filings.toolsItem 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements Index
GL 2020 FORM 10-K
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Globe Life Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Globe Life Inc. and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Investments in Fixed Maturities Classified as Available for Sale — Significant Unobservable Inputs - Refer to Notes 1 and 4 to the Financial Statements
Critical Audit Matter Description
Investments in fixed maturities classified as available for sale are reported at fair value in the financial statements. The investments without readily determinable market values are valued using significant unobservable inputs such as credit ratings and discount rates. The balance of investments without readily determinable market values was $799 million as of December 31, 2020. These inputs involve considerable judgment by management.
GL 2020 FORM 10-K
We identified investments in fixed maturities classified as available for sale without readily determinable market values as a critical audit matter because of the unobservable inputs used by management to estimate fair value. Auditing these inputs required especially subjective judgment and required the involvement of our fair value specialists to fully evaluate them.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the unobservable inputs used by management to estimate the fair value of investments in fixed maturities classified as available for sale included the following, among others:
-
We tested the effectiveness of controls over investments in fixed maturities classified as available for sale, including management’s controls over the determination of unobservable inputs and fair value.
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We tested the accuracy and completeness of underlying data used in the determination of the fair value (e.g., investments owned at the balance sheet date and relevant security attributes).
-
With the assistance of our fair value specialists, we developed independent estimates of fair value for a selection of securities and compared our estimates to management’s estimates.
Future Policy Benefits and Amortization of Deferred Acquisition Costs — Certain Underlying Assumptions - Refer to Note 1 to the Financial Statements
Critical Audit Matter Description
The Company’s management sets assumptions in (1) recording a liability for policy benefit payments that will be made in the future (future policy benefits) and (2) determining amortization of deferred acquisition costs. The most significant assumptions include mortality, morbidity, and persistency. Assumptions are determined based upon published studies and analysis of Company specific experience, adjusted for changes in exposure and other relevant factors. Given the inherent uncertainty of these significant assumptions, auditing the development of such assumptions involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s judgments regarding the assumptions used in the development of future policy benefits and the amortization of deferred acquisition costs included the following, among others:
-
We tested the effectiveness of controls over the assumption development process and the valuation of future policy benefits.
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We tested the underlying data used in the development of the assumptions as well as in the determination of the liability for future policy benefits and the amortization of deferred acquisition costs.
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We evaluated management’s selected actuarial assumptions, including testing the accuracy and completeness of the supporting experience studies.
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With the assistance of our actuarial specialists, we evaluated management’s judgments regarding the assumptions used in the development of future policy benefits and the amortization of deferred acquisition costs.
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We evaluated whether the assumptions used were consistent with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Dallas, Texas
February 25, 2021
We have served as the Company’s auditor since 1999.
GL 2020 FORM 10-K
Globe Life Inc.
Consolidated Balance Sheets
(Dollar amounts in thousands, except per share data)
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Assets: | |||||||||||
| Investments: | |||||||||||
| Fixed maturities—available for sale, at fair value (amortized cost: 2020—$17,197,145; 2019—$16,415,776, allowance for credit losses: 2020— $3,346; 2019— $0) | $ | 21,213,509 | $ | 18,907,147 | |||||||
| Policy loans | 584,379 | 575,492 | |||||||||
| Other long-term investments (includes: 2020—$385,038; 2019—$185,851 under the fair value option) | 546,981 | 326,347 | |||||||||
| Short-term investments | 107,782 | 38,285 | |||||||||
| Total investments | 22,452,651 | 19,847,271 | |||||||||
| Cash | 94,847 | 75,933 | |||||||||
| Accrued investment income | 248,991 | 245,129 | |||||||||
| Other receivables | 474,180 | 441,662 | |||||||||
| Deferred acquisition costs | 4,595,444 | 4,341,941 | |||||||||
| Goodwill | 441,591 | 441,591 | |||||||||
| Other assets | 739,027 | 583,933 | |||||||||
| Total assets | $ | 29,046,731 | $ | 25,977,460 | |||||||
| Liabilities: | |||||||||||
| Future policy benefits | $ | 15,243,536 | $ | 14,508,134 | |||||||
| Unearned and advance premium | 61,728 | 63,709 | |||||||||
| Policy claims and other benefits payable | 399,507 | 365,402 | |||||||||
| Other policyholders' funds | 97,968 | 96,282 | |||||||||
| Total policy liabilities | 15,802,739 | 15,033,527 | |||||||||
| Current and deferred income taxes | 1,833,723 | 1,476,832 | |||||||||
| Short-term debt | 254,918 | 298,738 | |||||||||
| Long-term debt (estimated fair value: 2020—$1,871,754; 2019—$1,473,364) | 1,667,886 | 1,348,988 | |||||||||
| Other liabilities | 716,373 | 525,068 | |||||||||
| Total liabilities | 20,275,639 | 18,683,153 | |||||||||
| Commitments and Contingencies (Note 6) | |||||||||||
| Shareholders' equity: | |||||||||||
| Preferred stock, par value $1 per share—5,000,000 shares authorized; outstanding: 0 in 2020 and 2019 | — | — | |||||||||
| Common stock, par value $1 per share—320,000,000 shares authorized; outstanding: (2020—113,218,183 issued; 2019— 117,218,183 issued) | 113,218 | 117,218 | |||||||||
| Additional paid-in-capital | 527,435 | 531,554 | |||||||||
| Accumulated other comprehensive income (loss) | 3,029,244 | 1,844,830 | |||||||||
| Retained earnings | 5,874,109 | 5,551,329 | |||||||||
| Treasury stock, at cost: (2020—9,420,699 shares; 2019—9,497,940 shares) | (772,914) | (750,624) | |||||||||
| Total shareholders' equity | 8,771,092 | 7,294,307 | |||||||||
| Total liabilities and shareholders' equity | $ | 29,046,731 | $ | 25,977,460 |
See accompanying Notes to Consolidated Financial Statements.
GL 2020 FORM 10-K
Globe Life Inc.
Consolidated Statements of Operations
(Dollar amounts in thousands, except per share data)
| Year Ended December 31, | ||||||||||||||||||||
| 2020 | 2019 | 2018 | ||||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Life premium | $ | 2,672,804 | $ | 2,517,784 | $ | 2,406,555 | ||||||||||||||
| Health premium | 1,141,097 | 1,077,346 | 1,015,339 | |||||||||||||||||
| Other premium | 4 | 4 | 12 | |||||||||||||||||
| Total premium | 3,813,905 | 3,595,134 | 3,421,906 | |||||||||||||||||
| Net investment income | 927,062 | 910,459 | 882,512 | |||||||||||||||||
| Realized gains (losses) | (4,371) | 20,621 | (1,804) | |||||||||||||||||
| Other income | 1,325 | 1,318 | 1,137 | |||||||||||||||||
| Total revenue | 4,737,921 | 4,527,532 | 4,303,751 | |||||||||||||||||
| Benefits and expenses: | ||||||||||||||||||||
| Life policyholder benefits | 1,809,373 | 1,638,053 | 1,591,790 | |||||||||||||||||
| Health policyholder benefits | 733,481 | 687,764 | 649,188 | |||||||||||||||||
| Other policyholder benefits | 30,030 | 31,532 | 34,264 | |||||||||||||||||
| Total policyholder benefits | 2,572,884 | 2,357,349 | 2,275,242 | |||||||||||||||||
| Amortization of deferred acquisition costs | 575,770 | 551,726 | 516,690 | |||||||||||||||||
| Commissions, premium taxes, and non-deferred acquisition costs | 304,841 | 298,047 | 278,487 | |||||||||||||||||
| Other operating expense | 301,038 | 304,825 | 279,585 | |||||||||||||||||
| Interest expense | 86,704 | 84,306 | 90,076 | |||||||||||||||||
| Total benefits and expenses | 3,841,237 | 3,596,253 | 3,440,080 | |||||||||||||||||
| Income before income taxes | 896,684 | 931,279 | 863,671 | |||||||||||||||||
| Income tax benefit (expense) | (164,911) | (170,397) | (162,161) | |||||||||||||||||
| Income from continuing operations | 731,773 | 760,882 | 701,510 | |||||||||||||||||
| Income (loss) from discontinued operations, net of tax | — | (92) | (44) | |||||||||||||||||
| Net income | $ | 731,773 | $ | 760,790 | $ | 701,466 | ||||||||||||||
| Basic net income (loss) per common share: | ||||||||||||||||||||
| Continuing operations | $ | 6.90 | $ | 6.97 | $ | 6.22 | ||||||||||||||
| Discontinued operations | — | — | — | |||||||||||||||||
| Total basic net income per common share | $ | 6.90 | $ | 6.97 | $ | 6.22 | ||||||||||||||
| Diluted net income (loss) per common share: | ||||||||||||||||||||
| Continuing operations | $ | 6.82 | $ | 6.83 | $ | 6.09 | ||||||||||||||
| Discontinued operations | — | — | — | |||||||||||||||||
| Total diluted net income per common share | $ | 6.82 | $ | 6.83 | $ | 6.09 |
See accompanying Notes to Consolidated Financial Statements.
GL 2020 FORM 10-K
Globe Life Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Dollar amounts in thousands)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income | $ | 731,773 | $ | 760,790 | $ | 701,466 | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
| Investments: | |||||||||||||||||
| Unrealized gains (losses) on securities: | |||||||||||||||||
| Unrealized holding gains (losses) arising during period | 1,493,200 | 1,959,596 | (1,426,581) | ||||||||||||||
| Other reclassification adjustments included in net income | 32,809 | (13,837) | (1,758) | ||||||||||||||
| Foreign exchange adjustment on securities recorded at fair value | 2,330 | 1,151 | (1,424) | ||||||||||||||
| Unrealized gains (losses) on securities | 1,528,339 | 1,946,910 | (1,429,763) | ||||||||||||||
| Unrealized gains (losses) on other investments | (18,306) | 11,255 | (5,155) | ||||||||||||||
| Total unrealized investment gains (losses) | 1,510,033 | 1,958,165 | (1,434,918) | ||||||||||||||
| Less applicable tax (expense) benefit | (317,111) | (411,213) | 301,327 | ||||||||||||||
| Unrealized gains (losses) on investments, net of tax | 1,192,922 | 1,546,952 | (1,133,591) | ||||||||||||||
| Deferred acquisition costs: | |||||||||||||||||
| Unrealized gains (losses) attributable to deferred acquisition costs | 1,533 | (2,218) | 5,549 | ||||||||||||||
| Less applicable tax (expense) benefit | (321) | 465 | (1,165) | ||||||||||||||
| Unrealized gains (losses) attributable to deferred acquisition costs, net of tax | 1,212 | (1,753) | 4,384 | ||||||||||||||
| Foreign exchange translation: | |||||||||||||||||
| Foreign exchange translation adjustments, other than securities | 14,230 | 7,042 | (12,417) | ||||||||||||||
| Less applicable tax (expense) benefit | (2,986) | (1,479) | 2,610 | ||||||||||||||
| Foreign exchange translation adjustments, other than securities, net of tax | 11,244 | 5,563 | (9,807) | ||||||||||||||
| Pension: | |||||||||||||||||
| Amortization of pension costs | 16,632 | 8,474 | 15,095 | ||||||||||||||
| Plan amendments | — | — | (2,377) | ||||||||||||||
| Experience gain (loss) | (43,169) | (40,636) | 30,591 | ||||||||||||||
| Pension adjustments | (26,537) | (32,162) | 43,309 | ||||||||||||||
| Less applicable tax (expense) benefit | 5,573 | 6,755 | (9,094) | ||||||||||||||
| Pension adjustments, net of tax | (20,964) | (25,407) | 34,215 | ||||||||||||||
| Other comprehensive income (loss) | 1,184,414 | 1,525,355 | (1,104,799) | ||||||||||||||
| Comprehensive income (loss) | $ | 1,916,187 | $ | 2,286,145 | $ | (403,333) |
See accompanying Notes to Consolidated Financial Statements.
GL 2020 FORM 10-K
Globe Life Inc.
Consolidated Statements of Shareholders' Equity
(Dollar amounts in thousands, except per share data)
| Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders' Equity | |||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2018 | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2017 | $ | — | $ | 124,218 | $ | 508,476 | $ | 1,424,274 | $ | 4,806,208 | $ | (631,755) | $ | 6,231,421 | |||||||||||||||||||||||||||
| Adoption of ASU 2016-01 | — | — | — | — | 4,896 | — | 4,896 | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2018 | — | 124,218 | 508,476 | 1,424,274 | 4,811,104 | (631,755) | 6,236,317 | ||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | (1,104,799) | 701,466 | — | (403,333) | ||||||||||||||||||||||||||||||||||
| Common dividends declared ($0.64 per share) | — | — | — | — | (71,941) | — | (71,941) | ||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | (421,749) | (421,749) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 28,836 | — | (1,803) | 12,759 | 39,792 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | (24,811) | 60,902 | 36,091 | ||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | — | (3,000) | (12,898) | — | (200,547) | 216,445 | — | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2018 | — | 121,218 | 524,414 | 319,475 | 5,213,468 | (763,398) | 5,415,177 | ||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2019 | |||||||||||||||||||||||||||||||||||||||||
| Adoption of ASU 2016-02 | — | — | — | — | (392) | — | (392) | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2019 | — | 121,218 | 524,414 | 319,475 | 5,213,076 | (763,398) | 5,414,785 | ||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | 1,525,355 | 760,790 | — | 2,286,145 | ||||||||||||||||||||||||||||||||||
| Common dividends declared ($0.69 per share) | — | — | — | — | (75,060) | — | (75,060) | ||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | (459,569) | (459,569) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 25,132 | — | (6,817) | 26,528 | 44,843 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | (51,892) | 135,055 | 83,163 | ||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | — | (4,000) | (17,992) | — | (288,768) | 310,760 | — | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | — | 117,218 | 531,554 | 1,844,830 | 5,551,329 | (750,624) | 7,294,307 | ||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
| Adoption of ASU 2016-13(1) | — | — | — | — | (454) | — | (454) | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | — | 117,218 | 531,554 | 1,844,830 | 5,550,875 | (750,624) | 7,293,853 | ||||||||||||||||||||||||||||||||||
| Comprehensive income (loss) | — | — | — | 1,184,414 | 731,773 | — | 1,916,187 | ||||||||||||||||||||||||||||||||||
| Common dividends declared ($0.75 per share) | — | — | — | — | (79,067) | — | (79,067) | ||||||||||||||||||||||||||||||||||
| Acquisition of treasury stock | — | — | — | — | — | (443,866) | (443,866) | ||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 14,410 | — | (482) | 21,964 | 35,892 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | — | (26,908) | 75,001 | 48,093 | ||||||||||||||||||||||||||||||||||
| Retirement of treasury stock | — | (4,000) | (18,529) | — | (302,082) | 324,611 | — | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | — | $ | 113,218 | $ | 527,435 | $ | 3,029,244 | $ | 5,874,109 | $ | (772,914) | $ | 8,771,092 |
(1)Adoption of Accounting Standard Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. See further discussion in Note 1—Significant Accounting Policies.
See accompanying Notes to Consolidated Financial Statements.
GL 2020 FORM 10-K
Globe Life Inc.
Consolidated Statement of Cash Flows
(Dollar amounts in thousands)
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Net income | $ | 731,773 | $ | 760,790 | $ | 701,466 | |||||||||||
| Adjustments to reconcile net income from continuing operations to cash provided from continuing operations: | |||||||||||||||||
| Loss (income) from discontinued operations, net of income taxes | — | 92 | 44 | ||||||||||||||
| Increase (decrease) in future policy benefits | 798,936 | 661,567 | 664,997 | ||||||||||||||
| Increase (decrease) in other policy benefits | 33,810 | 15,900 | 17,134 | ||||||||||||||
| Deferral of policy acquisition costs | (822,985) | (753,661) | (699,551) | ||||||||||||||
| Amortization of deferred policy acquisition costs | 575,770 | 551,726 | 516,690 | ||||||||||||||
| Change in current and deferred income taxes | 88,157 | 68,588 | 69,369 | ||||||||||||||
| Realized (gains) losses | 4,371 | (20,621) | 1,804 | ||||||||||||||
| Other, net | 66,602 | 62,194 | 4,463 | ||||||||||||||
| Net cash provided from (used for) continuing operations | 1,476,434 | 1,346,575 | 1,276,416 | ||||||||||||||
| Net cash provided from (used for) discontinued operations | — | 17,299 | 1,231 | ||||||||||||||
| Cash provided from (used for) operating activities | 1,476,434 | 1,363,874 | 1,277,647 | ||||||||||||||
| Cash provided from (used for) investing activities: | |||||||||||||||||
| Investments sold or matured: | |||||||||||||||||
| Fixed maturities available for sale—sold | 52,681 | 79,108 | 32,021 | ||||||||||||||
| Fixed maturities available for sale—matured or other redemptions | 416,321 | 840,222 | 343,712 | ||||||||||||||
| Other long-term investments | 42,990 | 5,134 | 477 | ||||||||||||||
| Total investments sold or matured | 511,992 | 924,464 | 376,210 | ||||||||||||||
| Acquisition of investments: | |||||||||||||||||
| Fixed maturities—available for sale | (1,262,434) | (1,552,956) | (1,155,539) | ||||||||||||||
| Other long-term investments | (266,230) | (123,332) | (93,631) | ||||||||||||||
| Total investments acquired | (1,528,664) | (1,676,288) | (1,249,170) | ||||||||||||||
| Net (increase) decrease in policy loans | (8,887) | (25,426) | (20,537) | ||||||||||||||
| Net (increase) decrease in short-term investments | (69,497) | 34,003 | 63,783 | ||||||||||||||
| Additions to properties | (41,756) | (42,203) | (45,092) | ||||||||||||||
| Other investing activities | (7,051) | 32 | 1,987 | ||||||||||||||
| Investments in low-income housing interests | (37,867) | (23,893) | (23,404) | ||||||||||||||
| Cash provided from (used for) investing activities | (1,181,730) | (809,311) | (896,223) | ||||||||||||||
| Cash provided from (used for) financing activities: | |||||||||||||||||
| Issuance of common stock | 48,093 | 83,163 | 36,091 | ||||||||||||||
| Cash dividends paid to shareholders | (78,192) | (74,188) | (71,421) | ||||||||||||||
| Repayment of debt | (386,875) | (6,875) | (327,762) | ||||||||||||||
| Proceeds from issuance of debt | 700,000 | — | 550,000 | ||||||||||||||
| Payment for debt issuance costs | (5,844) | — | (6,969) | ||||||||||||||
| Net borrowing (repayment) of commercial paper | (34,445) | (11,610) | (22,719) | ||||||||||||||
| Acquisition of treasury stock | (443,866) | (459,569) | (421,749) | ||||||||||||||
| Net receipts (payments) from deposit-type products | (72,928) | (121,429) | (126,991) | ||||||||||||||
| Cash provided from (used for) financing activities | (274,057) | (590,508) | (391,520) | ||||||||||||||
| Effect of foreign exchange rate changes on cash | (1,733) | (9,148) | 12,559 | ||||||||||||||
| Net increase (decrease) in cash | 18,914 | (45,093) | 2,463 | ||||||||||||||
| Cash at beginning of year | 75,933 | 121,026 | 118,563 | ||||||||||||||
| Cash at end of year | $ | 94,847 | $ | 75,933 | $ | 121,026 |
See accompanying Notes to Consolidated Financial Statements.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 1—Significant Accounting Policies
Business*:* (Globe Life), (the Company), refer to Globe Life Inc., an insurance holding company incorporated in Delaware in 1979, and Globe Life Inc. subsidiaries and affiliates. Globe Life Inc.'s direct or indirect primary subsidiaries are Globe Life And Accident Insurance Company, American Income Life Insurance Company, Liberty National Life Insurance Company, Family Heritage Life Insurance Company of America, and United American Insurance Company. The underwriting companies are owned by their ultimate corporate parent, Globe Life Inc. (the Parent Company).
