Good day, and welcome to the Second Quarter 2021 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Majors, Executive Vice President, Administration and Investor Relations. Please go ahead, sir.
Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co Chief Executive Officers Frank Svoboda, our Chief Financial 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, 20 20 10 ks and any subsequent Forms 10 Q on file with the SEC.
Some of our comments may also contain non GAAP measures. Please see our earnings release and website I will now turn the call over to Gary Coleman.
Thank you, Mike, and good morning, everyone. In the 2nd quarter, net income was $200,000,000 or $1.92 per share compared to $173,000,000 or $1.62 per share a year ago. Net operating income For the quarter, it was $193,000,000 or $1.85 per share, an increase of 12% per share from a year ago. On a GAAP reported basis, return on equity as of June 30 was 9.0% for the first half of the year And 9.7% for the 2nd quarter. Book value per share was $83.59 Excluding unrealized gains and losses on fixed maturities, return on equity was 12.4% for the first half of the year and 13.5 for the Q2.
In addition, book value per share grew 9% to $55.66 In our life insurance operations, premium revenue increased 9% from the year ago quarter to $728,000,000 As noted before, we have seen improved persistency and premium collections since the onset of the pandemic. Life underwriting margin was $179,000,000 up 11% from a year ago. The increase in margin For the year, we expect Life premium revenue to grow between 8% to 9% and underwriting margin to grow 5% to 6%. In health insurance, premium revenue grew 4% to $296,000,000 And Health underwriting margin was up 16% to $74,000,000 The increase in underwriting margin was primarily due to improved claims experience and persistency. For the year, we expect health premium revenue to grow between 4% and 5% And underwriting margin to grow around 9%.
Administrative expenses were $68,000,000 for the quarter, up 10% from a year ago. As a percentage of premium, administrative expenses were 6.6% compared to 6.5% a year ago. For the full year, we expect administrative expenses to grow 8% to 9 It can be around 6.7 percent of premium due primarily to increased IT and information security costs, Higher pension expense and a gradual increase in travel and facility costs. I will now turn the call over to Larry for his comments On the Q2 marketing operations.
Thank you, Gary. We experienced strong sales growth during the 2nd quarter, And we continue to make progress on agent recruiting. I will now discuss current trends at each distribution channel. At American Income Life, life premiums were up 13% over the year ago quarter to $348,000,000 And life underwriting margin was up 16% to $108,000,000 A higher underwriting margin is primarily due to improved persistency And higher sales in recent quarters. In the Q2 of 2020, sales were limited due to the onset of COVID.
In the Q2 of 2021, net life sales were $73,000,000 up 42%. The increase in net live sales is primarily due to increased agent count and productivity. The average producing agent count for the 2nd quarter was 10,478, up 25% from the year ago quarter And up 6% from the Q1, the producing agent count at the end of the second quarter was 10,406. The American Income Agency continues to generate positive momentum. At Liberty National, light premiums were up 6% Over the year ago quarter to $78,000,000 while life underwriting margin was down 16% to $16,000,000 The decline in underwriting margin is due primarily to higher policy obligations.
Net life sales increased 67% to $18,000,000 and net health sales were $6,000,000 up 52% from the year ago quarter due primarily to increased agent count and increased agent productivity. The average producing agent count for the 2nd quarter It was 2,700, up 13% from the year ago quarter, while down 1% from the Q1. The producing agent count at Liberty National ended the quarter at 2,700. We continue to be encouraged by Liberty National's progress. At Family Heritage, health premiums increased 9% over the year ago quarter to $85,000,000 And improved persistency.
Net sales were up 41% to $19,000,000 Due to increased agent productivity, the average producing agent count for the 2nd quarter was 12 20, Down 2% from the year ago quarter and down 5% from the Q1. The producing agent count at the end of the quarter It was 11.71. The agency emphasized agent productivity during the first half of the year. The focus is shifting more towards recruiting for the remainder of the year. In our direct to consumer division at Globe Life, Life premiums were up 6% over the year ago quarter to $249,000,000 and life underwriting margin increased 22 percent to $34,000,000 The increase in margin is due primarily to improved persistency.
