Globe Life Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 12 speakers on the call.

Operator

Hello, and welcome to the Globe Life Incorporated Third Quarter 2023 Earnings Release Conference Call. Please note this conference is being recorded. And for the duration of the call, your lines will be on listen only. However, I will now hand you over to your host, Stephen Mota, Senior Director, Investor Relations to begin today's conference. Thank you.

Speaker 1

Thank you. Good morning, everyone. Joining the call today are Frank Saboda and Matt Darden, our Co Chief Executive Officers Tom Combach, our Chief Financial Officer Mike Majors, our Chief Strategy Officer and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release, 2022 10 ks and the subsequent Forms 10 Q on file with the SEC.

Speaker 1

Some of our comments may also contain non GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures.

Speaker 2

I will now turn the call over to Frank. Thank you, Stephen, and good morning, everyone. In the Q3, net income was $257,000,000 or $2.68 per share compared to $191,000,000 or $1.94 per share a year ago. Net operating income for the quarter was $260,000,000 or $2.71 per share, an increase of 24% from a year ago. The strong growth in net income and net operating income is due in part to the remeasurement loss taken in the year ago quarter Due to the unlocking of assumptions under LDTI.

Speaker 2

Tom will discuss this further in his comments. On a GAAP reported basis, return on equity through September 30 is 22.6% and book value per share is $48.51 Excluding accumulated other comprehensive income Or AOCI, return on equity is 14.7 percent and book value per share as of September 30th is $74.31 up 11% from a year ago. In our life insurance operations, premium revenue for the 3rd quarter increased 4% from the year ago quarter to $788,000,000 For the year, we expect Life premium revenue to grow between 3.5% to 4%. Life underwriting margin was $300,000,000 up 21% from a year ago. The increase in life underwriting margin was due in part to a remeasurement gain recognized this quarter due to improved claims experience versus a remeasurement loss taken in the year ago quarter.

Speaker 2

At the midpoint of our guidance, we expect Life underwriting margin for the full year to grow a little over 5 Premium grew 3% to $331,000,000 and health underwriting margin was down 4% to $97,000,000 Due in part to a remeasurement gain recognized in the Q3 of 2022 that was greater than what was recognized in the current quarter. For the year, we expect health premium revenue to grow around 3%. At the midpoint of our guidance, we expect health underwriting margin to be relatively flat And as a percent of premium to be around 29%. Administrative expenses were $75,000,000 for the quarter, down 1% from a year ago, primarily due to a decrease in pension and other employee related costs. As a percentage of premium, Administrative expenses were 6.7% compared to 7% a year ago.

Speaker 2

For the full year 2023, We expect administrative expenses to be approximately 6.8 percent of premium, in line with our previous expectations. I will now turn the call over to Matt for his comments on the Q3 marketing operations.

Speaker 3

Thank you, Frank. First, I'm going to start with American Income Life. Here, life premiums were up 6% over the year ago quarter to $400,000,000 and the life underwriting margin was up 8% to $181,000,000 In the Q3 of 2023, net life sales were $81,000,000 which is up 6% from the year ago quarter, primarily due to growth in agent count. The average producing agent count for the 3rd quarter was 10,993, up 16% from the year ago quarter and up 5% from the 2nd quarter. I am encouraged to see the growth in agent count and sales.

Speaker 3

We are seeing positive results from the recruiting and sales initiatives put in place at the end of last year. At Liberty National, life premiums were up 7% over the year ago quarter to $88,000,000 and life underwriting margin was up 39 percent to $27,000,000 net life sales increased 31 percent to $24,000,000 And net health sales were $9,000,000 which is up 19% from the year ago quarter due primarily to increase in agent count. The average producing agent count for the Q3 was 3,339, up 20% from the year ago quarter. Liberty continues to generate positive momentum through strong recruiting and agency leadership growth. Ongoing implementation of new technology over the past Now Family Heritage.

Speaker 3

Here, the health premiums increased 8% over the year ago quarter to $100,000,000 while the health underwriting margin declined 3% to $36,000,000 Net health sales were up 15% to $25,000,000 due to increased agent count and productivity. The average producing agent count for the Q3 was 1323, up 7% from the year ago quarter. Moving forward, this agency will continue to focus on recruiting with additional initiatives to incentivize Agency middle management growth, which will lead to growth in new offices and agent count. In our direct to consumer division at Globe Life, Life premiums increased 1% over the year ago quarter to $248,000,000 and Life underwriting margin increased 86 percent to $63,000,000 due to lower policy obligations. Net life sales were $26,000,000 down 8% from the year ago quarter, primarily due to declines in direct mail and insert media activity.

