Globe Life Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to Globe Life Second Quarter 2023 Earnings Release Conference Call. Today's conference is being recorded. For the duration of the call, your lines will be in listen only. However, you will have the opportunity to ask I will now hand you over to Stephen Motta, Senior Director, Investor Relations.

Speaker 1

Thank you. Good morning, everyone. Joining the call today are Frank Saboda and Matt Darden, our Chief Executive Officers Tom Kalmbach, our Chief 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 and provided for general guidance purposes only. Accordingly, please refer to our earnings release 2022 10 ks and any 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 a discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Frank.

Speaker 2

Thank you, Stephen, and good morning, everyone. In the Q2, net income was $215,000,000 or $2.24 per share compared to $224,000,000 or $2.26 per share a year ago. Net operating income for the quarter was $251,000,000 or $2.61 per share, an increase of 3% from a year ago. On a GAAP reported basis, return on equity was 22.4 percent and book value per share is $41.44 Excluding accumulated other comprehensive income or AOCI, return on equity was 14.6% and book value per share is $72.09 up 10% from a year ago. In our life insurance operations, premium revenue for the Q2 increased 3% from the year ago quarter to $782,000,000 For the year, we expect Life premium revenue to go around 4%.

Speaker 2

Life underwriting margin was $296,000,000 in the 2nd quarter, down 1% from a year ago. At the midpoint of our guidance, we expect Life underwriting margin for the full year to grow around 5% and as a percent of premium to be in the range of 37% to 39%. In Health Insurance, Premium grew 3 percent to $329,000,000 and health underwriting margin was up 1% to $92,000,000 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 in the range of 28% to 30%. Administrative expenses were $75,000,000 for the quarter, up 2% from a year ago.

Speaker 2

As a percentage of premium, Administrative expenses were 6.8%, same as the year ago quarter. For the full year, we expect administrative expenses to be up approximately 3% and be around 6.9% of premium. Higher labor and IT costs are expected to be largely offset by a decline in pension related employee benefit costs. I will now turn the call over to Matt for his comments on the Q2 marketing operations.

Speaker 3

Thank you, Frank. First, American Income Life, where life premiums were up 5% over the year ago quarter to $395,000,000 and life underwriting margin was up 2% to $180,000,000 In the Q2 of 2023, net live sales were $82,000,000 down 4% from a year ago quarter. However, as a reminder, we produced very strong sales in the first half of twenty twenty two with AIL posting sales growth of 16% for the Q2 of 2022. This makes for

Speaker 1

a tough quarter over quarter comparable. However,

Speaker 3

I see good momentum with this division, and I anticipate strong sales growth in the latter half of this year. The average producing count for the 2nd quarter was 10,488, up 8% from the year ago quarter and up 8% from the 1st quarter. While sales declined from the year ago quarter, we have seen sequential growth in average producing agent count over the past two quarters, and I am excited to see the continued momentum in recruiting as agent count growth is a driver of future sales growth. At Liberty National, life premiums were up 7% over the year ago quarter to $87,000,000 And life underwriting margin was up 2% to $28,000,000 Net life sales increased 21% to $23,000,000 And net health sales were up $8,000,000 which is up 18% from the year ago quarter due primarily to increased agent count. The average producing agent count for the 2nd quarter was 3,180, which is up 17% from the year ago quarter.

Speaker 3

Liberty National continues to produce strong sales in recruiting activity. At Family Heritage, health premiums increased 8% over the year ago quarter to $98,000,000 and health underwriting margin increased 14% to $33,000,000 The increase in underwriting margin is primarily due to higher premiums and improved claim experience. Net health sales were up 19% to $23,000,000 primarily due to increased agent count. The average producing agent count for the 2nd quarter was 13.45, up 15% from the year ago quarter. The ongoing emphasis on recruiting continues to generate strong growth in this division.

Speaker 3

In our direct to consumer division at Globe Life, life premiums increased 1% over the year ago quarter to $249,000,000 while life underwriting margin declined 8% to $56,000,000 The decrease in underwriting margin is primarily due to higher policy obligations and acquisition expenses. Net life sales were $32,000,000 down 3% from the year ago quarter, primarily due to declines in direct mail and insert media activity. However, electronic sales grew over 4% from the year ago quarter. Electronics sales continue to be an important part of our direct to consumer division as the electronic channel currently represents approximately 70% of new sales. And this channel has grown at an approximate 6% compounded annual growth rate since 2019.

