experienced agents are spending their time training and onboarding new agents.
Matt Darden: But we know over a long term that bodes well for sales growth. And so the revision of the guidance is just really reflective of what actually happened in Q2 and recognizing that that increase in sales from the increase in agent count may be delayed a little bit more toward the latter half of this year and into the beginning of next year. So it's really nothing other than reflecting just some timing considerations of those new agents coming on and getting more productive there.
Speaker Change: Side. I'm still in that mid single digit growth as we've talked about before the agent count growth, which has been very strong if you look at over the last 6, 12 months, that is a leading indicator, um, in sales. And so, we're still having that strong agent count growth, which does, as I'd mentioned impact productivity, sometimes in the near term, is our uh, more experienced. Agents are spending their time training and on-boarding new agents, but we know over a long term that uh, bodes well for, um, sales growth. And so um, the revision of the guidance is just really reflective of what actually happened in Q2 and recognizing that that increase in sales from the uh increase in agent count, may be delayed uh a little bit more toward the latter half of this year and into the beginning of of next year. So it's really uh nothing other than reflecting, just some timing considerations of.
Matt Darden: And so then, as you'd mentioned, just our overall, I would look at just kind of our overall agent count growth this year and our guide there would be reflective of what we would think as we get into 2026 guidance, but that would be a leading indicator of what we think sales would look like for 2026 based on what we know today.
Speaker Change: Of those new agents coming on and and getting more uh productive. There
And so then you know, as you had mentioned just our overall. I would look at just kind of our overall um agent count growth this year and and our guide there would be reflective of what we would think. Um,
Andrew Kligerman: That's really encouraging and thanks for that.
Speaker Change: um, as we get into 2026 guidance, um, but that would be a leading indicator of what we would think sales, would look like for 2026 based on what we know today,
Andrew Kligerman: And then on the med subs side, I mean, your sales have been phenomenally strong.
Andrew Kligerman: Part of that is, and correct me if I'm wrong, part of that is a function of the Medicare Advantage under a lot of regulatory scrutiny and change. Now, if we're a year out... and that stabilizes.
Speaker Change: That that's really encouraging and thanks for that. And and then on the med meds subside I mean your your sales have been phenomenally strong and
Part of that is and correct me if I'm wrong. Part of that is a function of the Medicare Advantage under a lot of regulatory scrutiny um, and change. Now if if we're a year out,
Frank Svoboda: Do you do you think that there could be kind of the flip side a little bit of pressure on med subs sales or do you think that you can kind of continue to grind up? I would say it this way, you're correct, there is a lot of noise in the system around Medicare Advantage as we've talked about in the past. We have been a beneficiary of some of that dislocation on the MedSupps sales side. What we've seen over time is, you know, there's some ebbs and flows to this business, but there continues to be a segment of the population that values what the benefits are from a MedSupp policy versus Medicare Advantage as it relates to, you know, being able to have more choice in some of the benefits that come along with those type of policies.
Speaker Change: And that stabilizes, do you, do you think that there could be kind of the flip side, a little bit of pressure on meds Subs sales, or do you think that you can kind of continue to grind up?
Speaker Change: Um, I would say.
Speaker Change: This way, you're correct. There is a lot of
Speaker Change: Um, noise in the system around Medicare Advantage. Um as we've talked about in the past, we have been the beneficiary of some of that dislocation on the med um sub sales side. What we've seen over time is, you know, there's some es and flows to this business but there continues to be a segment of the population that values. Um, what the benefits are from a med, set policy versus Medicare Advantage as it relates to, you know, being able to um, have more choice in some of the benefits that come along.
Frank Svoboda: So I think there will always be a strong market for that, but it will ebb and flow based on some things that we see in the Medicare Advantage side. Also to the extent, you know, we look at the significant size of our Enforce block there and the premium growth that happens as a result of the rate filings that Tom had mentioned. And so I think that bodes well for earnings growth here over the next coming periods, including into 2026.
Frank Svoboda: And so as we mentioned before within Medicare Supplement and in the United American group there, we do have some group business, and so that does come through a little bit lumpy. And so we'll get higher sales growth sometimes associated with as those new groups come on, particularly as it's compared to the same quarter in the prior year.
Along with those type of policies. So I think there will always be, um, a strong market for that, but it will ebb and flow based on on some things that we see in the Medicare, um, Advantage side. Also to the extent. You know, we look at the significant size of our enforce block there and the, um, premium growth that happens as a result of the rate filings, that Tom had mentioned. And so, I think that bodes well for earnings growth, um, here over the next, um, Coming periods, including into, uh, 2026. And so, as we mentioned before within Medicare supplement, um, and in in the United American, um, group there, we do have some group business and so that does come through a little bit lumpy and so, we'll get, um, higher sales growth sometimes associated with, as those new groups, come on particularly, as it's compared to the same quarter in the prior year.
Andrew Kligerman: Thanks for that.
Speaker Change: Thanks for that.
Jamminder Bhullar: We will now take our next question from Jimmy Bhullar of J.P. Morgan. Please go ahead.
Speaker Change: Will not take our next question. From Jimmy, Bella of JP Morgan please call the hey
Tom Kalmbach: Hey, good morning. So first, Tom, I just wanted to discuss your comments around guidance. I think the midpoint is up about $0.70, and you implied that a lot of it is because of a reserve release, but I think you said that some of it might also be because of higher assumed earnings on an ongoing basis because of sort of ongoing reserve remeasurement gains.
Jimmy Bella: Hey, good morning. Um, so first um, I just wanted to um, discuss your comments around guidance. I think the midpoints up about 70 uh cents.