Speaker 3

While we will continue our efforts to grow direct to consumer sales activity, our primary focus will be maximizing the underwriting margin dollars on new sales Managing the rising advertising and distribution costs associated with acquiring this new business. In addition to the ability to produce new business at a healthy margin, the direct to consumer division provides significant support in the form of brand impressions and sales leads to our agencies that is critical to the strong growth they are seeing. At United American General Agency, here the health premiums increased 2% over the year ago quarter to $137,000,000 Health underwriting margin of $15,000,000 or 11% of premium is flat from the year ago quarter. Net health sales were $16,000,000 up 20% over the year ago quarter due to a 6% increase in individual Medicare Supplement sales and increased activity at Globe Life Benefits. On to projections.

Speaker 3

Now based on the trends that we're seeing and our experience with our business, we expect that average producing agent count trends For the full year 2023 to be as follows: at American Income Life, an increase of around 12% At Liberty National, an increase of around 18% at Family Heritage, an increase of around 11%. Net life sales for the full year 2023 are expected to be as follows: American Income Life, We anticipate approximately 15% growth in the 4th quarter, which will result in full year growth of approximately 4% Liberty National, an increase of around 23% and direct to consumer, a decrease of around 5%. Net health sales for the full year 2023 are expected to be as follows: Liberty National, an increase of around 17% Family Heritage, an increase of around 18% and United American General Agency, an increase of around 20%. Now for 2024, at the midpoint of our 2024 guidance, we expect sales growth for the full year of 2024 to be as follows: For Life sales, American Income, high single digit Liberty National, mid teens growth And direct to consumer relatively flat as we continue to focus on profitability. For Health sales, we expect Liberty National to have mid teens growth Family Heritage, low double digit growth and United American General Agency, low single digit growth.

Speaker 3

I'll now turn the call back to Frank. Thanks,

Speaker 2

Matt. We will now turn to the investment operations. Excess investment income, which we define as net investment income once required interest was $34,000,000 up from $10,000,000 from the year ago quarter. Net investment income was $267,000,000 up 8% or $20,000,000 from the year ago quarter due to higher yields on fixed maturities and short term investments and an increase in floating interest rates on our commercial mortgage loans, including those held in limited partnerships. Required interest is up 5% over the year ago quarter, in line with the increase in net policy liabilities.

Speaker 2

For the full year, we expect net investment income to grow approximately 7% Due to the combination of the favorable rate environment and steady growth in our invested assets and expect excess investment income to grow approximately $25,000,000 Now regarding our investment yield. In the 3rd quarter, We invested $427,000,000 in investment grade maturities, primarily in the municipal and financial sectors. We invested at an average yield of 6.15 percent, an average rating of A plus and an average life of 27 years, taking advantage of opportunities in the municipal sector to obtain higher yield as well as higher quality. We also invested approximately $100,000,000 in commercial mortgage loans and limited partnerships that have debt like characteristics. These investments are expected to produce additional yield and are in line with our conservative investment philosophy.

Speaker 2

For the entire fixed maturity portfolio, the 3rd quarter yield was 5.19%, up 2 basis points from the Q3 of 2022 and up one basis point for the Q2. As of September 30, the portfolio yield was 5.23%. Now regarding the investment portfolio. Invested assets are $20,700,000,000 including 18 $9,000,000,000 of fixed maturities at amortized cost. Of the fixed maturities, dollars 18,400,000,000 Our investment grade with an average rating of A-.

Speaker 2

Overall, the total portfolio is rated A-, same as a year ago. As a reminder, we have information on our website regarding our banking and commercial loan investments. Our fixed maturity investment portfolio has a net unrealized loss position of approximately $2,600,000,000 due to the current market rates being higher than the book yield on our holdings. As we have historically noted, we are not concerned by the unrealized loss position and is mostly interest rate driven. We have the intent and more importantly, the ability to hold our investments to maturity.

Speaker 2

Bonds rated BBB are 48% of the fixed maturity portfolio compared to 52% from the year ago quarter. While this ratio is the lowest it has been in over 10 years, It is high relative to our peers. However, keep in mind that we have little or no exposure to higher risk assets such as derivatives, common equities, residential mortgages, CLOs and other asset backed securities held by our peers. Additionally, unlike many other insurance companies, we do not have any exposure to direct real estate investments or private equities. We believe that BBB securities that we acquire generally provide the best risk adjusted, capital adjusted returns due in part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets.