Speaker 3

On to United American General Agency, where health premiums increased 1% over the year ago quarter to $137,000,000 Health underwriting margin was $15,000,000 or 11% of premium, down from 12% from the year ago quarter. Net health sales were $13,000,000 up 4% compared to the year ago quarter. Now on to projections. Based on the trends that we are seeing and our experience with our business, we expect the average producing agent count trends for the full year 2023 to be as follows: at American Income Life, low double digit growth at Liberty National, mid teensgrowthandfamilyheritagelodoubledigitgrowth. Net life sales for the full year 2023 are expected to be as follows: American Income Life, low single digit growth Liberty National mid teens growth direct to consumer slightly down to relatively flat.

Speaker 3

Net Health sales for the full year 2023 are expected to be as follows: Liberty National, mid teens growth Family Heritage, low double digit growth and United American General Agency, mid single digit growth. I'll now turn the call back to Frank.

Speaker 2

Thanks, Matt. We will now turn to the investment operations. Excess investment income, which for 2023, we define as net investment income less only required interest on policy liabilities, was $31,000,000 up $7,000,000 from the year ago quarter. Net investment income was $261,000,000 up 7% or $16,000,000 from the year ago quarter due to higher yields on fixed maturities and short term investments And an increase in floating rate floating interest rates on our commercial mortgage loans, including hotel and limited partnerships. I would point out here that while we benefit from the higher floating rates on the commercial loans, these investments do have rate floors that mitigate the impact Is up 4% 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 6% as a result of the favorable rate environment and steady growth in our invested assets and expect Excess investment income to grow in the range of $11,000,000 to $12,000,000 Now regarding our investment yield. In the Q2, we invested $359,000,000 in investment grade fixed maturities, primarily in the municipal and industrial sectors. We invested at an average yield of 5.75 percent, sector to obtain higher yield as well as higher quality. We also invested $39,000,000 in commercial mortgage loans and limited partnerships that have debt like characteristics. These investments are expected to produce additional yields and are in line with our conservative investment philosophy.

Speaker 2

For the entire fixed maturity portfolio, the 2nd quarter yield was 5.18%, up 2 basis points from the Q2 of 2022 and flat from the Q1. As of June 30, the portfolio yield was 5.21%. Now regarding the investment portfolio. Invested assets are $20,300,000,000 including $18,600,000,000 of fixed maturities at amortized cost. Of the fixed maturities, dollars 18,100,000,000 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 mortgage loan investments. As we mentioned previously during our Q1 earnings call, we took a $30,000,000 after tax provision for credit loss early in the second quarter as a result of the default of First Republic Bank. Our fixed maturity investment portfolio has a net unrealized loss position of approximately 1 point $6,000,000,000 due to 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 it is primarily interest rate driven.

Speaker 2

We have the intent and more importantly, the ability to hold our investments to maturity. Bonds rated BBB are 49% of the fixed maturity portfolio compared to 53% from the year ago quarter. This is the lowest this ratio has been in over 10 years. While this ratio is in line with the overall bond market, 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.

Speaker 2

Additionally, unlike many other insurance companies, we do not have any exposure to direct real estate equity investments or private equities. We believe that the BBB securities that we acquire provide the best risk adjusted, capital adjusted returns due in part to our ability to hold compared to $585,000,000 a year ago. The percentage of the low investment grade bonds to fixed maturity is 2.7%. This is as low as this ratio has been in more than 20 years. In addition, below investment grade bonds plus bonds rated BBB Are 52 percent of fixed maturities, the lowest ratio it has been in over 15 years.

Speaker 2

Overall, we believe we are well positioned not only to withstand a market downturn, but also to be opportunistic and purchase higher yielding securities in such a scenario. Because we primarily invest long, a key criterion utilized in our investment process is that an issuer must have the ability to survive multiple cycles. We have performed stress tests under multiple scenarios on both our fixed maturity portfolio and our commercial mortgages held directly and through limited partnerships. Tom will address the potential capital implications of these stress tests in his comments. At the midpoint of our guidance, for the full year, We expect to invest approximately $1,100,000,000 in fixed maturities at an average yield of 5.7% at approximately $325,000,000 in commercial mortgage loans and limited partnership investments with debt like characteristics at an average yield of 7.5% to 8.5%.

