Globe Life Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with 2022 unless noted. Globe Life sells primarily individual life and supplemental health insurance in the U.S. through exclusive agencies, independent agencies, and direct-to-consumer channels. The filing was signed August 8, 2023.
Financial results
| Metric | Q2 2023 | Six months 2023 | Comparison |
|---|---|---|---|
| Total revenue | $1.326 billion | $2.648 billion | Q2 +2.7%; six months +2.1% |
| Total premiums | $1.111 billion | $2.206 billion | Q2 +3.1%; six months +3.0% |
| Net investment income | $261 million | $518 million | Q2 +7%; six months +6% |
| Net income | $215 million | $439 million | Q2 −3.9%; six months −4.9% |
| Diluted EPS | $2.24 | $4.52 | Q2 $2.26; six months $4.63 |
| Net operating income (non-GAAP) | Not clearly stated in the supplied filing text | $500 million | Six months +1%; diluted per-share amount $5.15, up 4% |
| Operating cash flow | Not stated separately | $804 million | Up from $693 million |
Net income was pressured by after-tax realized investment losses of $61 million in the first half, versus $30 million a year earlier. The 2023 losses included approximately $57 million after tax in credit losses associated primarily with Signature Bank and First Republic Bank. Excluding realized investment losses and specified unusual items, management reported first-half net operating income of $500 million; this is a non-GAAP measure.
Margins, segments, and business trends
- First-half life underwriting margin was $587 million, essentially flat year over year; margin as a percentage of premium eased to 38% from 39%, with higher acquisition costs noted.
- Health underwriting margin rose 2% to $184 million, with margin at 28% of premium. Health net sales increased 15% to $99 million; life net sales were approximately flat at $280 million.
- Excess investment income, a management-defined non-GAAP measure, rose 22% to $60.6 million; per diluted share it increased 24% to $0.62.
- Annualized premium in force at June 30 was $3.14 billion for life, up 4%, and $1.34 billion for health, up 3%. Total net sales increased 4% to $379 million. Management reported a 9% increase in average producing agents across exclusive agencies.
Financial position, liquidity, and capital
- At June 30, total assets were $26.7 billion, total liabilities $22.7 billion, and shareholders’ equity $4.0 billion. Equity was approximately $3.95 billion at year-end 2022; AOCI was a negative $2.94 billion, down $154 million during the first half.
- Investments totaled $18.75 billion, including $17.03 billion of available-for-sale fixed maturities at fair value. The fixed-maturity portfolio had a $1.58 billion net unrealized loss at June 30, compared with $1.80 billion at year-end. Approximately 97% of the portfolio was investment grade; the weighted-average quality rating was A-.
- Cash and short-term investments were $146 million, down from $207 million at year-end. Management cited operating cash generation, investment maturities, and credit access as liquidity sources; it stated that forced sales of fixed maturities were highly unlikely.
- Total debt at book value was approximately $2.06 billion: $1.80 billion long-term and $258 million short-term. Globe Life issued a $170 million, 18-month variable-rate term loan at SOFR plus 135 basis points to refinance senior notes that matured in May. First-half interest expense increased 21% to $50.7 million, primarily due to higher short-term rates.
- The revolving credit facility had $375 million remaining available at June 30 after commercial paper and letters of credit. Commercial paper outstanding was $260 million, at a 5.57% annualized rate. Management said the company was in covenant compliance and had experienced no difficulty accessing the commercial paper market.
- First-half dividends paid were $42 million. The company repurchased 2.0 million shares for $219 million using parent-company excess cash flow; additional repurchases funded with option proceeds brought total repurchases to 2.37 million shares and $267 million.
Outlook, accounting, and risks
- Management projected 2023 subsidiary dividends of $460–470 million and parent-company excess cash flow of $340–350 million, net of shareholder dividends. It projected approximately $84 million of shareholder dividends for 2023 and said share repurchases could remain a primary use of excess cash if market conditions are favorable.
- The company targeted a consolidated Company Action Level risk-based capital ratio of 300%–320% for 2023; the 2022 ratio was 321%. Management described the target as adequate to support current ratings.
- Management expected 2023 new fixed-maturity investment yields to average about 50 basis points above yields on 2022 acquisitions. It also expected average fixed-maturity portfolio turnover below 2% annually over the next five years. These are expectations, not guarantees.
- Globe Life adopted ASU 2018-12 (LDTI) on January 1, 2023, retrospectively adjusting comparative periods. Adoption materially changed reported reserves, equity, underwriting margins, and prior-period net income; management said it did not fundamentally change the business. Interest-rate-driven changes in policy-benefit liabilities flow through OCI, while changes in cash-flow assumptions may affect earnings.
- Key disclosed risks include changes in mortality, morbidity, lapses and health-care utilization; inflation and operating costs; interest rates and issuer credit quality; regulatory or accounting changes; competition and premium-rate approvals; litigation; cybersecurity; catastrophes; and access to debt and commercial-paper markets.
- The company reported ongoing industry-related litigation and potential punitive-damage exposure. Management did not believe the litigation was reasonably likely to materially affect financial condition, operating results, or liquidity, while cautioning that outcomes are uncertain. No material change to risk factors or market-risk exposure was reported; disclosure controls were assessed as effective.
Most important facts for investors to verify
- Whether premium, sales, agent-count, and underwriting-margin trends continue, particularly the contrast between life and health performance.
- The drivers and future development of realized credit losses, especially the bank-related allowances, and the credit quality of the investment portfolio.
- Interest-rate sensitivity of reserves and AOCI, and how LDTI affects reported equity and period-to-period comparability.
- Whether projected subsidiary dividends, parent cash flow, capital targets, and liquidity remain consistent with management’s outlook.
- The effect of higher variable-rate borrowing costs and the company’s continued ability to access commercial-paper and debt markets.
- That net operating income, excess investment income, and related per-share or return measures are non-GAAP; reconcile them to GAAP results when assessing performance.