Speaker 2

Below investment grade bonds are $493,000,000 compared to $543,000,000 a year ago. The percentage of below investment grade bonds to total fixed maturity is only 2.6%. At the mid point of our guidance for the full year 2023, we expect to invest approximately $1,100,000,000 in fixed maturities at an average yield of 5.9 percent And approximately $310,000,000 in commercial mortgage loans and limited partnership investments with debt like characteristics at an average yield of approximately 8.3%. Also at the midpoint of our guidance, We expect the average yield earned on the fixed maturity portfolio to be around 5.19% for the full year 2023 and slightly higher at approximately 5.23% for the full year 2024. We expect With respect to our commercial mortgage loans and limited partnership, we anticipate the yield impacting net investment income to be in the range of 7.1% to 7.2% for both 2023 2024.

Speaker 2

As we've said before, we are pleased to see higher interest rates as this has a positive impact on operating income by driving up net investment income with no impact to our future policy benefits since they are not interest sensitive. Now I will turn the call over to Tom for his comments on capital and liquidity.

Speaker 4

Thanks, Frank. First, let me spend a few minutes discussing our share repurchase program, available Liquidity and capital position. The parent began the year with liquid assets of $91,000,000 and ended the 3rd quarter with liquid assets of approximately $69,000,000 In the Q3, the company repurchased approximately 755,000 shares of Globe Life Inc. Common stock for a total cost of $84,000,000 The average share price for these repurchases was 111.5 To date the Q4, we have purchased 165,000 shares for a total cost of $18,000,000 At an average share price of $108.36 resulting in repurchases year to date of 2,900,000 shares for a total cost of $321,000,000 at an average share price of $111.63 In addition to the liquid assets held by the parent, the parent company generated excess cash flows during the Q3 and we'll continue to do so for the remainder of 2023. The parent company's excess cash flow as we define it resulting primarily from the dividends received by parent from its subsidiaries less the interest paid on debt.

Speaker 4

We anticipate the parent company's excess cash flow for the full year will be approximately $425,000,000 and available to return to its shareholders in the form of dividends and through share repurchases. As previously noted, we had approximately $69,000,000 liquid assets at the end of the quarter, slightly above the $50,000,000 to $60,000,000 of liquid assets we have historically targeted. In addition to the $69,000,000 of liquid assets, we expect to generate $35,000,000 to $40,000,000 of excess cash flows in the Q4 of 2023, providing us with approximately $90,000,000 of assets available to the parent for the remainder of 2023 after taking into consideration the approximately $18,000,000 of share repurchases to date in the 4th quarter. We anticipate distributing approximately $21,000,000 to our shareholders in the form of dividend payments for the remainder of 2023. As mentioned on previous calls, we will use our cash as efficiently as possible.

Speaker 4

We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flows after the payment of shareholder dividends. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to generate new sales, expand and modernize our information technology and other operational capabilities as well as to new long duration assets to fund their future cash needs. Remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program for 2023. In our earnings guidance, we anticipate approximately $465,000,000 will be returned to shareholders in 2023, including approximately $380,000,000 through share repurchases.

Speaker 4

Now with regards to capital levels at our insurance subsidiaries. Our goal is to maintain our capital levels necessary to support our current ratings. Globe Life targets a consolidated company and action level RBC ratio in the range of 300% to 3 20%. As discussed on previous calls, our consolidated RBC ratio was 3 21% at the end of 2022. In light of credit losses incurred to date, We anticipate our overall year end RBC ratio to be at the midpoint of our range or approximately 3 10%.

Speaker 4

At this point, we do not anticipate any significant credit losses or downgrades for the remainder of the year. But to the extent any do occur, We are well positioned to address any capital needed by our insurance subsidiaries to maintain RBC levels at the midpoint of our range. And with regards to policy obligations for the current quarter, as we have discussed on prior calls, we have included the historical operating summary results under LDTI for each of the quarters in 2022 within the supplemental financial information available on our website. In addition, We include an exhibit that details the remeasurement gain or loss by distribution channel. The total remeasurement gain of $19,000,000 for the quarter reflects both current period fluctuations in experience from expected and the impact of assumption changes made in the quarter.

