Globe Life Inc. — FY 2021 Form 10-K
Business context and reporting period
Globe Life is an insurance holding company focused primarily on individual life and supplemental health insurance for lower- and middle-income households. Its distribution includes direct-to-consumer, exclusive-agent, and independent-agent channels. This filing covers the fiscal year ended December 31, 2021, compared mainly with 2020.
Financial performance and position
- Revenue: Total revenue was $5.11 billion, up 8% from $4.74 billion. Premium income rose 7% to $4.10 billion; life premiums increased 8% to $2.90 billion and health premiums increased 5% to $1.20 billion. Net investment income rose 3% to $952 million.
- Profit: Net income increased 2% to $745 million, or $7.22 per diluted share, from $732 million, or $6.82. Management’s non-GAAP net operating income declined 4% to $707 million, or $6.86 per diluted share, from $738 million, or $6.88.
- Margins: Life underwriting margin fell 8% to $624 million; the margin as a share of life premium declined to 22% from 25%. Health underwriting margin grew 12% to $304 million, with margin increasing to 25% from 24%. Excess investment income declined 2% to $239 million.
- Cash flow and liquidity: Net cash from continuing operations was $1.44 billion, versus $1.48 billion. Cash and short-term investments were $161 million at year-end. The parent had $119 million of invested cash, net intercompany receivables, and other liquid assets, plus $295 million of additional capacity under its revolving credit facility and commercial-paper backstop.
- Debt and capital: Total debt was $2.03 billion, including $480 million of short-term debt; long-term debt was $1.55 billion. The consolidated Company Action Level RBC ratio was 315%, within management’s 300%–320% target and above 309% in 2020. Shareholders’ equity was $8.64 billion, down 1%; book value per share was $85.97.
- Balance sheet and portfolio: Total assets were $29.77 billion and policy liabilities were $16.61 billion. Fixed maturities had a fair value of $21.31 billion; 96% were investment grade, with a weighted-average composite rating of A-. The net unrealized gain on fixed maturities fell to $3.50 billion from $4.02 billion, principally as market rates rose.
Material changes and unusual items
- COVID-19 net life claims rose to approximately $140 million from $67 million, contributing to the decline in life underwriting margin. Management said second-half deaths were concentrated in areas and age groups where Globe Life had greater exposure.
- Net income benefited from after-tax realized gains of $47 million, compared with after-tax realized losses of $2 million in 2020. The 2021 results also included a $9.3 million pretax loss on redeeming $300 million of 6.125% junior subordinated debentures; Globe Life issued $325 million of 4.25% junior subordinated debentures to help fund the redemption and for general corporate purposes.
- Globe Life acquired Beazley Benefits for $59.2 million on August 1, 2021, expanding its worksite supplemental-health offering. The acquisition had an immaterial effect on 2021 results.
- The company repurchased 4.8 million shares for $455 million under its repurchase program; total share purchases, including purchases to offset option dilution, were $541 million. The quarterly common dividend was increased to $0.1975 per share from $0.1875.
Outlook, risks, and contingencies
- 2022 commentary: Management anticipated elevated COVID-19 deaths through 2022 and estimated an approximately $50 million midpoint impact on life claims, based on incurred claims of $3 million–$4 million per 10,000 U.S. COVID-19 deaths. This is an estimate subject to uncertainty, including deaths, variants, vaccination and treatment effectiveness, age, and geography. Management also expected continued strong direct-to-consumer life sales, citing heightened awareness of life insurance benefits. No broader earnings guidance is provided in the filing text.
- Management cited strong sales, favorable persistency, and strong return on equity excluding unrealized fixed-maturity gains, while noting COVID-19 claim pressure. Low interest rates may constrain investment-income growth; higher rates may reduce fixed-maturity fair values and could affect policy surrenders. Credit deterioration, mortality and morbidity deviations, agent recruitment and retention, regulation, cyber risk, and climate-related impacts are among the disclosed risks.
- Insurance subsidiaries’ dividends are subject to regulatory limits. Up to $347 million could be paid to the parent in 2022 without regulatory approval; the filing reports $1.2 billion of subsidiary net assets as restricted. Management expected available funds to support 2022 operations and targeted subsidiary capital levels.
- Unclaimed-property audits involving 47 states had produced no financial assessment or indicated liability; the company could not estimate a loss range. Management did not believe the described litigation was reasonably likely to have a material adverse effect, but disclosed an ongoing dispute involving Family Heritage for which damages and fees remained under arbitration review.
- The company expects to adopt long-duration insurance accounting standard LDTI on January 1, 2023. Management anticipates a significant reduction in AOCI at transition and lower DAC amortization in the near to intermediate term; it stated the change will not affect statutory capital and surplus, policy cash flows, or underlying business economics.
- Deloitte issued unqualified opinions on the financial statements and internal controls. The audit identified critical audit matters concerning fair-value inputs for certain fixed maturities and assumptions underlying future policy benefits and DAC amortization.
Key facts for investors to verify
- Track COVID-19 claims against the 2022 estimate and assess their effects on life margins and reserves.
- Reconcile GAAP net income with non-GAAP net operating income, especially realized investment gains and other unusual items.
- Monitor premium and net-sales growth alongside agent counts, first-year collected premiums, persistency, and underwriting margins by channel.
- Review investment credit quality, unrealized gains and losses, interest-rate sensitivity, and the A- rating profile, including the below-investment-grade portfolio.
- Check parent-company liquidity, debt maturities, credit-facility availability, regulatory dividend capacity, and the 315% RBC ratio.
- Follow the Family Heritage arbitration, unclaimed-property audits, and quantified transition disclosures as LDTI implementation advances.