Tom Kalmbach: So is that true, and to what extent are you able to quantify how much of the $0.70 is just a one-time CQ impact versus maybe assuming normal earnings outside of the annual actuarial review? Jimmy, you're right. We expect mortality results to continue to run favorably and we'd expect those to continue throughout the year, which is not impacted by the assumption change. We'd expect the fourth quarter life underwriting margins to be more in the 41% range, so that's kind of indicative of some of those mortality results coming through. And then also some continued small benefits from the health segment.
And um you implied that a lot of it because of Reserve release but I think you said that some of it might also be because of higher assumed earnings on an ongoing basis because of sort of ongoing reservee measurement gains. So is that true? And to what extent are you able to quantify? How much is the 70? Is just a 1 time. Um, 3Q Impact versus maybe assuming normal earnings outside of the annual actual review.
Tom Kalmbach: Yeah, the one thing I would add to that, Jimmy, is that we also, I think, seeing some favorable reductions, if you will, in our admin expenses.
Jimmy Bella: Underwriting margins to be more than 41% range. So that's kind of indicative of, of some of those mortality results coming through. And then also some continued small benefits from the from the health segment.
Matt Darden: So our guidance, you know, we reduced that just a little bit, see that as being closer to a 7.3 for the full year, and we're really seeing some moderation in our IT expenses, you know, that's kind of helping with that. So I think that'll be something that'll carry forward for us. And then we, you know, we did have a little bit of pickup in the overall guidance just from, you know, the additional repurchases that we had in the second year as well, which, of course, will continue to benefit us not only from, you know, the remainder of this year, but going forward as well.
Jimmy Bella: Yeah. So 1 thing, I would add to that Jimmy. Is that we also, uh, I think seeing some favorable, um, reductions if you will in our admin expenses. So, uh, our guidance, uh, you know, we reduce that just a little bit, see that as being closer to a 73 for the full year and, uh, we're so really seeing some moderation in our, in our it, uh, expenses. Um, you know, that's that's kind of helping with that. So I think that'll be something that'll carry forward for us. Uh, and then we, you know, we did have a little bit of pickup, uh, in the overall Guidance, just from, uh, you know, the additional repurchases that we had in the second year as well, which of course will continue to benefit us not only from, you know, remainder of this year. But uh going forward as well.
Matt Darden: And then on direct sales, I think you had been down 16 quarters in a row on sales and direct on the life side. And this quarter, there was a slight improvement.
Jimmy Bella: Okay.
Matt Darden: Is that channel close to bottoming? Or was this just a blip given that the comps were easy and just trying to get an idea on whether you're seeing some stability or signs of recovery there? Yeah, no, we do think this is a... Starting point from a recovery perspective, as I've mentioned, there's some fundamental things that we have put in place that came online here at the beginning of the year. There'll be some continued benefit of that activity from an underwriting perspective, which ultimately results in improvement from a conversion of those inquiries that we get into ultimately issued policies.
Speaker Change: And then on direct sales. Um, I think you had been down 16 quarters in a row on sales and direct, um, on the life side and this quarter, there was a slight Improvement is that General close to bottoming, or was this just a blip, given that the comps are easy and, and but just trying to get an idea on whether you're seeing some stability or signs of recovery there.
Matt Darden: So we anticipate that continuing through the rest of the year. The other thing that's very important too is that to the extent that we are now able to convert our leads that we're getting through that direct-to-consumer channel, and we look at that conversion across the entire organization, the agent channel is able to convert those leads at a higher rate than a passive channel like direct-to-consumer. And so what that's doing for us is that we analyze that in an aggregate basis. It gives us more margin to be able to spend on getting back into and expanding some of the campaigns that we've scaled back on.
Speaker Change: Yeah. No we do think this is a starting point from a recovery perspective. As I'd mentioned, there's uh, some fundamental things that we have put in place uh that came online here at the beginning of the year, there'll be some continued benefit, um of that activity from a underwriting perspective and which ultimately results in uh, improvement from a conversion of those inquiries that we get in into ultimately issued policies. So we anticipate that continuing um, through the rest of the year. The other thing that's very important too, is that um, to the extent that we are now able to convert our um leads that we're getting through that direct to Consumer Channel. And we look at that conversion across the entire organization.
Matt Darden: So there is a benefit to the direct-to-consumer sales just as a result of that continued marketing in addition to the sales that will happen in the agency channel. And so I'd say those two things are really fundamental changes that drives our guide for the rest of the year of an overall increasing trend from a sales perspective. So we're very pleased to see those two things come to fruition.
Speaker Change: Um, the agent channel is able to convert those leads at a higher rate than a passive Channel, like direct to Consumer. And so, what that's doing for us is that we analyze that in an aggregate basis. It uh, gives us more margin to be able to spend on getting back into an expanding some of the campaigns that we've, uh, scaled back on. So there is a benefit to the direct to Consumer sales just as a result of that continued marketing. Um, in addition to the sales that will happen in the agency Channel.
Speaker Change: So, I'd say those 2 things are really fundamental changes that. Um,
Frank Svoboda: And then just lastly on Bermuda, I realize like the structure is not final and it's a couple of years out, but and there's I guess some discretion on how much business you decide to put into it, but if you do get a $200 million benefit on annual free cash flow, assuming you're using it for buybacks, that sort of implies a two percentage point uptick in whatever your growth would have been otherwise. Is that the right way to think about it or are there any other sort of offsets that would reduce the benefit versus what I mentioned?
Drives our guide for the rest of the year of of an overall increasing trend from a, from a sales perspective. So we're we're very pleased to see uh those 2 things coming to fruition.
And then just lastly on Bermuda, I realized. Like the structure is not final and it's it's a couple of years out but it and there's I guess some discretion on how much business you decide to put into it. But if you do get a million dollar benefit on,
Frank Svoboda: No, I think that's the right way to think about it.
