Globe Life Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Globe Life sells life and supplemental health insurance, primarily in the United States, through exclusive, independent and direct-to-consumer distribution channels.
Financial results
Amounts below are in millions, except per-share data. Comparative periods are the three or nine months ended September 30, 2021.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total premium | $1,074.4 | $1,028.1 | $3,225.1 | $3,054.1 |
| Total revenue | $1,291.3 | $1,277.8 | $3,892.2 | $3,815.5 |
| Net investment income | $245.6 | $239.0 | $733.1 | $713.1 |
| Realized investment gains (losses) | $(29.2) | $10.5 | $(66.8) | $47.3 |
| Net income | $186.8 | $188.9 | $528.1 | $567.0 |
| Diluted net income per share | $1.90 | $1.84 | $5.33 | $5.46 |
- For the first nine months, premiums rose 6%: life premiums increased 5% to $2.27 billion and health premiums increased 7% to $955 million. Net investment income rose 3%.
- Nine-month net income declined 7%, primarily reflecting a swing from after-tax realized investment gains of $45 million in 2021 to losses of $53 million in 2022. Diluted EPS declined 2%.
- Management’s non-GAAP net operating income increased 9% to $586 million for nine months; diluted net operating income per share rose to $5.91 from $5.16. Life underwriting margin increased 16% to $556 million, health underwriting margin increased 7% to $239 million, and excess investment income declined 2% to $175 million.
- Operating cash flow was $1.05 billion for nine months, compared with $1.06 billion in 2021. Cash and short-term investments were $171 million at September 30, 2022.
Balance sheet, debt and liquidity
- At September 30, 2022, total assets were $24.84 billion, total liabilities $20.48 billion, and shareholders’ equity $4.36 billion. Equity was $8.64 billion at December 31, 2021; the decline primarily reflected the change in fixed-maturity fair values.
- Available-for-sale fixed maturities had a fair value of $16.01 billion, down from $21.31 billion at year-end 2021. Their net unrealized position shifted from a $3.5 billion gain to a $2.2 billion loss as market interest rates rose. Management said it generally expects to hold the bonds to recovery or maturity and does not expect to need to sell them for liquidity.
- Total debt was $2.06 billion at book value: $1.63 billion long-term and $435 million short-term, including $270 million of commercial paper. The company issued $400 million of 4.8% senior notes in May 2022, using proceeds in part to fund the maturity of $300 million of 3.8% notes and reduce commercial paper. The revolving credit facility had $355 million remaining after commercial paper and letters of credit; the company reported compliance with debt covenants.
- Management reported a 315% consolidated Company Action Level risk-based capital ratio at year-end 2021 and a 2022 target range of 300%–320%. It stated liquidity should be sufficient for operations and capital targets.
- Book value per share was $44.56 at September 30, 2022, versus $85.97 at December 31, 2021. Excluding unrealized fixed-maturity gains and losses, the company reported $62.01 per share, compared with $57.11 at September 30, 2021.
Changes, outlook and risks
- Management cited premium and sales growth, favorable persistency and lower COVID-related life claims as positive operating trends. COVID-19 net life claims were $44 million for nine months, down from $82 million a year earlier. Total net sales increased 4% to $539 million.
- For full-year 2022, management estimated U.S. COVID deaths of 240,000–260,000 and approximately $51 million of COVID life claims at the midpoint of its guidance. For 2023, it anticipated approximately $20 million of COVID life claims, based on about 105,000 U.S. deaths. These estimates depend on mortality, variants, treatment and vaccination outcomes.
- Management expected 2022 fixed-maturity acquisition yields to be about 170 basis points above yields on 2021 acquisitions. It noted higher rates may benefit future investment income while reducing current reported bond values.
- The company planned to adopt long-duration targeted improvements (LDTI) accounting on January 1, 2023, using a transition date of January 1, 2021, with restatement of 2021 and 2022. At then-current transition assumptions, it estimated an after-tax AOCI decrease of $7.5–$8.5 billion; using September 30, 2022 discount rates, it estimated the related after-tax AOCI decrease at $1.0–$1.6 billion. It also expected a $105–$130 million after-tax increase in 2023 net income, largely from lower near-term deferred acquisition cost amortization. Management said LDTI would not affect statutory capital, statutory earnings or policy cash flows.
- Key risks include interest-rate and credit-market changes, inflation, mortality and morbidity experience, policy lapse and sales trends, regulatory changes, Medicare Supplement competition, premium-rate approvals, litigation, technology or cybersecurity events, and access to debt and commercial-paper markets. Management did not believe current litigation was reasonably likely to materially harm financial condition, results or liquidity, while cautioning that punitive-damage outcomes can be unpredictable.
- Commitments and contingencies include $125 million of outstanding letters of credit under a facility with a $250 million maximum. One $4.1 million commercial mortgage loan was in foreclosure and non-accrual status; the portfolio allowance for credit losses was $2.2 million.
Important facts for investors to verify
- How much reported earnings and equity volatility reflects realized losses and interest-rate-driven unrealized bond losses, versus underlying insurance operations.
- The actual LDTI transition impact and subsequent restated results, particularly the sensitivity of reserves and AOCI to discount rates.
- Whether life and health premium growth, new sales, persistency and agency staffing trends continue, including the Direct to Consumer life-sales decline.
- Whether COVID-related claims, operating expenses, investment yields and commercial-paper funding develop in line with management’s estimates.
- Future statutory capital ratios, subsidiary dividend capacity, debt maturities and the outcome of litigation and the mortgage loan foreclosure.