Globe Life provides a variety of life and supplemental health insurance products and annuities to a broad base of customers. The Company is organized into four reportable segments: life insurance, supplemental health insurance, annuities, and investments.
Basis of Presentation*:* The accompanying consolidated financial statements of Globe Life have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), under guidance issued by the Financial Accounting Standards Board (FASB). The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation*:* The consolidated financial statements include the results of Globe Life Inc. and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. When Globe Life acquires a subsidiary or a block of business, the assets acquired and the liabilities assumed are measured at fair value at the acquisition date. Any excess of acquisition cost over the fair value of net assets is recorded as goodwill. Expenses incurred to effect the acquisition are charged to earnings as of the acquisition date. Upon acquisition, the accounts and results of operations are consolidated as of and subsequent to the acquisition date.
Globe Life accounts for its variable interest entities (VIEs) under accounting guidance which clarifies the definition of a variable interest and the instructions for consolidating VIEs. Only primary beneficiaries are required or allowed to consolidate VIEs. The investments are not consolidated because the Company has no power to control the activities that most significantly affect the economic performance of these entities and therefore the Company is not the primary beneficiary of any of these interests. Globe Life's involvement is limited to its limited partnership interest in the entities. The Company has not provided any other financial support to the entities beyond its commitments to fund its limited partnership interests, and there are no arrangements or agreements with any of the interests to provide other financial support. The maximum loss exposure relative to these interests is limited to their carrying value. The Company has approximately 1% of total assets in low-income housing tax credits and certain limited partnerships (investment funds) that qualify as unconsolidated VIEs.
Discontinued Operations*:* When a component of Globe Life's business is sold or expected to be sold during the ensuing year, the Company considers whether the criteria of ASC 205-20, Discontinued Operations, have been met, which includes evaluating if the disposal of a component represents a strategic shift that has, or will have, a major effect on the Company. If the disposal meets the criteria for discontinued operations, the assets and liabilities are segregated and recorded in the Consolidated Balance Sheets as "Assets and Liabilities related to discontinued operations" for all periods presented. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. The results of operations for the discontinued component are reported in "Income from discontinued operations, net of tax" in the Consolidated Statements of Operations for current and prior periods. Discontinued operations are reported commencing in the period in which the business is either disposed of or meets the accounting criteria for discontinued operations, including any gain or loss recognized on the sale or adjustment of the carrying amount to the estimated fair value less cost to sell.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
In 2016, Globe Life sold one of its operating segments, Medicare Part D. The financial results of this business are excluded from the Company's continuing operations including the Notes to the Consolidated Financial Statements. The Company received final settlement related to the assets and liabilities of the discontinued operations in 2019.
Investments*:* Globe Life classifies all of its fixed maturity investments as available for sale. Investments classified as available for sale are carried at fair value with unrealized gains and losses, net of taxes, reflected directly in accumulated other comprehensive income (AOCI). Income from investments is recorded in "Net investment income" on the Consolidated Statements of Operations. Gains and losses from sales, maturities, or other redemptions of investments are recorded in "Realized gains (losses)". Interest income and prepayment fees are recognized when earned. Premiums and discounts are amortized using the effective yield method. When amortized cost of a callable debt security exceeds the first call price, the premium is amortized to the earliest call date. Otherwise, the period of amortization or accretion generally extends from the purchase date to the maturity date.
"Policy loans", which represent loans provided to policyholders using cash values as collateral, are carried at unpaid principal balances. "Other long-term investments" include limited partnerships, commercial mortgage loan participations ("commercial mortgage loans"), equity securities, and real estate. Investments in equity securities are reported at fair value with changes in fair value, net of taxes, reflected directly in "Realized gains (losses)" in the Consolidated Statements of Operations. Investments in real estate are reported at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful life. Investments in limited partnerships consist of low-income housing tax credits and investment funds. Low-income housing tax credits are discussed further below.
The investment funds consist of limited partnerships whereby the Company has a pro-rata share of ownership ranging from less than 1% to 20%. For each investment, the Company has elected the fair value option, but would have been otherwise accounted for as an equity method investment. The fair value option is assessed for each individual investment and concluded at the inception of the investment. Additionally, each investment is evaluated under applicable GAAP to determine if it is a variable interest entity and would qualify for consolidation; none of these investments qualify for consolidation as the Company is not the primary beneficiary.
The investments are reported at the Company's pro-rata share of the investment fund's net asset value or its equivalent (NAV), as a practical expedient for fair value. Operating results provided by the partnerships can be on a lag up to 3 months. Changes in the net asset value are recorded in "Realized gains (losses)" on the Consolidated Statements of Operations. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. Periodic distributions are recorded in net investment income until cumulative distributions exceed our pro-rata share of cumulative operating earnings at which point the distributions will reduce carrying value. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. The Company had $227 million of capital called during the year from existing investment funds, reducing our unfunded commitments. Our unfunded commitments were $435 million as of December 31, 2020.
Commercial mortgage loan participations, a type of investment where the mortgage loan is shared among investors, are accounted for as financing receivables. The commercial mortgage loans are managed by a third-party. The Company purchased the legal rights to interests in commercial mortgage loans which are secured by transitional properties such as hotels, retail, multiple family, or offices. The commercial mortgage loans typically have a term of three years with the option to extend up to two years. The commercial mortgage loans are recorded at unpaid principal balance, net of unamortized origination fees and net of allowance for loan losses. Interest income, net of the amortization of origination fees, is recorded in "Net Investment Income" under the effective yield method. Our unfunded commitment balance to the commercial loan borrowers was $47 million as of December 31, 2020.
"Short-term investments" include investments in interest-bearing assets with original maturities of twelve months or less. Gains and losses realized on the disposition of investments are determined on a specific identification basis.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Fair Value Measurements, Investments in Securities: Globe Life measures the fair value of its "fixed maturities" based on a hierarchy consisting of three levels which indicate the quality of the fair value measurements as described below:
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*Level 1—*fair values are based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
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*Level 2—*fair values are based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that can otherwise be corroborated by observable market data.
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*Level 3—*fair values are based on inputs that are considered unobservable where there is little, if any, market activity for the asset or liability as of the measurement date. In this circumstance, the Company has to rely on values derived by independent brokers or internally-developed assumptions. Unobservable inputs are developed based on the best information available to the Company which may include the Company’s own data or bid and ask prices in the dealer market.
*Net Asset Value—*Certain investments, such as investment funds, that are measured at fair value using the net asset value per share or its equivalent, as a practical expedient, have not been classified in the fair value hierarchy. The net asset value is usually provided by general partners or managers.
The great majority of Globe Life's "fixed maturities" are not actively traded and direct quotes are not generally available. Management therefore determines the fair values of these securities after consideration of data provided by third-party pricing services, independent broker/dealers, and other resources. At December 31, 2020, the Company's investments in fixed maturities were primarily composed of the following significant security types: corporate securities, state and municipal securities, U.S. government direct, guaranteed, and government-sponsored enterprises securities. The remaining security types represented approximately 1% of the total in the aggregate.
Approximately 97% of the fair value of "fixed maturities" reported at December 31, 2020 was determined using data provided by third-party pricing services. Prices provided by these services are not binding offers, but are estimated exit values. Third-party pricing services use proprietary pricing models to determine security values by discounting cash flows using a market-adjusted spread to a benchmark yield.
For all asset classes within Globe Life's significant security types, third-party pricing services use a common valuation technique to model the price of the investments using observable market data. The foundation for these models consists of developing yield spreads based on multiple observable market inputs, including but not limited to: benchmark yield curves, actual trading activity, new issue yields, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, sector-specific data, economic data, and other inputs that are corroborated in the market. Pricing vendors monitor and review their pricing data continuously with current market and economic data feeds, augmented by ongoing communication within the dealer community.
Using the observable market inputs described above, spreads to an appropriate benchmark yield are further developed by the vendors for each security based on security-specific and/or sector-specific risk factors, such as a security’s terms and conditions (coupon, maturity, and call features), credit rating, sector, liquidity, collateral or other cash flow options, and other factors that could impact the risk of the security. Embedded repayment options, such as call and redemption features, are also taken into account in the pricing models. When the spread is determined, it is added to the security’s benchmark yield. The security's expected cash flows are discounted using this spread-adjusted yield, and the resulting present value of the discounted cash flows is the evaluated price.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
When third-party vendor prices are not available, the Company attempts to obtain valuations from other sources, including but not limited to broker/dealers, broker quotes, and prices on comparable securities.
When valuations have been obtained for all securities in the portfolio, management reviews and analyzes the prices to ensure their reasonableness, taking into account available and observable information. When two or more valuations are available for a security and the variance between the prices is 10% or less, the close correlation suggests similar observable inputs were used in deriving the price, and the mean of the prices is used. Securities valued in this manner are classified as Level 2. When the variance between two or more valuations for a security exceeds 10%, additional analysis is performed to determine the most appropriate value for that security, using resources such as broker quotes, prices on comparable securities, recent trades, and any other observable market data. Further review is performed on the available valuations to determine if they can be corroborated within reasonable tolerance to any other observable evidence. If one of the valuations or the mean of the available valuations for a security can be corroborated with other observable evidence, then the corroborated value is used and reported as Level 2. The Company uses information and analytical techniques deemed appropriate for determining the point within the range of reasonable fair value estimates that is most representative of fair value under current market conditions. Valuations that cannot be corroborated within a reasonable tolerance are classified as Level 3.
Globe Life invests in a portfolio of private placement fixed maturities that are not actively traded. This portfolio is managed by third-parties. The portfolio managers provide valuations for the bonds based on a pricing matrix utilizing observable inputs, such as the benchmark treasury rate and published sector indices, and unobservable inputs such as an internally-developed credit rating. If observable inputs cannot be corroborated, the fair values are classified as Level 3. Refer to Note 4—Investments under the caption Quantitative Information about Level 3 Fair Value Measurements.
The fair values for each class of security and by valuation hierarchy level are indicated in Note 4—Investments under the caption Fair value measurements, and Note 9—Postretirement Benefits under the caption Pension Assets.
Fair Value Measurements, Other Financial Instruments*:* Fair values for cash and cash equivalents, short-term investments, short-term debt, receivables, and payables approximate carrying value. Cash and cash equivalents are classified as Level 1. Fair values of commercial mortgage loans are determined based upon expected cash flows discounted at an appropriate risk-adjusted rate and are classified as Level 3. The fair value of investments in limited partnerships that provide low-income housing tax credits is based on discounted projected cash flows and are classified as Level 3. Policy loans are an integral part of Globe Life's subsidiaries’ life insurance policies in force and their fair values cannot be valued separately from the insurance contracts. Investment funds are based on net asset value and are excluded from the fair value hierarchy.
The fair values of Globe Life's long and short term debt issues are based on the same methodology as investments in fixed maturities. At December 31, 2020, observable inputs were available for these debt securities and as such were classified as Level 2 in the valuation hierarchy. The fair value for each debt instrument as of December 31, 2020 is disclosed in Note 11—Debt.
As described in Note 9—Postretirement Benefits, Globe Life maintains a nonqualified supplemental retirement plan. Accordingly, the assets that support the liability for this plan are considered general assets of the Company. These assets consist of the cash value of corporate-owned life insurance policies (COLI) and exchange traded funds (ETFs). The fair value of the insurance cash values approximates carrying value. Fair values for the ETFs are derived from direct quotes and are considered Level 1 in the fair value hierarchy.
Current Expected Credit Loss Reserve (CECL adoption*)*: On January 1, 2020, the Company adopted ASU 2016-13, replacing the GAAP "incurred loss" model with a new methodology referred to as current expected credit losses (CECL). The previous methodology delayed recognition of credit losses until it was probable that a loss had incurred, ultimately resulting in fewer instances of losses being recorded in earnings. The new CECL methodology
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
is forward looking—encompassing relevant information about historical experience, current conditions, as well as reasonable and supportable forecasts that affect the collectability of a reported amount.
The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. Upon adoption, the standard affected the Company's commercial mortgage loans ("Other long-term investments") and agent debit balances ("Other receivables"). The Company adopted the standard using the modified retrospective method.
The Company recorded a cumulative effect adjustment, net of tax, of $454 thousand to retained earnings, consisting of $265 thousand and $189 thousand for commercial mortgage loans and agent debit balances, respectively. Refer to the table below for pre-tax amounts and Note 4—Investments for additional details.
| As reported on December 31, 2019 | Pre-tax impact of adoption | As reported on January 1, 2020 | ||||||||||||||||||
| Assets: | ||||||||||||||||||||
| Commercial mortgage loans | $ | 137,692 | $ | (335) | $ | 137,357 | ||||||||||||||
| Agent debit balances | 423,877 | (240) | 423,637 |
In addition, the standard made changes to the accounting for available-for-sale debt securities through the removal of "other-than-temporary-impairment" (OTTI) write downs and replaced them with an allowance for credit losses. The new methodology will allow the Company to record reversals of credit losses in situations where the estimate of credit losses declines through current period net income ("Realized gains (losses)").
The Company adopted the standard using the prospective transition approach for available-for-sale fixed maturities for which OTTI had been recognized prior to January 1, 2020. As a result, the amortized cost basis and the effective interest rate remain unchanged after the adoption of ASU 2016-13. Amortized cost will now be reflected as "amortized cost, net of allowance for credit losses" or "amortized cost, net." The Company has not elected the fair value option for any financial assets recorded at amortized cost that would be in scope of this standard.
Current Expected Credit Loss Reserve (fixed maturities)**: At the onset of the evaluation, the Company individually assesses each fixed maturity, on a quarterly basis, to determine whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria are met, the Company will write down the fixed maturity's amortized cost basis to fair value through "Realized gains (losses)".
If neither of the aforementioned criteria are met, the Company will evaluate whether the decline in fair value has resulted from a credit event. The Company will evaluate many factors, as further described below, to determine the present value of the expected cash flows. A credit loss occurs when the present value of the expected cash flows is less than the amortized cost basis. This will result in the recording of an allowance for credit losses as a contra asset account to the amortized cost basis with an offsetting provision for credit losses in *"*Realized gains (losses)" on the Consolidated Statements of Operations. Additionally, the CECL methodology includes a fair value floor where the allowance for credit loss for a security cannot exceed the difference between fair value and amortized cost. When it is determined that there is not a credit loss, the decline in fair value is recognized in Other comprehensive income.
All changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses recorded to the allowance for credit losses are management's best estimate of the uncollectibility of principal and interest of a fixed maturity.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The evaluation of Globe Life's securities for credit losses is a process that is undertaken at least quarterly and is overseen by a team of investment and accounting professionals. The process for making this determination is highly subjective and involves the careful consideration of many factors. The factors considered include, but are not limited to:
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The Company’s lack of intent to sell the debt security before recovery;
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Whether it is more likely than not the Company will be required to sell prior to maturity;
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The reason(s) for the credit related losses;
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The financial condition of the issuer and the prospects for recovery in fair value of the security;
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Expected future cash flows.
The relative weight given to each of these factors can change over time as facts and circumstances change. In many cases, management believes it is appropriate to give more consideration to prospective factors than to retrospective factors. Prospective factors that are given more weight include prospects for recovery, the Company’s ability and intent to hold the security until anticipated recovery, and expected future cash flows.
Among the facts and information considered in the process are:
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Financial statements of the issuer
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Changes in credit ratings of the issuer
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The value of underlying collateral
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News and information included in press releases issued by the issuer
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News and information reported in the media concerning the issuer
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News and information published by or otherwise provided by securities, economic, or research analysts
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The nature and amount of recent and expected future sources and uses of cash
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Default on a required payment
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Issuer bankruptcy filings
The expected cash flows are determined using judgment and the best information available to the Company. Inputs used to derive expected cash flows generally include expected default rates, current levels of subordination, and estimated recovery rate. The discount rate utilized in the discounted cash flows is the effective interest rate, which is the rate of return implicit in the asset at acquisition.
Current Expected Credit Loss Reserve (commercial mortgage loans)**: Effective January 1, 2020, the Company evaluates the performance and credit quality of the commercial mortgage loan portfolio at least on a quarterly basis, or as needed, by utilizing common metrics such as loan-to-value or debt-service ratios as well as covenants, local market conditions, borrower quality, and underlying collateral. The fair value of the underlying collateral is based on a third-party appraisal of the property at origination of the loan. The fair value is assessed on an annual basis or more frequently when a loan is materially underperforming, 30 days delinquent, or in technical default. The Company determines the probability of estimated losses for the commercial mortgage loan portfolio on a pool basis each quarter and records an allowance. The allowance for credit losses is based on estimates, historical experience, probability of loss, value of the underlying collateral, and macro factors that affect the collectability of the loan. Each loan within the pool is assigned a risk rating (credit quality indicator) of low, medium, and high based on risk and expected future performance. A loan that is assigned as high risk would have a higher probability of a potential principal loss. The assigned risk category and the estimated loss rate is adjusted each quarter for current and forecasted economic factors management believes are relevant.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
If management determines that foreclosure of a particular property is probable, the Company may elect the practical expedient for an individual mortgage loan to estimate the expected credit losses, which are based on the fair value of the property less amortized cost, adjusted for selling and other associated costs. See Note 4 for current activity.
Cash*: "*Cash" consists of balances on hand and on deposit in banks and financial institutions.
Accrued investment income*:* "Accrued investment income" consists of interest income or dividends earned on the investment portfolio, but which are yet to be received as of the balance sheet date. The Company will write-off accrued investment income that is deemed to be uncollectible related to the fixed maturities.
"Accrued investment income" also consists of interest income earned on the commercial mortgage loan portfolio, but which is yet to be received as of the balance sheet date. Accrued investment income will be placed in nonaccrual status at the time the loan is 90 days delinquent or otherwise deemed to be uncollectible by management. Any currently accrued investment income will subsequently be written off. As of December 31, 2020, the accrued interest receivable for commercial mortgage loans was $433 thousand. Commercial mortgage loans generally pay interest monthly, therefore accrued interest is typically for a period of less than 30 days.
As a practical expedient, the Company excludes the accrued investment income from the amortized cost basis of the investment and separately reports it in another financial statement line item, "Accrued investment income." Additionally, the amount will be excluded from disclosures within Note 4—Investments.
Other Receivables*:* Agent debit balances primarily represent commissions advanced to insurance agents, a common industry practice. These balances are repaid to the Company over time, generally one year, as the premiums associated with the advanced commissions are collected by the Company and a portion of the agents' commissions on such premiums are retained in order to repay the balances. The balances were $456 million at December 31, 2020 and $424 million at December 31, 2019. When an agent sells a policy, commissions are advanced to the agent, and the collection of the advance is made as long as the policy stays in force. While there is a susceptibility to loss should an agent terminate or excessive policy lapses occur, the ability of the Company to continue to collect an agent's commission streams over time from prior sales of policies reduces the Company's exposure to loss.
The Company has a very low inherent risk with regards to the collection of agent debit balances and views these balances as recoverable since they are, in aggregate, less than the estimated present value of future commissions discounted at a conservative rate which includes assumptions for lapses and mortality. The Company’s security, or collateral, is in the form of future commission streams collected over the life of the policies sold by the respective agents, which ultimately revert to the Company in the event an agent is terminated. The Company evaluated the agent debit balances on a pool basis to determine the allowance for credit losses, as the loans have similar characteristics. A provision for credit losses will be recorded in "Realized gains (losses)" on the Consolidated Statements of Operations and the asset balance will be reflected in agent debit balances, net of allowance for credit losses ("Other receivables"). Based on factors considered by management, aside from the cumulative effect adjustment upon adoption described above, there were no additional credit losses recorded during the year ended December 31, 2020. As of December 31, 2020, the allowance for credit losses was $1.2 million.