Net life sales were $42,000,000 down 14% from the year ago quarter. This decline was expected due to the extraordinary level Sales activity seen in the Q2 of last year during the onset of COVID. While sales declined from a year ago, we are pleased with this quarter's sales activity It was 23% higher than the Q2 of 2019. At United American General Agency, Health premiums increased 3% over the year ago quarter to $116,000,000 and health underwriting margin increased 16% to $18,000,000 The increase in margin was due to improved loss ratios and lower amortization. Net sales were $12,000,000 up 1% compared to the year ago quarter.
It is still somewhat difficult to predict sales activity in this uncertain environment, but I will now provide projections based on trends we are seeing And knowledge of our business. We expect the producing agent count for each agency at the end of 2021 Liberty National, 1% to 8% growth Family Heritage, a decline of 1% to 9%. Net life sales for the full year 2021 are expected to be as follows: American Income Life, An increase of 13% to 17% Liberty National, an increase of 26% to 32% Direct to consumer, a decrease of 10% to flat. Net health sales for the full year 2021 Family Heritage, an increase of 4% to 8% United American Individual Medicare Supplement, a decrease of 1% To an increase of 6% to an increase of 9%. I'll now turn the call back to Gary.
Thanks, Larry. We'll now turn to the investment operations. Excess investment income, which we define as net investment income less Required interest on net policy liabilities and debt was $60,000,000 a 2% decline from the year ago quarter. On a per share basis, reflecting the impact of our share repurchase program, excess investment income grew 2%. For the full year, we expect excess investment income to decline 1% to 2%, but to grow around 2% on a per share basis.
In the Q2, we invested $116,000,000 in investment grade fixed maturities, primarily in the financial, Municipal Industrial Sectors. We invested at an average yield of 3.69 percent, an average rating of A and an average life for 35 years. We also invested $72,000,000 in limited partnerships that invest in credit instruments. These investments are expected to produce incremental yield and are in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the 2nd quarter yield was 5.24%, down 14 basis from the Q2 2020.
As of June 30, the portfolio yield was 5.23%. Invested assets are $19,100,000,000 including $17,500,000,000 of fixed maturities and amortized cost. Of the fixed maturities, dollars 16,700,000,000 are investment grade with an average rating of A- and below investment grade Bonds are $764,000,000 compared to $802,000,000 at the end of the Q1. The percentage of below investment grade bonds to fixed maturities is 4.4%. Excluding net unrealized gains in the fixed The portfolio below investment grade bonds as a percentage of equity of 13%.
Overall, the total portfolio is rated A- compared to BBB plus a year ago. Consistent with recent years, bonds rated BBB are 55% of the fixed maturity portfolio. While this ratio is in line with the overall bond market, it is high relative to our peers. However, We have little or no exposure to higher risk assets such as derivatives, equities, residential mortgages, CLOs and other asset backed Because we invest loan, a key criterion utilized in our investment processes is that an issuer must have the ability We believe that the BBB securities that we acquire provide the best risk adjusted, capital adjusted returns Due in large part to our unique ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. Low interest rates continue to pressure investment income.
At the midpoint of our guidance, we are assuming an average new money rate Around 3.45 percent for fixed maturities for the remainder of 2021. While we would like to see higher interest rates going forward, Globe Life can thrive in a longer a lower for longer interest rate environment. Extended low interest rates will not impact the GAAP or statutory balance sheets under current accounting rules since we sell non interest sensitive protection products. Fortunately, the impact of lower new money rates on our investment income is somewhat limited as we expect to have an average turnover of less than 2%
Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, Available liquidity and capital position. The parent ended the 2nd quarter with liquid assets of approximately $545,000,000 This amount is higher than last quarter because in June, the company issued a 40 year $325,000,000 junior subordinated note with a coupon rate of 4.15%. Net proceeds were $317,000,000 On July 15, the company utilized the proceeds to call our $300,000,000 6.125 percent junior subordinated notes due 2,056. The remaining proceeds will be used for general purposes.
