Hello.
Hello, good morning. Welcome to Globe Life. Some of our comments may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to the Form 10-K and subsequent Form 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see earnings releases and website for discussion of these terms and reconciliation to GAAP measures. Now I'll turn it over to the Management team.
Thank you. Good morning. My name is Matt Darden, Co-CEO of Globe Life. Started here in about 2014. We recently took over, Frank and I, these roles in January 1st. Been with the organization, you know, quite some time throughout the operations. Historically, I focused on sales support, administration, and those kind of areas.
Yeah. Good morning. My name is Frank Svoboda. I'm the other Co-CEO. I've actually been with Globe Life, Torchmark Corp before that, since 2003, with CFO, from 2012, up until January 1st. Been with the organization for quite a while. Good to be here this morning.
Great. I'll start with some questions.
Oh, Tom.
Tom.
Oh, sorry.
Thanks. Yeah, Tom Kalmbach. I'm CFO of the organization. I joined Globe in 2018 as Chief Actuary and transitioned to CFO as of January 1st.
Okay.
Great.
All right. Well, could you start with discussing the products that you offer in the market you target? Give us a sense for how large the market is for basic low face value insurance products and how competitive it is?
Sure. We offer basic protection, life, and supplemental health products. About 70% of our business is on the life side, the other 30% is on the supplemental health side. We really focus on traditional products, so term and whole life, and those are distributed through a General Agency force. We actually have three agency forces that are exclusive to us, as well as a Direct to Consumer channel. That Direct to Consumer channel has multiple outlets where we market and distribute product, and that's both online, internal call center, as well as insert media and traditional mail. All of those activities kind of work together for that Direct to Consumer channel, as well as it's also a lead source for our exclusive agency force.
As far as market goes, we really target the middle income, lower middle-income market. We find that we don't have a lot of competition in that market, as well as there's plenty of opportunity from a sales and expansion perspective. The middle-income market is the largest market from a demographic perspective and over 50% of the individuals in that particular demographic don't have life insurance. Probably another around 20% it's estimated have are underinsured. Our opportunities are just limitless in this particular market. We go to market through this controlled distribution where we are able to control our margins, our cost, as well as the way that we distribute the product. We really don't find that we have a lot of competition in that market.
A lot of our competitors focus on more of the high income, larger face, policies, as well as more financial planning and those kind of activities, where we're really focused on just basic protection, what that consumer needs from just a needs perspective to get over a challenging time, whether it's from a significant health event or the death of a breadwinner and just trying to, you know, get that basic protection to pay bills and the like.
Thank you. Could you talk a little bit about the difference between the distribution channels? You have American Income, Liberty National, Family Heritage, Direct to Consumer, and United American.
Sure. Our three captive agencies are American Income, Liberty National, and Family Heritage. American Income is a union company. The history of that company, the roots are that we market to union-based organizations and employers. Over the years, we've expanded that significantly outside that union base, but it's still a sale that's to the individual. The growth of that company's come from our expansion into other lead types as well as just referrals and working those relationships at the agent level. It's our largest agency. We have approaching almost 10,000 agents in that agency. Like I said, it's historically been union-based, but we've really grown it past that. It's probably about 20% of the business now is union-based, and the rest of it is just individual sales.
Liberty National is our marketed at the work site. It's supplemental health as well as life. Those are distributed in small businesses. We focus on employer groups that are really 10 employees up to 50, sometimes 100. It's that smaller group of employers that are out there from an employee size base. Those are historically cafeteria plan supplemental benefits at that organization. The third is Family Heritage. That is supplemental health business. It's historically individual products. It's marketed to individuals. Historically, they've done a lot of just working individual leads and doing that from a individual perspective. Now they've focused really on marketing additionally to small businesses as well.
Our Direct to Consumer channel, we've been in the direct marketing business for about 40 years plus, so we've got a long history of being able to do that. Obviously, historically, that was in the mail. Now about 70% of that business is from a digital channel, and that really grew tremendously during the pandemic era. In 2019, about 55% of that business was from a digital channel, and then just the growth and awareness from a pandemic perspective really pushed that, and so about 70% of that business now is from a digital channel. The mail is still important because that still generates a significant volume of our, of our leads.