Deferred Acquisition Costs: Certain costs of acquiring new insurance business are deferred and recorded as an asset. These costs are essential for the acquisition of new insurance business and are directly related to the successful issuance of an insurance contract including sales commissions, policy issue costs, and underwriting costs. Additionally, deferred acquisition costs (DAC) include the value of business acquired (VOBA), which are the costs of acquiring blocks of insurance from other companies or through the acquisition of other companies. These costs represent the difference between the fair value of the contractual insurance assets acquired and liabilities assumed compared against the assets and liabilities for insurance contracts that the Company issues or holds measured in accordance with GAAP.
DAC and VOBA are amortized in a systematic manner which matches these costs with the associated revenues. Policies other than universal life-type policies are amortized with interest over the estimated premium-paying period of the policies in a manner which charges each year’s operations in proportion to the receipt of premium income.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Universal life-type policies are amortized with interest in proportion to estimated gross profits. The assumptions used to amortize acquisition costs include interest, mortality, morbidity, and persistency, and are consistent with those used to estimate the liability for future policy benefits. For interest-sensitive and deposit-type products, these assumptions are reviewed on a regular basis and are revised if actual experience differs significantly from original expectations. For all other products, amortization assumptions are generally not revised once established.
DAC and VOBA are subject to periodic recoverability and loss recognition testing to determine if there is a premium deficiency. These tests evaluate whether the present value of future contract-related cash flows will support the capitalized DAC and VOBA assets. These cash flows consist primarily of premium income, less benefits and expenses. The present value of these cash flows, less the benefit reserve, is then compared with the unamortized deferred acquisition cost balance. In the event the estimated present value of net cash flows is less, the deficiency would be recognized by a charge to earnings and either a reduction of unamortized acquisition costs or an increase in the liability for future benefits, as described under the caption Future Policy Benefits. Refer to Note 5—Deferred Acquisition Costs.
Advertising Costs: Costs related to advertising are generally charged to expense as incurred. However, certain Direct to Consumer advertising costs are capitalized when there is a reliable and demonstrated relationship between total costs and future benefits that is a direct result of incurring these costs. Direct to Consumer advertising costs consist primarily of the production and distribution costs of direct mail advertising materials, and when capitalized are included as a component of DAC. Additionally, they are amortized in the same manner as other DAC. Direct to Consumer advertising costs charged to earnings and included in other operating expense were $9.8 million, $9.5 million, and $9.0 million in 2020, 2019, and 2018, respectively. Unamortized capitalized advertising costs included within DAC were $1.4 billion at December 31, 2020 and $1.3 billion at December 31, 2019.
Goodwill*:* The excess cost of a business acquired over the fair value of net assets acquired is reported as goodwill. In accordance with the guidance, goodwill is subject to impairment testing on an annual basis, or whenever potential impairment triggers occur. Impairment testing involves the performance of a qualitative analysis, which involves assessing current events and circumstances to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In the event the fair value is less than the carrying value, further testing is required to determine the amount of impairment, if any. If there is an impairment in the goodwill of any reporting unit, it is written down and charged to earnings in the period of the test. Globe Life tested its goodwill annually as of June 30th for each of the years 2018 through 2020. The Company's goodwill was not impaired in any of those periods.
Low-Income Housing Tax Credit Interests*:* Globe Life invests in limited partnerships that provide low-income housing tax credits and other related federal income tax benefits to the Company. Globe Life holds passive interests in limited partnerships that provide investment returns through the provision of tax benefits (principally from the transfer of federal or state tax credits related to federal low-income housing). These investments are considered to be VIEs and do not qualify for consolidation. The carrying value of the Company's investment in these entities was $306 million and $206 million at December 31, 2020 and 2019, respectively, and was included in "Other assets" on the Consolidated Balance Sheets**. As of December 31, 2020, Globe Life was obligated under future commitments of $162 million, which are recorded in "Other liabilities". For guaranteed investments acquired prior to January 1, 2015, the Company utilizes the effective-yield method of amortization, while the proportional method of amortization is utilized for all non-guaranteed and guaranteed investments acquired on or after January 1, 2015. All amortization expense is recorded in "Income tax benefit (expense)" on the Consolidated Statements of Operations.
Property and Equipment*:* Property and equipment, included in “Other assets,” is reported at cost less accumulated depreciation. Depreciation is recorded primarily on the straight line method over the estimated useful lives of these assets which range from three to ten years for equipment and fifteen to forty years for buildings and improvements. Ordinary maintenance and repairs are charged to income as incurred. Impairments, if any, are recorded when certain events and circumstances become evident that the fair value of the asset is less than its carrying amount. Original cost of property and equipment was $350 million at December 31, 2020 and $298 million at December 31, 2019. Accumulated depreciation was $164 million at the end of 2020 and $137 million at the end of 2019. Depreciation expense was $17 million in 2020, $16 million in 2019, and $13 million in 2018. Internally generated software costs are expensed as incurred in the preliminary project phase and post-implementation phase, and are
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
capitalized during the application development stage. Additionally, implementation costs incurred in a hosting arrangement that is a service contract are capitalized.
Future Policy Benefits*:* The liability for future policy benefits for annuity and universal life-type products is represented by policy account value. The liability for future policy benefits for all other life and health products, approximately 90% of total liabilities for future policy benefits, is determined on the net level premium method. This method provides for the present value of expected future benefit payments less the present value of expected future net premiums, based on estimated investment yields, mortality, morbidity, persistency, and other assumptions which were considered appropriate at the time the policies were issued. For limited-payment contracts, a deferred profit liability is also recorded which causes profits to emerge over the life of the contract in proportion to the amount of insurance in force.
Assumptions used for traditional life and health insurance products are based primarily on Company experience. Assumptions for interest rates range from 2.5% to 7.0% for Globe Life's insurance companies with an overall weighted average assumed rate of 5.7%. Mortality tables used for individual life insurance include various industry tables and reflect modifications of a variety of generally accepted actuarial tables based on Company experience. Morbidity assumptions for individual health are based on Company experience and industry data. Withdrawal and termination assumptions are based on Globe Life's experience. Once established, assumptions for these products are generally not changed. An additional provision is made on most products to allow for possible adverse deviation from the assumptions. These estimates are reviewed annually and compared with actual experience. If it is determined that existing contract liabilities, together with the present value of future gross premiums, will not be sufficient to cover the present value of future benefits and to recover unamortized deferred acquisition costs, then a premium deficiency exists. Such a deficiency would be recognized immediately by a charge to earnings and either a reduction of unamortized deferred acquisition costs or an increase in the liability for future policy benefits. From that point forward, the liability for future policy benefits would be based on revised assumptions.
Policy Claims and Other Benefits Payable*:* Globe Life establishes a liability for known policy benefits payable and an estimate of claims that have been incurred but not yet reported to the Company. Globe Life makes an estimate of unreported claims after careful evaluation of all information available to the Company. This estimate is based on prior experience and is reviewed quarterly. However, there is no certainty the stated liability for claims and other benefits, including the estimate of unsubmitted claims, will be Globe Life's ultimate obligation. For more information, see Note 7—Liability for Unpaid Claims.
Income Taxes*: "*Income taxes" are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement book values and tax bases of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Postretirement Benefits*:* Globe Life accounts for its postretirement defined benefit plans by recognizing the funded status of those plans on its Consolidated Balance Sheets in accordance with accounting guidance. Periodic gains and losses attributable to changes in plan assets and liabilities that are not recognized as components of net periodic benefit costs are recognized as components of other comprehensive income, net of tax. The supplemental executive retirement plan is accounted for consistent with the qualified noncontributory pension plan. The net assets are included in a Rabbi Trust and recorded in Other Assets on the Consolidated Balance Sheets. More information concerning the accounting and disclosures for postretirement benefits is found in Note 9—Postretirement Benefits.
Treasury Stock*:* Globe Life accounts for purchases of treasury stock on the cost method. Issuance of treasury stock is accounted for using the weighted-average cost method. More information is found in Note 12—Shareholders' Equity.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Recognition of Premium Revenue and Related Expenses*:* Premium income for traditional long-duration life and health insurance products is recognized evenly over the contract period and when due from the policyholder. Premiums for short-duration health contracts are recognized as revenue over the contract period in proportion to the insurance protection provided. Premiums for universal life-type and annuity contracts are added to the policy account value, and revenues for such products are recognized as charges to the policy account value for mortality, administration, and surrenders (retrospective deposit method). Life premium includes policy charges of $14.7 million, $15.6 million, and $16.4 million for the years ended December 31, 2020, 2019, and 2018, respectively. Other premium consists of annuity policy charges in each year. For most insurance products, the related benefits and expenses are matched with revenues by means of the provision of future policy benefits and the amortization of DAC in a manner which recognizes profits as they are earned over the revenue recognition period. For limited-payment life insurance products, the profits are recognized over the contract period.
Stock-Based Compensation*:* Globe Life accounts for stock-based compensation by recognizing an expense in the consolidated financial statements based on the “fair value method.” The fair value method requires that a fair value be assigned to a stock option or other stock grant on its grant date and that this value be amortized over the grantees’ service period.
The fair value method requires the use of an option valuation model to value employee stock options. Globe Life has elected to use the Black-Scholes valuation model for option expensing. A summary of assumptions for options granted in each of the three years 2018 through 2020 is as follows:
| 2020 | 2019 | 2018 | |||||||||||||||
| Volatility factor | 15.7 | % | 15.7 | % | 13.7 | % | |||||||||||
| Dividend yield | 0.7 | % | 0.8 | % | 0.7 | % | |||||||||||
| Expected term (in years) | 5.12 | 5.10 | 5.76 | ||||||||||||||
| Risk-free rate | 1.2 | % | 2.5 | % | 2.7 | % |
The expected term is generally derived from Company experience. However, expected terms are determined based on the simplified method as permitted under the ASC 718, Stock Compensation, topic when Company experience is insufficient. On April 26, 2018, the shareholders approved the Globe Life Inc. 2018 Incentive Plan, formerly the Torchmark Corporation 2018 Incentive Plan (the "2018 Incentive Plan"). The 2018 Incentive Plan replaced all previous plans. The 2018 Incentive Plan allows for option grants for employees with a seven-year contractual term which vest over three years in addition to ten-year grants which vest over five years as permitted by the previous plans. Director grants vest over six months. The Company has sufficient experience with seven-year grants that vest in three years, but insufficient historical experience with five-year vesting. Therefore, the Company has used the simplified method to determine the expected term for the ten-year grants with five-year vesting and will do so until adequate experience is developed. Volatility and risk-free interest rates are assumed over a period of time consistent with the expected term of the option. Volatility is measured on a historical basis. Monthly data points are utilized to derive volatility for periods greater than three years. Expected dividend yield is based on current dividend yield held constant over the expected term. Once the fair value of an option has been determined, it is amortized on a straight-line basis over the employee’s service period for that grant (from the grant date to the date the grant is fully vested). Expenses for restricted stock and restricted stock units are based on the grant date fair value allocated on a straight-line basis over the service period. Performance share expense is recognized based on management’s estimate of the probability of meeting the metrics identified in the performance share award agreement, assigned to each service period as these estimates develop.
Stock-based compensation expense is included in “Other operating expense” in the Consolidated Statements of Operations. Globe Life management views all stock-based compensation expense as a Corporate and Other expense and, therefore, presents it as such in its segment analysis. More information concerning the Company's segments is provided in Note 14—Business Segments.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Earnings per Share*:* Globe Life presents basic and diluted earnings per common share (EPS) on the face of the Consolidated Statements of Operations for income from continuing operations and income from discontinued operations. Basic EPS is computed by dividing income available to common shareholders by the weighted average common shares outstanding for the period. Diluted EPS is calculated by adding to shares outstanding the additional net effect of potentially dilutive securities or contracts, such as stock options, which could be exercised or converted into common shares. For more information on earnings per share, see Note 12—Shareholders' Equity.
| Accounting Pronouncements Adopted in the Current Year | ||||||||||||||||||||
| Standard | Description | Effective Date | Effect on the Consolidated Financial Statements | |||||||||||||||||
| ASU No. 2016-13/2019-04/2019-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, with clarification guidance issued in April 2019. | This standard ("CECL") provides financial statement users with more decision-useful information about the expected credit losses on financial instruments that are recorded at amortized cost. Additionally, it changes the loss impairment methodology for available-for-sale fixed maturities by the use of an allowance rather than a direct write down. | This standard became effective on January 1, 2020. | The Company's available-for-sale fixed maturities and other financing receivables (commercial mortgage loans and agent debit balances) were concluded to be the relevant financial assets within the scope of the standard. See Note 1 for information on the adoption and revised accounting policies. | |||||||||||||||||
| ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), Changes to the Disclosure Requirements for Defined Benefit Plans | The standard removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant to defined benefit plans. | This standard became effective on December 31, 2020, and was applied retrospectively. | The adoption of this standard did not have a material impact on the consolidated financial statements. See updated disclosures in Note 9. | |||||||||||||||||
| ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting | This standard was issued primarily to provide optional expedients for simplifying the accounting for contract modifications to existing agreements, which is expected to arise from the market's transition from LIBOR to the secured overnight financing rate (SOFR) as a result of reference rate reform. | This standard became effective upon issuance, or March 12, 2020, and will remain effective until December 31, 2022. | The Company has limited assets and liabilities that utilize LIBOR as a benchmark rate. We will continue to monitor the progress towards the establishment of a new floating rate; however, we do not expect a material impact at this time. | |||||||||||||||||
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| Accounting Pronouncements Yet to be Adopted | ||||||||||||||||||||
| Standard | Description | Effective Date | Effect on the Consolidated Financial Statements | |||||||||||||||||
| ASU No. 2018-12/2019-09/2020-11, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, with clarification guidance issued in November 2019 and 2020. | ASU 2018-12 is a significant change to our current accounting and disclosure of long-duration contracts, which is our primary business. The guidance was primarily issued to: 1) improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures. | As a result of the issuance of ASU 2020-11 in November 2020, the effective date for this standard was changed to January 1, 2023. Early adoption is available. | The Company is currently in the process of evaluating the impact this standard will have on the consolidated financial statements and disclosures, specifically assessing key accounting policies, assumption and data inputs, controls, and enhanced system solutions. Due to the overall nature of the standard, the impact on the consolidated financial statements is expected to be significant. At this time, the Company does not have an estimate of the impact. The Company does not expect to early adopt this ASU. | |||||||||||||||||
| ASU No. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs | The standard was issued as an amendment to ASU 2017-08, and clarifies that callable debt securities with a premium should be amortized to the next call date. | This standard is effective beginning January 1, 2021, and will be applied prospectively. Early adoption is not permitted. | The Company does not expect the adoption of this standard to have an impact on the consolidated financial statements. |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 2—Statutory Accounting
Life insurance subsidiaries of Globe Life are required to file statutory financial statements with state insurance regulatory authorities. Accounting principles used to prepare these statutory financial statements differ from GAAP. Consolidated net income and shareholders’ equity (capital and surplus) on a statutory basis for the insurance subsidiaries were as follows:
| Net Income | Shareholders’ Equity | ||||||||||||||||||||||||||||
| Year Ended December 31, | At December 31, | ||||||||||||||||||||||||||||
| 2020 | 2019 | 2018 | 2020 | 2019 | |||||||||||||||||||||||||
| Life insurance subsidiaries | $ | 441,589 | $ | 462,515 | $ | 437,549 | $ | 1,408,281 | $ | 1,398,274 |
The excess, if any, of shareholders' equity of the insurance subsidiaries on a GAAP basis over that determined on a statutory basis is not available for distribution by the insurance subsidiaries to the Parent Company without regulatory approval. Insurance subsidiaries’ statutory capital and surplus necessary to satisfy regulatory requirements in the aggregate was $520 million at December 31, 2020. More information on the restrictions on the payment of dividends can be found in Note 12—Shareholders' Equity.
The Company's statutory financial statements are presented on the basis of accounting practices prescribed by the insurance department of the state of domicile of each insurance subsidiary. While all states have adopted the National Association of Insurance Commissioners’ (NAIC) statutory accounting practices (NAIC SAP) as the basis for statutory accounting, certain states have retained prescribed practices of their respective insurance code or administrative code which can differ from NAIC SAP. For Globe Life's life insurance companies, there are no significant differences between NAIC SAP and the accounting practices prescribed by the states of domicile.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income
Components of Accumulated Other Comprehensive Income: An analysis of the change in balance by component of Accumulated Other Comprehensive Income is as follows for each of the years 2018 through 2020:
| Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||||||||||||
| For the year ended December 31, 2018: | |||||||||||||||||||||||||||||
| Balance at January 1, 2018 | $ | 1,569,289 | $ | (8,547) | $ | 16,302 | $ | (152,770) | $ | 1,424,274 | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | (1,132,202) | 4,384 | (9,807) | 22,290 | (1,115,335) | ||||||||||||||||||||||||
| Reclassifications, net of tax | (1,389) | — | — | 11,925 | 10,536 | ||||||||||||||||||||||||
| Other comprehensive income (loss) | (1,133,591) | 4,384 | (9,807) | 34,215 | (1,104,799) | ||||||||||||||||||||||||
| Balance at December 31, 2018 | 435,698 | (4,163) | 6,495 | (118,555) | 319,475 | ||||||||||||||||||||||||
| For the year ended December 31, 2019: | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | 1,557,883 | (1,753) | 5,563 | (32,102) | 1,529,591 | ||||||||||||||||||||||||
| Reclassifications, net of tax | (10,931) | — | — | 6,695 | (4,236) | ||||||||||||||||||||||||
| Other comprehensive income (loss) | 1,546,952 | (1,753) | 5,563 | (25,407) | 1,525,355 | ||||||||||||||||||||||||
| Balance at December 31, 2019 | 1,982,650 | (5,916) | 12,058 | (143,962) | 1,844,830 | ||||||||||||||||||||||||
| For the year ended December 31, 2020: | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications, net of tax | 1,167,003 | 1,212 | 11,244 | (34,103) | 1,145,356 | ||||||||||||||||||||||||
| Reclassifications, net of tax | 25,919 | — | — | 13,139 | 39,058 | ||||||||||||||||||||||||
| Other comprehensive income (loss) | 1,192,922 | 1,212 | 11,244 | (20,964) | 1,184,414 | ||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 3,175,572 | $ | (4,704) | $ | 23,302 | $ | (164,926) | $ | 3,029,244 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Reclassification adjustments: Reclassification adjustments out of Accumulated Other Comprehensive Income are presented below for the three years ended December 31, 2020.
| Year Ended December 31, | Affected line items in the Statement of Operations | |||||||||||||||||||||||||
| Component Line Item | 2020 | 2019 | 2018 | |||||||||||||||||||||||
| Unrealized investment (gains) losses on available for sale assets: | ||||||||||||||||||||||||||
| Realized (gains) losses | $ | 26,345 | $ | (19,352) | $ | (5,715) | Realized (gains) losses | |||||||||||||||||||
| Amortization of (discount) premium | 6,464 | 5,515 | 3,957 | Net investment income | ||||||||||||||||||||||
| Total before tax | 32,809 | (13,837) | (1,758) | |||||||||||||||||||||||
| Tax | (6,890) | 2,906 | 369 | Income tax benefit (expense) | ||||||||||||||||||||||
| Total after-tax | 25,919 | (10,931) | (1,389) | |||||||||||||||||||||||
| Pension adjustments: | ||||||||||||||||||||||||||
| Amortization of prior service cost | 632 | 631 | 535 | Other operating expense | ||||||||||||||||||||||
| Amortization of actuarial (gain) loss | 16,000 | 7,843 | 14,560 | Other operating expense | ||||||||||||||||||||||
| Total before tax | 16,632 | 8,474 | 15,095 | |||||||||||||||||||||||
| Tax | (3,493) | (1,779) | (3,170) | Income tax benefit (expense) | ||||||||||||||||||||||
| Total after-tax | 13,139 | 6,695 | 11,925 | |||||||||||||||||||||||
| Total reclassification (after-tax) | $ | 39,058 | $ | (4,236) | $ | 10,536 |
Note 4—Investments
Portfolio Composition*:* Summaries of fixed maturities available for sale by amortized cost, fair value, and allowance for credit losses at December 31, 2020 and 2019, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows. Redeemable preferred stock is included within the corporates by sector.
