GLOBE LIFE INC. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Investment Operations: Excess investment income $40M (+$6M y/y), net investment income $285M (+7% y/y). Full year net investment income expected 7.5%-8% growth, required interest ~5% growth. Fixed maturity portfolio yield 5.25% in Q3.
• Share Repurchase: Repurchased ~5.8M shares in Q3 for ~$580M, year-to-date ~9.9M shares for ~$930M. Anticipate using excess cash flow to reduce commercial paper balances, no additional share repurchases in 2024.
• Reinsurance: Executed two external reinsurance transactions, expected to provide $100M additional excess cash flow by end of 2024. Evaluating Bermuda capital management framework.
• Actuarial Assumptions: Life remeasurement gain $71M due to favorable mortality and lapse trends, health remeasurement loss $10M due to product changes and favorable claims experience.

Segment Performance

• Life Insurance Operations:
  • Third quarter premium revenue: $819M (+4% y/y). Life underwriting margin: $387M (+29% y/y). For the year, life premium revenue expected to grow 4.0%-4.5% midpoint, life underwriting margin 12%-12.5% growth, ~41% of premium.
  • American Income: Life premiums Q3 $428M (+7% y/y), life underwriting margin $221M (+22% y/y). Net life sales Q3 $97M (+19% y/y), average producing agent count 12,031 (+10% y/y).
  • Liberty National: Life premiums Q3 $94M (+6% y/y), life underwriting margin $45M (+63% y/y). Net life sales Q3 $24M (+1% y/y), average producing agent count 3,794 (+14% y/y).
  • Direct-to-Consumer: Life premiums Q3 $246M (-1% y/y), life underwriting margin $88M (+40% y/y). Net life sales Q3 $24M (-9% y/y) due to lower customer inquiries.
• Health Insurance:
  • Third quarter premium revenue: $354M (+7% y/y). Health underwriting margin: $87M (-10% y/y) due to remeasurement loss. For the year, health premium revenue expected ~6.5%-7% growth, health underwriting margin flat, ~27% of premium.
  • Family Heritage: Health premiums Q3 $108M (+8% y/y), health underwriting margin $34M (-4% y/y). Net health sales Q3 $29M (+16% y/y), average producing agent count 1,429 (+8% y/y).
  • United American General Agency: Health premiums Q3 $150M (+9% y/y), health underwriting margin $14M (-$1M y/y) due to higher claim costs. Net health sales Q3 $16M (-1% y/y).

Guidance

• 2024: Net operating earnings per diluted share $12.20-$12.40 (midpoint $12.30), higher than previous guidance due to favorable underwriting income and share repurchases.
• 2025: Net operating earnings per diluted share $13.20-$13.90 (10% growth midpoint). Premium revenue growth: life 4.5%-5%, health 7.5%-8.5%. Underwriting margins: life 39%-42% of premium, health 26%-28% of premium. Net investment income flat to low single-digit growth.
• Agent Count: 2024 average producing agent count growth: American Income ~11%, Liberty National ~14%, Family Heritage ~5%. 2025 sales growth: life - American Income high single-digit, Liberty National low double-digit, direct-to-consumer low to mid-single-digit; health - all divisions low double-digit growth.

Risks

• SEC and DOJ Inquiries: No material developments, no claims or allegations against Globe Life.
• Data Privacy and Extortion Attempt: Working with federal law enforcement, no material impact on systems/business operations.
• Legal Expenses: Elevated legal expenses due to complex legal cases, likely to continue in short term.

Question and Answer

• **Q: Life margins excluding remeasurement gain, normal volatility or claims decline?

A: Claims improving, seeing favorable claims, expecting to see continued favorable results.

• **Q: Lapses in AIL and Direct Response, economic conditions impact?

A: Lapses fluctuate, AIL results consistent with economic stress, resiliency of business noted.

• **Q: 2025 EPS guidance and share buyback assumption?

A: More guidance on buyback in next call, excess cash flow ~$575M-$625M for 2025, anticipating buybacks if no better use.

• **Q: Actuarial assumptions, GLP-1 drugs impact on mortality?

A: Not factoring in forward improvement, will consider when impact seen in insured base.

• **Q: Bermuda capital platform, capital need use of cash flow?

A: Bermuda framework expected to release capital, not using cash flow for capital need yet, evaluation ongoing.

• **Q: MedSup business, claims increase, disenrollment from Med Advantage impact?

A: Disenrollments from Med Advantage could benefit MedSup sales, market volatile but potential tailwind.

• **Q: Elevated legal expenses, impact on free cash flow?

A: Legal expenses likely to continue, reflected in excess cash flow thoughts.