You know, the one thing I'll just add, you know, we didn't really on the product side, you know, about half of our supplemental health premium is true MedSup, that's written by an independent agency. That's the only piece of our business that where we use true independent agents from a general agency perspective, really just, you know, kind of due to the competitive nature there on that MedSup. You know, about half of our supplemental health business is at MedSup, then the other half is the Return of Premium products that are sold by Family Heritage and then the supplemental health for Liberty, that type of thing.
Thank you. Do you expect the revenue mix to stay around 70% from life insurance and 30% from health, or could we expect some shifts over time? Maybe talk a little bit about the profitability in those segments as well.
I'll talk about marketing.
Sure.
You can talk about profitability. As far as just the mix of business, I think we continue to see that continuing. No significant changes in mix. They're both sides of the life is growing a little bit faster probably than the overall health business. From an overall strategy perspective, we intend for right now to keep that mix about the same.
Yeah. We really like, you know, really like the life business because, one, it has such a long life for us from a premium flow perspective, and then, of course, the premiums add to investment income. Versus supplemental health. You know, what we like about the supplemental health is, one, just the stability, and then it has a little bit better, you know, it doesn't have as much capital needs, and so it's pretty good from a profitability there. The margins that we see on our life business is a little bit greater than what we have on the health business as well as a whole. We do tend to favor the life, you know, from that perspective, you know.
Again, it's a little bit higher margin. It's a little. It generates investment income from the long term as well. I think, to Matt's point, you know, while, you know, the life tends to grow a little bit faster, so that could expand a little bit, but we'd definitely like to, you know, keep that ratio if we can.
Could you touch a little bit on the size of the policies just so that we can put that into context versus competitors?
Sure. It depends on the distribution, but in general, we're 20,000-50,000 face. A lot of our distributions, like our Direct to Consumer channel, we don't offer a product higher than 100,000 face value. If you look at us versus the rest of the market, is we're very much concentrated in those lower face policies. The average policy issued by the next competitor is more around 250,000 from an average perspective. We are significantly in that lower market, and that's really just because of the market that we're in and just the needs of the customer base there.
We focus on those lower face policies, and in order to be able to do that, we have to be able to issue policies and underwrite them on a very cost-effective basis on a per unit perspective. We issued nearly two million policies last year, and in order to do that, you have to have a significant processes to be able to support that number of policies and being able to underwrite that many policies on a cost-effective basis. That's kind of another competitive advantage. We've been doing this for decades. It's hard to replicate that, if you're not have experience in this market and understand what the overall claim and persistency experience is gonna be.
I agree. It seems very difficult to replicate, so. maybe talk a little bit about macroeconomic factors, so inflation, COVID, unemployment, gas prices, how those things factor in.
Sure. We get a lot of questions around inflation, unemployment environment. What's really good about our business is it's very resilient through these different economic times. We go back and we look at what was our experience in 2002, 2008 and 2009. American Income, as an example, we had double-digit sales growth in 2002, we had double-digit sales growth in 2008, and in 2009 on top of 2008. A lot of that has to do, we grow our agency business through recruiting more agents. We're not trying to grow it by having agents be more effective in selling more policies, but it's really just growing that agent base.
We do that from a recruiting perspective, so we spend a significant amount of time and effort focused on agent recruiting. Another way that we're unique is that we're recruiting people to this opportunity that don't have that experience. They are not licensed or experienced insurance agents, so they come from all walks of life. Many of them don't even have sales experience, so we have very effective processes of being able to recruit people in, get them trained, get them licensed, and get them out selling. Sometimes in recessionary environments, depending on what's going on, it is a fertile opportunity for being able to recruit new agents as people look for other opportunities. We really aren't recruiting people that are unemployed. We get the question a lot around, you know, how does the unemployment rate affect you?
It's really people are looking for a different opportunity. An inflationary environment, as an example, people might be stuck in the, quote, "dead-end job," and they're looking for, how do I make some more money to, you know, make ends meet? Our opportunity is it's based on your level of effort. You're not capped in any way from, it's a commission job, from what you're able to achieve. We have a lot of our agents have come to us from all walks of life, from retail, or they worked in a restaurant, or you pick it, and they were looking for another opportunity. They have that entrepreneurial experience to be able to take on, and really kind of ultimately, we're recruiting people to own their own agency someday.
They're able to come in, get trained, start recruiting a team, and then build up, and then they're an agency owner. We like that from a resiliency perspective, 'cause we can recruit in all different kinds of economic environments. We ought to talk about our policyholders and the resiliency there.