Speaker Change: Annual free cash flow assuming you're using it for BuyBacks. That's sort of implies a 2 percentage point uptick in whatever your growth would have been otherwise um is that the right way to think about it or are there any other sort of offsets um that would reduce the benefit versus what I mentioned?
Speaker Change: No, I think that's that's the right way to think about it. Jimmy.
Elyse Greenspan: Okay, thank you.
Jimmy Bella: Okay, thank you.
Elyse Greenspan: Thank you, we'll now take our next question from Elyse Greenspan of Wells Fargo, please go ahead. Thanks. Good morning.
Speaker Change: Thank you. We'll now take our next question, from illies Greenspan of B, Fargo, please go ahead.
Frank Svoboda: I guess my first question is just on, you know, some of the, you know, recent headlines we've seen from, you know, Justin Tien and and some others just on the medical trends that have been making the news. It doesn't seem like there's been any impact on you guys, but I was just, you know, hoping that you could address.
Illies Greenspan: Thanks, um, good morning I guess. Uh, my first question um, is just not, you know, some of the, you know, recent headlines we've seen from, you know, just centene and and some others just on their medical trends, that have been making the news. It doesn't seem like there is, you know, been any impact on you guys. But I was just, um, you know, hoping that you could address that.
Frank Svoboda: I'll comment on that, and then if Matt or Frank, you guys want to as well. But that comment on Centene was primarily around Medicaid experience, which is kind of major medical coverage. And so I think the Medicare supplement market is just quite a bit different. The demographics are a bit different. And I think, in general, I think the experience is just different in the Medicare supplement business versus the Medicaid business. And I think they also commented on some favorable trends in their Medicare supplement side of things.
Hunted on some favorable Trends in their, um, Medicare supplement side of things.
Frank Svoboda: Medicare Advantage.
Speaker Change: Oh, Medicare Advantage. Yeah.
Frank Svoboda: Okay, and then my second question, like, if we just, you know, kind of look, you know, at the health business in general, kind of excluding the noise, right, from the medical sub-business, you know, versus pre-COVID, right, the, you know, the margins, you know, seem, seem pretty, pretty good. And we're just trying to get a sense, like, you know, is this kind of, you know, a good, you know, kind of run rate level to, you know, think about going forward? Or is there anything else to consider? No, I think the supplemental health business, which is, you know, based upon the incidence of certain medical events and not really medical reimbursement overall, I think those trends have been fairly stable and consistent.
Speaker Change: Okay. And then um um my second question, like if we just, you know, kind of look, um, you know, at the health business in general, kind of, excluding the noise right from the medical sub business. Um, you know, versus preco right, the, you know, the margins, um, you know, seem seem pretty pretty good and we're just kind of get a sense like, um, you know, is this kind of, you know, a good, you know, kind of run rate level to, you know, think about going forward or is there anything else to consider
Frank Svoboda: And so I think, you know, we're in a pretty good, good place there.
Frank Svoboda: Yeah, no, I would agree. I think we really do like the supplemental health business that we have that's the limited benefit and the non-supplemental health. It has been really good and stable for us, and especially we really like the return of premium product that we have with Family Heritage that has continued to be a very good product for us, and they're showing really good growth with that. And we really like that because it's one that stays on the books a little bit longer because of the return of premium feature, as well as just having really good stable margins.
Speaker Change: No, I think the, uh, supplemental health business, which is, you know, based upon the instance of certain medical lenses and not really medical reimbursement. Overall, I think those Trends have been fairly stable and consistent and uh, so I think, you know, we're in a pretty good good place there.
Speaker Change: Yeah, no, I would agree. I think we really do like the supplemental health, uh, business. Um, uh, you know that we have, that's, that's the limited benefit and the non-s supplemental health. Uh, it has been really good and stable for us. Um, and especially we really like the return of premium product that we have with family heritage, that has continued to be a very good product for us and, and they're showing really good growth with that and that, and we really like that because it's 1 it stays on the books, a little bit longer because of
Frank Svoboda: And so we really see that continuing to grow for us and to be a positive addition going forward.
Speaker Change: The return of Premium feature as well as just having really good stable margins. Uh and so we really see that continuing to um grow for us and and to be a positive uh Edition going forward.
Frank Svoboda: And then one last one, is there any kind of update on just like relative to the DOJ and just the ongoing investigation? Really, there have been no developments on both the DOJ and the SEC in investigations. And, in fact, we have not received any requests from either of those groups since the beginning of the year. So, as a reminder, just both the DOJ and the SEC, they have not asserted any claims or made any allegations against Globe Life or AIL, and we're not aware that there's an intention to do so.
Speaker Change: And then, 1 last 1, is there any kind of update on just like relative to the doj and just, um, the ongoing investigations?
Frank Svoboda: So, as I've said before, to the extent we have significant developments, we'll be sure to update you.
Speaker Change: Um, really there have been no developments on both the doj and the SEC and investigations. And and in fact we have not received any requests from either of those groups since the beginning of the year. So as as a reminder just both the doj and the SEC, they have not asserted any claims or made any allegations against Globe Life or ail and we're not aware that um, there's an intention to do so. So in the, as, as I've said, before to the extent, we have significant developments. We'll be sure to update you.
Ryan Krueger: Thank you.
Speaker Change: Thank you.
Ryan Krueger: We'll now take our next question from Ryan Krueger of KBW.
Ryan Krueger: Please go ahead. Hey, thanks, good morning.
Speaker Change: Thank you. It will not take our next question. From Ryan Krueger of KBW, please call the height.