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. Thanks, Frank.

Speaker 1

First, I want to 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 2nd quarter with liquid assets of approximately $74,000,000 In the Q2, the company repurchased approximately 780,000 shares of Globe Life Inc. Common stock for a total cost of $84,000,000 The average share price for these repurchases was $107.26 and to date in the 3rd quarter, We've purchased 133,000 shares for a total cost of $15,000,000 at an average share price of 111 dollars 0.01 resulting in repurchases year to date of 2,100,000 shares for a total cost of $234,000,000 at an average share price of $111.88 In addition to the liquid assets held by the parent, The parent company generated excess cash flows during the Q2 and will continue to do so through the second half of twenty twenty three. Parent company's excess cash flow as we define it, primarily results from dividends received by the parent from its subsidiaries less the interest paid on debt. We anticipate the parent company's excess cash flow for the full year will be approximately 420 to $440,000,000 and will be available to return to its shareholders in the form of dividends through share repurchases.

Speaker 1

As noted in previous calls, this amount is higher than 2022. As previously noted, we had approximately $74,000,000 of liquid assets at the end of the quarter as compared to the $50,000,000 to $60,000,000 of liquid assets we have historically targeted. In addition to the $74,000,000 of liquid assets, we expect to generate $140,000,000 to $160,000,000 of excess cash flows for the second half of twenty twenty three, providing us with approximately $200,000,000 to $220,000,000 of assets available to the parent for the remainder of 2023 and this is after taking into consideration the approximately $15,000,000 of share repurchases to date in the Q3. We anticipate distributing approximately $40,000,000 to $45,000,000 to our shareholders in the form of dividend payments for the remainder of 2023. As noted in previous calls, we will use our cash as efficiently as possible.

Speaker 1

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 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 acquire new long duration assets to fund future cash needs. The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program in 2023. In our earnings guidance, we anticipate between 370,000,000 and $390,000,000 of share repurchases will occur during the year. With regard to capital levels at our insurance subsidiaries, Our goal is to maintain our capital levels necessary to support our current ratings.

Speaker 1

Global Life targets a consolidated company action level RBC ratio in the range of 300% to 3 20%. At the end of 2022, our consolidated RBC ratio was 3 21%. At this RBC ratio, our subsidiaries had at that time approximately $125,000,000 of capital over the amount required to meet at the low end of our consolidated RBC target of 300%. When adjusted for credit losses on fixed maturities incurred in the first half of the year, the RBC ratio is reduced slightly below the midpoint of our targeted RBC range of 300% to 3 20%. We are well positioned to address any additional capital needed by our insurance subsidiaries due to potential downgrades and additional defaults that may occur due to the recession or other economic factors.

Speaker 1

As Frank mentioned, we routinely perform stress tests on our investment portfolio under multiple scenarios. Under these stress tests, we anticipate various levels of downgrades and defaults in our fixed maturity portfolio and include a provision for losses in our CML portfolio that reflect loss ratios in excess of those of the Federal Reserve's Severely Adverse Scenario. Under our scenarios, we do not anticipate that all of the downgrades, defaults And losses in our investment portfolio would occur in 2023, but rather anticipate they would emerge over an extended period of time, which could be as long as 24 months. Even if these losses under our internal stresses occurred before the end of the year, we estimate only $25,000,000 to $50,000,000 Additional capital would be needed to maintain the low end of our consolidated RBC target of 300%. The parent company has sufficient resources of liquidity to fund this capital if it is needed to maintain our consolidated RBC ratio within our target range, while continuing our dividend and share repurchase program as planned.

Speaker 1

With regards to policy obligations in the Q2, as we've discussed on prior calls, we have include the historical operating summary results under LVTI for each of the quarters in 2022 within the supplemental financial information available on our website. In the Q3 of 2022, we updated both our life and health assumptions, Last mortality and morbidity, the life assumptions updates reflected our current estimates of continued excess mortality, particularly in the near term. For the Q2, life obligations were slightly favorable when compared to our assumptions of mortality and persistency. This resulted in a life remeasurement gain for the quarter. The supplemental financial information available on our website provides an exhibit, which shows the remeasurement gain or loss by distribution channel.