In addition to these liquid assets, The parent company will generate excess cash flows during the remainder of 2021. The parent company's excess cash flow, As we define it, results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on debt and the dividends paid to Globe Life shareholders. We anticipate the parent company's excess cash flow for the full year To be approximately $365,000,000 of which approximately $185,000,000 will be generated in the second half of In the Q2, the company repurchased 1,200,000 shares of Globe Life, Inc. Common stock at a total cost of $123,000,000 at an average share price of $101.05 The total spend was higher than anticipated as we took advantage of the sharp drop in share price at the end of the quarter And accelerated approximately $30,000,000 of purchases from the second half of the year to repurchase shares at an average price of $95.62 So far in July, we have spent $32,000,000 to repurchase 343,000 shares at an average price of $93.81 Thus for the full year through today, we have spent approximately $246,000,000 To purchase 2,500,000 shares at an average price of $97.96 Taking into account the liquid assets of $545,000,000 at the end of the second quarter Plus approximately $185,000,000 of excess cash flows that we are expected to generate in the second half of the year, Less than $32,000,000 spent on share repurchases in July and the $300,000,000 to call our junior subordinated note, We will have approximately $400,000,000 of assets available to the parent for the remainder of the year.
As I'll discuss in more detail in just a few moments, we believe this amount is more than necessary to support the targeted capital levels within our insurance operations and maintain the share repurchase program for the remainder of the year. As noted on previous calls, We will use our cash as efficiently as possible. 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 a primary use of the parent's excess cash flows. It should be noted that the cash received by the parent company from our insurance subsidiaries is after they have made substantial investments during the year To issue new insurance policies, expand our information technology and other operational capabilities, as well as acquired new long duration assets to fund future cash needs.
As we progress through the remainder of the year, We will continue to evaluate our available liquidity. If more liquidity is available than needed, some portion of the excess could be returned to shareholders before the end of the year. However, at this time, the midpoint of our earnings guidance only reflects approximately $120,000,000 of share repurchases over the remainder of the year. Our goal is to maintain our capital at levels necessary to support our current rating. As noted on previous calls, Global Life has targeted a consolidated company action level RBC ratio in the range of 300% to 320%.
At December 31, 2020, our consolidated RBC ratio was 309%. At this RBC ratio, our insurance subsidiaries have approximately $50,000,000 of capital over the amount required at the low end of our consolidated RBC See target of 300%. This excess capital along with the roughly $400,000,000 of liquid assets we expect to be available at the parent As we discussed on previous calls, The primary drivers of potential additional capital needs from the parent company in 2021 relate to investment downgrades and changes to the NAIC RBC Due to changes in our investment portfolio, we continue to model several scenarios and stress tests. In our base case, We anticipate approximately $370,000,000 of additional NAIC 1 notch downgrades. In addition, we anticipate full adoption by the NAIC of the new Moody's NAIC C1 factors for 2021.
Combined, our base case assumes approximately $105,000,000 of additional capital will be needed at our insurance subsidiaries To offset the adverse impact of the new factors and additional downgrades in order to maintain the midpoint of our consolidated RBC target. Bottom line, the parent company has ample liquidity to cover any additional capital that may be required and still have cash available to make our normal level of share repurchases. As previously noted, we will continue to evaluate the best use of any excess cash that could remain and we'll consider returning a portion of any excess to shareholders before the end of the year. We should be able to provide more guidance on that in our call next quarter. At this time, I'd like to provide a few comments related to the impact COVID-nineteen on second quarter results.
In the first half of twenty twenty one, The company has incurred approximately $49,000,000 of COVID death claims, including $11,000,000 in the 2nd quarter. The $11,000,000 incurred is $10,000,000 less than incurred in the year ago quarter and is in line with our expectations for the quarter. The total COVID death benefits in the 2nd quarter included $4,600,000 incurred in our direct to consumer division Or 2% of its 2nd quarter premium income, dollars 1,500,000 incurred at Liberty National Or 2% of its premium for the quarter and $3,500,000 at American Income or 1% of its 2nd quarter premium. At the midpoint of our guidance, we anticipate approximately 20,000 to 30,000 additional COVID deaths to occur over the remainder of 2021. As in prior quarters, We continue to estimate that we will incur COVID life claims of roughly $2,000,000 for every 10,000 U.