Frank Svoboda: I had another Bermuda question. It looks like the $200 million would be about 15% of your GAAP operating income. I guess trying to think about what your free cash flow conversion could look like following Bermuda. It seems like maybe it could be about 60% or so, but I'm hoping to get some color from you guys on what you would expect. Ryan, we haven't really finalized that at this point in time, but I think your math is good and in line with what would happen if we were to get that earlier. We obviously expect to have earnings growth over the coming years, so it really is dependent upon the timing of the earnings emergence from the Bermuda subs and the U.S.
Speaker Change: Hey, thanks. Good morning. I had another Bermuda question. Um, it looks like the 200 million would be about 15% of your Gap, operating income.
Speaker Change: I guess I'm trying to think about what your free cash flow conversion. Could could look like following following Bermuda it.
it seems like maybe it could could be about 6 60% or so but um hoping to get some color from you guys and what you would you would expect
Tom Kalmbach: subs as it relates to the Bermuda affiliate. Yeah, and Ryan, I would say, you know, we have talked about really looking at how do we get that, our conversion rate, does it make sense for us to have a higher conversion rate, and trying to look at that, you know, 60% or so, looking at this, you know, is that a, is there an opportunity here, and this, this. could potentially definitely help us to get at least to that level.
Speaker Change: Yep. Right. We haven't really finalized that that at this point in time, but I think uh, you know, your math is is is good and in line with kind of what would happen if if uh we were to get that earlier I like we obviously expect to have earnings growth over the coming years. So it really is a is dependent upon kind of the timing of the earnings emergence, from the Bermuda Subs, in the US Subs as it relates to to the Bermuda affiliate.
Speaker Change: yeah, and Ryan I would say, you know, we have talked about um really looking at, how do we um uh get that our conversion rate to the make sense for us to have a higher conversion rate and trying to look at that, you know, 60% or so um looking at this, you know, is that, is there an opportunity here um, and this this
Frank Svoboda: And I would agree with Tom. I mean, I think that's kind of the math that is part of that. And of course, you know, we really, we really like it in that it does, it gives additional flexibility to the holding company from, you know, from just an overall liquidity and capital management perspective as those dividends emerge, just, you know, at a different timeframe than if it would be under just regular U.S. statutory. You know, so obviously it gives us flexibility for how we manage the capital within our organization. And obviously then to the extent that it's truly excess, you know, then it would be returned back out to the shareholders.
Could potentially definitely helped us to get at least to that level. And I would agree with Tom. I mean, I think that's kind of the math. That is part of that. And of course, you know, we really, we really like it. Um, in that it does, it it gives additional flexibility to the holding company from, uh, you know, from just an overall liquidity and Capital Management perspective. Um, as those dividends emerge, just, you know, in a different time frame.
Speaker Change: Then that they would be under just regular us statutory, you know, so obviously it gives us flexibility for how we manage the capital within our organization. And and obviously, then to the extent that it's truly excess. Um, you know, then it would be returned back out to the, to the shareholders.
Ryan Krueger: Thanks, and just to make sure I have this right.
Frank Svoboda: the expected benefits are are likely to start emerging in 2027 and beyond, is that right? That's what we that's what we're seeing right now. And again, as Matt mentioned, once we finalize the business plan and hear over the remainder of this next quarter or so, we'll have better insight into how some of that might emerge.
Speaker Change: Thanks and just to make sure I I have this, right? So,
The expected benefits are are likely to start emerging in 2027 and Beyond. Um, is that right?
Speaker Change: That's what we that's what we're seeing right now.
Matt Dourdan: If we, um, and yeah. And as Matt mentioned, you know, once we finalize the business plan and, and here over the remainder of this next quarter. So um, we'll we'll have better uh, insight into how how uh,
Speaker Change: You know, some of that might emerge.
Matt Dourdan: Thank you.
John Barnidge: Thank you.
John Barnidge: We'll now take our next question from John Barnidge of Piper Fendler. The line is open, please go ahead. Thank you for the opportunity.
Speaker Change: Thank you, and I'll take our next question. From John barnidge of 5%. The line is open, please go ahead.
John Barnidge: My question is a follow-up on Bermuda. I know you talked about getting the 25% of the in-source. Do you anticipate, once that initial transaction establishes the infrastructure on the island, it'll be a series of transactions that follow, or one large one? Thank you. Yeah, John, we'd probably do... series of transactions as kind of that operation is up and running, including evaluating in force as well as some portion of new business being ceded to Bermuda as well. Yeah, I was going to say, for clarity, the 25% of statutory reserves is more of a longer-term view, as we do enforced blocks, as well as the new business, and we start seeding new business into there, and as the reserves on that new business grow over time, and so that's just our preliminary view.
John Barnidge: Thank you for the opportunity. My question is uh, follow up on Bermuda. I know you talked about getting to 25% of the in force.
John Barnidge: Do you anticipate once that initial transaction establishes the infrastructure on the island? It'll be a series of transactions that follow or 1 large 1. Thank you.
John Barnidge: yeah, John we'd probably do a, um, a series of transactions, as as kind of that operation is is up and running including evaluating, uh, enforce as well as uh,
John Barnidge: portion of new business. Um, being seated to Bermuda as well.
Frank Svoboda: Somebody asked a question earlier, could that change over time, and the answer is yes, that could change over time as we get more of our plans finalized, and we're focused on getting it up and running this year, and developing out what that looks like from a longer-term perspective. And because of the Free cash flow frees up and the leverage exceeds in an operating perspective. At the same time, with some of these operational efficiencies that have been brought for automation, it sounds like, on applications that could lead to higher close rates.
