Globe Life Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021 unless stated otherwise. Globe Life sells life and supplemental health insurance primarily in the United States. Dollar figures below are in millions unless otherwise noted.
Financial results and key metrics
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total premium | $1,071.6 | $1,002.3; up 7% |
| Net investment income | $243.8 | $235.8; up 3% |
| Total revenue | $1,308.4 | $1,266.6 |
| Net income | $164.4 | $178.5; down 8% |
| Diluted EPS | $1.64 | $1.70 |
| Net operating income (non-GAAP) | $170.2 | $160.1; up 6% |
| Operating cash flow | $397.1 | $371.8 |
| Cash at quarter-end | $127.6 | $92.2 at Dec. 31, 2021 |
| Total debt, book value | $2,068.9 | $2,026.1 at Dec. 31, 2021 |
| Shareholders’ equity | $6,894.0 | $8,642.8 at Dec. 31, 2021 |
Life premium increased 7% to $754.6 million; health premium rose 8% to $317.0 million. Life underwriting margin grew 10% to $150.5 million, with margin of premium improving to 20% from 19%. Health underwriting margin rose 10% to $79.1 million, with margin holding at 25%. Excess investment income, a non-GAAP segment measure, increased 1% to $61.4 million; per diluted share it rose 5% to $0.61.
Material changes and notable items
- GAAP net income fell mainly because investment results shifted from $22.2 million of after-tax realized gains in Q1 2021 to $5.7 million of after-tax realized losses in Q1 2022. Net operating income, which excludes specified non-operating items, increased.
- Rising market rates reduced the fair value of available-for-sale fixed maturities to $19.2 billion from $21.3 billion at year-end. Their net unrealized gain declined to $1.2 billion from $3.5 billion. After-tax other comprehensive loss was $1.8 billion, contributing to the decline in equity. Book value per share was $69.16 at March 31, versus $85.97 at December 31; excluding fixed-maturity unrealized gains and losses, it was $59.65.
- COVID-19 net life claims were $46 million, versus $38 million a year earlier. The company repurchased 880,000 shares for $88.6 million using parent-company excess cash flow; total treasury-stock purchases, including repurchases funded by option exercise proceeds, were $119.5 million.
- Insurance administrative expenses increased 10% to $72.6 million and rose to 6.8% of premium from 6.6%, partly reflecting higher IT and employee costs.
Liquidity, debt and capital
Cash and short-term investments totaled $185 million at March 31. Management cited operating cash generation, investment maturities, marketable securities, commercial paper and a revolving facility as liquidity sources. The company reported $372.5 million of commercial paper outstanding and $522.1 million of total short-term debt, including a $150 million current debt maturity. Long-term debt was $1,546.9 million. The $750 million credit facility had $125 million of letters of credit outstanding and $252.5 million of remaining availability; the company reported covenant compliance and no difficulty accessing the commercial-paper market. No FHLB borrowings were outstanding, with stated capacity of approximately $545 million.
Management targeted a 2022 consolidated Company Action Level RBC ratio of 300%–320%; the reported year-end 2021 ratio was 315%. The filing projects $400 million of subsidiary dividends and $280 million of parent-company excess cash flow for 2022. These are liquidity projections, not earnings guidance.
Outlook, risks and contingencies
- Management expected total net life sales to increase over the remainder of 2022 and anticipated higher American Income producing-agent counts in the second half, while noting recruitment and underwriting-processing challenges. Family Heritage and Liberty National also described expectations for improving agent recruitment and sales.
- For full-year 2022, management estimated approximately $71 million of COVID-19 life claims at the midpoint of its guidance, based on projected U.S. COVID deaths of 200,000–300,000 and estimated claims of $2.5–$3.5 million per 10,000 deaths. Outcomes depend on deaths, variants, vaccination and other factors.
- Management expected 2022 new-money yields on fixed-maturity acquisitions to be about 90 basis points above the yield on 2021 acquisitions. It cautioned that persistently low rates could constrain investment-income growth, while rising rates could further reduce portfolio fair values.
- The company expects to adopt the long-duration insurance-contract accounting standard on January 1, 2023, without early adoption. It anticipates a significant decrease in AOCI at transition and changes to deferred acquisition cost accounting; management said the changes would not affect statutory capital and surplus, statutory net income or policy cash flows. Quantitative adoption estimates were not yet provided.
- One $4.6 million commercial mortgage loan was in non-accrual status and could result in foreclosure during 2022. A parent guarantee supported $125 million of outstanding letters of credit, with a $250 million maximum. Management did not believe litigation was reasonably likely to materially harm financial condition, results or liquidity, but cautioned that punitive-damage outcomes can be unpredictable.
- Disclosed risks include inflation and economic conditions, COVID-19 effects on claims and sales, interest rates and investment credit quality, regulation and Medicare changes, litigation, cyber incidents, catastrophic events, and access to debt markets. The filing reported no material change in risk factors.
Key facts for investors to verify
- Whether premium growth and underwriting margins continue, especially as COVID-related claims and agent recruitment trends evolve.
- How interest rates affect investment income, unrealized portfolio values, AOCI, equity and reported book value.
- The realized investment gains or losses excluded from management’s non-GAAP operating measures, and the reconciliation to GAAP net income.
- Progress and quantified transition effects for the 2023 long-duration insurance accounting standard.
- Commercial-paper usage, debt maturities, liquidity availability, statutory capital levels and the commercial mortgage loan in non-accrual status.