Globe Life Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are primarily with FY 2021. Globe Life is an insurance holding company selling individual life and supplemental health coverage, mainly to lower- and middle-income households in the U.S., through direct-to-consumer, exclusive-agent, and independent-agent channels.
Financial performance
| Metric | FY 2022 | FY 2021 / change |
|---|---|---|
| Total premiums | $4.303 billion | $4.100 billion; up 5% |
| Total revenue | $5.215 billion | $5.113 billion |
| Net income (GAAP) | $740 million; $7.47 diluted EPS | $745 million; $7.22 diluted EPS |
| Net operating income (non-GAAP) | $806 million; $8.15 per diluted share | $707 million; up 14% and 19% per share |
| Net investment income | $987 million | $952 million; up 4% |
| Cash from operations | $1.422 billion | $1.438 billion |
| Shareholders’ equity | $4.896 billion | $8.643 billion; down 43% |
Premium growth reflected life premiums of $3.023 billion, up 4%, and health premiums of $1.279 billion, up 6%. Life underwriting margin rose 23% to $769 million, with margin improving to 25% of premium from 22%. Health underwriting margin increased 5% to $321 million, remaining 25% of premium. Total net sales rose 2% to $722 million; life net sales increased 2% to $531 million, while health net sales increased 4% to $191 million. Insurance administrative expenses rose 10% to $299 million, or 7.0% of premium versus 6.6%.
Net income was nearly flat because lower COVID-19 claims were offset by weaker realized investment results. After-tax realized investment losses were $60 million in 2022 versus gains of $47 million in 2021. Management’s non-GAAP net operating income excludes realized gains and losses and certain unusual items. Reported return on equity was 12.3%; management reported 13.4% for net operating income ROE excluding unrealized fixed-maturity gains or losses.
Financial position, debt, and capital
- Cash and short-term investments were $207 million at year-end. Consolidated cash from operations was $1.422 billion. The $750 million revolving facility had $340 million of additional borrowing capacity; commercial paper outstanding was $285 million at par.
- Debt carrying value totaled approximately $2.077 billion: $449 million short-term and $1.628 billion long-term. The company issued $400 million par of 4.80% senior notes in 2022 and repaid $300 million par of 3.80% notes at maturity.
- Fixed maturities had $16.5 billion fair value, down from $21.3 billion. Their net unrealized position shifted from a $3.5 billion gain to a $1.8 billion loss as interest rates rose. Management stated it generally intends and is able to hold these securities to recovery or maturity.
- Shareholders’ equity fell by $3.7 billion, principally reflecting $4.2 billion of after-tax unrealized fixed-maturity losses, partly offset by net income. Book value per share declined to $49.65 from $85.97; excluding unrealized fixed-maturity gains or losses, management reported book value per share of $64.01, up 9%.
- The consolidated Company Action Level RBC ratio was 321%, versus 315% in 2021; the stated 2022 target range was 300%–320%. Insurance subsidiaries were described as more than adequately capitalized. Subsidiary dividends available in 2023 without regulatory approval were limited to $420 million.
- The company repurchased 3.3 million shares under its program for $335 million, at an average $100.90 per share; total share purchases, including purchases to offset option dilution, were $455 million. Dividends declared were $0.83 per share for 2022.
Changes, outlook, and notable items
- COVID-19 net life claims fell to $49 million from $140 million in 2021. Management anticipated approximately $45 million of excess life claims in 2023 from COVID-19 and related non-COVID causes, while noting substantial uncertainty around mortality trends.
- Globe Life planned to adopt the long-duration targeted improvements accounting standard (LDTI) on January 1, 2023, using modified retrospective transition and restating 2021 and 2022 figures in its 2023 statements. Management expected 2023 net income to increase by $105–$115 million after tax, primarily from lower deferred acquisition cost amortization. It anticipated a transition-date increase in future policy benefits of $9.5–$11.0 billion and an after-tax AOCI decrease of $7.5–$8.5 billion using transition-date rates. Using December 31, 2022 rates instead, estimated impacts were materially smaller. Management said adoption would not change cash flows, statutory capital, or underlying economics.
- Management cited strong sales, favorable persistency, and strong operating returns as positive indicators. It expected share repurchases to remain a primary potential use of excess parent-company cash when market conditions are favorable; no specific earnings guidance was provided in the supplied filing text.
- Material risks include investment credit and interest-rate exposure; mortality, morbidity, persistency, and catastrophe experience; recruiting and retaining agents; changes in regulation and the ability to obtain timely health premium-rate increases; cyber and data-security events; and access to subsidiary dividends and capital markets.
- Unclaimed-property audits involving 47 states had produced no financial assessment or indicated liability; management could not estimate a range of possible loss. The filing also describes agent-classification litigation. One California/Florida matter was dismissed as to named plaintiffs after a non-material individual settlement, without prejudice to putative class or collective claims; a New Jersey class action remained contested. Management did not believe litigation was reasonably likely to have a material adverse effect, while cautioning that outcomes are uncertain.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The filing identified valuation of certain fixed maturities and assumptions for future policy benefits and acquisition-cost amortization as critical audit matters.
Important facts for investors to verify
- How LDTI adoption and subsequent discount-rate changes affect reported equity, AOCI, reserves, and comparability of restated results.
- Whether life and health premium growth, net sales, agent counts, and persistency continue, especially the Direct-to-Consumer life channel’s 15% net-sales decline.
- Whether interest-rate-driven unrealized losses remain recoverable and whether portfolio credit quality or realized losses materially worsen.
- Actual 2023 excess life claims relative to management’s approximately $45 million expectation, and the effects of mortality and morbidity trends.
- Developments in unclaimed-property audits, agent-classification cases, and regulatory approvals for supplemental-health rate increases.
- Parent-company liquidity, commercial-paper refinancing, subsidiary dividend capacity, debt maturities, and maintenance of the targeted RBC level.