Yeah. And I was going to say for, for clarity, the 25% of statutory reserves is more of a longer term view. As um, we do enforce blocks, as well as the new business, um, and we start seeing new business into there and as the reserves on that new business grow over time. And so that's just our preliminary view. Um, so
John Barnidge: Asked the question earlier. Could that change over time? And the answer is yes that could change over time as we get more of our plans um finalized and and you know, we're focused on getting it up and running this year and then
I'm developing.
John Barnidge: Out what that looks like from a long-term perspective.
John Barnidge: and because of the,
John Barnidge: Free cash, flow, freeze up and The Leverage. It creates on an operating perspective.
Frank Svoboda: Do you think this will allow you to... Accelerate agent growth or maybe pursue opportunistic inorganic of other distribution channels. I mean, I'm not sure it really accelerates agent count growth, because right now we don't restrict sales in any manner because we're not capital constrained. As we've mentioned, part of our cash flow conversion is because of the amount of money that we're investing in new sales every year. So to the extent that we start putting some of those new sales through a gap regime with the deferral of acquisition costs, then the timing of emergence under gap is different than stat.
John Barnidge: At the same time with some of these operational efficiencies that have been brought for automation, it sounds like on applications and that could lead to higher close rates.
Do you think this will allow you to?
Accelerate agent growth or maybe pursue opportunities in Mystic inorganic of other distribution channels. Thank you.
Frank Svoboda: That would continue to help from a cash flow conversion ratio, but we're not going to change the amount of investment into new sales because right now we invest all that we can that has the appropriate return. But it will provide us more flexibility.
John Barnidge: I mean, today, I'm not sure I had really um, accelerate agent count growth because right now, we don't restrict sales in any manner because we're not Capital constrained. And as we've, you know, mentioned part of our cash flow conversion is because the amount of money that we're investing in new sales every year. Um, so to the extent that we start putting some of those new sales through a gap regime, with the um, deferral of acquisition costs, in the timing of emergence. Under gaap is different than stat, um, that that would continue to help from a cash flow conversion ratio.
Frank Svoboda: And then from a potential M&A perspective in the future, that could provide additional, as we've said, additional cash flows at the parent company. Our strategic in nature, and we look at funding a variety of things, and then, of course, returning access to shareholders. Thank you.
But we're not going to change the amount of investment into new sales. Because right now, um, we invest all that we can. That has the appropriate uh, return. Um, but it will provide us more, you know, flexibility. And then from a, you know, potential m&a, perspective in the future, you know that could provide additional as we've said additional cash flows at the at the parent company. Um, our strategic in nature and and we've uh, look at funding a variety of things. And then of course, returning excess to shareholders
John Barnidge: Thank you.
Wilma Burdis: We'll now take our next question from Wilma Burgis of Raymond James. Please go ahead. Hey, good morning.
Speaker Change: Okay, thank you. We'll now take our next question. From Wilma Burgers of Raymond James, please go ahead.
Wilma Burdis: After the massive amount of buybacks you guys have done, and then, you know, you've got a lot more capital you're freeing up as well, is M&A more interesting? I know there was something you guys were looking at a couple, you know, 18 months ago. Maybe just give us an update there. Thanks. You know, our M&A lens that we look through is always opportunistic, and the fact that it has to fit in with our overall strategy, as we've said, we are a distribution organic growth company, so the extent that it would add to that with expertise that we have that we feel like we could continue to enhance our growth, we'll continue to look at.
Hey, good morning. Um after the massive amount of BuyBacks you guys have done and then you know, you've got a lot more Capital you're freeing up as well.
Is m&a more interesting. I know there was something you guys were looking at a couple, you know, 18 months ago. Um, maybe just give us an update there. Thanks.
Speaker Change: um,
Frank Svoboda: But those opportunities are not, come along very often, and right now, based on our view of our stock price and where that's trading now, compared to a historical level, still is the overall compelling use of our funds. for continuing to invest in stock buyback, but we'll continue to look for an M&A opportunity to the extent it makes strategic sense for us.
You know what? There are m&a lens that we look through as always um opportunistic. And the fact that it has to fit in with our overall strategy, as we've said we've um our distribution organic Growth Company. So the extent that it would add um to that with expertise that we have that, we feel like we could um continue and enhance our our growth, we'll continue to look at
Speaker Change: Those opportunities are not um, come along very often and you know right now based on our view of our um, stock price and where that's change trading. Now, from a his compared to a historical level still um, is the overall compelling, um, use of our funds.
Continuing the best Inn in stock buyback, but, you know, we'll continue to look for an m&a opportunity to the extent. It makes uh, strategic sense for us.
Wilma Burdis: Okay, thank you. I know a lot of people have asked about mortality, but given the reserve releases you guys anticipate in 3Q on the life side, the mortality remeasurement. continue to accumulate. Can you just talk about how that would flow through future years? How do you guys think about it in the future? Thanks. Yeah, I think, so Wilma, right now, we anticipate our life mortality assumption to be fairly in line with pre-pandemic levels, right? And I would say that the recent experience we're seeing is a little bit below that. So, to the extent that our recent experience continues, as I mentioned, we'd see continued remeasurement gains relative to that new baseline mortality assumption emerge even into next year.
Speaker Change: Okay, thank you. And I know a lot of people have asked about, uh, mortality but given the reserve releases, you guys anticipate in 3Q,
On the life side, um, the mortality remeasurement.
Gets continue to accumulate. Can you just talk about how that would flow through the future years? Um how do you guys think about it?
Speaker Change: In the future, thanks.
Yeah, I think.