As noted in Note 1—Significant Accounting Policies, the Company prospectively adopted ASU 2016-13 as of January 1, 2020 for the available-for-sale fixed maturities. Results after January 1, 2020 are presented under ASU 2016-13, while prior periods continue to be reported in accordance with previously applicable GAAP. See additional discussion of the allowance for credit losses later in this note.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Amortized Cost | Allowance for Credit Losses | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value**(1)** | % of Total Fixed Maturities**(2)** | ||||||||||||||||||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 380,602 | $ | — | $ | 87,272 | $ | (43) | $ | 467,831 | 2 | ||||||||||||||||||||||||
| States, municipalities, and political subdivisions | 1,880,607 | — | 251,291 | (315) | 2,131,583 | 10 | |||||||||||||||||||||||||||||
| Foreign governments | 52,913 | — | 2,635 | (898) | 54,650 | — | |||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | 4,404,203 | — | 1,016,813 | (24,221) | 5,396,795 | 26 | |||||||||||||||||||||||||||||
| Utilities | 1,975,460 | — | 608,595 | (108) | 2,583,947 | 12 | |||||||||||||||||||||||||||||
| Energy | 1,623,970 | (3,346) | 346,197 | (3,083) | 1,963,738 | 9 | |||||||||||||||||||||||||||||
| Other corporate sectors | 6,687,644 | — | 1,727,366 | (6,218) | 8,408,792 | 40 | |||||||||||||||||||||||||||||
| Total corporates | 14,691,277 | (3,346) | 3,698,971 | (33,630) | 18,353,272 | 87 | |||||||||||||||||||||||||||||
| Collateralized debt obligations | 57,007 | — | 23,460 | (8,869) | 71,598 | — | |||||||||||||||||||||||||||||
| Other asset-backed securities | 134,739 | — | 3,614 | (3,778) | 134,575 | 1 | |||||||||||||||||||||||||||||
| Total fixed maturities | $ | 17,197,145 | $ | (3,346) | $ | 4,067,243 | $ | (47,533) | $ | 21,213,509 | 100 |
(1)Amount reported in the balance sheet.
(2)At fair value.
| At December 31, 2019 | |||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value**(1)** | % of Total Fixed Maturities**(2)** | |||||||||||||||||||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 396,079 | $ | 41,737 | $ | (296) | $ | 437,520 | 2 | ||||||||||||||||||||||||||
| States, municipalities, and political subdivisions | 1,559,736 | 158,546 | (626) | 1,717,656 | 9 | ||||||||||||||||||||||||||||||
| Foreign governments | 25,874 | 2,073 | (396) | 27,551 | — | ||||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | 4,101,917 | 701,196 | (22,307) | 4,780,806 | 25 | ||||||||||||||||||||||||||||||
| Utilities | 1,937,738 | 416,114 | (1,565) | 2,352,287 | 13 | ||||||||||||||||||||||||||||||
| Energy | 1,678,969 | 269,640 | (33,725) | 1,914,884 | 10 | ||||||||||||||||||||||||||||||
| Other corporate sectors | 6,514,677 | 955,908 | (16,765) | 7,453,820 | 40 | ||||||||||||||||||||||||||||||
| Total corporates | 14,233,301 | 2,342,858 | (74,362) | 16,501,797 | 88 | ||||||||||||||||||||||||||||||
| Collateralized debt obligations | 56,990 | 24,298 | (7,184) | 74,104 | — | ||||||||||||||||||||||||||||||
| Other asset-backed securities | 143,796 | 5,094 | (371) | 148,519 | 1 | ||||||||||||||||||||||||||||||
| Total fixed maturities | $ | 16,415,776 | $ | 2,574,606 | $ | (83,235) | $ | 18,907,147 | 100 |
(1)Amount reported in the balance sheet.
(2)At fair value.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
A schedule of fixed maturities available for sale by contractual maturity date at December 31, 2020 is shown below on an amortized cost basis, net of allowance for credit losses and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.
| At December 31, 2020 | |||||||||||
| Amortized Cost, net | Fair Value | ||||||||||
| Fixed maturities available for sale: | |||||||||||
| Due in one year or less | $ | 70,732 | $ | 72,395 | |||||||
| Due after one year through five years | 781,183 | 866,408 | |||||||||
| Due after five years through ten years | 1,870,527 | 2,260,011 | |||||||||
| Due after ten years through twenty years | 6,109,815 | 7,884,526 | |||||||||
| Due after twenty years | 8,169,528 | 9,923,706 | |||||||||
| Mortgage-backed and asset-backed securities | 192,014 | 206,463 | |||||||||
| $ | 17,193,799 | $ | 21,213,509 |
Analysis of investment operations: "Net investment income" for the three years ended December 31, 2020 is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Fixed maturities available for sale | $ | 873,352 | $ | 864,280 | $ | 843,510 | |||||||||||
| Policy loans | 44,801 | 43,434 | 41,359 | ||||||||||||||
| Other long-term investments(1) | 26,196 | 16,198 | 10,638 | ||||||||||||||
| Short-term investments | 545 | 2,592 | 2,642 | ||||||||||||||
| 944,894 | 926,504 | 898,149 | |||||||||||||||
| Less investment expense | (17,832) | (16,045) | (15,637) | ||||||||||||||
| Net investment income | $ | 927,062 | $ | 910,459 | $ | 882,512 |
(1)For the years ended 2020, 2019 and 2018, the investment funds, accounted for under the fair value option method, recorded $15.3 million, $5.6 million and $3.9 million, respectively in net investment income.
An analysis of "realized gains (losses)" is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Realized investment gains (losses): | |||||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||
| Sales and other(1) | $ | (22,999) | $ | 19,354 | $ | 5,715 | |||||||||||
| Provision for credit losses | (3,346) | — | — | ||||||||||||||
| Investment funds—fair value option | 1,045 | 1,256 | 2,650 | ||||||||||||||
| Other investments | 21,563 | 11 | 909 | ||||||||||||||
| Realized gains (losses) from investments | (3,737) | 20,621 | 9,274 | ||||||||||||||
| Realized loss on redemption of debt**(2)** | (634) | — | (11,078) | ||||||||||||||
| (4,371) | 20,621 | (1,804) | |||||||||||||||
| Applicable tax | 1,955 | (4,330) | 379 | ||||||||||||||
| Realized gains (losses), net of tax | $ | (2,416) | $ | 16,291 | $ | (1,425) |
(1)For the years ended 2020, 2019 and 2018, the Company recorded $219.8 million, $243.2 million and $193.4 million of exchanges of fixed maturities (noncash transactions) that resulted in $7.9 million, $20.5 million, and $10.1 million, respectively in realized gains (losses).
(2)Refer to Note 11—Debt for further discussion*.*
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
An analysis of the net change in unrealized investment gains (losses) is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Change in investment gains (losses) on: | |||||||||||||||||
| Fixed maturities available for sale | $ | 1,528,339 | $ | 1,946,910 | $ | (1,429,763) |
Selected information about sales of fixed maturities available for sale is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||
| Proceeds from sales(1) | $ | 52,681 | $ | 79,108 | $ | 32,021 | |||||||||||
| Gross realized gains | 2,642 | 1,227 | 66 | ||||||||||||||
| Gross realized losses | (39,153) | (3,674) | (13,996) |
(1)There were no unsettled sales in the periods ended December 31, 2020, 2019 and 2018.
Fair value measurements: The following tables represent the fair value of fixed maturities measured on a recurring basis at December 31, 2020 and 2019:
| Fair Value Measurement at December 31, 2020: | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||
| Fixed maturities available for sale | |||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | — | $ | 467,831 | $ | — | $ | 467,831 | |||||||||||||||
| States, municipalities, and political subdivisions | — | 2,131,583 | — | 2,131,583 | |||||||||||||||||||
| Foreign governments | — | 54,650 | — | 54,650 | |||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||
| Financial | — | 5,222,066 | 174,729 | 5,396,795 | |||||||||||||||||||
| Utilities | — | 2,400,602 | 183,345 | 2,583,947 | |||||||||||||||||||
| Energy | — | 1,925,549 | 38,189 | 1,963,738 | |||||||||||||||||||
| Other corporate sectors | — | 8,090,550 | 318,242 | 8,408,792 | |||||||||||||||||||
| Total corporates | — | 17,638,767 | 714,505 | 18,353,272 | |||||||||||||||||||
| Collateralized debt obligations | — | — | 71,598 | 71,598 | |||||||||||||||||||
| Other asset-backed securities | — | 121,705 | 12,870 | 134,575 | |||||||||||||||||||
| Total fixed maturities | $ | — | $ | 20,414,536 | $ | 798,973 | $ | 21,213,509 | |||||||||||||||
| Percentage of total | — | % | 96 | % | 4 | % | 100 | % |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| Fair Value Measurement at December 31, 2019: | |||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||||||||||
| Fixed maturities available for sale | |||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | — | $ | 437,520 | $ | — | $ | 437,520 | |||||||||||||||
| States, municipalities, and political subdivisions | — | 1,717,656 | — | 1,717,656 | |||||||||||||||||||
| Foreign governments | — | 27,551 | — | 27,551 | |||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||
| Financial | — | 4,628,875 | 151,931 | 4,780,806 | |||||||||||||||||||
| Utilities | — | 2,195,539 | 156,748 | 2,352,287 | |||||||||||||||||||
| Energy | — | 1,873,482 | 41,402 | 1,914,884 | |||||||||||||||||||
| Other corporate sectors | — | 7,131,773 | 322,047 | 7,453,820 | |||||||||||||||||||
| Total corporates | — | 15,829,669 | 672,128 | 16,501,797 | |||||||||||||||||||
| Collateralized debt obligations | — | — | 74,104 | 74,104 | |||||||||||||||||||
| Other asset-backed securities | — | 135,342 | 13,177 | 148,519 | |||||||||||||||||||
| Total fixed maturities | $ | — | $ | 18,147,738 | $ | 759,409 | $ | 18,907,147 | |||||||||||||||
| Percentage of total | — | % | 96 | % | 4 | % | 100 | % |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following tables represent changes in fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||||||||||
| Asset- backed Securities | Collateralized Debt Obligations | Corporates | Total | ||||||||||||||||||||
| Balance at January 1, 2018 | $ | 14,049 | $ | 71,581 | $ | 582,810 | $ | 668,440 | |||||||||||||||
| Included in realized gains/losses | — | — | 698 | 698 | |||||||||||||||||||
| Included in other comprehensive income | (591) | 3,170 | (23,687) | (21,108) | |||||||||||||||||||
| Acquisitions(1) | — | — | 27,453 | 27,453 | |||||||||||||||||||
| Sales | — | — | — | — | |||||||||||||||||||
| Amortization | — | 4,737 | 16 | 4,753 | |||||||||||||||||||
| Other(2) | (476) | (6,119) | (38,352) | (44,947) | |||||||||||||||||||
| Transfers into Level 3(3) | — | — | 4,533 | 4,533 | |||||||||||||||||||
| Transfers out of Level 3(3) | — | — | — | — | |||||||||||||||||||
| Balance at December 31, 2018 | 12,982 | 73,369 | 553,471 | 639,822 | |||||||||||||||||||
| Included in realized gains/losses | — | — | 396 | 396 | |||||||||||||||||||
| Included in other comprehensive income | 708 | 1,514 | 30,378 | 32,600 | |||||||||||||||||||
| Acquisitions(1) | — | — | — | — | |||||||||||||||||||
| Sales | — | — | — | — | |||||||||||||||||||
| Amortization | — | 4,596 | 13 | 4,609 | |||||||||||||||||||
| Other(2) | (513) | (5,375) | (19,154) | (25,042) | |||||||||||||||||||
| Transfers into Level 3(3) | — | — | 107,024 | 107,024 | |||||||||||||||||||
| Transfers out of Level 3(3) | — | — | — | — | |||||||||||||||||||
| Balance at December 31, 2019 | 13,177 | 74,104 | 672,128 | 759,409 | |||||||||||||||||||
| Included in realized gains/losses | — | — | 1,579 | 1,579 | |||||||||||||||||||
| Included in other comprehensive income | (173) | (2,523) | 17,082 | 14,386 | |||||||||||||||||||
| Acquisitions(1) | — | — | 67,820 | 67,820 | |||||||||||||||||||
| Sales | — | — | — | — | |||||||||||||||||||
| Amortization | — | 4,551 | 12 | 4,563 | |||||||||||||||||||
| Other(2) | (134) | (4,534) | (44,116) | (48,784) | |||||||||||||||||||
| Transfers into Level 3(3) | — | — | — | — | |||||||||||||||||||
| Transfers out of Level 3(3) | — | — | — | — | |||||||||||||||||||
| Balance at December 31, 2020 | $ | 12,870 | $ | 71,598 | $ | 714,505 | $ | 798,973 | |||||||||||||||
| Change in unrealized gains or losses for the period included in other comprehensive income for assets held at the end of the reporting period: | |||||||||||||||||||||||
| Asset- backed Securities | Collateralized Debt Obligations | Corporates | Total | ||||||||||||||||||||
| 2018 | $ | (591) | $ | 3,170 | $ | (23,687) | $ | (21,108) | |||||||||||||||
| 2019 | 708 | 1,514 | 30,378 | 32,600 | |||||||||||||||||||
| 2020 | (173) | (2,523) | 17,082 | 14,386 |
(1)Acquisitions of Level 3 investments in each of the years 2018 through 2020 are comprised of private-placement fixed maturities.
(2)Includes capitalized interest, foreign exchange adjustments, and principal repayments.
(3)Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available, while transfers out of Level 3 occur when observable inputs become available.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Transfers between levels within the hierarchy occur when there are changes in the observability of the inputs and market data. Transfers into Level 3 occur when there is little unobservable market activity for the asset/liability as of the measurement date and the Company is required to rely upon internally-developed assumptions or third-parties. Transfers out of Level 3 occur when quoted prices in active markets becomes available for identical assets/ liabilities or the ability to corroborate by observable market data.
The following table represents quantitative information about Level 3 fair value measurements:
| Quantitative Information about Level 3 Fair Value Measurements | |||||||||||||||||||||||||||||
| As of December 31, 2020 | |||||||||||||||||||||||||||||
| Fair Value | Valuation Techniques | Significant Unobservable Input | Range | Weighted- Average**(1)** | |||||||||||||||||||||||||
| Private placement fixed maturities | 612,906 | Determination of credit spread | Credit rating | A+ to BB- | BBB | ||||||||||||||||||||||||
| Discounted Cash Flows | Discount rate | 1.04% - 8.29% | 2.29% | ||||||||||||||||||||||||||
| Other corporate bonds | 101,599 | Present Value Techniques | Market Quotes | 100.05% | 100.05% | ||||||||||||||||||||||||
| Collateralized debt obligations | 71,598 | Discounted Cash Flows | Discount rate | 6.35% - 7.10% | 6.98% | ||||||||||||||||||||||||
| Asset-backed securities | $ | 12,870 | Determination of credit spread | Credit rating | BBB- | BBB- | |||||||||||||||||||||||
| Discounted Cash Flows | Discount rate | 5.41% | 5.41% | ||||||||||||||||||||||||||
| $ | 798,973 |
(1)Unobservable inputs were weighted by the relative fair value of the instruments.
The private placement fixed maturities and asset-backed securities reported as Level 3 are managed by third-party investment managers. These securities are valued based on the contractual cash flows discounted by a yield determined as a treasury benchmark adjusted for a credit spread. The credit spread is developed from observable indices for similar public fixed maturities and unobservable indices for private fixed maturities for corresponding credit ratings. However, the credit ratings for the securities are considered unobservable inputs, as they are assigned by the third-party investment manager based on a quantitative and qualitative assessment of the credit underwritten. A higher (lower) credit rating would result in a higher (lower) valuation.
The collateral underlying collateralized debt obligations for which fair values are reported as Level 3 consists primarily of trust preferred securities issued by banks and insurance companies. Collateralized debt obligations are valued at the present value of expected future cash flows using an unobservable discount rate. Expected cash flows are determined by scheduling the projected repayment of the collateral assuming no future defaults, deferrals, or recoveries. The discount rate is risk-adjusted to take these items into account. A significant increase (decrease) in the discount rate will produce a significant decrease (increase) in fair value. Additionally, a significant increase (decrease) in the cash flow expectations would result in a significant increase (decrease) in fair value. For more information regarding valuation procedures, please refer to Note 1—Significant Accounting Policies under the caption Fair Value Measurements, Investments in Securities.
Other corporate bonds consist of obligations issued out of a special purpose vehicle (SPV). The market quotes consisted of Level 3 quotes. An increase (decrease) in the market quotes will produce an increase (decrease) in fair value.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Unrealized Loss Analysis*:* The following table discloses information about fixed maturities available for sale in an unrealized loss position.
| Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||
| Number of issues (CUSIPs) held: | |||||||||||||||||
| As of December 31, 2020 | 54 | 24 | 78 | ||||||||||||||
| As of December 31, 2019 | 82 | 51 | 133 |
Globe Life's entire fixed maturity portfolio consisted of 1,900 issues by 777 different issuers at December 31, 2020 and 1,633 issues by 656 different issuers at December 31, 2019. The weighted-average quality rating of all unrealized loss positions at amortized cost was BBB- as of December 31, 2020 and December 31, 2019.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale for which an allowance for credit losses has not been recorded at December 31, 2020.
Analysis of Gross Unrealized Investment Losses
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||||||||||||||||||||
| Investment grade securities: | |||||||||||||||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 2,006 | $ | (43) | $ | — | $ | — | $ | 2,006 | $ | (43) | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 32,910 | (315) | — | — | 32,910 | (315) | |||||||||||||||||||||||||||||
| Foreign governments | 19,532 | (898) | — | — | 19,532 | (898) | |||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | 117,762 | (2,564) | 6,333 | (2,168) | 124,095 | (4,732) | |||||||||||||||||||||||||||||
| Utilities | 2,726 | (108) | — | — | 2,726 | (108) | |||||||||||||||||||||||||||||
| Energy | 1,692 | (8) | 14,871 | (106) | 16,563 | (114) | |||||||||||||||||||||||||||||
| Other corporate sectors | 21,882 | (720) | — | — | 21,882 | (720) | |||||||||||||||||||||||||||||
| Total corporates | 144,062 | (3,400) | 21,204 | (2,274) | 165,266 | (5,674) | |||||||||||||||||||||||||||||
| Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Other asset-backed securities | 28,864 | (1,051) | 5 | — | 28,869 | (1,051) | |||||||||||||||||||||||||||||
| Total investment grade securities | 227,374 | (5,707) | 21,209 | (2,274) | 248,583 | (7,981) | |||||||||||||||||||||||||||||
| Below investment grade securities: | |||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | 6,822 | (36) | 115,093 | (19,453) | 121,915 | (19,489) | |||||||||||||||||||||||||||||
| Utilities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Energy | 18,432 | (757) | 38,720 | (2,212) | 57,152 | (2,969) | |||||||||||||||||||||||||||||
| Other corporate sectors | 25,711 | (3,588) | 19,516 | (1,910) | 45,227 | (5,498) | |||||||||||||||||||||||||||||
| Total corporates | 50,965 | (4,381) | 173,329 | (23,575) | 224,294 | (27,956) | |||||||||||||||||||||||||||||
| Collateralized debt obligations | — | — | 11,131 | (8,869) | 11,131 | (8,869) | |||||||||||||||||||||||||||||
| Other asset-backed securities | — | — | 11,223 | (2,727) | 11,223 | (2,727) | |||||||||||||||||||||||||||||
| Total below investment grade securities | 50,965 | (4,381) | 195,683 | (35,171) | 246,648 | (39,552) | |||||||||||||||||||||||||||||
| Total fixed maturities | $ | 278,339 | $ | (10,088) | $ | 216,892 | $ | (37,445) | $ | 495,231 | $ | (47,533) |
Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in interest rates or credit spreads. As noted in Note 1, the Company considers many factors when determining whether a credit loss exists. While the Company holds securities that may be in an unrealized loss position from time to time, Globe Life does not intend to sell and it is likely that management will not be required to sell the fixed maturities prior to their anticipated recovery due to the strong cash flows generated by its insurance operations.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale at December 31, 2019. Globe Life considered these investments to be only temporarily impaired.