Speaker 4

Also as noted on prior calls, life and health assumption changes were made in the Q3 of 2022 with an expectation of higher mortality in the life segment and more favorable claim trends in the Health segment. The Q3 of 'twenty three, we again updated those Both our life and health assumptions, lapse, mortality and morbidity, and as we expected, the overall impact And 3rd quarter results was not significant with a combined decrease in total life and health obligations of approximately $3,000,000 Life assumption changes increased life obligations by approximately $2,000,000 in the quarter, while health assumption changes decreased health obligations by approximately $5,000,000 In addition to the assumption changes, The remeasurement gain or loss also indicates experienced fluctuations. For the Q3, life policy obligations were favorable when compared to our assumptions of mortality and persistency. The remeasurement gain related to experienced fluctuations for the Life segment resulted in $13,000,000 of lower life policy obligations and $3,000,000 of lower health policy obligations, primarily as a result of favorable claim experience versus expected. Now with regards to guidance earnings guidance for 2023.

Speaker 4

We are projecting net operating income per diluted Share will be in the range of $10.49 to $10.65 for the year ending December 31, 2023. The $10.50 midpoint of our guidance is $0.10 higher than what we had indicated last quarter, Largely due to favorable policy obligations in the Q3, our guidance anticipated our guidance anticipates the continuation of recent favorable short term trends, although at a lower level than the Q3. For the full year 2023, we anticipate Life underwriting margins to be approximately 38% of premium and Health underwriting margins to be approximately 29 Total acquisition costs, including the amortization of deferred acquisition costs as well as non deferred acquisition costs and commissions are expected to be 21% of premium, which is consistent with the 3rd quarter. Now with regards to 2024 guidance. For the full year 2024, we estimate net operating earnings per diluted share will be in the range of $11 to $11.60 representing 7% growth at the midpoint of the range.

Speaker 4

We anticipate Life and Health underwriting income to grow consistent with premium growth with Life and Health underwriting margins as a percentage of premium to fall within the same ranges as 23 or about 37% to 39% for life and 28% to 30% for health. At the midpoint of our guidance, we anticipate life premiums to favorably impact excess investment income as we anticipate it to increase 7% to 9% at the midpoint of our guidance. Although 2023 results are not final for the year, at this time, we anticipate parent excess cash flows Available to return to shareholders in 2024 will be a little over $400,000,000 slightly lower than 23, due in part to the impact of 2023 statutory income, realized losses and the cost of agency sales growth offsetting the benefits from favorable mortality trends and higher investment yields. Finally, let me comment on the merger announcement of EveryHealth. Earlier in the month, we announced entering into a merger agreement with EveryHealth, a small regional health care company locally focused in the major urban areas of Texas.

Speaker 4

Evere is a start up with a technology focus to provide outstanding customer experience and results in positive health outcomes. We previously had made a small investment in EVRI and recently had the opportunity to acquire the whole company. We believe full ownership will allow EVRI to grow, but more importantly, allow us to directly assess how we can utilize EVRI's technology to enhance Globe's customer experience and service offerings. We do not expect every to have a significant impact on 2023 or 2024 results. Those are my comments.

Speaker 4

I'll now turn it back to Matt.

Speaker 3

Thank you, Tom. Those are our comments,

Operator

Our first question comes from the line of Wes Carmichael from Wells Fargo. Please go ahead.

Speaker 5

Hey, good morning. I just had a question on mortality trends and what you're seeing. So for 2024, it sounded like The life underwriting margin is expected to be kind of the same as 2023, but I think when 2023 guidance came out, you had some expectation for COVID related mortality. So just wondering what In terms of your expectation for excess mortality?

Speaker 4

Sure. So we continue to see excess mortality even in the Q3. What I would say is, the Q3 was quite favorable and favorable at direct to consumer. So I think really we just want to see Those trends continue before we would make any adjustments to our excess mortality assumptions. And If you recall, I had I did indicate on an earlier call that we do expect excess mortality to drop in 2024.

Speaker 4

So that is reflected in our guidance.

Operator

Please stay connected while we try to reach out to your speakers. Please go ahead with your question and answer.

Speaker 6

I'm sorry, is there a question?

Speaker 2

Wes, did you get your question answered?

Operator

The next question comes from the line of Jimmy Bhullar from JPMorgan. Please go ahead.

Speaker 7

Maybe before I ask the question, I just wanted to clarify On your assumption embedded assumption for mortality embedded in your 2024 guidance, I think you mentioned that you're assuming an improvement in excess mortality, but are you I'm assuming you're still assuming some level of excess deaths beyond What used to be the case pre pandemic or are you not?

Speaker 4

Yes, that's correct. I mean, we still expect some excess mortality in 2024. Yes, that's all reflected in our assumptions that are included in guidance.