Speaker Change: So Wilma right now, we um, we anticipate the our life mortality assumption to be fairly in line with um pre-pandemic levels, right? And I would say that the recent experience, we're seeing is a little bit below that. So,
Tom Kalmbach: So, I think we'll just have to wait and see whether that mortality continues that we're seeing currently. Yeah, Wilma, the one thing I would just add to that is if, you know, just kind of by default, if you will, if those long-term assumptions are what we, you know, ultimately expect that mortality to be over the long term. So, we would expect, even though we're seeing some favorable mortality right now, we would expect that to trend back to those long-term averages over time. And if that's, and if actual experience emerges kind of in line with those long-term expectations and long-term assumptions, I think Tom mentioned that you're kind of looking at a, you know, that margin percentage and kind of similar to what we're kind of projecting for the fourth quarter, which is in that 40.5% to 41%, around 41%.
Speaker Change: Um, to the extent that our recent experience continues. As I mentioned, we'd see continued remeasurement gains relative to that new Baseline mortality assumption emerged even into uh, into next year so, um,
I think we'll just have to wait and see whether that mortality um continues that we're seeing currently. Yeah. Wilma. The 1 thing that I would just add to that is if you know, just kind of by default, if you will, if the long those long-term assumptions are what we you know, ultimately expect that mortality to be over the long term so we would expect uh even though we're seeing some favorable mortality right now, we would expect
Tom Kalmbach: You know, we've talked on some prior calls that there's probably still a little degradation of that that's going to happen over the next couple of years just as amortization, you know, the transition to LVTI continues to, you know, as that blends in on the changes to the DAC amortization. And, but I think, you know, to the extent that we have favorable mortality versus the long-term assumptions, like said that, you know, we would expect those margins to be a little bit north of that.
Speaker Change: Like that to to Trend back to those long-term averages over time. Um and if that's and if actually experience emerges kind of in line with those long-term expectations and long-term assumptions, I think Tom mentioned that you're kind of looking at a um uh you know that a margin percentage in a kind of similar to what we're kind of projecting for the fourth quarter, which is in that 40 and a half to 41% around 41%. Um, you know, and we've talked on some prior calls that there's probably still a little degradation of that degradation of that that's going to happen. Over the next couple of years. Just as amortization uh you know that's transitioned to ldti. Um continues to um,
Speaker Change: You know as that blends in on the the changes to the the DAC amortization and but I think um you know to to the extent that we have favorable mortality versus a long-term assumptions. Like I said that, you know, we would expect those margins to be a little bit north of that.
Mark Hughes: Okay, thank you.
Speaker Change: Okay, thank you.
Frank Svoboda: We will now take our next question from Mark Hughes of Troist, your line is open please go ahead. Yeah, thank you very much. How about last experience in the life business? You talked about that perhaps contributing to the remeasurement gain, but any observations there? Yeah, I would say in general our LAPS experience on their life's business has been fairly consistent with recent quarters. I think there's a couple bright spots that first year LAPSes at AIL actually were favorable this quarter. So that could be a fluctuation, but I also think that we're pleased to see that as well.
We love take our next question from Mark Hughes of trust. Your line is open. Please call ahead.
Mark Hughes: Yeah, thank you very much. Um, how about Labs experience in the Life business? Um, you talked about the that perhaps contributing to the remeasurement gain, but any observations there,
Mark Hughes: Yeah, I would, I would say um in general, our Labs experience on their life's business has been fairly um consistent in with recent quarters. I think there's a couple um bright spots that for sure.
Mark Hughes: lapses at ail actually were favorable this quarter, um, so that could be a fluctuation, but I also think that, um,
Frank Svoboda: And then, you know, DTC's first year LAPSes have been direct-to-consumer channel. First year LAPSes have been consistent with prior quarters, but they're still running a little bit higher than where they have from historical norms. And so we're continuing to monitor that to see whether that's kind of a new normal or whether that comes back over time as well. Yeah, I would say, you know, overall, I think we're pretty...we're pleased overall with the resiliency of the business, especially given some of the economic uncertainties that are kind of running through the marketplace in recent times. And as Tom said, you know, we had, I'm going to say, with the exception of DTC, we had good first year LAPSes Our first year LAPSes in the second quarter did improve sequentially over Q2.
Mark Hughes: You know, we're we're pleased to see that as well. And then, um, you know, DTC is first year lapses have been director of consumer channel. Uh, first year lapses have been consistent with prior quarters, but they're still running a little bit higher than where they have from historical norms. And, um, so we're continue to monitor that to see whether that's, um, kind of The New Normal or, or whether that comes back over time as well. Yeah, I would say, you know, overall, I think we're pretty. We're, we're, um, pleased overall with the resiliency of the business, especially given some of the, you know, economic uncertainties that are kind of running through the the marketplace, um, in recent times. And, and as, as Tom said, you know, we had, um, I'm going to say, with the exception of the DTC we had good. Um, you know, first year lapses.
Frank Svoboda: A lot of that is seasonality. That's kind of typically happens. But overall, they're kind of then staying, if you look at general levels, pretty consistent with our long-term averages. And you kind of think about pre-pandemic from that perspective, because we had very favorable LAPSes during the pandemic years. So there definitely has been a recovery in our LAPS rates to some of those pre-pandemic levels. And I'll say in general, we're pretty...we're pleased where they're at, given the kind of economic situations, and clearly not out of any kind of norm that we've seen in prior periods of some economic stress.
Frank Svoboda: But we think they've stabilized and feel pretty good with where they're at right now.
Mark Hughes: Stress. But uh, we think they've stabilized and and feel pretty good with whether or not right now
Frank Svoboda: Understood. On the health business, the rate increase and then the slight reduction in utilization, is that fully reflected in the P&L, would you say in 2Q, or is there some marginal improvement yet to come in 3Q? I would say it's fully reflected in the second quarter results. I mean, there's a trickle that will come in later, but it's really very, very small. And I think one of the important pieces is that in that UAGA line, it includes individual med supplements as well as group coverages. And so the rate increases are really a function, are really coming into play on the individual Medicare supplements.
