GLOBE LIFE INC. quarterly report, Q3 FY2023

Globe Life Inc. — Q3 2023 Form 10-Q

Business context and reporting period. Globe Life provides life and supplemental health insurance primarily to U.S. lower-middle- and middle-income households, through exclusive and independent agencies and direct-to-consumer channels. This unaudited quarterly report covers the three and nine months ended September 30, 2023; comparisons are with 2022. Prior-period figures were retrospectively adjusted for adoption of long-duration insurance accounting standard ASU 2018-12.

Financial performance and position

Amounts below are rounded; income-statement and cash-flow figures are for the period shown, and balance-sheet figures are as of the stated date.

Metric	Q3 2023	Nine months 2023	Comparable 2022
Total premium	$1.119 billion; up 3.7%	$3.325 billion; up 3.2%	$1.079 billion Q3; $3.221 billion YTD
Total revenue	$1.384 billion; up 6.7%	$4.032 billion; up 3.6%	$1.297 billion Q3; $3.892 billion YTD
Net investment income	$266.9 million; up 8.2%	$785.3 million; up 6.6%	$246.7 million Q3; $736.3 million YTD
Net income	$257.1 million; up 34.9%	$696.0 million; up 6.7%	$190.6 million Q3; $652.0 million YTD
Diluted earnings per share	$2.68; versus $1.94	$7.20; versus $6.58	Year-over-year increases of 38% Q3 and 9% YTD
Operating cash flow	Not separately presented here	$1.091 billion	$1.050 billion YTD

For the first nine months, life underwriting margin rose 6% to $887.5 million, with margin at 38% of life premium versus 37%. Health underwriting margin was essentially flat at $280.5 million, or 29% of health premium. Excess investment income, a company-defined non-GAAP measure, increased 28% to $94.6 million.
At September 30, total assets were $26.17 billion, total policy liabilities $18.20 billion, and shareholders’ equity $4.62 billion. Equity was $3.95 billion at December 31, 2022.
Total debt at book value was $2.246 billion, compared with approximately $2.077 billion at year-end 2022. This included $1.799 billion of long-term debt and $447.5 million of short-term debt. Cash and short-term investments totaled about $169 million.
Fixed maturities had a fair value of $16.26 billion and a net unrealized loss of approximately $2.6 billion, compared with $16.50 billion fair value and a $1.8 billion net unrealized loss at year-end 2022. The portfolio’s weighted-average composite rating was A-; 97% was investment grade.
Cash used for investing activities was $828.0 million and cash used for financing activities was $269.8 million in the first nine months. Financing included $365.9 million of treasury-stock purchases, $62.9 million of dividends paid, and net FHLB borrowing.

Material changes versus the prior comparable period

Premium growth was broad but modest: life and health premiums each increased 3% year to date. Total net sales grew 5% to $568 million; health net sales rose 15%, while life net sales increased 2%.
Management attributed higher year-to-date net operating income, up 7% to $759.2 million, mainly to 28% growth in excess investment income and 6% growth in life underwriting margin. This non-GAAP measure excludes realized investment gains and losses and certain other items.
Interest expense increased 17% to $76.6 million year to date, primarily reflecting higher short-term interest rates. A $170 million variable-rate, 18-month term loan issued in May helped refinance $166 million of 7.875% senior notes that matured that month.
Higher market interest rates increased unrealized losses in the fixed-maturity portfolio, while current discount-rate changes on policy liabilities contributed to OCI. AOCI improved by $331.3 million during the first nine months but remained a loss of $2.46 billion at September 30.
ASU 2018-12 materially changed reported insurance liabilities, DAC, equity, and prior-period operating results. Management says the change is significant to reported measures but not a fundamental change to the business.

Outlook, commentary, risks and contingencies

Outlook: The filing does not provide a specific earnings or EPS forecast. Management projected 2023 subsidiary dividends of $460–470 million and parent-company excess cash flows of $420–430 million. It expected the average new-money rate on 2023 fixed-maturity acquisitions to be about 80 basis points above the yield on 2022 acquisitions. Management said share repurchases may remain a primary use of excess cash if market conditions are favorable.
Liquidity and capital: Management expects available liquid assets, internally generated cash flow, and credit facilities to fund operations and support target subsidiary capital levels. Its 2023 target consolidated Company Action Level RBC ratio was 300%–320%; the reported 2022 ratio was 321%. Commercial paper outstanding was $251 million, with $384 million remaining under the credit line after letters of credit. The company reported compliance with debt covenants and no difficulty accessing commercial-paper markets during the periods discussed.
Investment and rate risks: The company generally intends to hold fixed maturities to recovery or maturity and says strong operating cash flows make forced sales unlikely. Nevertheless, the portfolio has substantial interest-rate exposure, unrealized losses, and credit exposure; the filing identifies economic conditions, issuer financial health, and changing rates as risks. A $7.5 million allowance for credit losses remained on fixed maturities at quarter-end. The company sold securities connected to Signature Bank and First Republic Bank and reported a $52 million after-tax realized loss for the nine-month period.
Insurance estimates: Annual third-quarter assumption updates for mortality, morbidity, and lapses produced a $3.2 million net reserve remeasurement gain from assumption changes. Actual-versus-expected experience also produced favorable reserve remeasurement gains. Results remain sensitive to estimates and future experience.
Legal and other items: Globe Life is subject to routine industry litigation. Management did not believe the overall litigation was reasonably likely to materially adversely affect financial condition, results, or liquidity, while noting outcomes are uncertain. A New Jersey putative class action alleges agent misclassification and wage-law violations; the court denied a motion to compel arbitration without prejudice pending limited discovery. The company also had $115 million of letters of credit outstanding under a guarantee arrangement. An October 2023 agreement to acquire Evry Healthcare for an immaterial amount was expected to have an immaterial financial-statement impact.
Other: Management reported disclosure controls were effective and no material changes to internal control over financial reporting or risk factors. No material change in market-risk exposure was reported.

Important facts for investors to verify

How much of the earnings and EPS growth reflects ongoing insurance and investment operations versus realized losses, reserve remeasurement, and other non-operating items; reconcile GAAP net income with management’s non-GAAP net operating income.
The impact of ASU 2018-12 on the comparability of reported reserves, DAC, shareholders’ equity, and prior-year results, including how AOCI affects book value and capital measures.
Potential credit deterioration or forced-sale risk in the fixed-maturity portfolio, including the large unrealized loss position and sector exposures, and the basis for management’s expectation that securities can be held to recovery or maturity.
Debt and liquidity trends, including variable-rate borrowing costs, FHLB borrowings and available capacity, commercial-paper access, and the distinction between parent and insurance-subsidiary liquidity.
Whether life and health sales, agent-force growth, persistency, and underwriting margins continue at the reported pace, particularly given weaker direct-to-consumer life net sales and higher acquisition costs in American Income.
Developments in the New Jersey agent-classification litigation and any other legal, regulatory, credit-loss, or insurance-reserve matters that could materially affect results.