S. Deaths. We are estimating a range of COVID death claims of $53,000,000 to $55,000,000 for the year, substantially unchanged from our previous guidance. Finally, with respect to our earnings guidance for 2021. In the Q2, our premium persistency continued to be very favorable and was better than we anticipated, leading to greater premium, higher policy obligations and lower amortization as a percent of premium.
At this time, we now expect lapse rates to continue at lower than pre pandemic levels throughout the remainder of 2021, leading to higher premium and underwriting income growth in our Life segment. We also increased the underwriting income in our Health to reflect the favorable health claims experience we saw in the Q2. Finally, the impact of our lower share price Results in a greater impact from our share repurchases and results in fewer diluted shares. As such, we have increased the midpoint of our guidance from $7.36 to $7.44 with an overall range of $7.34 to $7.54 for the year ended December 31, 2021. Those are my comments.
I will now turn the call back to Larry.
Thank you, Frank. Those are our comments. We will now open the call up for questions.
Thank And we'll take our first question from Andrew Kligerman with Credit Suisse.
Hey, good morning, everyone. Maybe you could quantify the indirect COVID-nineteen claims During 2Q 'twenty one, do you still anticipate total indirect claims of $25,000,000 From 2Q 'twenty one through the year end or has your outlook improved?
Sure, Andrew. With respect to the Q2, we had Anticipated around $15,000,000 for the quarter, down from the $25,000,000 that we saw in the Q1. We now estimate that there were closer to actually $22,000,000 of excess obligations or around 3% of premium In the Q2, so this is about $7,000,000 higher than what we thought. The increase was mostly due to the better persistency we're seeing. Remember, the better persistency requires us to keep more reserves on the books.
So in fact, out of the $22,000,000 of these excess obligations that we In the quarter, about 60% or around $14,000,000 is from the lower lapses. And then the other Around $8,000,000 relates to other higher non COVID claim activity. The actual Claims around the medical and non medical was largely in line with what we anticipated. So again, the higher The $7,000,000 higher than what we kind of thought really related to the better persistency. For the full year, we now anticipate that These excess policy obligations will probably be around $70,000,000 This is around 2.4% of premium and that's up from Roughly the $50,000,000 that we kind of talked about last quarter.
Of the 2.4% of premium, It does look like about 1.5% of that will relate to higher reserves due to the lower lapses and about 0.9% Will relate to higher non COVID claim activity. And again, most of the again, the increase of that $20,000,000 From what we had talked about last quarter relates to the impact of the lower losses and the reserve that we're required to retain on the policies That really didn't last as we had anticipated.
That makes
a lot of sense. Thank you. And then just my follow-up is, In the direct to consumer channel, curious about Internet and inbound phone calls, which were previously cited to
I don't think there are new channels. We continue We have the same marketing strategy basically. We have 4 channels in direct to consumer. We have the Internet. We have the inbound phone calls, The Internet Media plus the mail, I think we're seeing a gradual shift.
There's a very gradual shift. The electronics channel is growing the most quickly, particularly the Internet, but still the 4 channels are interrelated. And so the real growth will come as we use analytics and testing to increase our circulation and our mail volumes and our Traffic on the Internet.
Thank you.
Thank you. And we'll take our next question from John Barnidge with Piper Sandler.
Great. Thank you. Can you maybe talk about how you Think through the strength in life sales. Does it seem to be more based on the strong agent growth over the last year with maybe those agents that are news selling to their closest networks or more around pandemic raise awareness of life insurance. I'm really just trying to dimension Whether the strength that we've seen is a pull forward or not?
Thank you.
I think always our live sales are related to growth in our distribution. So agent count is a very important component of that. However, if we look at American Income, I think the primary driver The live sales growth will continue to be the agent growth. We had a 25% in average agent growth quarter over quarter. Limited National is a little different story there.
In Q2, our worksite sales were up 75% Compared to the Q2 of 2020, as worksite sales actually were up 12% sequentially, what There is that the return of not just virtual enrollments or the addition of virtual enrollments, but the return of on-site sales for worksite You're really helping Liberty National. I think Liberty National and Family Heritage both, I think that this year, the growth will come more from productivity As we see a greater percentage of agents submitting business and of course in all three agencies, as those agents have more experience, You'll see the average premium written for agent will also increase. So there's really different drivers at different points of time for distribution.