Analysis of Gross Unrealized Investment Losses
| At December 31, 2019 | |||||||||||||||||||||||||||||||||||
| Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||||||||||||||
| Fixed maturities available for sale: | |||||||||||||||||||||||||||||||||||
| Investment grade securities: | |||||||||||||||||||||||||||||||||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 1,255 | $ | (2) | $ | 21,044 | $ | (294) | $ | 22,299 | $ | (296) | |||||||||||||||||||||||
| States, municipalities and political subdivisions | 66,774 | (626) | — | — | 66,774 | (626) | |||||||||||||||||||||||||||||
| Foreign governments | 6,496 | (396) | — | — | 6,496 | (396) | |||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | 117,389 | (1,733) | 7,183 | (1,317) | 124,572 | (3,050) | |||||||||||||||||||||||||||||
| Utilities | 8,400 | (166) | — | — | 8,400 | (166) | |||||||||||||||||||||||||||||
| Energy | 52,312 | (1,058) | 1,833 | (115) | 54,145 | (1,173) | |||||||||||||||||||||||||||||
| Other corporate sectors | 136,386 | (1,584) | 61,473 | (3,260) | 197,859 | (4,844) | |||||||||||||||||||||||||||||
| Total corporates | 314,487 | (4,541) | 70,489 | (4,692) | 384,976 | (9,233) | |||||||||||||||||||||||||||||
| Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Other asset-backed securities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Total investment grade securities | 389,012 | (5,565) | 91,533 | (4,986) | 480,545 | (10,551) | |||||||||||||||||||||||||||||
| Below investment grade securities: | |||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Corporates, by sector: | |||||||||||||||||||||||||||||||||||
| Financial | — | — | 113,481 | (19,257) | 113,481 | (19,257) | |||||||||||||||||||||||||||||
| Utilities | 7,529 | (135) | 14,985 | (1,264) | 22,514 | (1,399) | |||||||||||||||||||||||||||||
| Energy | 14,968 | (146) | 69,956 | (32,406) | 84,924 | (32,552) | |||||||||||||||||||||||||||||
| Other corporate sectors | — | — | 67,655 | (11,921) | 67,655 | (11,921) | |||||||||||||||||||||||||||||
| Total corporates | 22,497 | (281) | 266,077 | (64,848) | 288,574 | (65,129) | |||||||||||||||||||||||||||||
| Collateralized debt obligations | — | — | 12,816 | (7,184) | 12,816 | (7,184) | |||||||||||||||||||||||||||||
| Other asset-backed securities | — | — | 13,879 | (371) | 13,879 | (371) | |||||||||||||||||||||||||||||
| Total below investment grade securities | 22,497 | (281) | 292,772 | (72,403) | 315,269 | (72,684) | |||||||||||||||||||||||||||||
| Total fixed maturities | $ | 411,509 | $ | (5,846) | $ | 384,305 | $ | (77,389) | $ | 795,814 | $ | (83,235) |
Gross unrealized losses decreased from $83.2 million at December 31, 2019 to $47.5 million at December 31, 2020, a decrease of $35.7 million. The decrease in the gross unrealized losses from the prior year was primarily attributable to the decrease in market interest rates.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Fixed Maturities, Allowance for Credit Losses*:* A summary of the activity in the allowance for credit losses is as follows. Refer to Note 1 for factors considered in the recording of the allowance for credit losses.
| Twelve Months Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Allowance for credit losses beginning balance | $ | — | $ | — | ||||||||||
| Additions to allowance for which credit losses were not previously recorded | 36,065 | — | ||||||||||||
| Additions (reductions) to allowance for fixed maturities that previously had an allowance | — | — | ||||||||||||
| Reduction of allowance for which the Company intends to sell or more likely than not will be required to sell or sold during the period | (32,719) | — | ||||||||||||
| Allowance for credit losses ending balance | $ | 3,346 | $ | — |
Under previous applicable GAAP, the Company concluded that there were no other-than-temporary impairments for years ended December 31, 2019 and 2018.
As of December 31, 2020 and December 31, 2019, the Company did not have any fixed maturities in non-accrual status.
Concentrations of Credit Risk*:* Globe Life maintains a diversified investment portfolio with limited concentration in any given issuer. At December 31, 2020, the investment portfolio, at fair value, consisted of the following:
| Investment grade fixed maturities: | |||||
| Corporates | 78 | % | |||
| States, municipalities, and political subdivisions | 9 | ||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | 2 | ||||
| Other | 1 | ||||
| Below investment grade fixed maturities: | |||||
| Corporates | 4 | ||||
| States, municipalities, and political subdivisions | — | ||||
| U.S. Government direct, guaranteed, and government-sponsored enterprises | — | ||||
| Other | — | ||||
| 94 | |||||
| Other | |||||
| Policy loans, which are secured by the underlying insurance policy values | 3 | ||||
| Other investments | 3 | ||||
| 100 | % |
As of December 31, 2020, state and municipal governments represented 9% of invested assets at fair value. Such investments are made throughout the U.S. At December 31, 2020, the state and municipal bond portfolio at fair value was invested in securities issued within the following states: Texas (18%), New York (10%), Michigan (8%), California (7%), Ohio (6%), and Florida (5%). Otherwise, there was no concentration within any given state greater than 5%.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Corporate fixed maturities represent 82% of Globe Life's invested assets. These investments are spread across a wide range of industries. Below are the ten largest industry concentrations held in the portfolio of corporate fixed maturities at December 31, 2020, based on fair value:
| Insurance | 15 | % | |||
| Electric utilities | 10 | ||||
| Banks | 7 | ||||
| Oil and natural gas pipelines | 6 | ||||
| Chemicals | 4 | ||||
| Transportation | 4 | ||||
| Food | 4 | ||||
| Oil and natural gas exploration and production | 4 | ||||
| Real estate investment trusts | 4 | ||||
| Telecommunications | 3 |
At December 31, 2020, 4% of invested assets at fair value were represented by fixed maturities rated below investment grade. Par value of these investments was $931 million, amortized cost was $841 million, and fair value was $877 million. While these investments could be subject to additional credit risk, such risk should generally be reflected in their fair value.
Securities, cash, and short-term investments held on deposit with various state and federal regulatory authorities had an amortized cost and fair value, respectively, of $892 million and $1.1 billion at December 31, 2020 and $816 million and $956 million at December 31, 2019.
Other Long-Term Investments*:* Other long-term investments consist of the following assets:
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Investment funds | $ | 385,038 | $ | 185,851 | |||||||
| Commercial mortgage loan participations | 160,602 | 137,692 | |||||||||
| Other | 1,341 | 2,804 | |||||||||
| Total | $ | 546,981 | $ | 326,347 |
The following table presents additional information about the Company's investment funds as of December 31, 2020 and December 31, 2019 at fair value:
| As of December 31, | ||||||||||||||||||||||||||
| Fair Value | Unfunded Commitments | |||||||||||||||||||||||||
| Investment Category | 2020 | 2019 | 2020 | Redemption Term/Notice | ||||||||||||||||||||||
| Commercial mortgage loans | $ | 227,050 | $ | 26,145 | $ | 285,287 | Portion non-redeemable and fully redeemable after 6 month period, subject to fund liquidity/discretion of General Partner. Expected life is 7 years for non-redeemable fund. | |||||||||||||||||||
| Opportunistic credit | 157,461 | 159,399 | — | Initial 2 year lock on each new investment/semi-annual withdrawals thereafter/full redemption within 36 month period. | ||||||||||||||||||||||
| Other | 527 | 307 | 149,715 | Not redeemable. Expected life is approximately 12 years. | ||||||||||||||||||||||
| Total investment funds | $ | 385,038 | $ | 185,851 | $ | 435,002 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Commercial mortgage loan participations: Summaries of commercial mortgage loans at December 31, 2020 and 2019 are as follows:
| 2020 | 2019 | ||||||||||||||||||||||
| Carrying Value | % of Total | Carrying Value | % of Total | ||||||||||||||||||||
| Property type: | |||||||||||||||||||||||
| Mixed use | $ | 49,002 | 31 | $ | 27,501 | 20 | |||||||||||||||||
| Office | 36,153 | 22 | 42,350 | 31 | |||||||||||||||||||
| Hospitality | 22,605 | 14 | 22,324 | 16 | |||||||||||||||||||
| Retail | 19,319 | 12 | 17,318 | 12 | |||||||||||||||||||
| Multi-family | 19,128 | 12 | 10,587 | 8 | |||||||||||||||||||
| Industrial | 17,900 | 11 | 17,612 | 13 | |||||||||||||||||||
| Total recorded investment | 164,107 | 102 | 137,692 | 100 | |||||||||||||||||||
| Less allowance for credit losses | (3,505) | (2) | — | — | |||||||||||||||||||
| Carrying value, net of valuation allowance | $ | 160,602 | 100 | $ | 137,692 | 100 |
| 2020 | 2019 | ||||||||||||||||||||||
| Carrying Value | % of Total | Carrying Value | % of Total | ||||||||||||||||||||
| Geographic location: | |||||||||||||||||||||||
| California | $ | 61,610 | 38 | $ | 35,412 | 26 | |||||||||||||||||
| Virginia | 27,019 | 17 | 25,448 | 18 | |||||||||||||||||||
| New York | 16,602 | 10 | 21,117 | 15 | |||||||||||||||||||
| Florida | 12,420 | 8 | 11,910 | 9 | |||||||||||||||||||
| Pennsylvania | 11,314 | 7 | 4,211 | 3 | |||||||||||||||||||
| Other | 35,142 | 22 | 39,594 | 29 | |||||||||||||||||||
| Total recorded investment | 164,107 | 102 | 137,692 | 100 | |||||||||||||||||||
| Less allowance for credit losses | (3,505) | (2) | — | — | |||||||||||||||||||
| Carrying value, net of valuation allowance | $ | 160,602 | 100 | $ | 137,692 | 100 |
As noted in Note 1, the Company adopted ASU 2016-13 using the modified retrospective method for commercial mortgage loans. On January 1, 2020, a cumulative effect adjustment was recorded to retained earnings of $335 thousand ($265 thousand, net of tax). As of December 31, 2020, the Company evaluated the commercial mortgage loan portfolio on a pool basis to determine the allowance for credit losses, except for individual loans where the practical expedient was elected. At the end of the period, the Company had 24 loans in the portfolio.
| Year Ended December 31, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| Allowance for credit losses beginning balance | $ | — | $ | — | ||||||||||
| Cumulative effect of adoption ASU 2016-13 | 335 | — | ||||||||||||
| Provision (reversal) for credit losses | 3,170 | — | ||||||||||||
| Allowance for credit losses ending balance | $ | 3,505 | $ | — |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following table is reflective of Management's internal risk ratings of the loan portfolio. Loans are rated low, moderate, and high. The risk categories consider many different factors such as quality of asset, borrower status, as well as macroeconomic factors including COVID-19. These loans, originated in 2017 to 2020, are transitional or under construction and may not yet be income producing. Certain ratios such as loan to value and debt service coverage ratios may not be evaluated as the value of the underlying transitional property significantly fluctuates based on completion of the project.
| Net Book Value of Commercial Mortgage Loans Receivable by Year of Origination | ||||||||||||||||||||||||||||||||||||||
| As of December 31, 2020 | ||||||||||||||||||||||||||||||||||||||
| Risk Rating: | Number of Loans | 2020 | 2019 | 2018 | 2017 | Total | ||||||||||||||||||||||||||||||||
| Low | 17 | $ | 20,176 | $ | 14,757 | $ | 33,132 | $ | 61,460 | $ | 129,525 | |||||||||||||||||||||||||||
| Medium | 4 | — | 10,640 | 7,796 | — | 18,436 | ||||||||||||||||||||||||||||||||
| High | 3 | — | 4,554 | 11,592 | — | 16,146 | ||||||||||||||||||||||||||||||||
| Total commercial mortgage loans | 24 | 20,176 | 29,951 | 52,520 | 61,460 | 164,107 | ||||||||||||||||||||||||||||||||
| Less allowance for credit losses on the investment pool | (2,503) | |||||||||||||||||||||||||||||||||||||
| Less allowance for credit losses on individual loans | (1,002) | |||||||||||||||||||||||||||||||||||||
| Carrying value, net of valuation allowance | $ | 160,602 |
As of December 31, 2020, the Company had one commercial mortgage loan in non-accrual status. As of December 31, 2019, the Company did not have any commercial mortgage loans in non-accrual status.
Note 5—Deferred Acquisition Costs
An analysis of "DAC" is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Balance at beginning of year | $ | 4,341,941 | $ | 4,137,925 | $ | 3,958,063 | |||||||||||
| Additions: | |||||||||||||||||
| Deferred during period: | |||||||||||||||||
| Commissions | 600,577 | 534,735 | 497,459 | ||||||||||||||
| Other expenses | 222,408 | 218,926 | 202,092 | ||||||||||||||
| Total deferred | 822,985 | 753,661 | 699,551 | ||||||||||||||
| Foreign exchange adjustment | 4,755 | 4,299 | — | ||||||||||||||
| Adjustment attributable to unrealized investment losses(1) | 1,533 | — | 5,549 | ||||||||||||||
| Total additions | 829,273 | 757,960 | 705,100 | ||||||||||||||
| Deductions: | |||||||||||||||||
| Amortized during period | (575,770) | (551,726) | (516,690) | ||||||||||||||
| Foreign exchange adjustment | — | — | (8,548) | ||||||||||||||
| Adjustment attributable to unrealized investment gains(1) | — | (2,218) | — | ||||||||||||||
| Total deductions | (575,770) | (553,944) | (525,238) | ||||||||||||||
| Balance at end of year | $ | 4,595,444 | $ | 4,341,941 | $ | 4,137,925 |
(1)Represents amounts pertaining to investments relating to universal life-type products.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 6—Commitments and Contingencies
Reinsurance*:* Insurance affiliates of Globe Life reinsure a portion of insurance risk that is in excess of their retention limits. Current retention limits for new business written on ordinary life insurance range up to $500 thousand per life. Life insurance ceded represented 0.3% of total life insurance in force at December 31, 2020. Insurance ceded on life and accident and health products represented 0.2% of premium income for 2020. The insurance affiliates of Globe Life would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.
Insurance affiliates also assume insurance risks of other external companies. Life reinsurance assumed represented 1.2% of life insurance in force at December 31, 2020 and reinsurance assumed on life and accident and health products represented 0.5% of premium income for 2020.
Leases*:* Globe Life primarily leases office space, aviation equipment, and other equipment under a variety of operating lease arrangements.
Rental expense for the three years ended December 31, 2020 is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Rental expense | $ | 4,674 | $ | 3,831 | $ | 3,959 |
Future minimum rental commitments required under operating leases having remaining noncancelable lease terms in excess of one year at December 31, 2020 were as follows:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||||
| Operating lease commitments | $ | 5,307 | $ | 4,395 | $ | 3,321 | $ | 2,873 | $ | 1,896 | $ | 10,823 |
Purchase Commitments: Globe Life has various long-term noncancelable purchase commitments as well as commitments to provide capital for low-income housing tax credit interests. See further discussion related to tax credits in Note 1—Significant Accounting Policies.
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||||
| Purchase commitments | $ | 66,439 | $ | 73,451 | $ | 24,823 | $ | 10,347 | $ | 9,797 | $ | 228,542 |
Investments: Globe Life is committed to invest under certain contracts related to investments in limited partnerships. See Note—4 Investments for unfunded commitment table.
Guarantees*:* At December 31, 2020, Globe Life had in place three guarantee agreements, of which were either Parent Company guarantees of subsidiary obligations to a third party, or Parent Company guarantees of obligations between wholly-owned subsidiaries. As of December 31, 2020, Globe Life had no liability with respect to these guarantees.
Letters of Credit: Globe Life has guaranteed letters of credit in connection with its credit facility with a group of banks as disclosed in Note 11—Debt. The letters of credit were issued by TMK Re, Ltd., a wholly-owned subsidiary, to secure TMK Re, Ltd.’s obligation for claims on certain policies reinsured by TMK Re, Ltd. that were sold by other Globe Life insurance companies. These letters of credit facilitate TMK Re, Ltd.’s ability to reinsure the business of Globe Life's insurance carriers. The agreement expires in 2023. The maximum amount of letters of credit available is $250 million. The Parent Company would be liable to the extent that TMK Re, Ltd. does not pay the reinsured party. On November 25, 2020, the letters of credit were amended
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
to reduce the current amount outstanding to $135 million from $150 million outstanding. As of December 31, 2020, the letters of credit outstanding were $135 million.
Equipment leases: Globe Life has guaranteed performance of certain of its subsidiaries as lessees under two aviation leasing arrangements. At December 31, 2020, total remaining undiscounted payments under the leases were approximately $5 million. The Parent Company would be responsible for any subsidiary obligation in the event the subsidiary did not make payments or otherwise perform under the terms of the lease.
Unclaimed Property Audits*:* Globe Life subsidiaries are currently the subject of audits regarding the identification, reporting and escheatment of unclaimed property arising from life insurance policies and a limited number of annuity contracts. These audits are being conducted by private entities that have contracted with forty-seven states through their respective Departments of Revenue, and have not resulted in any financial assessment from any state nor indicated any liability. The audits are wide-ranging and seek large amounts of data regarding claims handling, procedures, and payments of contract benefits arising from unreported death claims. No estimate of range can be made at this time for loss contingencies related to possible administrative penalties or amounts that could be payable to the states for the escheatment of abandoned property.
Litigation: Globe Life Inc. (formerly Torchmark Corporation) and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including putative class action litigation, alleged breaches of contract, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of agents of the Parent Company's insurance subsidiaries, employment discrimination, and miscellaneous other causes of action. Based upon information presently available, and in light of legal and other factual defenses available to the Parent Company and its subsidiaries, management does not believe that it is reasonably possible that such litigation will have a material adverse effect on Globe Life's financial condition, future operating results or liquidity; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. This bespeaks caution, particularly in states with reputations for high punitive damage verdicts. Globe Life's management recognizes that large punitive damage awards bearing little or no relation to actual damages continue to be awarded by juries in jurisdictions in which the Company has substantial business, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.