Mark Hughes: understood on the health business, the rate increase, and then the slight reduction in utilization with that fully reflected in the p&l. Would you say in 2q, or is there?
Mark Hughes: Uh, to Marginal Improvement yet to come in 3 Q.
Mark Hughes: I would say it's it's fully reflected in the in the uh second quarter results. I mean there's a trickle that will come in later but it's really very, very small.
Mark Hughes: Um,
Mark Hughes: And I think 1 of the important pieces is, is that in that uaga line, it includes individual.
Mark Hughes: As well as as group coverages.
So the rate increases are really um a function are really coming into play on the individual, Medicare supplement business.
Frank Svoboda: But they're fully reflected. Yep, appreciate it.
Mark Hughes: But they're fully reported. Yep.
Mark Hughes: Yep, appreciate it.
Wesley Carmichael: We'll now take our next question from Rev Carmichael of Autonomous Research, please go ahead. Hey, thank you. Thank you for sitting in on the hour.
Speaker Change: And I'll take our next question. From web Carmichael of autonomous research. Please go ahead.
Wesley Carmichael: Um, so I guess I wanted to talk about the direct to consumer channel. It's it's the first time I think in recent memory, you guys are talking pretty positively about that. So I just wanted to get a little more color on what was the technology that you guys put into place? I think if I think back, it was a lot of a lot of mailings. And now it seems like that's changed. So maybe just the evolution there. And is there any associated increase in corporate or admin expenses from from marketing in that channel? Or how should we think about that?
Hey, thank you. Thank you for setting me in. I just sent the hour. Um, so I guess I wanted to talk about the direct consumer channel. It's it's the first time I think in recent memory you guys are talking pretty positively about that. So I just wanted to get a little more color on. What was the technology that you guys put into place? I think if I think back it was a lot of a lot of mailings and now it seems like that's changed. So so maybe just the evolution there and is there any associated?
Matt Darden: Sure, um, you know, you're right, uh... Yeah, and you raised the question on whether any of those expenses go through the corporate or admin expenses, and they do not. So, as we look at increasing spend on there, that's all acquisition costs that's supported by the profits and the sales of DHL.
Increase in corporate or admin expenses, from, from Marketing, in that Channel, or, or how should we think about that?
Speaker Change: Sure, um, you know, you're right.
History was the significant amount of the marketing campaigns and inquiries came through more of a paper medium, whether it was male or, or inserts, but, you know, over the last, um, recent years, you know, it's up to about 75 or 80% of that business, really comes through a digital, um, Channel now. And some of that is fulfilled through a call center that we have. But essentially, um, what's happening is, is that the technology Investments are associated with kind of the throughput of taking those, um, leads and ultimately issuing those policies. Um, we're able to utilize data in a better way than we have in the past from a underwriting, uh, perspective. And so historically, part of the process was, um, based on how people filled out applications, we had to have follow-up.
Speaker Change: Up. And, and, um, understand some of those Health situations better. Well, there's a fall-off because we can't contact everybody, um, that, uh, submitted an application. And so there's there's a little bit of friction in the system. Um, from that perspective. Now, with the use of data, we can go ahead and issue certain policies with that meet our risk criteria, um, and without even, um, contacting an individual. And so a lot of the that is just from a technology. Throughput perspective, we're still issuing policies from a same risk profile perspective. We're just able to do it, you know, much more, um, efficiently and so to the extent that our conversion rate goes up overall, for that marketing spin because we're spending money up front, um, for an estimate of what policies, get issued at the end, the combination of direct to Consumer channels conversion, rate going up, as well as being able to utilize that marketing spend in our agencies and
Speaker Change: the conversion of that marketing spend through sales, in those agency channels.
Changes the dynamic of evaluating the marketing, spend for the policies and the profit, um, estimate of future profits that we're ultimately issuing. So it enables us to spend more money on marketing as well as certain campaigns that were kind of on the bubble related to, um, whether they were profitable or not, it makes them now more profitable.
Speaker Change: So the extent that we spend more on marketing, we get more inquiries and the conversion, um, goes across the the organization. So um, we're very pleased to see both of those factors coming into play that are going to benefit. Um, the sales on on both sides of the equation, meaning direct to Consumer and our agency channels.
Speaker Change: Yeah, and you raised the question on whether any of those expenses go through the corporate or admin expenses and they do not. So as we look at increasing spend on that, that's all acquisition cost. That's supported by the profits and the sales uh of DTC.
Matt Darden: Great, thank you so much.
Speaker Change: Great, thank you so much.
Suneet Kamath: Thank you and we'll now take our next question from Suneet Kamath of Jaffa Reef. Please go ahead. Hi. Thanks for joining. Mark, good afternoon.
Speaker Change: Take our next question from Senate to come out of jaice. Please go ahead.
Suneet Kamath: I guess now I know we're going long, so I'll just leave it at one. On the reviews, I appreciate your comment about not being contacted by anybody since the beginning of the year, but I think there still is a bit of an overhang on the stock from this issue. And I know you want to be probably careful about how much noise you make on it, but is there an objective here to just put this to bed maybe by the end of the year? And if the government's being slow, maybe just try to see if there's anything that you can do to just put it behind you?
Speaker Change: Hi, thanks. Good morning, good afternoon, I guess now I know we're going long so I'll just leave it at 1, um, on the reviews. I appreciate your comment about not being contacted by anybody since the beginning of the year. But I think there still is a bit of an overhang on the stock, uh, from from this issue. Um, and I know you want to be probably careful about how much noise you make on it. But is there um an objective here to just put this to bed maybe by the end of the year. Um, and if the government's being slow, maybe just try to see if there's anything that you can do to just
Frank Svoboda: Because it's been going on for a while, and like I said, I think there still is a bit of an overhang on the stock. So just curious about your thoughts. Or is the strategy just sit back and wait and let them come to you, and when they have time to do that, they'll do that? No, we have proactive outreach. Of course, we're not in control of the agency's timing. I was just pointing out that we've received no new inquiries or requests from either agency for this calendar year. So that's what we know to date. We're still active in trying to bring that to fruition and resolution, and we'd like to be able to communicate that.