Okay. And then my follow-up question, this isn't really related to the indirect COVID question, But last quarter, you talked about increased deaths of despair from like overdoses, suicides 20%, 80% being delays in cares like Alzheimer's and cardiac. Can you maybe talk about what you're seeing there a little bit and your expectations going forward?
Thank you. Yes. When you do look at the total kind of the mix of that, about 80% still This really relates to the medical, the side versus some of the non medical causes. Again, I think For the year, we probably anticipate that we'll continue to see those at elevated levels even though we do anticipate those It will be trending down over the course of the year as access to healthcare and All that tends to improve. For the full year, we still anticipate that we'll probably see Excess claims, if you will, around $28,000,000 or roughly 0.9% or 1% of premium.
Thank you for your answers. Thank you. And we'll take our next question from Ryan Krueger with KBW.
Hi, good morning. I guess first I had a follow-up on the persistency impact. So you talked about the 1.5% increase to your policy benefit ratio from higher reserves. Can you comment on how much of a positive impact would be occurring within the amortization line as an offset to that?
Yes, the from the amortization side, it's a little bit less than 1 So it doesn't fully offset the increase in policy obligations, but it largely does.
Got it. And then I guess in regards to the agent recruiting, I think Some of your guidance for year end agent count at American Income suggests, I think some decline in agents From where we're at now, I guess, can you give a little more color on that? And are you seeing any negative impact From labor market conditions on your ability to recruit new agents?
Sure. If you want to give that and I think the decline is only a family heritage. I think in the script, I referenced the actual growth.
Yes, I was referring to I think American Income, you had up 3% to
6%, Liberty National in the range of 1% to 8% At Family Heritage, we think it will be down from 9% to negative 1%. Just to talk about recruiting a little bit, I do think growing agent count There's going to be a challenge through the end of 2021. Let's remember, a year ago, there were many unemployed, more importantly, underemployed recruits, Many businesses were shut down, hours reduced from any workers and layoffs are occurring everywhere. Today, we see just the opposite. We see help wanted signs in most businesses We see a dramatic increase in work opportunities on the job boards.
So I think our producing agent growth will slow in the short run. However, as the economy returns to normal growth levels, we believe we'll see a continued growth in our agent count in line with our historical levels. I think the best indicator of future agent growth is always growth in middle management. When we look at that, if we look at American Income year to date, we've had a 7% increase in middle management. In Q2, Liberty National had a 6% increase in middle management.
Family Heritage had a 13% increase in middle management. That's important to these middle managers, do much of the recruiting and training I would also state that agent count growth is always a stair stair process, and we don't expect to see constant growth quarter to quarter We've been year over year over the past 4 years producing agent count. These agencies growing at a compound rate, Liberty Credit American income is approximately 9% 12% of Family Heritage and Liberty National. However, Let me go back, as an example, Liberty National from 2016 to 'seventeen, we had 19% agency growth the next year, The next 2 year period versus 'seventeen to 'eighteen, we had 2.5% growth followed by 23% growth in next year. The reason it's stair steps is it takes time to develop middle management and you want your productivity to grow up over time, so you keep those agents.
This kind of a long explanation, but we have every confidence we'll grow agents our agents will grow, right? Producing agents continue to grow,
Thank you. And we'll take our next question from Tom Gallagher with Evercore.
Good morning. Just a question on persistency.
I think
I heard you say You now think that better persistency is more likely to be permanent. And if that's true, That would bode well for future premium growth in life insurance clearly. And with the 8% to 9% you're doing this year, Assuming you continue to have good persistency and sales trends remain within a reasonable range, Do you think for 2022, we'd be looking at continued growth above your historic ranges For premium growth for life insurance, maybe closer to 6% or 7% at least, even if it's down a bit or how do you see that Those dynamics playing out?
Tom, yes, I think you're I don't know about what percentage it's going to be. In the next call, we'll give some guidance of 2022. But yes, I would anticipate we continue to So we have growth rates that are higher than the pre pandemic levels.
