Globe Life Inc. — 2020 Form 10-K Summary
Business context and period. Globe Life is an insurance holding company focused primarily on individual life and supplemental health insurance for lower- and middle-income households in the United States. Its principal distribution channels include exclusive agents, independent agents, and direct-to-consumer sales. This annual report covers the fiscal year ended December 31, 2020, with comparisons to 2019. Unless noted otherwise, amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2020 | 2019 | Change/comment |
|---|---|---|---|
| Total revenue | $4.738 billion | $4.528 billion | Up 5%; includes realized investment gains and losses |
| Total premiums | $3.814 billion | $3.595 billion | Up 6% |
| Net investment income | $927 million | $910 million | Up 2% |
| Net income | $732 million | $761 million | Down 4%; diluted EPS was $6.82 versus $6.83 |
| Net operating income (non-GAAP) | $738 million | $752 million | Down 2%; diluted per-share amount rose 2% to $6.88 |
| Operating cash flow from continuing operations | $1.476 billion | $1.347 billion | Up from prior year |
| Total assets | $29.047 billion | $25.977 billion | Up 12% |
| Shareholders’ equity | $8.771 billion | $7.294 billion | Up 20%, substantially reflecting unrealized fixed-maturity gains |
| Debt, book value | $1.923 billion | $1.648 billion | Long-term debt increased; includes $255 million commercial paper |
- Segment results: Life underwriting margin fell 4% to $675 million, with margin on premium declining to 25% from 28%. Health underwriting margin rose 12% to $272 million, with margin improving to 24% from 23%. Annuity underwriting margin was $9 million, down 5%.
- Investment results: Excess investment income, a non-GAAP measure, declined 5% to $244 million; excess investment income per diluted share was $2.28 versus $2.31. Management attributed the pressure primarily to the low-interest-rate environment and lower yields on new investments.
- Liquidity: Cash and short-term investments were $203 million at year-end. The company reported $1.476 billion of operating cash flow and $360 million of remaining borrowing capacity under its revolving credit facility. The $21.2 billion fair-value fixed-maturity portfolio was also available for sale, although the company generally expects to hold securities to maturity.
- Capital: The consolidated Company Action Level risk-based capital ratio was 309% at year-end, within the company’s 2020 target range of 300%–320%. Insurance subsidiaries’ financial-strength ratings included AA- from S&P and A from A.M. Best for four major subsidiaries; Family Heritage was rated A by A.M. Best and not rated by S&P.
- Investment portfolio: Fixed maturities were approximately 95% of invested assets. The portfolio’s fair value was $21.2 billion, including $4.0 billion of net unrealized gains; 95% of fixed maturities at amortized cost were investment grade. Below-investment-grade holdings were 5% at amortized cost.
Material changes versus 2019
- Estimated COVID-19 life claims of $67 million contributed to lower life underwriting margin and net income. Premium growth partly offset the claims impact.
- Life net sales rose 13% to $484 million; health net sales fell 7% to $178 million. Total net sales rose 7% to $662 million.
- Life and health annualized premium in force increased to $3.933 billion from $3.721 billion.
- Net unrealized gains on fixed maturities increased substantially as market interest rates declined. This lifted reported equity and book value per diluted share to $83.19 from $66.02; excluding those unrealized gains, management reported book value per diluted share of $53.12 versus $48.26.
- Long-term debt increased to $1.668 billion from $1.349 billion. Globe Life issued $400 million of 2.15% senior notes due 2030 and repaid a temporary $300 million term loan during 2020.
- The company repurchased 4.459 million shares under its repurchase program for $380 million, at an average price of $85.24; repurchases were temporarily paused in the second quarter and resumed in August.
Outlook, management commentary, risks and contingencies
- 2021 outlook: Management expected life and health net sales to increase 7% and total life and health premiums to grow approximately 6%. It projected approximately $52 million of additional COVID-related life claims at the midpoint of its guidance, based partly on an estimate of about 270,000 U.S. deaths. These are estimates, not guaranteed results.
- Capital and shareholder returns: The 2021 RBC target remained 300%–320%. Management expected share repurchases to remain a primary potential use of excess parent-company cash when market conditions were favorable, after maintaining targeted subsidiary capital levels. The projected 2021 quarterly dividend was $0.1975 per share.
- Key risks: COVID-19 could affect claims, sales, agent recruiting, investment credit quality, operations, and liquidity. Other risks include mortality and morbidity deviations, persistency, interest-rate and credit-market changes, regulatory limits on premium increases and subsidiary dividends, agent classification challenges, cybersecurity, and ratings downgrades.
- Investment and liquidity exposure: A prolonged low-rate environment could constrain investment-income growth. Rising rates could reduce fixed-maturity fair values and, if policy surrenders required asset sales, potentially create realized losses. Below-investment-grade holdings increased to $841 million at amortized cost, and the company recorded credit-loss allowances under the new CECL standard.
- Legal and other contingencies: Unclaimed-property audits involving 47 states had not resulted in a financial assessment; management could not estimate a loss range for possible penalties or escheatment obligations. Several agent-classification lawsuits remained pending or stayed, while a California class settlement received final approval in January 2021. Management said a material adverse judgment was remote, while acknowledging litigation outcomes are uncertain.
- Accounting and audit: The company adopted CECL in 2020. It expected the long-duration insurance accounting standard (ASU 2018-12) to have a significant effect, but had not estimated the impact; adoption was scheduled for 2023. Deloitte issued unqualified opinions on the financial statements and internal control. Its critical audit matters included fair value estimates for certain fixed maturities and actuarial assumptions for policy benefits and deferred acquisition costs.
Most important facts for investors to verify
- Whether actual 2021 COVID-related claims and sales results were consistent with management’s estimates and guidance.
- Whether life underwriting margins recover from the 2020 decline and health net sales stabilize, particularly in Medicare Supplement.
- How low reinvestment yields affect investment income and excess investment income over time.
- The credit quality and concentration of the fixed-maturity portfolio, including downgrades, realized losses, and credit-loss allowances.
- Whether subsidiary dividend capacity, liquidity, debt levels, and the RBC ratio continue to support parent-company obligations and capital returns.
- Developments in agent-classification litigation and unclaimed-property audits, and the eventual implementation effects of ASU 2018-12.