Speaker 1

The remeasurement gain or loss shows the current period fluctuations it experienced from those expected and the impact of assumption changes, if any, which are allocated to the current quarter and past periods. In the absence of assumption changes, the remeasurement gain or loss is indicative of experienced fluctuations. The remeasurement gain for the Life segment resulted in $24,000,000 Lower life policy obligations and $2,600,000 lower health policy obligations. 2,400,000 sorry, dollars 2,400,000 lower life policy obligations and $2,600,000 lower health policy obligations on slightly lower claims than anticipated. And in the Q2, we had no changes to long term assumptions.

Speaker 1

We are currently in the process of finalizing our review of long term assumptions and we'll make updates if needed in the Q3. We do not expect these updates to be significant overall. Finally, with respect to our earnings guidance for 2023, We are projecting net operating income per share will be in the range of $10.37 to 10.50 $0.57 per diluted common share for the year ending December 31, 2023. The 10.47 The midpoint of our guidance is higher than what we had indicated last quarter and is largely due to higher investment income from our commercial mortgage loans and limited partnership investments. For the full year 2023, we anticipate life underwriting margins to be in the range of 37% to 39%, slightly higher than the 2022 Life underwriting margin percentage when restated for the full year.

Speaker 1

Life underwriting margins health underwriting margins to be in the range of 28% to 30%. The Life and Health anticipated underwriting margins are unchanged from last quarter's guidance. We believe the year to date obligation ratios are indicative of emerging Policy obligations over the remainder of the year. As previously noted, we will be reviewing assumptions and anticipate making updates next quarter. Again, we do not expect these updates to be significant overall.

Speaker 1

Total acquisition costs in the 2nd quarter as a percent of premiums or 21%, including both amortization and non deferred acquisition costs and commissions. We expect the full year to be consistent with this 21%. Those are my comments. I will now turn it over to Matt.

Speaker 3

Thank you, Tom. Those are our comments and we will now open the call up for questions.

Operator

Thank

Speaker 1

Hey, good morning or good afternoon. I had a clarification question on your comments on the investment portfolio. In the fixed maturity portfolio, I think the allowance for credit losses went up about $40,000,000 in the quarter. Is that related to the losses on First Republic? I just want to make sure that that's not being driven by

Speaker 2

Yes. No, that's exactly what that is. That was about on a gross basis about $39,600,000 was the loss on First Republic.

Speaker 1

Got it. Thanks. And just a follow-up. Do you have any updated plans regarding issuing new long term senior debt to pay off the term loan for April? And just wondering what you're thinking kind of in terms of size of new debt issuance?

Speaker 1

Yes. We'd actually consider doing that. Our thoughts right now are to consider doing that in 2024.

Speaker 2

Yes. And I think, Wes, when we do take a look at that, clearly, we have the term loan out there for the $170,000,000 and we'll have to consider What the size of that might be and we'll definitely consider whether that needs to be a $300,000,000 issue or something larger just Make an index eligible, but we'll see what kind of the needs are at that point in time.

Speaker 4

Great. Thanks.

Operator

The next question comes from Jimmy Bhullar from JPMorgan.

Speaker 5

Hi. I had a question first on the direct channel. So I guess your comments on sales for the agency channels are fairly optimistic Given the growth in the agent count, but in the direct channel, should we assume that as long as inflation is high that sales are going to be weak? Because I think you cited Sort of reduced marketing spending and also just lower disposable income and high inflationary environment as reasons for Why sales have been weak there?

Speaker 3

Yes. The on the direct to consumer channel, it is Subject to inflationary pressures, particularly on the marketing and distribution side. As we've noted in the past and we continue to note, The reduction in our, I'll call it, traditional channels from a mail and print media Perspective, we are continuing to reduce that circulation based upon the cost that we're incurring to market in that channel. And that is being offset by growth in our digital channel. As I noted in the comments, Our growth in the digital channel is up 4%.

Speaker 3

So we've got a couple of competing factors going on there. But That is really we're focused on just making sure that we maintain our target margins in that distribution. And to the extent that Certain marketing campaigns, particularly on the print side, don't meet those profit objectives, then we are scaling back in that area.

Speaker 1

Okay.

Speaker 3

I would say, just to add on to that related to just inflationary pressure from a consumer perspective, The sales are actually up on a per policy basis. So the premium per policy is actually So we're really not seeing a deterioration from a consumer demand perspective related to inflationary pressure. It's really on the marketing side.