You want to touch on that, Tom?
Yeah, sure. In 2021 and 2022, 2020 to 2021, 2022, early part of that period, we saw really favorable persistency rates, right? People were aware of the pandemic, they were aware of their mortality, right? They purchased insurance, and they kept their insurance in force. In 2022, where we started to see inflation pick up a little bit and the pandemic wane a little bit, we did see a little bit higher lapses than what we had seen, certainly over comparable of 2021 and 2020 and 2021, but also a little bit higher than we'd seen historically. We think that's a little bit inflation-driven, meaning that, you know, people were trying to figure out where their life insurance premiums fit within their budget.
Those who were with us a long time, they've actually are seasoned customers, and we saw fairly consistent persistency from that group of customers. Those who have purchased recently, we saw a little bit higher lapses, and we do think inflation affected that a little bit, as well as just as the pandemic became a little bit less deadly, that some who bought it maybe figured they might actually use those funds for something else. In general, our block of business is very resilient from a persistency perspective in economic times.
You know, in the fourth quarter, we saw persistency rates very consistent with historical levels, maybe just elevated a little bit on the Direct to Consumer side, but very pleased to see that come back to kind of more normal levels. I think that's consistent with people beginning to normalize, operating in a little bit higher inflation environment.
Something I will add to that is that, you know, we do go back, and we look at those over time. Something we really like about our business, and Tom Kalmbach mentioned about how resilient it really is. If you go back to some of those other economic stress periods, you know, whether, again, it was the early 2000s, 2008, 2010 time frames, you know, we saw a little bit of a tick up in our lapse rates, but really minor in the big scheme of things, and they tend to be very temporary and, you know, settle back down into, you know, normal rates, you know, fairly quickly. You know, that's always, over the years, we've always gotten a lot of comfort that from a macroeconomic perspective, that the business is really sticky.
You know, we really attribute that to its very small face. It's very basic products. You know, we're not fighting, you know, our typical premium, average premium kind of ranges anywhere from maybe, you know, $20 a month to $40-$50 a month. You know, you're not competing with, you know, I've got this $500 a month premium that I really want to stick with that or not and that type of thing. It's just a little bit easier. I would say real quick that I think other, you know, the other nice part about our business is all of our benefits are fixed benefits. Our life policies, they don't move depending on what's going on with the interest rates and equity markets.
It's, if we see a high inflationary environment, you know, generally that's leading into higher interest rates, which actually has been good for us from a generation of investment income. Our benefits and our liabilities are really fixed, but we potentially have tailwinds from, you know, on the interest rate side.
Maybe the one exception to that, right, is medical inflation on Medicare Supplement.
Right.
From that perspective, we change rates regularly as medical costs change and trying to might have a little bit of a timing lag, but we are constantly looking at medical trend and adjusting rates accordingly.
Right.
Thank you. Maybe talk a little bit about capital management. Share repurchase has historically been the major use of capital deployment, but how should we think about other methods of capital deployment, such as dividends, M&A? How do those fall into those?
Okay. Do you want me to start on that and then... Do you want to?
Here, let me start, and then hand it out.
Okay.
You know, I think one of the things that's kind of really important to know is that, you know, kind of when we think about capital management, the, you know, our first priority is to make sure that we're profitably growing the business. We're, you know, investing in growing the agencies, growing the sales, growing our Direct to Consumer channels. It's only after we've really funded those and the, and the way the statutory income works, you know, all of our acquisition costs on that, impact the amount of statutory income that our insurance operations generate, and then it's those excess profits, the earnings out of that ultimately are distributed up to the holding company.
Once it's a holding company is where we're, you know, looking at that decision of, you know, making sure from a capital perspective, all of our insurance operations are fully funded from that perspective, meeting our target RBC ratios. Looking at are there opportunities out there such as an M&A that would give us a better return to the shareholders than, you know, returning the excess cash. We will look at those M&A opportunities. If we're if there aren't opportunities that are available, you know, historically, we have returned the vast majority of our excess cash since we've been in a share repurchase program since 1986. We're pretty consistent.
We do, if you go back long, long period of time, you know, our dividends, philosophy is that we wanna increase our dividend rate over time, and keep it kind of roughly, you know, as a, as a proportion of our total, cash return. You know, it's been 15%-20% of that total pool over a really long period of time. The vast majority has come back in share, in share repurchases.