Speaker 7

Okay. And then And I had a couple of other questions. On sales and direct response, I would have and you've been clear that you're reducing marketing spending and that's actually holding back your sales. Are you continuing to increase reduce marketing spending more and more incrementally? Because sales are now going to be down like 3 years in a row.

Speaker 7

And I would have thought that at some point they'd stabilize. They might not grow, but they wouldn't keep declining. So what's driving the ongoing decline of a fairly easy comps?

Speaker 3

Yes. I would say one of the things you'd have to look at is we Had significant increases in sales during the pandemic year, so in 'twenty last half of 'twenty and 'twenty one. And so part of the sales declines in the last Year or so have been really getting back to pre pandemic levels off of those unusual highs during the pandemic. So our sales

Speaker 2

Hated to

Speaker 3

be relatively flat to where we were from a pre pandemic perspective. And as I mentioned in the prepared remarks, We're reducing that marketing spend to make sure that it meets our profit targets on the new business that we're selling. And we just, as we've talked about on the prior calls, have that inflationary pressure, Particularly related to postage and paper costs, we've had significant increases in postage. We had over 10% increase in post digit cost during 2023. That was following 2022.

Speaker 3

In the summer, there was a 7% increase. And so just Really trying to pare back to make sure that those sales are consistent with what our profit expectations are. And then as I mentioned, from a 2024 perspective, we're anticipating essentially flat sales and focused on profit margin. So we anticipate That leveling out here over the next year or so.

Speaker 7

Okay. And then if I think about lapses on an year over year basis, Direct response is increasing a little bit or increased a little bit this quarter. The agency channels actually improved. So Do you have any thoughts on what's driving that? And are you seeing any sort of affordability issues?

Speaker 7

Or is inflation affecting disposable income and intention of people to hold on to the policies that they might have bought?

Speaker 4

Jimmy, at BTC, I mean, I think we just Feel like lapse rates for the quarter there are really just fluctuations. We do have some seasonality. There's generally an uptick in lapses in the Q3. But at this point, Nothing to indicate anything else. So really, we just believe it's fluctuations at this point.

Speaker 3

And we're also seeing, I would say, just from an inflationary pressure perspective, we're seeing our premium per policy actually increasing, which It's kind of an offset of we're not seeing that inflationary pressure from a sales side. Our productivity For the most part on a per agent per sale basis is also across the board. So again, we're just really not seeing that inflationary pressure From a sales side, and I agree with Tom, I think some of the lapse experience is really just a fluctuation, not a Trend.

Speaker 4

I think the good thing about DTC renewal lapses is they're very stable, right? And So we're pleased to see that stability in those lapse rates.

Speaker 1

Thank you.

Operator

The next question comes from the line of Vilma Bertis from Raymond James. Please go ahead. Vilma Bertis from Raymond James. Please go ahead with your question.

Speaker 8

Hey, good morning. You guys have been talking this year about how a key driver of strong agent count growth across the three channels has And the focus on growing the middle management. Could you quantify or provide more details on the middle management growth in each of the channels?

Speaker 3

Sure. At American Income year to date, our middle management count is up 20%. That's accelerated here over the Last half of the year, we anticipate ending around 10% to 15% in middle management account growth for the full year 'twenty 3. Liberty National has also had strong middle management account growth. It's up 9% on a year to date basis and anticipate ending the year Around 9% or 10% as well.

Speaker 3

Family Heritage is about flat from a middle management count growth, but they had acceleration in that Middle management growth in 2022 with 9% growth and we anticipate ending the year Around 2% to 4% middle management count growth. And we take those assumptions and really the trends that we're seeing. As a reminder, strong recruiting is that first level agent and then it takes a period of time to get into the middle management. So that's in our assumptions For the sales guidance that we issued for 2024, just looking at that agent count growth and how that translates into middle management

Operator

The next question comes from the line of Ryan Krueger from KBW. Please go ahead.

Speaker 9

Hey, thanks. Good morning. I had a couple of questions on the 2024 guidance. Just I A couple of items you hadn't provided were admin expense expectations as well as the buyback expectation in your 2024

Speaker 2

Yes, Ryan, with respect to admin expenses, we do see those probably ticking up just a little bit as a Percentage of premium, maybe getting closer to 7% for the year. We're seeing continued investments in our IT Operations, plus we have some additional depreciation from some projects that were in place and then we're seeing probably higher Yes, expectations around some postage increases for the year that are probably driving as a percentage up a little faster than what we're seeing in Premium growth with respect to that.