On September 12, 2018, putative class action litigation was filed against American Income in California’s Contra Costa County Superior Court (Joh v. American Income Life Insurance Company, Case No. C18-01863) (Joh Action). An amended complaint was filed on October 18, 2018. American Income removed the case to the United States District Court for the Northern District of California (Case No. 3:18-cv-06364-TSH). A second amended complaint was filed on May 20, 2019. The plaintiffs, former insurance sales agents of American Income, sued on behalf of all current and former trainees and sales agents who sold insurance for American Income in the State of California for the four years prior to the filing of the complaint. The second amended complaint alleged that such individuals were employees and asserted claims under the California Labor Code, California Business and Professions Code, and California Private Attorney General Act. The complaint sought compensatory damages, penalties and attorney fees on claims for failure to pay wages/commissions, failure to appropriately pay agents at termination, failure to provide itemized wage statements, failure to reimburse expenses, misclassification and unfair business practices.
On October 18, 2018, putative class action litigation was filed against Torchmark Corporation and American Income in California’s Los Angeles County Superior Court (Golz v. American Income Life Insurance Company, et al., Case No. 18STCV01354) (Golz Action). American Income removed the case to the United States District Court for the Central District of California (Case No. 2:18-cv-09879 R (SSx)). An amended complaint was filed on February 5, 2019. On February 6, 2019, Torchmark Corporation was dismissed without prejudice and the case proceeded with respect to American Income. On April 2, 2019, the District Court granted American Income’s motion to dismiss four of the five causes of action asserted. The amended complaint’s remaining claim alleges that plaintiff, as an American Income insurance agent trainee in California, was an employee who should have been compensated accordingly. The plaintiff seeks to represent a class of individuals in California who trained to contract as American Income agents and who subsequently worked as contracted agents. The class period is alleged to begin four years
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
prior to the complaint’s filing. The complaint seeks restitution under the California Business and Professions Code for alleged unfair business practices such as failure to pay minimum wage and overtime, failure to provide meal and rest breaks, and failure to reimburse business expenses. The lawsuit is currently stayed.
On December 14, 2018, putative class action litigation was filed against American Income in United States District Court for the Northern District of California (Hamilton v. American Income Life Insurance Company, Case No. 4:18-cv-7535-KAW) (Hamilton Action). An amended complaint was filed on January 23, 2019. The plaintiffs, former insurance sales agents of American Income, sued on behalf of all current and former trainees and sales agents who sold insurance for American Income in the State of California for the last four years prior to the filing of the complaint. The lawsuit alleges that putative class members were employees and asserted claims under the California Labor Code, California Business and Professions Code, and California Private Attorney General Act. The complaint seeks compensatory damages, penalties and attorney fees on claims for failure to pay minimum wage and overtime, failure to provide meal and rest breaks, failure to appropriately pay agents at termination, failure to provide itemized wage statements, failure to reimburse expenses, misclassification and unfair business practices.
With respect to the related cases above, on August 6, 2020, the plaintiffs in the Joh and Hamilton Actions jointly moved for preliminary approval of a settlement of all class and representative claims, which broadly covers “all individuals who trained to become and/or worked as sales agents in California for Defendant during the last four years prior to the filing of the original Complaint in Joh and whose training and/or work began before August 16, 2019.” Plaintiffs’ preliminary motion anticipated that the proposed settlement would resolve all claims in the Joh and Hamilton Actions, and in doing so, encompass pending claims asserted in the Golz Action for the settlement period. On August 21, 2020, the Northern District of California granted the Motion for Preliminary Approval of Class Action Settlement and scheduled a hearing for final approval of the settlement. On January 7, 2021, plaintiff’s motion for final settlement approval was granted and a final judgment was entered on the same day.
On December 19, 2019, putative collective action litigation was filed against American Income in United States District Court for the Eastern District of Arkansas (Patterson v. American Income Life Insurance Company, et al, Case No. 4:19-cv-918 KGB). The plaintiff, a former insurance sales agent of American Income, is pursuing a national collective action on behalf of all “similarly situated” individuals for the three years prior to the filing of the complaint. The lawsuit alleges that insurance agent trainees should have been classified as employees and asserts claims for minimum wage, overtime, liquidated damages and attorney’s fees under the Fair Labor Standards Act. The plaintiff also asserts an individual claim under the Arkansas Minimum Wage Act. American Income filed a motion to compel arbitration of plaintiff’s individual claims. On October 30, 2020, the district court granted the motion and stayed the case pending the outcome of arbitration on plaintiff’s individual claims.
On February 27, 2020, putative collective action litigation was filed against American Income in United States District Court for the Western District of Pennsylvania (Berry, et al v. American Income Life Insurance Company, et al, Case No. 2:20-cv-00110-LPL). The plaintiffs, former insurance sales agents of American Income, are pursuing relief on behalf of “all individuals who trained to become and/or worked as sales agents/insurance producers for American Income Life Insurance” in the three years prior to the filing of the complaint. The lawsuit alleges that agent trainees and insurance agents should have been classified as employees. It asserts a national collective action under the Fair Labor Standards Act seeking compensation for minimum wage, overtime, expense reimbursement, missed meal and rest breaks, recoupment of certain commissions and improper recordkeeping. In addition, the lawsuit asserts a class action under the Pennsylvania Minimum Wage Act and Pennsylvania Wage Payment and Collection Law seeking similar relief. Plaintiffs also seek liquidated damages and attorney’s fees, and assert an unjust enrichment claim. On September 20, 2020, American Income’s motion to compel arbitration of the plaintiffs’ individual claims was granted. The litigation is stayed pending outcome of the individual arbitrations.
On August 5, 2020, putative class and collective action litigation was filed against American Income and National Income Life Insurance Company (“National Income”) in United States District Court for the Central District of California (Natalie Bell, Gisele Mobley, Ashly Rai, and John Turner v. American Income Life Insurance Company and National Income Life Insurance Company*,* Case No. 2:20-cv-07046). On December 18, 2020, the plaintiffs voluntarily dismissed Mr. Turner’s claims and all claims against defendant National Income. Following the dismissal, the complaint alleges that insurance agent trainees should have been classified as employees, and after contracting should have been classified as employees instead of independent contractors. Plaintiffs Bell and Rai are former
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
California agents who also assert claims under California law on behalf of a putative California class, for the four years prior to February 13, 2020 through case conclusion. They make claims under (a) the California Labor Code for alleged meal and rest break violations, overtime, minimum wage, alleged failure to pay wages at the time of termination, expense reimbursement, and alleged failure to provide accurate wage statements; and (b) the California Business and Professions Code for alleged unfair business practices. They also seek liquidated damages, penalties and attorney’s fees under California law. Plaintiff Mobley is a former Florida agent who asserts a claim under Florida law on behalf of a putative Florida class for the five years prior to February 13, 2020 through case conclusion. She makes a claim under the Florida General Labor Regulations, including the Florida Minimum Wage Act, for alleged failure to pay all wages owed. The plaintiffs also assert a national collective action on behalf of all “similarly situated” individuals for minimum wage, overtime, liquidated damages, penalties, an accounting and attorney’s fees and costs under the Fair Labor Standards Act for the three years prior to February 13, 2020 through case conclusion. American Income has responded to the complaint with a motion to compel the named plaintiffs to arbitrate their individual claims and other procedural challenges. Those motions are currently scheduled to be heard in March, 2021.
With respect to the aforementioned litigation, at this time, management believes that the possibility of a material judgment adverse to the Company is remote.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 7—Liability for Unpaid Claims
Activity in the liability for unpaid health claims is summarized as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Balance at beginning of period | $ | 163,808 | $ | 154,528 | $ | 146,865 | |||||||||||
| Incurred related to: | |||||||||||||||||
| Current year | 584,936 | 612,305 | 555,647 | ||||||||||||||
| Prior years | (14,829) | (1,188) | (3,017) | ||||||||||||||
| Total incurred | 570,107 | 611,117 | 552,630 | ||||||||||||||
| Paid related to: | |||||||||||||||||
| Current year | 442,127 | 470,426 | 424,633 | ||||||||||||||
| Prior years | 129,527 | 131,411 | 120,334 | ||||||||||||||
| Total paid | 571,654 | 601,837 | 544,967 | ||||||||||||||
| Balance at end of period | $ | 162,261 | $ | 163,808 | $ | 154,528 |
At the end of each period, the liability for unpaid health claims includes an estimate of claims incurred but not yet reported to the Company. Such estimates are updated regularly based upon the Company’s most recent claims data with recognition of emerging experience trends. Due to the nature of the Company’s health business, the payment lags are relatively short and most claims are fully paid within a year from the time incurred. Fluctuations in claims experience can lead to either over or under estimation of the liability for any given year. The difference between the estimate made at the end of the prior period and the actual experience during the period is reflected above under the caption “Incurred related to: Prior years.”
Below is the reconciliation of the liability of *"*Policy claims and other benefits payable" in the Consolidated Balance Sheets.
| December 31, 2020 | December 31, 2019 | ||||||||||
| Policy claims and other benefits payable: | |||||||||||
| Life insurance | $ | 237,246 | $ | 201,594 | |||||||
| Health insurance | 162,261 | 163,808 | |||||||||
| Total | $ | 399,507 | $ | 365,402 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 8—Income Taxes
The following table discloses significant components of income taxes for each year presented:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Income tax expense (benefit) from continuing operations: | |||||||||||||||||
| Current income tax expense (benefit) | $ | 129,647 | $ | 134,948 | $ | 134,626 | |||||||||||
| Deferred income tax expense (benefit) | 35,264 | 35,449 | 27,535 | ||||||||||||||
| 164,911 | 170,397 | 162,161 | |||||||||||||||
| Shareholders’ equity: | |||||||||||||||||
| Other comprehensive income (loss) | 314,845 | 405,472 | (293,678) | ||||||||||||||
| $ | 479,756 | $ | 575,869 | $ | (131,517) |
In each of the years 2018 through 2020, deferred income tax expense (benefit) was incurred because of certain differences between net income before income tax expense (benefit) as reported on the Consolidated Statements of Operations and taxable income as reported on Globe Life's income tax returns. As explained in Note 1—Significant Accounting Policies, these differences caused the consolidated financial statement book values of some assets and liabilities to be different from their respective tax bases.
The effective income tax rate differed from the expected U.S. federal statutory rate of 21% as shown below:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2020 | % | 2019 | % | 2018 | % | ||||||||||||||||||||||||||||||
| Expected federal income tax expense (benefit) | $ | 188,304 | 21.0 | $ | 195,569 | 21.0 | $ | 181,371 | 21.0 | ||||||||||||||||||||||||||
| Increase (reduction) in income taxes resulting from: | |||||||||||||||||||||||||||||||||||
| Tax reform adjustment | — | — | — | — | (798) | (0.1) | |||||||||||||||||||||||||||||
| Low income housing investments | (11,913) | (1.3) | (11,605) | (1.2) | (12,240) | (1.4) | |||||||||||||||||||||||||||||
| Share-based awards | (5,013) | (0.6) | (11,780) | (1.3) | (6,450) | (0.7) | |||||||||||||||||||||||||||||
| Tax-exempt investment income | (5,830) | (0.6) | (3,192) | (0.3) | (1,230) | (0.1) | |||||||||||||||||||||||||||||
| Other | (637) | (0.1) | 1,405 | 0.1 | 1,508 | 0.1 | |||||||||||||||||||||||||||||
| Income tax expense (benefit) | $ | 164,911 | 18.4 | $ | 170,397 | 18.3 | $ | 162,161 | 18.8 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Deferred tax assets: | |||||||||||
| Fixed maturity investments | $ | 4,279 | $ | 6,161 | |||||||
| Carryover of tax losses | 5,534 | 7,827 | |||||||||
| Total gross deferred tax assets | 9,813 | 13,988 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Unrealized gains | 808,071 | 493,174 | |||||||||
| Employee and agent compensation | 88,012 | 81,174 | |||||||||
| Deferred acquisition costs | 688,034 | 658,457 | |||||||||
| Future policy benefits, unearned and advance premiums, and policy claims | 257,640 | 242,124 | |||||||||
| Other liabilities | 7,209 | 26,271 | |||||||||
| Total gross deferred tax liabilities | 1,848,966 | 1,501,200 | |||||||||
| Net deferred tax liability | $ | 1,839,153 | $ | 1,487,212 |
Income Tax Return: Globe Life Inc. and its subsidiaries file a life-nonlife consolidated federal income tax return for the years ended December 31, 2020 and 2019. Prior to 2018, Family Heritage Life Insurance Company of America (Family Heritage Life) filed its federal income tax return on a separate company basis. The statutes of limitations for the Internal Revenue Service's examination and assessment of additional tax are closed for all tax years prior to 2017 with respect to Globe Life's consolidated as well as Family Heritage Life's federal income tax returns. Management concludes that adequate provision has been made in the consolidated financial statements for any potential assessments that may result from current or future tax examinations and other tax-related matters for all open years.
Valuations: Globe Life has a $26.4 million net operating loss (NOL) carryforward at December 31, 2020, of which $22.4 million was created prior to 2018 and will begin to expire in 2036 if not otherwise used to offset future taxable income. The remaining NOL carryforward of $4.0 million may be carried forward indefinitely. A valuation allowance is to be recorded when it is more likely than not that deferred tax assets will not be realized by the Company. No valuation allowance has been recorded relating to Globe Life's deferred tax assets as management has determined that Globe Life will more likely than not have sufficient taxable income in future periods to fully realize its existing deferred tax assets.
Globe Life's tax liability is adjusted to include a provision for uncertain tax positions taken or expected to be taken in a tax return. However, during the years 2018 through 2020, Globe Life did not have any uncertain tax positions which resulted in unrecognized tax benefits.
Tax penalties and interest: Globe Life's continuing practice is to recognize penalties and interest related to income tax matters in income tax expense. The Company recognized interest income of $0 thousand, $55 thousand, and $0 thousand, net of federal income tax expense, in its Consolidated Statements of Operations for 2020, 2019, and 2018, respectively. The Company had no accrued interest or penalties at December 31, 2020 or 2019.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 9—Postretirement Benefits
Globe Life has qualified noncontributory defined benefit pension plans (Pension Plans) and contributory savings plans that cover substantially all employees. There is also a nonqualified noncontributory supplemental executive retirement plan (SERP) that covers a limited number of officers. The tables included herein will focus on the defined benefit plans and SERP.
The total cost of these retirement plans charged to operations was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Plan Type: | |||||||||||||||||
| Defined Contribution Plans(1) | $ | 4,855 | $ | 4,817 | $ | 4,068 | |||||||||||
| Defined Benefit Pension Plans(2) | 33,826 | 24,134 | 32,593 |
(1)401K plans.
(2)Qualified pension plans and SERP.
Globe Life accrues expense for the defined contribution plans based on a percentage of the employees’ contributions. The plans are funded by the employee contributions and a Globe Life contribution equal to the amount of accrued expense. Plan contributions are both mandatory and discretionary, depending on the terms of the plan.
Pension Plans: Cost for the defined benefit pension plans has been calculated on the projected unit credit actuarial cost method. All plan measurements for the defined benefit plans are as of December 31 of the respective year. The defined benefit pension plans covering the majority of employees are qualified and funded. Contributions are made to funded pension plans subject to minimums required by regulation and maximums allowed for tax purposes.
Globe Life's SERP provides an additional supplemental defined pension benefit to a limited number of officers. The supplemental benefit is based on the participant’s qualified plan benefit without consideration to the regulatory limits on compensation and benefit payments applicable to qualified plans, except that eligible compensation is capped at $1 million. The SERP is nonqualified and unfunded. However, a Rabbi Trust has been established to support the liability for this plan. The Rabbi Trust consists of life insurance policies on the lives of plan participants with an unaffiliated insurance carrier as well as an investment account. Since this plan is nonqualified, the investments and the policyholder value of the insurance policies in the Rabbi Trust are not included as defined benefit plan assets, but rather assets of the Company. They are included in “Other Assets” in the Consolidated Balance Sheets.
Defined benefit and SERP plan contributions were $21.9 million in 2020, $21.6 million in 2019, and $52.8 million in 2018. In 2021, the Company expects to make a similar contribution to the plans as in 2020.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Pension Assets: Plan assets in the funded plans consist primarily of investments in marketable fixed maturities and equity securities that are valued at fair value. Globe Life measures the fair value of its financial assets, including the assets in its benefit plans, in accordance with accounting guidance which establishes a hierarchy for asset values and provides a methodology for the measurement of value. Please refer to Note 1—Significant Accounting Policies under the caption Fair Value Measurements, Investments in Securities for a complete discussion of valuation procedures. The following table presents the assets of the Company's defined benefit pension plans at December 31, 2020 and 2019.
Pension Assets by Component at December 31, 2020
| Fair Value Determined by: | |||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Amount | % to Total | |||||||||||||||||||||||||
| Corporate bonds: | |||||||||||||||||||||||||||||
| Financial | $ | — | $ | 52,252 | $ | — | $ | 52,252 | 10 | ||||||||||||||||||||
| Utilities | — | 45,888 | — | 45,888 | 9 | ||||||||||||||||||||||||
| Energy | — | 22,480 | — | 22,480 | 4 | ||||||||||||||||||||||||
| Other corporates | — | 88,983 | — | 88,983 | 17 | ||||||||||||||||||||||||
| Total corporate bonds | — | 209,603 | — | 209,603 | 40 | ||||||||||||||||||||||||
| Exchange traded fund(1) | 245,170 | — | — | 245,170 | 46 | ||||||||||||||||||||||||
| Other bonds | — | 258 | — | 258 | — | ||||||||||||||||||||||||
| Guaranteed annuity contract(2) | — | 30,119 | — | 30,119 | 6 | ||||||||||||||||||||||||
| Short-term investments | 20,960 | — | — | 20,960 | 4 | ||||||||||||||||||||||||
| Other | 7,109 | — | — | 7,109 | 1 | ||||||||||||||||||||||||
| $ | 273,239 | $ | 239,980 | $ | — | 513,219 | 97 | ||||||||||||||||||||||
| Other long-term investments(3) | 16,313 | 3 | |||||||||||||||||||||||||||
| Total pension assets | $ | 529,532 | 100 |
(1)A fund including marketable securities that mirror the S&P 500 index.
(2)Representing a guaranteed annuity contract issued by Globe Life Inc.'s subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Life Insurance Company Non-Exempt Employees Defined Benefit Pension Plan ("American Income Pension Plan").
(3)Included in other long-term investments is an investment fund that reports the Pension Plan's pro-rata share of the limited partnership's net asset value per share or its equivalent (NAV), as a practical expedient for fair value. The Pension Plan owns less than 1% of the investment fund. As of December 31, 2020, the expected term of the investment fund is approximately 4 years and the commitment of the investment is fully funded. The investment is non-redeemable.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Pension Assets by Component at December 31, 2019
| Fair Value Determined by: | |||||||||||||||||||||||||||||
| Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Amount | % to Total | |||||||||||||||||||||||||
| Corporate bonds: | |||||||||||||||||||||||||||||
| Financial | $ | — | $ | 51,111 | $ | — | $ | 51,111 | 11 | ||||||||||||||||||||
| Utilities | — | 42,758 | — | 42,758 | 9 | ||||||||||||||||||||||||
| Energy | — | 21,907 | — | 21,907 | 5 | ||||||||||||||||||||||||
| Other corporates | — | 89,725 | — | 89,725 | 19 | ||||||||||||||||||||||||
| Total corporate bonds | — | 205,501 | — | 205,501 | 44 | ||||||||||||||||||||||||
| Exchange traded fund(1) | 207,176 | — | — | 207,176 | 44 | ||||||||||||||||||||||||
| Other bonds | — | 251 | — | 251 | — | ||||||||||||||||||||||||
| Guaranteed annuity contract(2) | — | 28,278 | — | 28,278 | 6 | ||||||||||||||||||||||||
| Short-term investments | 8,414 | — | — | 8,414 | 2 | ||||||||||||||||||||||||
| Other | 6,876 | — | — | 6,876 | 1 | ||||||||||||||||||||||||
| $ | 222,466 | $ | 234,030 | $ | — | 456,496 | 97 | ||||||||||||||||||||||
| Other long-term investments(3) | 12,267 | 3 | |||||||||||||||||||||||||||
| Total pension assets | $ | 468,763 | 100 |
(1)A fund including marketable securities that mirror the S&P 500 index.