The one thing I would like to add on that is that, Tom, we didn't want to infer that we think that the better persistency is permanent. We do think that it's going to last Throughout the end of 2021, so we do see it continuing at the favorable level. We'll be able to give a little bit more insight, I think next call When we really kind of dig into 2022, where we really think the persistency levels are going to go. So I think we'll be able to get some better View is on where we think that persistency will go in 2022. We are definitely encouraged with The continued high levels of persistency this year and that should help, as I said, to buoy that Premium growth, at least in the foreseeable future.
Okay. And the Just on the COVID mortality impacts, I guess, the direct ones, you're forecasting 20 ks to 30 ks mortality Over the rest of the year, I think the IMAG forecasts are showing about double that amount. So just curious How you're deriving your estimates there?
Yes. We do Take into account several different sources that are out there. HME is one of those. It is probably Looking at what they were having probably a good week ago, just as we then kind of need to apply Some of the forecasts they've got, look at those trends, look at what they're looking at by state, applying that to our in force To do quite a bit of work to come up with our estimates of what that impact is, I do understand that in some of the last few days, they may have increased their estimates now. And clearly, If that higher number of U.
S. Deaths is in fact realized, we would end up being more at the lower end of our range. I kind of looked at it. If we ended up averaging, let's just say 250,000 deaths or 250 deaths a day for the over the course of the remainder of the year, you'd end up at around 45, I think, That's all. And that's all your point around roughly 2 times of what we've put in our midpoint.
That'd be about an extra $0.03 impact overall. So that would still be within our range. And so I think that's a little wider range that we have kind of normally, if you will, helps to take into consideration Some of that changes on where that might go. So it's pretty hard to tell right now exactly what the debt levels are going to be.
Got you. And then just one last if I could fit it in. The so the $105,000,000 of the combined impacts from C1 RBC factor changes plus expected ratings downgrades. Can you isolate how much of the $105,000,000 is specifically from the C1 factor changes?
About $75,000,000 is from C1. We're probably absent the C1 is probably about a 15 Point reduction, if you will, in our RBC ratio, just in and of itself. So that's around $75,000,000
Got you.
Thank you.
Thank you. And we'll take our next question from Erik Bass with Autonomous Research.
Hi, thank you. I guess maybe to start and follow-up on Tom's question on sort of COVID mortality. Are you seeing any changes at all In terms of your sensitivities, as you're getting more vaccinated population, do you have a sense of how kind of your exposure Differs between kind of the insured population versus the general population on vaccination rates and is vaccination status something you're able to ask about on New policy applications.
Yes, right now, we're not seeing as we look I think the sensitivity generally around 2,000,000 of claims still per 10,000 deaths, that's really it seemed to be holding pretty well. Clearly, as we as with the higher vaccinations, especially at the older ages, that is Continuing
to help lower, if
you will, some of those overall death rates. So We do as we look at our overall in force, we don't have any great exposure to any one particular age. It's pretty well spread out from really age 10 through age 50 is roughly, you look at any 10 year period of time and it's roughly Same percentage of our overall portfolio and then it kind of really goes down as you get to over age 60, but over age 50 in fact. So We don't feel like we're overexposed into any one particular even if there ends up being a vaccinated or unvaccinated
Got it. And then maybe moving to the health side, you mentioned the favorable Claims this quarter, was that just a continuation of lower benefits utilization? And if that's the case, how are you thinking about that trend into the second half of the year for Med supp and other health products.
Yes. On the Med supp, it is largely more utilization. And what we're really Seeing there is we're seeing higher utilization than we had in 2020 and really even Higher utilization than 2019, but it is lower than what you would expect from a trend perspective. So it's still running a little bit favorable if you kind of look at where 2019 levels were and what we'd expect From a normal trend perspective, on the accidents and in our cancer blocks that we really have, let's say, Liberty and American Income, Those are it's more an incurl, it's not so much of a utilization of services as it is just an incurl of claims. And that's what we're just seeing, more some just favorable, internal rates at this point in time that's really helped With some lower policy obligations in those particular lines as well as to some degree at Family Heritage.
Thank you. And then one last follow-up just on MedSup. Do you have any exposure to potential cost pressures from the new Alzheimer's
Yes. There would be potentially some exposure, but Ultimately, we do have that included in our guidance.
Okay. Thank you.
Thank you. We'll take our next question from Jimmy Bhullar with JPMorgan.