Speaker 4

Yes. So with the lower excess cash flow As well as lower excess liquid assets at the parent, because we're just slightly above that $50,000,000 to $60,000,000 that we target. We'd expect the amount available to shareholders to be lower in 2024 than what was in 2023. And the year is not final, so we don't have our final Statutory for the year, but we'd expect repurchase to be in the range of $325,000,000 to $350,000,000

Speaker 9

Thanks. And then just how much is the $400,000,000 of free cash flow, how much is that being depressed by Things like credit losses and excess mortality that has occurred in 2024. Just trying to think about What that would be, I guess, when you roll forward a year to a more normalized level?

Speaker 4

Yes. It's not the only thing, but it's about $50,000,000 for the credit losses. And then we've had quite strong sales growth in the year and that adds a little bit of strain as well. So it's really kind of those two factors.

Speaker 9

Okay, great. Thanks. And then just if I could sneak in one last one. I just wanted to clarify on mortality. I guess, am I reading this correctly that you're still seeing some level of excess mortality, but it's Better than the excess mortality that you had assumed in your projections this year?

Speaker 4

It is better than so yes, yes, on both discounts. We are still seeing excess mortality. Good thing as we've seen deaths from cancer and heart and circulatory disorders come in Come down a bit. Those are still higher than where we had seen them historically. So they're still elevated.

Speaker 4

And The second part of your question was on the what

Speaker 6

was the second part there?

Speaker 9

I was just saying that you have already assumed excess Mortality in the near term in your cash flow assumption. So you're seeing excess mortality, but it's not as bad as what you had already assumed. Is that right?

Speaker 4

Yes, that's correct. And you can see that in the remeasurement gains to the extent that we have Lower obligations due to fluctuations. That's indicative of favorable mortality or lapse experience. And so you can see that kind of historically. And then if you backed out the assumption changes that were made in the Q3 of 2022 and 2023, you can see that we're coming in a little bit favorable from what our underlying assumptions are.

Speaker 2

So, Ryan, thanks for that. Yes. One of the things I would just add to that, Ryan, is that Like Tom said, so we are seeing the actual experience coming up in a little bit lower than those expectations. They're still running a little bit elevated as Tom indicated, but we are seeing some positive trends in that just like what we thought. I kind of think about those fluctuations the way we've always had fluctuations.

Speaker 2

It's just that difference between assumptions and that actual experience Really hasn't had a change so far in our long term expectations. And that's what's really driving the assumption change. So even though we're seeing some positive in the near term, we really want to and I think Tom mentioned this, we really want to See some of that stick around for a while longer before we start to think is there really anything different that we need to think about with respect to the long term assumptions.

Speaker 9

Got it. That's helpful. Thank you.

Operator

The next question comes from the line of Maxwell Friedrichs from Truist Securities. Please go ahead.

Speaker 4

Good morning. Bob calling in

Speaker 6

today for Mark Hughes. A similar question was asked last quarter, but I just wanted to get your Updated broad outlook on recruiting with agent count being up in all channels and the labor market still being tight.

Speaker 3

Yes. What we historically have seen and continue to see with this economic cycle is that, we are able to recruit Strongly in these type of environments and I think that's shown in 2023 and we anticipate that momentum carrying forward in 2024. As a reminder, we're not recruiting individuals that are unemployed. We're really recruiting people that are looking for A different and better opportunity, particularly in entrepreneurial opportunity. And inflation actually can be a help to us in that fact is that We provide an opportunity where folks are more in control of their income based on their activity and output.

Speaker 3

And so they have an opportunity to make more money than maybe A fixed income job that they're currently in. So we see strong recruiting growth associated with that. The other thing that we see Is people want an opportunity to have flexibility and as you see more and more companies announcing Return to the office and some of those type of scenarios, we're seeing more people being attracted to The flexible opportunity that we provide and that more entrepreneurial opportunity. And I'd just point to, we go back and look at How have we performed during other economic cycles? American Income, as an example, Had double digit growth in 2,002,009 also had double digit growth.

Speaker 3

And so during those economic cycles, we typically see very strong recruiting growth, which translates into strong sales growth. So anticipate That moving forward into 2024 as well.

Speaker 6

Thank you. And sorry if I missed it, but did you guide to a Full year 2024 agent count number?

Speaker 3

No, we typically don't do that on this particular call. We will We really want to see how the Q4 comes out because that agent count trend and the momentum that we have in the 4th quarter Really determines how the rest of the year shakes up. So we generally discuss that on our next call.