(2)Representing a guaranteed annuity contract issued by Globe Life Inc.'s subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Pension Plan.
(3)Included in other long-term investments is an investment fund that reports the Pension Plan's pro-rata share of the limited partnership's net asset value per share or its equivalent (NAV), as a practical expedient for fair value. The Pension Plan owns approximately 1% of the investment fund. As of December 31, 2019, the expected term of the investment fund is approximately 5 years and the unfunded commitment of the investment fund is $4.1 million. The investment is non-redeemable.
Globe Life's investment objectives for its plan assets include preservation of capital and purchasing power as well as long-term growth. Globe Life seeks to preserve capital through investments made in high quality securities with adequate diversification by issuer and industry sector to minimize risk. The portfolio is monitored continuously for changes in quality and diversification mix. The preservation of purchasing power is intended to be accomplished through asset growth, exclusive of contributions and withdrawals in excess of the rate of inflation. Globe Life intends to maintain investments that when combined with future plan contributions will produce adequate long-term growth to provide for all plan obligations. It is also Globe Life's objective that the portfolio’s investment return will meet or exceed the return of a balanced market index.
The majority of the securities in the portfolio are highly marketable so that there will be adequate liquidity to meet projected payments. There are no specific policies calling for asset durations to match those of benefit obligations.
Allowed investments are limited to equities, fixed maturities, and short-term investments (invested cash). The assets are to be invested in a mix of equity and fixed income investments that best serve the objectives of the pension plan. Factors to be considered in determining the asset mix include funded status, annual pension expense, annual pension contributions, and balance sheet liability. Equities can include common and preferred stocks, securities convertible into equities, mutual funds and exchange traded funds that invest in equities, equity interests in limited partnerships, and other equity-related investments. Primarily, equities are listed on major exchanges and adequate market liquidity is required. Fixed maturities primarily consist of marketable debt securities rated investment grade at purchase by a major rating agency. Short-term investments include fixed maturities with maturities less than one year and invested cash. Investments outside of the aforementioned list are not permitted, except by prior approval of the Plan’s Trustees.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The investment portfolio is well diversified to avoid undue exposure to a single sector, industry, business, or security. The equity and fixed maturity portfolios are not permitted to invest in any single issuer that would exceed 10% of total plan assets at the time of purchase. The Company does not employ any other special risk management techniques, such as derivatives, in managing the pension investment portfolio.
Globe Life's equity securities include an exchange traded fund that mirrors the S&P 500 index which better aligns with a passive approach rather than an actively managed portfolio. At December 31, 2020, there were no restricted investments contained in the portfolio. Plan contributions have been invested primarily in fixed maturity and equity securities during the three years ended December 31, 2020.
SERP: The following tables include premiums paid for the company owned life insurance (COLI) for the three years ended December 31, 2020 and investments of the Rabbi Trust for the two years ended December 31, 2020.
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Premiums paid for insurance coverage | $ | 2,480 | $ | 2,394 | $ | 2,997 | |||||||||||
| At December 31, | |||||||||||||||||
| 2020 | 2019 | ||||||||||||||||
| Total investments: | |||||||||||||||||
| COLI | $ | 51,361 | $ | 47,733 | |||||||||||||
| Exchange traded funds | 75,390 | 65,585 | |||||||||||||||
| $ | 126,751 | $ | 113,318 |
Pension Liability: The following table presents projected benefit obligation (PBO) and accumulated benefit obligation (ABO) for the defined benefit pension plans and SERP at December 31, 2020 and 2019.
Pension Liability
| December 31, | |||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||
| PBO | ABO | PBO | ABO | ||||||||||||||||||||
| Funded benefit pension plans | $ | 667,753 | $ | 594,510 | $ | 578,860 | $ | 520,264 | |||||||||||||||
| SERP | 95,560 | 89,069 | 86,347 | 81,046 | |||||||||||||||||||
| Benefit Obligation | $ | 763,313 | $ | 683,579 | $ | 665,207 | $ | 601,310 |
The funded benefit pension plans have projected benefit obligations in excess of the fair value of plan assets. The projected benefit obligations and the fair value of plan assets were as follows:
| At December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Funded benefit pension plans PBO | $ | 667,753 | $ | 578,860 | |||||||
| Funded benefit pension plans fair value of plan assets | 529,532 | 468,763 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The funded benefit pension plans have accumulated benefit obligations in excess of the fair value of plan assets. The accumulated benefit obligations and the fair value of plan assets were as follows:
| At December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Funded benefit pension plans ABO | $ | 594,510 | $ | 520,264 | |||||||
| Funded benefit pension plans fair value of plan assets | 529,532 | 468,763 |
The following table discloses the assumptions used to determine Globe Life's pension liabilities and costs for the appropriate periods. The discount and compensation increase rates are used to determine current year projected benefit obligations and subsequent year pension expense. The long-term rate of return is used to determine current year expense. Differences between assumptions and actual experience are included in actuarial gain or loss.
Weighted Average Pension Plan Assumptions
| For Benefit Obligations at December 31: | 2020 | 2019 | |||||||||||||||
| Discount rate | 2.92 | % | 3.49 | % | |||||||||||||
| Rate of compensation increase | 3.97 | 4.00 | |||||||||||||||
| For Periodic Benefit Cost for the Year: | 2020 | 2019 | 2018 | ||||||||||||||
| Discount rate | 3.49 | % | 4.37 | % | 3.75 | % | |||||||||||
| Expected long-term returns | 6.67 | 6.72 | 6.72 | ||||||||||||||
| Rate of compensation increase | 3.97 | 4.00 | 4.37 |
The discount rate is determined based on the expected duration of plan liabilities. A yield is then derived based on the current market yield of a hypothetical portfolio of high quality corporate bonds that match the liability duration. The rate of compensation increase is projected based on Company experience, modified as appropriate for future expectations. The expected long-term rate of return on plan assets is management’s best estimate of the average rate of earnings expected to be received on the assets invested in the plan over the benefit period. In determining this assumption, consideration is given to the historical rate of return earned on the assets, the projected returns over future periods, and the discount rate used to compute benefit obligations.
Net periodic benefit cost for the defined benefit plans by expense component was as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Service cost—benefits earned during the period | $ | 24,461 | $ | 19,929 | $ | 21,092 | |||||||||||
| Interest cost on projected benefit obligation | 22,825 | 23,827 | 22,303 | ||||||||||||||
| Expected return on assets | (29,561) | (27,862) | (25,547) | ||||||||||||||
| Amortization of prior service cost (credit) | 632 | 8,211 | 15,003 | ||||||||||||||
| Recognition of actuarial gain (loss) | 15,469 | 29 | (258) | ||||||||||||||
| Net periodic benefit cost | $ | 33,826 | $ | 24,134 | $ | 32,593 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
An analysis of the impact on other comprehensive income (loss) concerning pensions and other postretirement benefits is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Balance at January 1 | $ | (182,233) | $ | (150,071) | $ | (193,380) | |||||||||||
| Amortization of: | |||||||||||||||||
| Prior service cost (credit) | 632 | 631 | 535 | ||||||||||||||
| Net actuarial (gain) loss(1) | 16,000 | 7,843 | 14,560 | ||||||||||||||
| Total amortization | 16,632 | 8,474 | 15,095 | ||||||||||||||
| Plan amendments | — | — | (2,377) | ||||||||||||||
| Experience gain (loss) | (43,169) | (40,636) | 30,591 | ||||||||||||||
| Balance at December 31 | $ | (208,770) | $ | (182,233) | $ | (150,071) |
(1)Includes amortization of postretirement benefits other than pensions of $302 thousand in 2020, $265 thousand in 2019, and $92 thousand in 2018.
The following table presents a reconciliation from the beginning to the end of the year of the PBO and plan assets for the defined benefit plans and SERP. This table also presents the amounts previously recognized as a component of accumulated other comprehensive income.
Pension Benefits
| Year Ended December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Changes in PBO: | |||||||||||
| PBO at beginning of year | $ | 665,207 | $ | 556,199 | |||||||
| Service cost | 24,461 | 19,929 | |||||||||
| Interest cost | 22,825 | 23,827 | |||||||||
| Actuarial loss (gain) | 74,006 | 88,053 | |||||||||
| Benefits paid | (23,186) | (22,801) | |||||||||
| PBO at end of year | 763,313 | 665,207 | |||||||||
| Changes in plan assets: | |||||||||||
| Fair value at beginning of year | 468,763 | 392,672 | |||||||||
| Return on assets | 62,104 | 77,290 | |||||||||
| Contributions | 21,851 | 21,602 | |||||||||
| Benefits paid | (23,186) | (22,801) | |||||||||
| Fair value at end of year | 529,532 | 468,763 | |||||||||
| Funded status at year end | $ | (233,781) | $ | (196,444) |
Changes in the PBO related to actuarial losses (gains) are primarily attributed to changes in the discount rate.
| Year Ended December 31, | |||||||||||
| Amounts recognized in accumulated other comprehensive income consist of: | 2020 | 2019 | |||||||||
| Net loss (gain) | $ | 200,465 | $ | 174,470 | |||||||
| Prior service cost | 4,713 | 5,345 | |||||||||
| Net amounts recognized at year end | $ | 205,178 | $ | 179,815 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Globe Life has estimated its expected pension benefits to be paid over the next ten years as of December 31, 2020. These estimates use the same assumptions that measure the benefit obligation at December 31, 2020, taking estimated future employee service into account. Those estimated benefits are as follows:
| For the year(s): | |||||
| 2021 | $ | 24,477 | |||
| 2022 | 26,494 | ||||
| 2023 | 28,783 | ||||
| 2024 | 30,960 | ||||
| 2025 | 32,067 | ||||
| 2026-2030 | 187,386 |
Note 10—Supplemental Disclosures of Cash Flow Information
The following table summarizes Globe Life's noncash transactions, which are not reflected on the Consolidated Statements of Cash Flows**:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Stock-based compensation not involving cash | $ | 35,892 | $ | 44,843 | $ | 39,792 | |||||||||||
| Commitments for low-income housing interests | 161,503 | 51,978 | 50,883 | ||||||||||||||
| Exchanges of fixed maturity investments | 219,807 | 243,156 | 193,449 | ||||||||||||||
| Net unsettled security trades | 1,669 | 8,421 | 39,851 |
The following table summarizes certain amounts paid during the period:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Interest paid | $ | 83,518 | $ | 81,723 | $ | 83,518 | |||||||||||
| Income taxes paid | 76,701 | 101,982 | 91,510 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 11—Debt
The following table presents information about the terms and outstanding balances of Globe Life's debt.
Selected Information about Debt Issues
| As of December 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||||||||||||||||||||||||||||
| Instrument | Issue Date | Maturity Date | Coupon Rate | Par Value | Unamortized Discount & Issuance Costs | Book Value | Fair Value | Book Value | |||||||||||||||||||||||||||||||||||||||
| Senior notes | 5/27/1993 | 5/15/2023 | 7.875% | $ | 165,612 | $ | (658) | $ | 164,954 | $ | 192,020 | $ | 164,713 | ||||||||||||||||||||||||||||||||||
| Senior notes(1) | 9/24/2012 | 9/15/2022 | 3.800% | 150,000 | (586) | 149,414 | 158,081 | 149,089 | |||||||||||||||||||||||||||||||||||||||
| Senior notes | 9/27/2018 | 9/15/2028 | 4.550% | 550,000 | (5,672) | 544,328 | 659,599 | 543,735 | |||||||||||||||||||||||||||||||||||||||
| Senior notes | 8/21/2020 | 8/15/2030 | 2.150% | 400,000 | (4,843) | 395,157 | 405,384 | — | |||||||||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 5/17/2016 | 6/15/2056 | 6.125% | 300,000 | (9,348) | 290,652 | 325,800 | 290,584 | |||||||||||||||||||||||||||||||||||||||
| Junior subordinated debentures | 11/17/2017 | 11/17/2057 | 5.275% | 125,000 | (1,619) | 123,381 | 130,870 | 123,367 | |||||||||||||||||||||||||||||||||||||||
| Term loan | — | — | — | — | 86,875 | ||||||||||||||||||||||||||||||||||||||||||
| 1,690,612 | (22,726) | 1,667,886 | 1,871,754 | 1,358,363 | |||||||||||||||||||||||||||||||||||||||||||
| Less current maturity of term loan | — | — | — | — | 9,375 | ||||||||||||||||||||||||||||||||||||||||||
| Total long-term debt | 1,690,612 | (22,726) | 1,667,886 | 1,871,754 | 1,348,988 | ||||||||||||||||||||||||||||||||||||||||||
| Current maturity of term loan | — | — | — | — | 9,375 | ||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | 255,000 | (82) | 254,918 | 254,918 | 289,363 | ||||||||||||||||||||||||||||||||||||||||||
| Total short-term debt | 255,000 | (82) | 254,918 | 254,918 | 298,738 | ||||||||||||||||||||||||||||||||||||||||||
| Total debt | $ | 1,945,612 | $ | (22,808) | $ | 1,922,804 | $ | 2,126,672 | $ | 1,647,726 |
(1)An additional $150 million par value and book value is held by insurance subsidiaries that eliminates in consolidation.
The commercial paper has the highest priority of all the debt, followed by senior notes then junior subordinated debentures. The Senior Notes due 2023 are noncallable, the remaining senior notes are callable under a make-whole provision, and the junior subordinated debentures are callable upon special events. Interest on the 6.125% Junior Subordinated Debentures is payable quarterly, all other long-term debt is payable semi-annually.
Contractual Debt Obligations*:* The following table presents expected scheduled principal payments under our contractual debt obligations:
| Year Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | ||||||||||||||||||||||||||||||
| Debt obligations | $ | 255,000 | $ | 150,000 | $ | 165,612 | $ | — | $ | — | $ | 1,375,000 |
Credit Facility*:* On August 24, 2020, Globe Life entered into a new credit agreement, replacing the prior agreement that was due on May 17, 2021, which provides for a $750 million revolving credit facility that may be increased to $1 billion. The new credit facility matures August 24, 2023 and may be extended up to two one-year periods upon the Company's request. Pursuant to this agreement, the participating lenders have agreed to make revolving loans to Globe Life and to issue secured or unsecured letters of credit. The Company has not drawn on any of the credit to date.
The facility is further designated as a back-up credit line for a commercial paper program under which the Company may either borrow from the credit line or issue commercial paper at any time, with total commercial paper outstanding not to exceed the facility maximum of $750 million, less any letters of credit issued. Interest is charged
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
at variable rates. In accordance with the agreement, Globe Life is subject to certain covenants regarding capitalization. As of December 31, 2020, the Company was in full compliance with these covenants.
Commercial paper outstanding and any amortization payments of the term loan due within one year are reported as short-term debt on the Consolidated Balance Sheets. A table presenting selected information concerning Globe Life's commercial paper borrowings is presented below.
Credit Facility - Commercial Paper
| At December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Balance at end of period (at par value) | $ | 255,000 | $ | 290,000 | |||||||
| Annualized interest rate | 0.27 | % | 2.04 | % | |||||||
| Letters of credit outstanding | $ | 135,000 | $ | 150,000 | |||||||
| Remaining amount available under credit line | 360,000 | 310,000 |
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Average balance outstanding during period | $ | 318,409 | $ | 288,684 | $ | 368,228 | |||||||||||
| Daily-weighted average interest rate (annualized) | 1.50 | % | 2.62 | % | 2.40 | % | |||||||||||
| Maximum daily amount outstanding during period | $ | 482,000 | $ | 385,000 | $ | 525,990 |
Short-term debt: On July 31, 2020, the Company paid down the remaining principal of $82.5 million on the 5-year $100 million term loan (Term Loan I) with a maturity date of May 17, 2021. This term loan was associated with the prior credit facility that was replaced in August 2020.
On April 9, 2020, Globe Life entered into a 364-Day Term Loan Agreement (Term Loan II). The Agreement provided the Company with access up to $300 million in unsecured term loans, all maturing on April 8, 2021. Globe Life borrowed the full amount on April 15, 2020 to utilize for general corporate purposes, including additional liquidity at the Parent Company. The net proceeds from the Term Loan II were $299.1 million. On August 17, 2020, the Company repaid $150 million of the Term Loan II with the remaining balance of $150 million repaid on August 26, 2020. The Company recorded a $634 thousand loss on redemption of debt from the write-off of unamortized issuance costs.
Long-term debt*:* On August 21, 2020, Globe Life completed the issuance and sale of $350 million in aggregate principal amount of Globe Life's 2.15% unsecured Senior Notes due August 15, 2030. The net proceeds from the sale of the Senior Notes were $345.8 million.
On September 3, 2020, Globe Life completed the issuance and sale of $50 million in aggregate principal of Globe Life's 2.15% unsecured Senior Notes also due August 15, 2030. These Senior Notes were issued as additional notes under a Second Supplemental Indenture governing the 2.15% Senior Notes issued on August 21, 2020. The Senior Notes are fully fungible and have the same terms as the first issuance. The net proceeds from the sale of the Senior Notes were $49.3 million, after giving effect to the underwriting expenses.
Globe Life utilized the total net proceeds of $395 million to extinguish the Term Loan II and for general corporate purposes, which included additional capital investments in its insurance subsidiaries and additional holding company liquidity.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 12—Shareholders' Equity
Share Data: A summary of common share activity is presented in the following chart.
| Common Stock | |||||||||||||||||||||||
| Issued | Treasury Stock | ||||||||||||||||||||||
| 2018: | |||||||||||||||||||||||
| Balance at January 1, 2018 | 124,218,183 | (9,625,104) | |||||||||||||||||||||
| Grants of restricted stock | — | 10,805 | |||||||||||||||||||||
| Forfeitures of restricted stock | — | (7,500) | |||||||||||||||||||||
| Vesting of performance shares | — | 149,898 | |||||||||||||||||||||
| Issuance of common stock due to exercise of stock options | — | 897,622 | |||||||||||||||||||||
| Treasury stock acquired | — | (4,950,868) | |||||||||||||||||||||
| Retirement of treasury stock | (3,000,000) | 3,000,000 | |||||||||||||||||||||
| Balance at December 31, 2018 | 121,218,183 | (10,525,147) | |||||||||||||||||||||
| 2019: | |||||||||||||||||||||||
| Grants of restricted stock | — | 8,840 | |||||||||||||||||||||
| Vesting of performance shares | — | 311,399 | |||||||||||||||||||||
| Issuance of common stock due to exercise of stock options | — | 1,810,559 | |||||||||||||||||||||
| Treasury stock acquired | — | (5,103,591) | |||||||||||||||||||||
| Retirement of treasury stock | (4,000,000) | 4,000,000 | |||||||||||||||||||||
| Balance at December 31, 2019 | 117,218,183 | (9,497,940) | |||||||||||||||||||||
| 2020: | |||||||||||||||||||||||
| Grants of restricted stock | — | 4,548 | |||||||||||||||||||||
| Vesting of performance shares | — | 271,843 | |||||||||||||||||||||
| Issuance of common stock due to exercise of stock options | — | 936,289 | |||||||||||||||||||||
| Treasury stock acquired | — | (5,135,439) | |||||||||||||||||||||
| Retirement of treasury stock | (4,000,000) | 4,000,000 | |||||||||||||||||||||
| Balance at December 31, 2020 | 113,218,183 | (9,420,699) |
There was no activity related to the preferred stock in years 2018 through 2020.