Speaker 1

Okay.

Speaker 5

And then you saw a significant increase in the agent count across all of your channels. I would have assumed that with the So the tight labor market, it would be a tougher recruiting environment, because you had an easy time recruiting when things were bad. But what's really driving that? And what's your Outlook if conditions remain the way they are for the next year?

Speaker 3

Yes. What's really driving that is just some things that we've put in place Really focused on growing our middle management count, putting more tools in the hands of our agent managers and agency owners to be able to get better line of sight into activity. And so there's just been a strong growth as we've grown that middle management account who are responsible in many ways for that new agent recruiting, onboarding So the growth is as you've noted is we're very pleased with that in all three channels and think that will continue. Don't really See headwinds at this point, depends on which economists you believe, but it looks like there's predictions for the labor market Potentially cooling a little bit. If that's the case, that's generally been an additional tailwind for us in the So we're very pleased with the things that we've put in place and believe the growth is driven more by Our activities in the overall economic or market and I think indicative of that is if you look at Just some of the industry trends from agent count growth and we believe we're outpacing that.

Speaker 3

So we're very pleased with

Speaker 2

the results Jimmy, just one thing I'd add on to that really quick is just to remember that we recruit to A new opportunity, a better opportunity. So we've never really been one is Trying to take advantage of those in the unemployment markets and that type of a thing. And while Loosening of the labor market might be a little bit of a tailwind. We're able to recruit in all markets because again, we're really recruited to a better And there's still plenty of folks out there looking for a better opportunity.

Speaker 3

Yes. And one thing I would add to that is some of the feedback that we're hearing from the field is One of the dynamics that is going on out there is the return to work from an office perspective. Our opportunity is a flexible opportunity. It's much more entrepreneurial in nature and we seem to be attracting Additional individuals that are looking for that ability to manage their own schedule and have an opportunistic approach to grow their income In an entrepreneurial manner. So I think that's a dynamic that's going on out there that's more influential of our particular experience than really The labor market or that being tight.

Speaker 5

Okay. And just lastly on you've had elevated investment losses Through the first couple of quarters, should we assume that there is going to be a commensurate impact of that on free cash flow next year? Or are there any offsets There's that income won't be impacted to the same extent as GAAP.

Speaker 1

Yes. It's a little early right now for us to Give clear guidance on what we believe excess cash flow to be next year. But just as we think about it, we think it'd be kind of in a similar range of where excess Cash flow was this year, just given some of those realized losses.

Speaker 5

Okay. Thank you.

Operator

The next question comes from John Barnidge from Piper Sandler. Please go ahead.

Speaker 1

Thank you very much for the opportunity. Given the cost of direct mail ins and less effectiveness along with electronic sales growing, are there newer Do you see distribution channels or methods that really haven't been pursued previously that are now being pursued more with more gusto?

Speaker 3

Well, I would say that we're always looking for additional channels. There's a lot of opportunities on the electronic media side, Different methods of distribution from an online perspective as well as that's supported by our These days are from an electronic source. And you just go back a very few years ago, it was about 50%. So We're definitely growing that piece as we continue to scale back on the traditional print media side. But there to the extent that we are getting profitable sales in the print media side, we'll continue to do that.

Speaker 3

But obviously, the growth engine is going to be more on the

Speaker 1

Great. Thank you. My follow-up question. Oftentimes, I believe competition for a Globe Life sale can often be discretionary income. How do you think through student loan payments restarting potentially impacting demand for products?

Speaker 1

Thank you.

Speaker 3

Sure. Really what we look at is just kind of as you had mentioned the share of the wallet. Obviously that from a Macro perspective is going to have potentially some impact to tightening of that. I don't see that impacting our particular Demographic too much. What we're continuing to see is an increase in all of our distribution channels including our direct to consumer which is generally a lower income demographic.

Speaker 3

Our sale a premium per sale is still going up. And as a reminder, we charge the policies have a low premium per month perspective. So it's not a big share of the wallet that we're talking about. In our DTC channel, it may be $20 or $40 a month as an example. And so really I don't think that's going to have too much of an impact on our particular segment of the market as we think about our future sales.

Speaker 1

Thank you.

Operator

The next question is from Erik Bass from Autonomous Research.