Speaker 6

Okay. That's all I have. Thank you very much.

Operator

Next question comes from the line of Tom Gallagher from Evercore ISI. Please go ahead.

Speaker 10

Good morning. I wanted to circle back on the Experience gains in life insurance. I must be doing something wrong when I'm calculating this because at least the way I'm Trying to understand this, it looks to me like your mortality experience is favorable, probably as good if not better than pre pandemic levels. But just so if you could help correct the math here or at least explain The proper way to think about it, if I followed the logic on the experience gains and mortality for the quarter, I would have gotten $3,000,000 negative for the assumption review for Life, which would mean The $11,000,000 gain would have been $14,000,000 of experience gains. Is that Am I thinking about that part of it correctly?

Speaker 4

Yes. It was $2,000,000 for Life. So it would be $13,000,000 of Favorable experience in the Q3 for Life.

Speaker 10

Okay. And then is the way Is the $13,000,000 representative of around 30% of the experience and then 70% gets capitalized and amortized? Is that still a proper way to think about the smoothing aspect to this or no?

Speaker 4

No, that is a smooth number. So that's 1.7% impact on as a percent of premium to the obligation ratio. And what I'd say is Q3 was very favorable from a mortality perspective across each of the distribution channels. So that's something we're keeping an eye on to see if that continues or not or whether it was just some timing. But yes, it wasn't favorable quarter from a mortality perspective.

Speaker 10

Okay. So I'm not misunderstanding that. If I just isolated Q3 and I looked at the claims experience, this to me looks like the best quarter you've had, I don't know, in 3 or 4 years. Is that fair?

Speaker 11

I

Speaker 4

mean, if you look back I mean, it's relative to the assumptions that we have underlying it. But if you look back to like Q2, the remeasurement gain on Life was Favorable by $2,400,000 That seems more normal to me. So that's why Q3 was particularly favorable. And in the Q1 of 'twenty three, it was $2,600,000 So again, really indicative of a Q3 that's quite favorable.

Speaker 10

Okay. And then and again, not to get too in the weeds on this, but Am I thinking about it correctly? If I was to say what was the actual experience, would it be around $45,000,000 of favorability on the total Claims, but the majority of that gets smoothed or like is that the gross claim number that would be favorable that I should be thinking about here?

Speaker 4

That's along the lines of our rule of thumb, Right, which is we said 25% of volatility comes through. But there's quite a bit of it really there's quite a bit of really Depends on where that experience emerged as far as what the impact is in the quarter. So that's a rule of thumb, but I think there's delve in the details as we dig deeper into that. So I wouldn't jump to that conclusion.

Speaker 10

Okay. All right. Yes. So suffice to say though, if you had a repeat of this quarter for a while, then there would be probably some consideration giving to changing future assumptions.

Speaker 4

Agreed.

Speaker 10

Okay.

Speaker 2

I think That's right. That's something you want to look and say what is that long term trend. You're seeing that many quarters in a row and that would really be more indicative of something in the That were that the assumptions aren't quite in line.

Speaker 10

Okay. All right. Thanks for the help.

Operator

Our next question comes from the line of Wes Carmichael from Wells Fargo. Please go ahead.

Speaker 5

Hey, good morning. And sorry, I guess, I got disconnected earlier. But I wanted to kind of still follow-up on the mortality trend question. And I'm curious and to Tom's point, it was a good quarter favorable, but what are you thinking for 2024 in terms of assuming excess mortality? Is that informed by the pandemic or are you expecting COVID deaths going forward or any other cause of death that you might be able to help us with in your expectation?

Speaker 4

Yes. The excess death assumption that we have that underlies our assumptions raise off over time over the next few years. So in 2024, we expect excess mortality to grade off be lower than it was in 2023 to be lower in 2024.

Speaker 2

And then again, we'd expect to be

Speaker 4

a little bit lower in 2025 as well. So we our kind of underlying thought here is that it's just going to take some time to go back to More normal mortality levels.

Operator

Got it.

Speaker 2

And then Wes, what I would so that if our if actual experience ends up being, As Tom said that you have that basic assumption that's underlying our 2024 projections. And if actual experience does continue to be more favorable than that, then that is what will pop out then in those future quarters In revaluation gains. And again, to keep it in a little bit of perspective, keep in mind that Our life obligations are between $300,000,000 $400,000,000 on a quarterly basis. So you're looking at if we're looking at $2,000,000 $3,000,000 of Fluctuation in a particular quarter, that's not a real high level of difference between those Those expectations.