Speaker Change: You know, put it behind you cuz it's been going on for a while. And like I said, I think there still is a bit of an overhang on the stock. So just curious about your thoughts or is the strategy, just sit back and wait and let them come to you. And when they have time to do that, they'll do that.
Frank Svoboda: But as I've mentioned before, these are informal processes, and so being able to bring that to a conclusion that we can discuss publicly is definitely our goal.
No, we we have, um, proactive, um, Outreach. Of course we're not in control of, um, the agency's timing. I was just pointing out that we've received, no new inquiries or requests from either Agency for this calendar year. And so, you know, that that's what we know today, we're still active in trying to, um, bring that to fruition and resolution and we'd like to be able to communicate that. But as I've mentioned before, these are informal processes. And so um, being able to bring that to a conclusion,
Speaker Change: Discuss publicly is is definitely our goal.
Suneet Kamath: Okay, I'll leave it there. Thanks.
Speaker Change: Okay, I I'll leave it there. Thanks.
Tom Gallagher: Thank you, and we will now take our last question from Tom Gallagher of Evercore ISI. Please go ahead. Hi, first question just on the $200 million of additional annual free cash flow from Bermuda that you're thanking. I know you said the initial benefits will start in 2027. Just curious, how long do you think it would take to get up to that run rate? That's a very big percentage increase of your current free cash flow. So, I mean, is this five years down the road or is it sooner than that? Can you give a little bit of color for how long you think it might take to get up to that level?
Speaker Change: Thank you. And we will now take our last question from Tom Gallagher of a call isi. Please. Go ahead.
Tom Gallagher: Yeah, as I said earlier, it's a little bit early to give you timing on that. And, you know, we still need to work through putting together that final business plan and getting regulatory approval and rating agency discussions solidified. So, I think that's an update for a future call. Yeah, it's safe to say that would not all happen in year one, but we'll have better... Timing discussion in the next couple of calls, but it's also, you know, it's not a 10-year runway either, so it's probably a 3-5 if we're handicapping it, but we want to be able to finalize all those discussions that Tom just mentioned and then we'll give a little bit more clarity on that.
Tom Gallagher: Hi. Um, first question, just on the, the 200 million of additional annual free cash flow from Bermuda that you're thinking, I know you said the initial benefits will start in 2027. Um, just curious, how long do you think it would take to get up to that run rate? That's a very big percentage increase of your current free cash flow. So, I mean, is this 5 years down the road? Or is it sooner than that? Can you can you give a little bit of color for how long you think that might? It might take to get up to that level?
Tom Gallagher: Yeah, as I said earlier it's it's, it's a little bit early to to give you timing on that and, um, you know, we're work, we still need to work through putting together that that final business plan and getting regulatory approval and rating agency um uh discussions, uh, solidified. So um, I think that's an update for future call.
Tom Gallagher: Yeah.
Tom Gallagher: it's safe to say that we're not all happen, um, in year 1 but we'll have we'll have um, better
Tom Gallagher: Gotcha.
Tom Gallagher: Timing discussion in the next couple of, uh, calls. But it's also, you know, it's not a, a 10 year Runway either. So, it's probably a 3 to 5 if we're handicapping it. But we want to be able to finalize all those discussions that Tom just mentioned and then we'll give a little bit more clarity on timing.
Tom Gallagher: And then, and just a mechanics question on the free cash flow. Does most of the $200 million annual improvement come from acquisition expenses? Um, or are there other components like discount rate? Are you gonna, are you, do you think you'll get some benefit from this? Mortality Improvement that you've seen. It probably doesn't sound like that, but I'm just curious if you could kind of dimension like what are the major drivers of the improvement? Yeah, I think it's generally a difference between how statutory earnings emerge versus how GAAP earnings emerge is really the key difference. And the two big components of that, of course, are your deferred acquisition costs and how those are treated between GAAP and statutory as well, just differences in reserving.
Gotcha, and then, and just to mechanics question on the free cash flow. Uh, does most of the 200 million annual Improvement, come from acquisition expenses,
Tom Gallagher: Um, or are there other components like discount rate?
Speaker Change: Are you gonna are you? Do you think you'll get some benefits from this mortality Improvement that you've seen? It's probably doesn't sound like that but I'm I'm just curious if you could kind of Dimension like what are the major drivers of of the Improvement?
Tom Gallagher: Yeah, I I think
Tom Gallagher: generally the difference between how statutory earnings emerge versus how Gap earnings emerge is uh, is really the key difference. Yeah. And the 2, big components of that, of course, are your deferred acquisition costs and how those are treated between gaap and and statutory as well. Just differences in reserving.
Tom Gallagher: makes sense. Thank you.
Tom Gallagher: Makes sense. Thank you.
Operator: Thank you, there are no further questions in queue, I will now hand it back to Stephen Mota for a closing remark. Alright, thank you for joining us this morning. Those are our comments. We will talk to you again next quarter. This concludes today's call, thank you for your participation, you may now
Tom Gallagher: Thank you. There are no further questions in.
Tom Gallagher: For closing remarks.
Tom Gallagher: All right, thank you for joining us this morning. There's our comments. We will talk to you again. Next quarter.
Tom Gallagher: This concludes today's call, thank you for your participation. You may now disconnect