Globe Life Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Globe Life sells life and supplemental health insurance primarily in the United States, through life, health, annuity and investment segments. Amounts below are USD unless otherwise indicated.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total premium | $1.095 billion | $1.065 billion; up 3% |
| Total revenue, GAAP | $1.321 billion | $1.303 billion |
| Net investment income | $257.1 million | $244.9 million; up 5% |
| Realized investment losses | $30.9 million pretax; $24.4 million after tax | $7.2 million pretax; $5.7 million after tax |
| Net income / diluted EPS | $223.6 million / $2.28 | $237.5 million / $2.37; net income down 6% |
| Net operating income / diluted EPS (non-GAAP) | $248.0 million / $2.53 | $243.3 million / $2.43; up 2% and 4%, respectively |
| Operating segment margins | Life underwriting $291.3 million (38% of premium); health $91.3 million (28%); annuity $2.3 million; excess investment income $29.3 million | Life $289.6 million (39%); health $87.9 million (28%); annuity $2.3 million; excess investment income $25.8 million |
| Cash flow from operations | $477.3 million | $397.1 million |
| Assets / shareholders’ equity | $26.86 billion / $3.85 billion at March 31 | Equity was $3.95 billion at December 31, 2022 |
| Debt | $2.143 billion book value: $514.2 million short-term and $1.628 billion long-term | Total debt was $2.077 billion at December 31, 2022 |
| Cash and short-term investments | $246.5 million at March 31 | $206.7 million at December 31, 2022 |
Net operating income is a non-GAAP measure that excludes realized investment gains and losses and certain other items; net income is the comparable GAAP measure. The filing reports operating cash flow growth was primarily attributable to timing fluctuations in settlement of certain other liabilities.
Material changes versus the comparable period
- Premium growth was led by life premium, up 3% to $772.6 million; health premium increased 2% to $322.5 million.
- Total net sales rose 5% to $190 million. Life net sales increased 1% to $140.4 million, while health net sales increased 17% to $50.1 million. First-year collected life premium declined 3%; health increased 9%.
- Higher investment income and underwriting margin supported higher net operating income. GAAP net income fell chiefly because after-tax realized investment losses increased to $24.4 million from $5.7 million.
- Financing costs rose 25% to $24.9 million, primarily reflecting higher short-term interest rates. Interest expense was $24.9 million versus $19.9 million.
- Shareholders’ equity declined from year-end, principally because AOCI fell $170.8 million, including changes in the discount-rate measurement of policy liabilities. Net income partly offset the decline; share repurchases also reduced equity.
- Globe Life adopted ASU 2018-12 on January 1, 2023 using modified retrospective transition. It materially changed reported policy liabilities, AOCI, retained earnings and prior-period results; prior-year comparatives in the filing are adjusted and should not be compared with previously published figures without accounting for the adoption.
Outlook, commentary, risks and unusual items
- Management said it expects total life net sales to increase for the remainder of 2023 versus the prior year. It anticipates 2023 fixed-maturity new-money yields approximately 40 basis points above yields on 2022 acquisitions and expects investment-income growth to be similar to invested-asset growth. These are management expectations, not formal earnings guidance.
- Management described core operations as supported by premium and sales growth, favorable persistency and strong ROE excluding AOCI. It targets a 2023 consolidated Company Action Level RBC ratio of 300%–320%; the 2022 ratio was 321%.
- Management expects adequate liquidity from operating cash flows, available liquid assets and credit facilities. It projected 2023 subsidiary dividends of $470 million and parent-company excess cash flows of $345 million. The company expects share repurchases to remain a primary potential use of excess parent-company cash when conditions are favorable.
- At March 31, fixed maturities had fair value of $17.2 billion and net unrealized losses of approximately $1.3 billion. Management said it generally intends and expects to be able to hold these securities to recovery or maturity. The portfolio was 97% investment grade, with an average composite rating of A-; interest-rate, credit and issuer risks remain relevant.
- First Republic Bank entered receivership effective April 30, 2023. Globe Life disclosed $38.6 million of First Republic exposure at amortized cost at March 31, with no allowance then recorded; the reported fair value was $0.4 million as of May 9. This is a significant subsequent event.
- In April, Globe Life closed a $170 million, 18-month variable-rate delayed-draw term loan intended to retire $165.6 million par value of 7.875% senior notes maturing May 15, 2023.
- Management said litigation is not presently believed reasonably likely to materially adversely affect financial condition, results or liquidity, while noting the uncertainty of litigation outcomes and potential punitive awards. The filing lists risks including economic and inflation effects on sales, lapses and claims; interest rates and investment credit; regulatory changes; competition; cyber events; catastrophes; and access to debt markets. No material changes to risk factors were reported.
- There were no material changes in market-risk exposure reported for the quarter. Management concluded disclosure controls were effective; additional controls were implemented in connection with ASU 2018-12 adoption.
Most important facts for investors to verify
- How much of the decline in GAAP net income is attributable to investment losses, and how operating results develop excluding those items.
- Credit developments and recovery value for the First Republic exposure, along with the wider bank and fixed-income portfolio; verify the $32.8 million fixed-maturity credit-loss allowance and its components.
- Whether life and health sales trends, first-year collected premiums, persistency and agent-force growth support management’s 2023 expectations.
- Debt refinancing and interest-cost effects, including the term loan’s variable rate, commercial paper balance and the maturity repayment.
- Changes in AOCI, policy-liability discount rates and assumptions under ASU 2018-12; assess adjusted comparability when reviewing prior periods.
- Liquidity and insurance-subsidiary capital, including the targeted RBC range, regulatory dividend capacity and planned capital returns.