Speaker 5

Understood. And then a different question, but to the extent and I know you don't really expect this, but to the extent you see any additional credit losses or ratings drift, Would you let the RBC ratio fall below your 300% low end? Or would you expect to Temper the buyback program to kind of maintain the capital themselves?

Speaker 4

We would not let it drop below 300%. That would not be our plan. We would probably use some short term financing to shore up capital levels at the subsidiaries. Yes.

Speaker 2

I would say that you think of it at that point in time if we were we would make the commitment to Maintaining that minimum level of RBC, but then we would think of it as a financing transaction at that point in time. How do we finance that? What's our best way of doing that? We would look to alternative sources, more cheaper sources if you would rather than the buybacks and those would be our first line Sourcing and only if we weren't able to find alternative sources, we then do know that we have the buybacks available to us. So we're not concerned on our ability to do so, but we would seek to use other sources of financing before using the buyback.

Speaker 5

Got it. And maybe on the financing topic, any update to your expectation for issuing debt? Think you said previously you might be $300,000,000 or maybe a little bit more in 2024?

Speaker 4

Yes. I haven't really solidified or Around an amount, but again, would confirm, we'd probably do at least $300,000,000 to be index eligible. And we'll just continue to look at market environments and when the best time to do that

Operator

The next question comes from the line of Suneet Kamath from Jefferies. Please go ahead.

Speaker 11

Yes, thanks. Good morning. So just going back to last quarter, I think you guys talked about a stress test of $25,000,000 to $50,000,000 of potential credit losses. I don't recall hearing an update there, so I just wanted to see if there was one. And then somewhat related to I think Wes' question, what are you building in for potential investment losses as we think about 2024?

Speaker 2

So I would say, well, both of those with respect to the stress testing, no real Material change to our thoughts around that. We have updated that. We always do kind of a bottom up approach with respect to What we think potential downgrades would be. Overall, we feel really good about where the portfolio is. We've had 7 straight quarters of net upgrades in the portfolio.

Speaker 2

And we've positioned it pretty well to where, of course, we have Potentials for downgrades and would expect if, in fact, there's some economic downturns, some downgrades and At least the potential for some defaults. But right now in our base case for 2024, we don't anticipate any defaults with respect to that. Now If we have any anticipate that there could be some overall net downgrade, but those would be in our expectations around capital and capital And feel comfortable with our ability to manage that. It doesn't really have an impact, if you will, on The earnings guidance for 2024.

Speaker 11

Got it. Okay. And then just you may have mentioned this and I may have missed it. What are you assuming for just interest rates for next year? Obviously, you have investment income assumption built into your guidance.

Speaker 11

But are you assuming Current forward curve or what sort of if you could just unpack that a little bit?

Speaker 2

Yes. For 2024, we basically take a look at the Bloomberg survey of economists And where they are projecting both bench and overall index rates We tend to look at that BBB, BBB plus space, if you will, and around looking at 30 year I figured that our overall maturities are probably in that 20 to 25 to 30 year range. We do see that. They generally are predicting it to Decreased over the course of 2024, most of that in the second half of the year. And on average, We are anticipating our expectation on average about 5.7% for the year.

Speaker 11

That's your new money rate?

Speaker 3

Yes.

Speaker 11

Yes, got it. And then just one last one if I could. Just given the strong Recruiting that you guys have done, do you have a rule of thumb around what percentage of life sales and then health sales come from new recruits? I think you may have said that in the past, but I just wanted to ask.

Speaker 3

Yes, it's a significant portion. It depends on There's fluctuations in this. So you're right, it's kind of a rule of thumb, but it can generally be 30% or 40% or more of our new Sales come from those agents that have been recruited in the 1st year. And if you remember, our business model is recruit agents in, Then they start moving into those middle management ranks and then their time is split between sales And recruiting, training and onboarding new agents. And so that's why a lot of our sales are driven from those 1st year agents Because the middle management count or that middle management growth is driving more of activity around Crudeing, training and development of those new agents.

Speaker 11

Got it. Okay. Thank you.

Operator

There are no further questions. So I'll hand you back to Stephen Motta to conclude today's conference.

Speaker 1

All right. Thank you for joining us this morning. Those are our comments and we will

Speaker 4

talk to you again next quarter.

Operator

Thank you for joining today's call. You may now disconnect your line.

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Earnings Conference Call
Globe Life Q3 2023
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