Yeah. The only thing I'd add, Frank, is just the consistency of our excess cash flows. We define those excess cash flows as the dividends from our subsidiaries after investing in the business and after our interest on debt, right? Over the last 10 years, we've ranged from roughly round numbers, $360 million to $460 million of excess cash flow back to the parent and have returned that in the form of dividends or share repurchases, and in some cases, M&A activity appropriately. Very consistent over that timeframe. Really the lowest in that 10-year period was last year, which was really due to excess mortality related to the pandemic.
That gives us a lot of comfort, you know, and we know that stability and that availability of cash, excess cash. I think from an M&A perspective, I just touch on that real quickly. You know, we're really focused on an opportunity that doesn't change who we are and what we do, but that is a really, you know, strategic fit and really provides distribution. You know, we know that over the long term, our business is successful by growing our distribution. That's what we're. You know, if we interested in having distribution, but we wanna have it in our protection-oriented products and basically that can help us to serve this middle and lower middle-income market. You know, there's not a lot of opportunities there.
We don't wanna do an acquisition just for the sake of doing an acquisition. We want it to be, you know, something that's really strategic for us. We have them from time to time, they don't come around, you know, on an annual basis.
Fairly, fairly rare.
Yeah.
Okay. Now we've got a pretty new Management team. Any changes in strategy or should we see the strategy stay similar?
Yeah, sure. We're really focused on just executing our strategy. We like the markets that we're in. We like the product, the risk profile, the profitability profile of our products. We just continue to think about how can we organically grow in this marketplace with, you know, an eye to M&A to the extent that we find something that is complementary to our skill set and our market. No significant changes are planned from a strategy perspective. For us, it's all about, again, executing in the market. We don't have a lot of competition. We're not getting shopped against by a consumer when we're presenting the opportunity in the home or at the work site. Really, we just wanna continue that organic growth, profitable growth with the products that we like from, you know, that overall structure perspective.
Yeah. I think as Matt and I have talked about it, you know, our areas of investment are really around, you know, setting that organization up for, you know, being a, the, a really strong organization five, 10, 15 years down the road. That's really investments in our human capital and technology. We're really continuing to look on how do we, you know, expand our technology within the, you know, our acquisition force, supporting our agencies, helping them to get better information, to manage their businesses and to be more efficient ultimately, if we can. Then, same thing, you know, on the home office side, and just looking to where can we use it to expand our analytics, of course.
you know, that's a lot of our, you know, our focus on, you know, in those two areas.
Great. Then what do you think investors may be underappreciating about your business model?
You know, I think, you know, as we get that question from time to time, you know, I think one of the things that tends to be underappreciated is just that long-term stability that we have and the value of the in-force book of business, you know, that Globe has. You know, around 90% of our premium each and every year comes from in-force, our in-force. The sales are adding, you know, ultimately about 10% of the, of the premium. What that gives us is that stability. Tom kind of really touched on it on the stability of our excess cash flows. Well, it starts with dividends from our insurance operations.
You know, Our insurance operations generate, you know, $450 million-$550 million of new statutory income, new statutory capital each and every year. That's really built on, you know, the stable margins that we have, and then that stable book of business, that stable premium. That really feeds the kind of the machine and really allows, as we think about capital management and we think about, you know, how in, you know, investment strategy. You know, knowing that stability and that baseline is just really, I think is, you know, a really good, you know, feature of our organization that really is the oil.
Absolutely. I think one thing that I see as underappreciated is you have very consistent sales growth over time as well. Maybe talk a little bit about what you expect this year and in the longer run for sales growth?
Yeah. We're, so we finished, you know, 2022 was a good year. American Income was up 9%, Family Heritage was double-digit, as well as, Liberty was around 10% sales growth. Really, we look at how is the agent recruiting, when we talk about growth in the sales organizations on the agency side, 'cause that's really a forward indicator of sales growth in the future. We have historically over time, and, we're anticipating this for 2023, been able to grow in that low single digits, or high single digits, excuse me. Sometimes low double-digit growth, that's something that we feel like that we can continue over a long period of time. Again, it's focused on we grow our agent count.
