GLOBE LIFE INC. quarterly report, Q3 FY2021

Globe Life Inc. — Q3 2021 Form 10-Q

Reporting period: Quarter and nine months ended September 30, 2021. Globe Life sells life, supplemental health, and annuity products primarily in the United States. Dollar amounts below are rounded; financial statements are unaudited.

Financial performance

Metric	Q3 2021	Q3 2020	Nine months 2021	Nine months 2020
Total revenue	$1.278bn	$1.195bn	$3.816bn	$3.509bn
Net income	$188.9m	$188.9m	$567.0m	$527.5m
Diluted EPS	$1.84	$1.76	$5.46	$4.90
Net investment income	$239.0m	$231.4m	$713.1m	$692.0m
Operating cash flow	Not provided separately	Not provided separately	$1.060bn	$1.079bn

For the quarter, premiums were $1.028bn, up 7% year over year; life premium rose 8% and health premium rose 4%. Net income was essentially flat despite higher revenue.
For the nine months, premiums increased 7%; net income increased 7% and diluted EPS increased 11%. Management-reported non-GAAP net operating income fell 3% to $535.6m, or $5.16 per diluted share versus $5.14.
Nine-month underwriting margins: life $477.4m, down 7% (22% of life premium versus 26%); health $223.6m, up 11% (25% versus 24%); annuities $6.5m, down 4%. Excess investment income was $179.7m, down 2%, while per-share excess investment income rose 2% to $1.73.
The nine-month GAAP earnings increase reflected a swing to $44.7m of after-tax investment gains from $21.9m of after-tax investment losses. Core operating income was pressured by higher COVID-19 life claims.

Financial position, cash flow, and capital

At September 30, total assets were $29.50bn, total liabilities $20.89bn, and shareholders’ equity $8.61bn, compared with $29.05bn, $20.28bn, and $8.77bn, respectively, at year-end 2020.
Cash and short-term investments totaled about $190m. The available-for-sale fixed-maturity portfolio had a fair value of $21.16bn. Cash from operations was $1.06bn for nine months; investing activities used $629m and financing activities used $428m. Ending cash was $96.3m.
Total debt at book value was $1.94bn, including $393.6m of short-term debt and $1.55bn of long-term debt. Commercial paper outstanding was $244m. The $750m revolving facility had $371m remaining available after letters of credit; the company reported covenant compliance and no difficulty accessing commercial paper markets.
Globe Life issued $325m of 4.25% junior subordinated debentures due 2061 and used proceeds in part to redeem $300m of 6.125% debentures, recording a $9.3m pretax redemption loss. The 2021 debt total also includes a $150m current maturity due in 2022.
Shareholders’ equity declined from year-end primarily because after-tax unrealized fixed-maturity losses were $379m as interest rates rose, along with share repurchases. Book value per share was $84.52; excluding net unrealized fixed-maturity gains, management’s non-GAAP figure was $57.11.

Material developments and management outlook

COVID-19 net life claims were $82m for the first nine months, including $33m in Q3, versus $40m for the comparable 2020 period. Management attributed the quarter’s elevated claims mainly to the Delta variant and exposure in affected geographies and younger age groups.
Management estimated full-year 2021 COVID-19 net life claims of $110m–$125m, based on an estimated 75,000–125,000 U.S. COVID-19 deaths in Q4. It expected claims per 10,000 U.S. deaths to remain elevated through Q4 and projected a $3m–$4m range in 2022. These estimates depend on mortality, vaccination, treatment, variant, age, and geographic factors.
Total net sales rose 9% to $518m year to date. Life net sales rose 11%; health net sales rose 4%, though health first-year collected premium fell 11%. Management cited strong sales and persistency, while noting Direct to Consumer sales were below an unusually strong 2020 comparison.
On August 1, the company acquired Beazley Benefits for $59.2m, including a 100% coinsurance agreement for remaining in-force business. The acquisition expands worksite-market distribution and had an immaterial year-to-date earnings impact. Purchase-price allocation remains preliminary.
Management planned an approximately $150m contribution to insurance subsidiaries in Q4 to support its targeted 300%–320% consolidated Company Action Level risk-based capital ratio, including capital needs from new regulatory investment factors, business growth, COVID-19 claims, and the acquisition.
Management said low interest rates constrain investment-income growth: the fixed-maturity portfolio’s effective yield was 5.20%, down from 5.28% at year-end 2020, and new-money yields were expected to remain lower. It stated that a rate increase of approximately 145–150 basis points would eliminate the portfolio’s net unrealized gains at quarter-end.
No consolidated earnings guidance is provided in the supplied filing text. The company said it expected sufficient liquidity for operations and continued share repurchases to remain a possible primary use of excess parent-company cash, subject to capital needs and market conditions.

Risks, contingencies, and unusual items

Key stated risks include pandemic effects on mortality, morbidity, sales and persistency; interest-rate and credit-market changes; regulatory and Medicare developments; premium-rate approvals; competition; litigation; operating and technology disruption, including cybersecurity; and access to debt and commercial-paper markets.
The parent guaranteed letters of credit supporting reinsurance obligations; $135m was outstanding at September 30, against a maximum facility of $250m. Management did not believe pending litigation would reasonably be expected to materially harm financial condition, results, or liquidity, but noted the potential for unpredictable punitive-damage awards.
The long-duration insurance accounting standard (ASU 2018-12 and related updates) is effective January 1, 2023. The company expects a significant financial-statement impact but had no estimate; implementation work was ongoing.
The fixed-maturity portfolio’s net unrealized gain declined to $3.54bn from $4.02bn at year-end. Management said it did not intend, and was unlikely to be required, to sell securities before recovery or maturity. Approximately 96% of the portfolio was investment grade; the weighted-average composite quality rating was A-.
Management reported disclosure controls were effective, no material changes to internal control over financial reporting, and no material changes to risk factors during the quarter.

Important facts for investors to verify

Whether elevated COVID-19 claims and the company’s full-year estimate track actual mortality and claims experience.
Whether life underwriting margins recover as pandemic-related claims normalize, and whether health sales and first-year collected premium improve.
The quality, valuation, and liquidity profile of the investment portfolio, including unrealized losses, below-investment-grade holdings, and investment-fund commitments.
Execution and earnings contribution from the Beazley Benefits acquisition, and the final purchase-price allocation.
Capital adequacy after the planned $150m subsidiary contribution, debt refinancing, and ongoing share repurchases; also monitor the 2022 debt maturity and available credit capacity.
The eventual financial impact and implementation progress of the 2023 long-duration insurance accounting standard.