Globe Life Inc. — Q2 2021 Form 10-Q
Business context and period: The filing covers the quarter and six months ended June 30, 2021. Globe Life sells life and supplemental health insurance primarily in the United States, with a smaller annuity business and an investment segment.
Financial performance
| Metric | Q2 2021 | Six months 2021 |
|---|---|---|
| Total revenue | $1.271 billion, up 8% from $1.181 billion | $2.538 billion, up 10% from $2.314 billion |
| Net income | $199.6 million, up 15% from $173.0 million | $378.1 million, up 12% from $338.6 million |
| Diluted EPS | $1.92, versus $1.62 | $3.62, versus $3.13 |
| Operating income (non-GAAP) | Quarterly value not stated in the summarized filing text | $353.1 million, down 3% from $365.6 million; diluted per-share amount was $3.38, unchanged |
| Operating cash flow | Not separately presented here | $702.0 million, versus $769.3 million |
Premium and underwriting: Six-month premiums increased 8% to $2.026 billion. Life premium rose 9% to $1.436 billion, while life underwriting margin fell 7% to $315.4 million; margin was 22% of premium versus 26%. Health premium rose 5% to $589.8 million, and health underwriting margin increased 15% to $146.6 million; margin was 25% versus 23%. Excess investment income declined 3% to $120.5 million.
Balance sheet and liquidity: At June 30, total assets were $29.58 billion, total liabilities $20.96 billion, and shareholders’ equity $8.62 billion. Cash and short-term investments totaled $510 million. Book value per share was $83.59, including $27.93 per share of net unrealized fixed-maturity gains. The available-for-sale fixed-maturity portfolio was valued at $21.10 billion, with a $3.65 billion net unrealized gain.
Debt: Debt book value totaled $2.246 billion, including $259.9 million of commercial paper and $1.986 billion of long-term debt. In June, Globe Life issued $325 million of 4.25% junior subordinated debentures due 2061. On July 15, it redeemed $300 million of 6.125% debentures.
Changes, outlook, and notable items
- Net income benefited from $29.1 million of after-tax realized investment gains, compared with $24.4 million of after-tax realized losses in the prior-year period. Management’s non-GAAP operating income declined, primarily due to higher COVID-19 life claims.
- The company estimated $49 million of COVID-19 net life claims in the first half, versus $22 million a year earlier. Its full-year estimate was $53 million to $55 million, based on an assumption of approximately 20,000–30,000 U.S. COVID-19 deaths in the second half; management cautioned that higher actual deaths could raise claims.
- Management reported total net sales up 15% to $347 million for the first half. It anticipated full-year life net sales growth, while expecting Direct to Consumer sales in the remainder of 2021 to be below the exceptionally strong comparable 2020 period.
- Investment income rose 3% year over year, but the fixed-maturity portfolio’s effective annual yield declined to 5.23% from 5.36% at June 2020. Management cited low reinvestment yields as a constraint on future investment-income growth.
- Globe Life repurchased 2.2 million shares for $214 million using parent-company excess cash during the first half. Shareholders’ equity declined from year-end, principally reflecting $292 million of after-tax unrealized investment losses and share repurchases.
- On August 1, 2021, the company acquired Beazley Benefits for $59.2 million to expand its worksite supplemental-health distribution.
Risks, contingencies, and other disclosures
- Risks include pandemic-related mortality, morbidity, policy sales and persistency; interest-rate and credit-market changes; regulation and health-insurance rate approvals; competition; litigation; and cybersecurity or technology disruptions.
- Management said it did not expect ongoing litigation to materially adversely affect financial condition, results, or liquidity, while noting the unpredictability of punitive-damage outcomes. A putative agent wage-and-expense class action was settled as to the named plaintiff for a non-material amount and dismissed.
- Management expected adequate liquidity from operating cash flow, liquid assets, investment maturities, and its credit facility. At June 30, $355 million remained available under the credit line after commercial paper and letters of credit. The company reported compliance with debt covenants.
- The company is implementing the long-duration insurance accounting standard, effective January 1, 2023. It expects a significant financial-statement impact but had not yet estimated the amount.
- Management reported effective disclosure controls and no material changes in internal control over financial reporting. It reported no material changes to risk factors.
Important facts for investors to verify
- Whether COVID-19 mortality and the related full-year claims estimate develop as management assumed.
- Whether life underwriting results recover as claims normalize, and whether health sales and first-year collected premiums sustain growth.
- How lower new-money investment yields affect investment income and excess investment income.
- The company’s capital and liquidity position following the July debt redemption, share repurchases, and acquisition.
- The eventual quantified impact and implementation readiness for the 2023 long-duration insurance accounting standard.