Speaker 1

Hi, thank you. Some of the health insurers have I'm curious if that's something that you're seeing in your Med supp block call. Yes. Thank you. We did see UnitedHealthcare reported that and they have a large block of Medicare Advantage coverage.

Speaker 1

I wouldn't necessarily expect those trends to carry over to our Medicare Supplement business. We are seeing A little bit higher than anticipated health cost trends in our Medicare supplement business that are impacting margins slightly. But the good thing is the seasonality that we saw in the Q1 has subsided a bit. And also Where we have seen that increased utilization has really been isolated to our group retiree health business, so more on the group side than on the individual side. If that does occur, continues to occur, those higher cost trends we take into account in setting our renewal rates for 2024.

Speaker 1

And so we did fully expect to be able to offset any of those in the future. Got it. Is there something different between Medicare Advantage Block and Med supp that would account for why you wouldn't expect to see the same thing or just differences in your client base or? Yes. Medicare Advantage is covering kind of the full medical costs where Medicare Supplements Different clientele, but also we're covering more of the deductibles and items above what Medicare would not cover.

Speaker 1

Got it. Thank you. And then maybe if we could pivot to talking a little bit more about mortality experience. It sounds like it was a little bit favorable to your assumptions this quarter. And is that a change at all in terms of what you're seeing in terms of the level of excess population mortality starting to normalize Or anything else, I guess, just any color you have there?

Speaker 1

No, you're right. We did see mortality slightly favorable from our expectations And our assumptions, you can see that coming through the remeasurement gain on the Life business. What I'd say is we've seen improvement in excess deaths. We're still seeing some elevated excess deaths from what we did experience in 2019. So It is getting better, but it still seems a little bit elevated for some particular causes.

Speaker 1

Particularly health and Heart and circulatory causes and cancer are lower than where 2021 and 2022 were, which is a really good sign because those are some of the bigger causes of death. And then I want to say that last quarter, it's nice to see COVID deaths in the U. S. Decline and we're probably seeing some benefit from those declines in COVID deaths as well.

Speaker 4

Got it. Thank you.

Speaker 1

So it's basically U. S. Were more conservative in your assumptions, so there's still some level of excess Mortality within the population, but just less than you had assumed? Yes. We're definitely seeing some continued excess mortality.

Speaker 1

Probably expect that to continue for at least for the remainder of this year and probably into the next couple of years.

Speaker 3

But our current experience is a little bit less than our anticipated elevated amount. Exactly, Matt.

Speaker 1

Perfect. Thank you very much.

Operator

Next question is from Maxwell Fritchard from Truist Securities.

Speaker 6

Hi, good afternoon. I'm calling in today for Mark Hughes. I was wondering if you could provide some color on the driver of the growth In life sales for Liberty National, was this just a function of agent growth?

Speaker 3

It's primarily a function of agent growth. We've had significant double digit agent growth. Our growth in the agent count for Liberty really started accelerating in 2022 in the latter half. And so As that's kind of a leading that agent count is a leading indicator as those new agents come on board become more productive. So as those agents get onboarded and get more experienced and it drives the sales, we have a little bit of agent productivity Gains is just the amount of premium that we're selling on a per agent basis, but a vast majority of it's really just coming from that agent count increase.

Speaker 6

Okay. Thank you. And you mentioned this, but I must have missed it. What was the driver of excess investment income growth? Was this just higher yields in the quarter?

Speaker 2

Yes. It's really predominantly The increases in the short term rates, which are really hitting our the floating rates impacting our commercial mortgage loans As well as the commercial mortgage loan that are in our limited partnership investments, about 2 thirds of our limited partnerships are in commercial Mortgage loans as well. So we're seeing increases in those rates as well as a little bit on the short term investments We have, it's not as significant, but overall, so we just saw a very good growth in our net income and the income grew at a faster pace than the invested assets. And then also When you think of the excess investment income, it's you take required interest into account. So you had investment the Net investment income is growing at a faster rate than our net investment income, so we ended up with a good increase in the excess investment income.

Speaker 6

Great. Thank you.

Operator

Next question is from Tom Gallagher from EVR.

Speaker 1

Good morning. Sorry, good afternoon. Just had a follow-up question on the excess mortality to make Sure. I'm understanding the way this is going to flow through accounting, the new accounting. So if I remember correctly, the total COVID and non COVID excess plan for 2023 was around $45,000,000 a year.