We've got good momentum on the agent count growth side coming out of the end of 2022. As I'd mentioned on the call, it's a positive momentum here in the beginning of 2023. That bodes well for sales to come. We're really not hampered in, because we're growing our own agent force, we're not really hampered in, can we sign up more brokers or marketing organizations. We're really growing our own, you know, distribution. I think, as I'd mentioned earlier, through a long period in history of time, we've shown that we can grow that year-over-year. You know, we get questions around, well, this quarter fluctuation to that quarter. It definitely is not on a every quarter basis.
There is some volatility, and that's why we encourage people to really look at it on a year-over-year perspective. One of the things I would reflect on is 2019, we had approximately 11,000 agents as an organization. We eclipsed 14,000 last year. There was a significant amount of growth during the pandemic. We're in a period where American Income, as an example, which is kind of digesting that growth. They went from 7,500 agents to around 10,000 agents in five quarters. You have that tremendous amount of growth. It takes a while to get those new agents up, producing and productive, and then move into middle management, and then start recruiting again. There's definitely a life cycle from an agency growth perspective.
We'll grow tremendously, and then we'll kind of digest that growth and then build a base and grow again. Again, we do believe and are estimating that we can continue to grow in 2023 and beyond.
I think that kind of goes back to Tom's point as well, because you grew the premium base so much during the last couple of years. It's really kind of goes through the bottom line of the cash flow as well.
Yeah.
Yeah. Absolutely.
Very strong growth over time. Anything you think we've missed or...
You know, I think maybe just the one thing to maybe touch a little bit on just on the investment portfolio really quick, you know, 'cause one of the questions we get a lot is, you know, you're in fixed maturities, a lot of BBB exposure, why is that? That type of thing. So I'll just make a quick, you know, note that, you know, it all starts with our policy. You have fixed rate, fixed benefit policies that are really long-term. You know, our first and foremost is we're looking at investing long. Historically, you know, where are we looking for the best, you know, risk-adjusted, capital-adjusted returns? We, you know, and of course, again, we really like fixed benefit, fixed maturity obligations and fixed rate obligations.
That's just historically been in that BBB space. you know, again, with the stability of our margins and the stability of our, you know, our cash flows, yeah, we understand we probably take a little bit of risk there, but over the years, you know, it's really worked out well for us. We get paid for taking that additional risk in that, in that market, and we avoid other risky, you know, type segments of the investment market. Now, we're not in CLOs and structured securities and equities and a bunch of those that create volatility within that. you know, we're very comfortable with that.
Of course, we invest in companies that we think will, we don't get too worried about the ebbs and flows of the economy because we, you know, try to do a lot of due diligence on, you know, investing in companies that are there to be there for the long term.
You might also talk about RBC because we get some questions around.
That's true.
-capital levels and the like, or Tom?
Sure. We target an RBC ratio of somewhere between 300% and 320%. Last year, we finished at the highest of that range at about 321%. That's actually lower than where many insurance companies operate. I think that's a function of the risk of our business is, again, we sell basic protection life insurance policies that are non-interest sensitive. We don't have volatile liabilities that, you know, whether that be annuity liabilities or UL no-lapse guarantee liabilities that are. We have a small block of annuities that's closed, but no UL no-lapse guarantee business. The nature of our liabilities is such that we can operate at a lower RBC than some of our competitors.
The other is, as I pointed out earlier, is the consistent generation of excess cash flow from the subsidiaries, that actually is kind of refunding the parent company every year in the tune of $360 million-$460 million each year. You can think of that as capital generation, self-capital generation for the organization. Rating agencies are very comfortable with where we operate from a 300%-320% range, and we'd intend to operate in that range going forward.
One of the interesting things is, over the last couple of years, the NAIC has increased the capital charges on our assets as well as our insurance liabilities. If we went back to, you know, 2018 timeframe, today's capital standards would be more like 340% RBC compared to 2018 standards. No change in risk, but actually a little bit higher capital levels than what we normally would have thought 300%-320% would have been.
Historically, you know, we've had to put in some capital from time to time, you know, to shore those up. You know, we're very comfortable in our ability to do so. You know, we've historically been able to kind of, at the holding company, kind of keep our debt ratios in that 23%-27% range, and they were just kind of in the mid-20s. It's been a good spot for us, comfortable for our rating agencies. You know, historically, when we've needed a little bit of capital, we've been able to go out and access some of those public markets and finance it that way, still maintain the buyback program.
Wonderful. Thank you very much.
All right. Thank you.
Thanks, everyone.