Globe Life Inc. — 2019 Form 10-K Summary
Business context and reporting period
This annual report covers the fiscal year ended December 31, 2019, with comparisons primarily to 2018. Globe Life, formerly Torchmark Corporation, changed its name in August 2019 and its NYSE ticker to GL. It sells individual life and supplemental health insurance mainly to lower- and middle-income households in the United States through exclusive agencies, independent agents, and direct-to-consumer channels.
Key financial metrics
| Metric | 2019 | 2018 | Change or context |
|---|---|---|---|
| Total revenue | $4.53 billion | $4.30 billion | Up 5% |
| Total premium | $3.60 billion | $3.42 billion | Up 5% |
| Net investment income | $910.5 million | $882.5 million | Up 3% |
| Net income | $760.8 million | $701.5 million | Up 8%; diluted EPS rose 12% to $6.83 |
| Net operating income | $752.1 million | $707.0 million | Up 6%; diluted operating EPS rose 10% to $6.75. Non-GAAP measure. |
| Operating segment margins | Life: $703.5 million, 28% of premium; health: $243.6 million, 23% | Life: $652.3 million, 27%; health: $236.1 million, 23% | Life margin increased 8%; health margin increased 3% |
| Cash from continuing operations | $1.35 billion | $1.28 billion | Cash provided from operating activities, including discontinued operations, was $1.36 billion |
| Total assets / shareholders’ equity | $25.98 billion / $7.29 billion | $23.10 billion / $5.42 billion | Equity rose 35%, substantially reflecting higher unrealized fixed-maturity gains |
| Debt | $1.65 billion total: $298.7 million short-term and $1.35 billion long-term | $1.67 billion total | Debt-to-capitalization was 18.4% on a GAAP basis; the filing also presents an adjusted ratio excluding unrealized fixed-maturity effects |
| Cash and short-term investments | $114.2 million | $184.3 million | Additional liquidity includes the securities portfolio and credit facility |
Life annualized premium in force grew 5% to $2.58 billion; health annualized premium in force grew 6% to $1.14 billion. Total net sales increased 6% to $621 million. Insurance administrative expenses rose 7.3% to $240.3 million, or 6.7% of premium versus 6.5% in 2018, largely reflecting increased information-technology investment.
Material changes versus 2018
- Life premium rose 5% to $2.52 billion; health premium rose 6% to $1.08 billion. Health net sales grew 11% to $191 million, while life net sales increased 4% to $430 million.
- Excess investment income, a non-GAAP segment measure, increased 5% to $257.6 million; per diluted share it rose 8% to $2.31, partly reflecting fewer shares outstanding.
- Fixed-maturity fair value increased to $18.91 billion from $16.30 billion. The portfolio’s net unrealized gain rose to $2.49 billion from $544.5 million, primarily due to lower interest rates. The resulting change materially boosted reported equity and book value per share; management’s non-GAAP book value per diluted share excluding these gains was $48.26, up 9% from $44.32.
- The fixed-maturity portfolio’s weighted-average composite quality rating improved to A- from BBB+. Investment-grade holdings were 96% of amortized cost; below-investment-grade holdings were 4%.
- Globe Life repurchased 3.9 million shares for $350 million under its repurchase program and bought an additional 1.2 million shares for $109.5 million to offset option dilution. Total purchases were approximately $459.6 million.
Outlook, risks, contingencies, and unusual items
- Outlook and capital: Management targeted a consolidated Company Action Level risk-based capital ratio of 300%–320% for 2020; the ratio was 318% at year-end 2019. The filing projects 2020 subsidiary dividends of $490 million and parent-company excess cash flows of $385 million. It does not provide a clear earnings or revenue forecast. Management expected share repurchases to remain a primary use of excess parent-company cash when market conditions are favorable.
- Liquidity and debt: The $750 million credit facility matures in May 2021. At year-end, $310 million of additional borrowing capacity was available, and commercial paper outstanding was $290 million. Subsidiary dividends are subject to regulatory limits; up to $412 million could be paid to the parent in 2020 without regulatory approval.
- Investment and interest-rate exposure: Approximately 95% of invested assets were fixed maturities, with a long duration. Rate changes affect fair values and reported equity; credit downgrades or defaults could reduce income, capital, or subsidiary dividend capacity. Management said it generally intends and is able to hold securities to maturity. No other-than-temporary impairments were recorded in 2019 or 2018.
- Insurance and operating risks: Results depend on mortality, morbidity, persistency, claims estimates, agent recruiting and retention, and customer demand. Medicare Supplement profitability depends on obtaining timely and adequate regulated premium-rate increases. The business is extensively regulated and exposed to competition, economic weakness, cybersecurity and privacy incidents, and catastrophic claims.
- Legal contingencies: Agent-classification class and collective actions include California cases against American Income Life and a national action filed in Arkansas. A proposed settlement in the California Joh/Hamilton matters had not received final court approval; a renewed motion was filed February 20, 2020. Management assessed a material adverse judgment as remote, while noting litigation outcomes are uncertain. Unclaimed-property audits involving 47 states had produced no assessment; the company could not estimate a loss range.
- Unusual and non-operating items: 2019 GAAP net income included $16.3 million of after-tax realized investment gains, $6.6 million of after-tax legal-proceeding expense, and smaller administrative-settlement and non-operating-fee items. Net income comparisons are also affected by 2018 debt-redemption losses. The unusually high 2017 net income reflected an $874 million tax-reform benefit and is not a comparable measure of recurring performance.
- Accounting change: The company expected adoption of the long-duration insurance accounting standard (ASU 2018-12) on January 1, 2022 to have a significant effect, but had not estimated the impact. Management did not expect early adoption.
- Audit and controls: Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified critical audit matters involving fair value estimates for certain fixed maturities and actuarial assumptions for future policy benefits and deferred acquisition costs.
Important facts for investors to verify
- How much of reported equity, book value growth, and ROE reflects interest-rate-driven unrealized investment gains rather than operating earnings.
- Whether life and health premium, new sales, agent-force growth, and underwriting margins remain sustainable, including the effect of health claims and Medicare Supplement rate approvals.
- The credit quality, concentration, and valuation assumptions of the fixed-maturity portfolio, including below-investment-grade holdings and Level 3 securities.
- The outcome and potential cost of agent-classification litigation and multi-state unclaimed-property audits; the filing does not provide a clear estimated loss range for the audits.
- How the 2022 long-duration insurance accounting change will affect reported liabilities, acquisition costs, equity, and earnings.
- Parent-company cash needs and capital returns, given debt obligations, regulatory limits on subsidiary dividends, and continued share repurchases.