Speaker 1

So let's call that a little over $10,000,000 quarterly drag. Is it as simple as just taking that remeasurement gain of 2,400,000 And deducting that from the $11,000,000 ish quarterly drag you would expect from excess and then You end up with $8,000,000 or $9,000,000 for this quarter would be the elevated Still elevated ongoing COVID. Does that make sense to you? Like or is there some element of smoothing That's going on with the new accounting that doesn't make that exactly comparable. Yes.

Speaker 1

There's definitely an element of smoothing. So it's not as kind of Easy as you had indicated. I think again the remeasurement gains are reflecting fluctuations from our underlying assumptions. So the Life business is performing better than those assumptions. What I'd say about our excess mortality assumptions is, yes, they're consistent with kind of that overall excess mortality That we talked about the $45,000,000 But we also expect that to kind of wear off over time.

Speaker 1

And so that's kind of underlying those assumptions as well. So it's difficult to kind of pinpoint exactly How that will come through? What I would say is we see fluctuations. So if we had it's generally In the current year, we see probably about a quarter of that come through into the current quarter results.

Speaker 2

Then Then the other thing

Speaker 1

to remember is we are going to look at updating our assumptions again coming up in this Q3. We don't expect them to have a significant impact, but We will kind of be revisiting our excess mortality assumption going forward as well.

Speaker 2

Yes. I think just one thing To add to that, just as an example, and what Tom would say is, if you had $45,000,000 and it turned out to be $35,000,000 That's actually kind of incurred the way that this new LDTI impacts that and as Tom said roughly a quarter of that. We probably only see roughly $2,000,000 to $2,500,000 of that actually flow through and actually hit current year earnings. So It is spread out, if you will. The expectation for those under the new accounting got spread out over a whole bunch of years and The impact on the current year is much less.

Speaker 1

That's really helpful. So I'm sorry, just a follow-up. So the $2,400,000 just so I'm clear on this, the $2,400,000 remeasurement gain, if it was on the old GAAP that would have been a bigger We'll call it favorable impact on the quarter by so that would have been larger by 3x or something like that? Yes, correct. It would have been larger.

Speaker 1

Okay. All right. That's helpful. That's all I had. Thanks.

Operator

The next Question comes from Suneet Kamath from Jefferies.

Speaker 4

Yes. Hi. I don't know if you disclosed this or talked about it in your prepared remarks, But do you have the year to date statutory operating income and statutory net income?

Speaker 1

We don't have those yet. We're finalizing the Q2 statutory results right now. So not at this time.

Speaker 4

Okay. And then the comment about the capital under your stress test, I think you had said $25,000,000 to $50,000,000 Is that comparable to the $30,000,000 to $55,000,000 that you guys talked about last quarter? Or was that a different calculation?

Speaker 1

No. Very comparable. Yes,

Speaker 4

similar. So it actually got better sequentially?

Speaker 2

Yes, just slightly. Yes.

Speaker 3

Got it. Okay. And then the only other one

Speaker 4

I had is, again, I don't know if this is going to affect you, but obviously, over the past couple of weeks, we've learned about The FDA approving some of these new Alzheimer's drug and whether or not Medicare is going to cover that, I think it's still an open issue. Is that something that ultimately could affect you guys? Or is it not that material for you?

Speaker 1

Yes. We've actually it depends on whether it's covered by Medicare or not. So Medicare covers drugs administered in office and these are drugs that are currently administered in the office. We did anticipate some of that in coming through in our Medicare supplement rates. So, it actually will be one of those considerations as we look for rate increases for 2024 And medical expense trend is we'll incorporate estimates for what we think that will run.

Speaker 4

And I think I was going to

Speaker 3

add to that. I think part of it too is just understanding what utilization may look like in There's a lot of risks that are currently disclosed related to those drugs as well. But as Tom said, We can price for that based upon what ultimate utilization we

Speaker 1

would like. Yes. And what we as we thought about our 2023 rates that are in effect right now, we've actually, Like I said, contemplated some of that and we think those costs are pretty much in line with what we would expect.

Speaker 4

Got it. Okay. Thanks.

Operator

As there are no further questions, I will hand the call back over to your host for any closing remarks.

Speaker 1

All right. Thank you for joining us this morning. Those are our comments and we will talk to you again next quarter.

Operator

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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Earnings Conference Call
Globe Life Q2 2023
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