Hi. So first, just a question on your direct Response margins, obviously, they're pretty weak last quarter. They improved this quarter. Other than just the impact of COVID, Do you feel that this was a normal quarter overall or were there any sort of positive or negative puts and takes as you're thinking about Long term margins in the direct response business, on the Life side.
Yes. Jimmy, as far as other changes, what You can see that we had lower amortization for the quarter and During the Q2, we had adjusted our amortization rates throughout for all our distribution systems. And we've seen a bigger impact in the direct response side, lowering that amortization rate of 22%, a little over 22% versus 25% in the Q2 of last year. And that's going Yes, continue to the year. We should be at around 23% of premium for amortization in direct response versus Over 25% last year.
The reason for that reduced amortization is 2 things. 1 is the increased sales And also the improved persistency both 1st year and renewal. In addition to Direct Response, The high sales that we had last year were excuse me, the acquisition costs we had, they So the acquisition cost per policy last year were lower than it has been, so there's less DAC that we were putting on the books. So the combination of higher sales, lower acquisition cost per policy plus the improved persistency generating more premium revenue, Since we amortize our DAC over the premium revenue over the life of the policies, having that higher premium revenue It has resulted in a lower amortization percentage. We should again see that through the remainder of this year.
And then next year, would it reset based on what your views on persistency are for 2022? Yes. Okay. And then on agent retention, I guess, given the improved labor market, especially in the services industry, it Probably will affect your ability to recruit people. But how do you think about how it affects your ability to retain the agents that you've hired over the past Because you have added a lot of agents.
And do you see any sort of impacts on your agent retention trends As the economy continues to improve.
Jimmy, when we look at agent retention currently, American Income, Agent retention has increased over the last 2 years, and it's a little early in 2021. We measure, obviously, 6 months 9 months 12 months retention, but based on the trend in American Income, we're seeing better agent retention. Liberty National and Family Heritage. The retention is largely unchanged. I look at 2019 'twenty, and again, it's a little early to talk about retention.
I think there are more job opportunities, obviously, right now. So I think terminations may be a little higher through the end of the year. At the same time, we expect our recruiting to increase as the economy returns to normal. And so I think we'll have Normal retention and normal recruiting rates through the end of particularly the end of 'twenty one, going into 'twenty two.
And then typically as agents get tenure, do you see a pickup in their productivity? Should Any reason to assume that the increase in agents over the past year or so won't translate to sort of continued momentum Sales, regardless of what happens with new recruiting or are there other factors that might slow down sales?
Jimmy, can you repeat that question? Your connection is not too bad. So
You've added a lot
of agents over the past
year and regardless of what happens with recruiting, I would assume that The higher number of agents would result in strong sales. Obviously, the growth rates vary with comps But the absolute level of sales should be higher than they used to be pre pandemic, just given the increased number of agents, and especially as those agents Get more and more tenured and their productivity increases. But is that the correct assumption or are there other factors that You're thinking about as you're looking at your sales over the next year to 2 years?
Thank you for repeating the question. Yes, it is our assumption that Obviously, the biggest driver of sales is going to be the increase in number of agents and the producing agent count is going to grow As we've given, the other driver there was productivity. And actually productivity is a little bit lower At American Income Q2 'twenty one versus Q2 'twenty, that's because of the increase in agents. And new agents was a little less productive. So as our agent growth from 'nineteen and 'twenty translates into 'twenty one, all three agencies, as those agents We received better training and as they become more veteran agents, you'll see that increase, particularly we saw it in Family Heritage.
Q2, while the recruiting is off, we had our best quarter ever for productivity. We had a 30% increase in health sales per agent. Q1 of 'twenty one sequentially and also we had a 45% increase in health sales per agent over a year ago quarter As participant recruiting was down as the agents did less recruiting had we had more veteran agents, productivity went up. We also saw that productivity increase at Liberty National that as we have more and more veteran agents, they're much more productive. Okay.
Thank you.
Thank you. And that concludes today's question and answer session. I will now turn the call back to Mike Majors for closing remarks.
All right. Thank you for joining us this morning. Those are our comments, and we'll talk to you again next quarter.
Thank you. Ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.