Acquisition of Common Shares*:* Globe Life shares are acquired from time to time through open market purchases under the Globe Life stock repurchase program when it is determined to be the best use of Globe Life's excess cash flows. This yields a return that is better than available alternatives and exceeds our cost of equity. When stock options are exercised, proceeds from the exercises are generally used to repurchase approximately the number of shares available with those funds in order to reduce dilution. See the following summary below:
| Globe Life Share Repurchase Program | Share Repurchase for Dilution Purposes | ||||||||||||||||||||||||||||||||||
| Shares Acquired (in thousands) | Total Cost | Average Price | Shares Acquired (in thousands) | Total Cost | Average Price | ||||||||||||||||||||||||||||||
| 2020 | 4,459 | $ | 380,112 | $ | 85.24 | 676 | $ | 63,754 | $ | 94.28 | |||||||||||||||||||||||||
| 2019 | 3,932 | 350,080 | 89.04 | 1,209 | 109,489 | 90.52 | |||||||||||||||||||||||||||||
| 2018 | 4,406 | 371,794 | 84.38 | 571 | 49,955 | 87.54 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Restrictions*:* Restrictions exist on the flow of funds to Globe Life Inc. from its insurance subsidiaries. Statutory regulations require life insurance subsidiaries to maintain certain minimum amounts of capital and surplus. Dividends from insurance subsidiaries of Globe Life Inc. are restricted based on regulations by their states of domicile. Additionally, insurance company distributions are generally not permitted in excess of statutory surplus. Subsidiaries are also subject to certain minimum capital requirements. Subsidiaries of Globe Life paid cash dividends to the Parent Company in the amount of $486 million in 2020, $480 million in 2019, and $448 million in 2018. As of December 31, 2020, dividends from insurance subsidiaries to the Parent Company available to be paid in 2021 are limited to the amount of $435 million without regulatory approval, such that $1.0 billion was considered restricted net assets of the subsidiaries. Dividends exceeding these limitations may be available during the year pending regulatory approval. While there are no legal restrictions on the payment of dividends to shareholders from Globe Life's retained earnings, retained earnings as of December 31, 2020 were restricted by lenders’ covenants which require the Company to maintain and not distribute $4.2 billion from its total consolidated retained earnings of $5.9 billion.
Earnings per Share*:* A reconciliation of basic and diluted weighted-average shares outstanding used in the computation of basic and diluted earnings per share is as follows:
| Year Ended December 31, | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Basic weighted average shares outstanding | 106,075,267 | 109,213,524 | 112,872,581 | ||||||||||||||
| Weighted average dilutive options outstanding | 1,149,327 | 2,167,726 | 2,376,372 | ||||||||||||||
| Diluted weighted average shares outstanding | 107,224,594 | 111,381,250 | 115,248,953 | ||||||||||||||
| Antidilutive shares | 2,476,019 | 21,556 | 1,161,521 |
Antidilutive shares are excluded from the calculation of diluted earnings per share.
Note 13—Stock-Based Compensation
Globe Life's stock-based compensation consists of stock options, restricted stock, restricted stock units, and performance shares. Certain employees and directors have been granted fixed equity options to buy shares of Globe Life stock at the market value of the stock on the date of grant, under the provisions of the Globe Life stock option plans. The options are exercisable during the period commencing from the date they vest until expiring according to the terms of the grant. Options generally expire the earlier of employee termination or option contract term, which are either seven-year or ten-year terms. Options generally vest in accordance with the following schedule:
| Shares vested by period | |||||||||||||||||||||||||||||||||||||||||
| Contract Period | 6 Months | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |||||||||||||||||||||||||||||||||||
| Directors | 7 years | 100% | —% | —% | —% | —% | —% | ||||||||||||||||||||||||||||||||||
| Employees | 7 years | —% | —% | 50% | 50% | —% | —% | ||||||||||||||||||||||||||||||||||
| Employees | 10 years | —% | —% | 25% | 25% | 25% | 25% |
All employee options vest immediately upon retirement on or after the attainment of age 65, upon death, or disability. Globe Life generally issues shares for the exercise of stock options from treasury stock. The Company generally uses the proceeds from option exercises to buy shares of Globe Life common stock in the open market to reduce the dilution from option exercises.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
An analysis of shares available for grant is as follows:
| Available for Grant | |||||||||||||||||
| 2020 | 2019 | 2018 | |||||||||||||||
| Balance at January 1, | 7,167,718 | 9,422,760 | 2,964,320 | ||||||||||||||
| Approval of Globe Life Inc. 2018 Incentive Plan.(1) | — | — | 8,984,000 | ||||||||||||||
| Cancellation of available shares from prior plans | — | — | (184,000) | ||||||||||||||
| Expired and forfeited during year(2,3) | 38,820 | 20,800 | 41,317 | ||||||||||||||
| Options granted during year(2) | (1,127,610) | (1,149,542) | (1,262,037) | ||||||||||||||
| Restricted stock, restricted stock units, and performance shares granted(3) | (94,510) | (1,126,300) | (1,120,840) | ||||||||||||||
| Balance at December 31, | 5,984,418 | 7,167,718 | 9,422,760 |
(1)See plan document referenced in Exhibits. Formerly, the Torchmark Corporation 2018 Incentive Plan.
(2)Plan allows for grant of options such that each grant reduces shares available for grant in a range from 0.85 share to 1 share.
(3)Plan allows for grant of restricted stock such that each stock grant reduces shares available for grant in a range from 3.10 shares to 3.88 shares.
A summary of stock compensation activity for each of the three years ended December 31, 2020 is presented below:
| 2020 | 2019 | 2018 | |||||||||||||||
| Stock-based compensation expense recognized(1) | $ | 35,892 | $ | 44,843 | $ | 39,792 | |||||||||||
| Tax benefit recognized | 12,550 | 21,197 | 14,806 |
(1)No stock-based compensation expense was capitalized in any period.
Additional stock compensation information is as follows at December 31:
| 2020 | 2019 | ||||||||||
| Unrecognized compensation(1) | $ | 28,125 | $ | 34,723 | |||||||
| Weighted average period of expected recognition (in years)(1) | 0.65 | 0.78 |
(1)Includes restricted stock and performance shares.
No equity awards were cash settled during the three years ended December 31, 2020.
Options: The following table summarizes information about stock options outstanding at December 31, 2020.
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||
| Range of Exercise Prices | Number Outstanding | Weighted- Average Remaining Contractual Life (Years) | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | |||||||||||||||||||||||||||
| $29.59 - $76.37 | 1,736,807 | 2.77 | $ | 51.29 | 1,598,580 | $ | 51.34 | |||||||||||||||||||||||||
| 77.26 | 1,372,680 | 4.11 | 77.26 | 1,142,879 | 77.26 | |||||||||||||||||||||||||||
| 82.56 - 83.17 | 1,327,447 | 5.15 | 82.56 | 33,217 | 82.69 | |||||||||||||||||||||||||||
| 87.60 - 90.21 | 1,347,698 | 5.24 | 87.64 | 573,454 | 87.70 | |||||||||||||||||||||||||||
| 100.74 - 105.56 | 1,326,599 | 6.16 | 100.85 | 41,269 | 104.39 | |||||||||||||||||||||||||||
| $29.59 - $105.56 | 7,111,231 | 4.57 | $ | 78.28 | 3,389,399 | $ | 67.19 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
An analysis of option activity for each of the three years ended December 31, 2020 is as follows:
| 2020 | 2019 | 2018 | |||||||||||||||||||||||||||||||||
| Options | Weighted-Average Exercise Price | Options | Weighted-Average Exercise Price | Options | Weighted-Average Exercise Price | ||||||||||||||||||||||||||||||
| Outstanding—beginning of year | 6,724,358 | $ | 70.07 | 7,203,765 | $ | 61.72 | 6,753,801 | $ | 53.59 | ||||||||||||||||||||||||||
| Granted: | |||||||||||||||||||||||||||||||||||
| 7-year term | 1,326,599 | 100.85 | 1,352,402 | 82.43 | 845,773 | 87.63 | |||||||||||||||||||||||||||||
| 10-year term | — | — | — | — | 543,130 | 87.60 | |||||||||||||||||||||||||||||
| Exercised | (936,289) | 51.37 | (1,810,559) | 45.93 | (897,622) | 40.21 | |||||||||||||||||||||||||||||
| Expired and forfeited | (3,437) | 75.27 | (21,250) | 82.89 | (41,317) | 70.90 | |||||||||||||||||||||||||||||
| Outstanding—end of year | 7,111,231 | $ | 78.28 | 6,724,358 | $ | 70.07 | 7,203,765 | $ | 61.72 | ||||||||||||||||||||||||||
| Exercisable at end of year | 3,389,399 | $ | 67.19 | 2,999,788 | $ | 57.27 | 3,393,090 | $ | 48.18 |
Additional information about Globe Life's stock option activity as of December 31, 2020 and 2019 is as follows:
| 2020 | 2019 | ||||||||||
| Outstanding options: | |||||||||||
| Weighted-average remaining contractual term (in years) | 4.57 | 4.80 | |||||||||
| Aggregate intrinsic value | $ | 126,467 | $ | 236,546 | |||||||
| Exercisable options: | |||||||||||
| Weighted-average remaining contractual term (in years) | 3.42 | 3.27 | |||||||||
| Aggregate intrinsic value | $ | 94,527 | $ | 143,935 |
Selected stock option activity for the three years ended December 31, 2020 is presented below:
| 2020 | 2019 | 2018 | |||||||||||||||
| Weighted-average grant-date fair value of options granted (per share) | $ | 14.64 | $ | 14.20 | $ | 15.65 | |||||||||||
| Intrinsic value of options exercised | 40,517 | 82,022 | 42,517 | ||||||||||||||
| Cash received from options exercised | 48,093 | 83,163 | 36,091 | ||||||||||||||
| Actual tax benefit received | 8,508 | 17,225 | 8,929 |
Additional information concerning Globe Life's unvested options is as follows at December 31:
| 2020 | 2019 | ||||||||||
| Number of shares outstanding | 3,721,832 | 3,724,570 | |||||||||
| Weighted-average exercise price (per share) | $ | 88.37 | $ | 80.39 | |||||||
| Weighted-average remaining contractual term (in years) | 5.62 | 6.04 | |||||||||
| Aggregate intrinsic value | $ | 31,941 | $ | 92,611 |
Globe Life expects that substantially all unvested options will vest.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Restricted Stock: Restricted stock grants consist of time-vested grants, restricted stock units, and performance shares. Time-vested restricted stock is available to both senior executives and directors. The employee grants generally vest over five years and the director grants vest over six months. Restricted stock units are available only to directors. They vest over six months and are not converted to shares until the directors’ retirement, death, or disability. Director restricted stock and restricted stock units are generally granted on the first work day of the year. Performance shares are granted to a limited number of senior executives. Performance shares have a three-year contract life and are not settled in shares until the termination of the three-year contract period. While the grant specifies a stated target number of shares, the determination of the actual settlement in shares will be based on the achievement of certain performance objectives of Globe Life over the respective three-year contract periods. Certain executive restricted stock and performance share grants contain terms related to age that could accelerate vesting.
Following are the restricted stock units outstanding for each of the three years ended December 31, 2020. All restricted stock units were fully vested at the end of each year of grant.
| Year of grants | Outstanding as of year end | |||||||
| 2018 | 102,116 | |||||||
| 2019 | 71,006 | |||||||
| 2020 | 77,167 |
Below is the final determination of the performance share grants in 2016 to 2018:
| Year of grants | Final settlement of shares | Final settlement date | ||||||||||||
| 2016 | 311,399 | February 28, 2019 | ||||||||||||
| 2017 | 271,843 | February 26, 2020 | ||||||||||||
| 2018 | 210,155 | February 24, 2021 |
For the 2019 and 2020 performance share grants, actual shares that could be distributed range from 0 to 313 thousand for the 2019 grants and 0 to 227 thousand shares for the 2020 grants.
A summary of restricted stock grants for each of the years in the three-year period ended December 31, 2020 is presented in the table below.
| 2020 | 2019 | 2018 | |||||||||||||||
| Directors restricted stock: | |||||||||||||||||
| Shares | 4,548 | 8,840 | 10,805 | ||||||||||||||
| Price per share | $ | 105.56 | $ | 76.37 | $ | 88.19 | |||||||||||
| Aggregate value | $ | 480 | $ | 675 | $ | 953 | |||||||||||
| Percent vested as of 12/31/2020 | 100 | % | 100 | % | 100 | % | |||||||||||
| Directors restricted stock units (including dividend equivalents): | |||||||||||||||||
| Shares | 6,161 | 6,634 | 7,688 | ||||||||||||||
| Price per share | $ | 103.32 | $ | 77.50 | $ | 89.15 | |||||||||||
| Aggregate value | $ | 637 | $ | 514 | $ | 685 | |||||||||||
| Percent vested as of 12/31/2020 | 100 | % | 100 | % | 100 | % | |||||||||||
| Performance shares: | |||||||||||||||||
| Target shares | 151,200 | 156,500 | 159,000 | ||||||||||||||
| Target price per share | $ | 100.74 | $ | 82.56 | $ | 87.60 | |||||||||||
| Aggregate value | $ | 15,232 | $ | 12,921 | $ | 13,928 | |||||||||||
| Percent vested as of 12/31/2020 | — | % | — | % | — | % |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Time-vested restricted stockholders, both employees and directors, are entitled to dividend payments on the unvested stock. Restricted stock unit holders are entitled to dividend equivalents. These equivalents are granted in the form of additional restricted stock units and vest immediately upon grant. Dividend equivalents are applicable only to restricted stock units. Performance shareholders are not entitled to dividend equivalents and are not entitled to dividend payments until the shares are vested and settled.
An analysis of nonvested restricted stock is as follows:
| Executive Restricted Stock | Executive Performance Shares | Directors Restricted Stock | Directors Restricted Stock Units | Total | |||||||||||||||||||||||||
| 2018: | |||||||||||||||||||||||||||||
| Balance at January 1, 2018 | 35,250 | 564,112 | — | — | 599,362 | ||||||||||||||||||||||||
| Grants | — | 159,000 | 10,805 | 7,688 | 177,493 | ||||||||||||||||||||||||
| Additional performance shares(1) | — | 179,415 | — | — | 179,415 | ||||||||||||||||||||||||
| Restriction lapses | (23,250) | (149,898) | (10,805) | (7,688) | (191,641) | ||||||||||||||||||||||||
| Forfeitures | — | — | — | — | — | ||||||||||||||||||||||||
| Balance at December 31, 2018 | 12,000 | 752,629 | — | — | 764,629 | ||||||||||||||||||||||||
| 2019: | |||||||||||||||||||||||||||||
| Grants | — | 156,500 | 8,840 | 6,634 | 171,974 | ||||||||||||||||||||||||
| Additional performance shares(1) | — | 118,812 | — | — | 118,812 | ||||||||||||||||||||||||
| Restriction lapses | (12,000) | (311,399) | (8,840) | (6,634) | (338,873) | ||||||||||||||||||||||||
| Forfeitures | — | — | — | — | — | ||||||||||||||||||||||||
| Balance at December 31, 2019 | — | 716,542 | — | — | 716,542 | ||||||||||||||||||||||||
| 2020: | |||||||||||||||||||||||||||||
| Grants | — | 151,200 | 4,548 | 6,161 | 161,909 | ||||||||||||||||||||||||
| Additional performance shares(1) | — | (65,473) | — | — | (65,473) | ||||||||||||||||||||||||
| Restriction lapses | — | (271,843) | (4,548) | (6,161) | (282,552) | ||||||||||||||||||||||||
| Forfeitures | — | (11,450) | — | — | (11,450) | ||||||||||||||||||||||||
| Balance at December 31, 2020 | — | 518,976 | — | — | 518,976 |
(1)Estimated additional (reduced) share grants expected due to achievement of performance criteria.
An analysis of the weighted-average grant-date fair values per share of nonvested restricted stock is as follows for the year 2020:
| Executive Restricted Stock | Executive Performance Shares | Directors Restricted Stock | Directors Restricted Stock Units | ||||||||||||||||||||
| Grant-date fair value per share at January 1, 2020 | $ | — | $ | 75.05 | $ | — | $ | — | |||||||||||||||
| Grants | — | 100.74 | 105.56 | 105.56 | |||||||||||||||||||
| Estimated additional performance shares | — | (40.99) | — | — | |||||||||||||||||||
| Restriction lapses | — | (77.26) | (105.56) | (105.56) | |||||||||||||||||||
| Forfeitures | — | (77.26) | — | — | |||||||||||||||||||
| Grant-date fair value per share at December 31, 2020 | — | 90.13 | — | — |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 14—Business Segments
Globe Life is organized into four segments: life insurance, supplemental health insurance, annuities, and investments. In addition, other expenses not included in these segments are reported in "Corporate & Other."
Globe Life's reportable insurance segments are based on the insurance product lines it markets and administers: life insurance, supplemental health insurance, and annuities. These major product lines are set out as reportable segments because of the common characteristics of products within these categories, comparability of margins, and the similarity in regulatory environment and management techniques. There is also an investment segment which manages the investment portfolio, debt, and cash flow for the insurance segments and the corporate function. The Company's chief operating decision makers evaluate the overall performance of the operations of the Company in accordance with these segments.
Life insurance products marketed by Globe Life include traditional whole life and term life insurance. Health insurance products are generally guaranteed-renewable and include Medicare Supplement, critical illness, accident, and limited-benefit supplemental hospital and surgical coverage. Annuities include fixed-benefit contracts.
Globe Life markets its insurance products through a number of distribution channels, each of which sells the products of one or more of Globe Life's insurance segments. Our distribution channels consist of the following exclusive agencies: American Income Life Division (American Income), Liberty National Division (Liberty National) and Family Heritage Division (Family Heritage); an independent agency, United American Division (United American); and our Direct to Consumer Division (Direct to Consumer). The tables below present segment premium revenue by each of Globe Life's distribution channels.
Premium Income by Distribution Channel
| For the Year 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution Channel | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||||||||||||||||||
| American Income | $ | 1,257,726 | 47 | $ | 105,734 | 9 | $ | — | — | $ | 1,363,460 | 36 | ||||||||||||||||||||||||||||||||||||||
| Direct to Consumer | 906,959 | 34 | 76,527 | 7 | — | — | 983,486 | 26 | ||||||||||||||||||||||||||||||||||||||||||
| Liberty National | 293,897 | 11 | 188,835 | 16 | — | — | 482,732 | 13 | ||||||||||||||||||||||||||||||||||||||||||
| United American | 9,688 | — | 452,980 | 40 | 4 | 100 | 462,672 | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Family Heritage | 4,253 | — | 317,021 | 28 | — | — | 321,274 | 8 | ||||||||||||||||||||||||||||||||||||||||||
| Other | 200,281 | 8 | — | — | — | — | 200,281 | 5 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 2,672,804 | 100 | $ | 1,141,097 | 100 | $ | 4 | 100 | $ | 3,813,905 | 100 |
| For the Year 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution Channel | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||||||||||||||||||
| American Income | $ | 1,160,495 | 46 | $ | 99,447 | 9 | $ | — | — | $ | 1,259,942 | 35 | ||||||||||||||||||||||||||||||||||||||
| Direct to Consumer | 855,543 | 34 | 77,557 | 7 | — | — | 933,100 | 26 | ||||||||||||||||||||||||||||||||||||||||||
| Liberty National | 285,551 | 11 | 189,578 | 18 | — | — | 475,129 | 13 | ||||||||||||||||||||||||||||||||||||||||||
| United American | 10,571 | 1 | 416,582 | 39 | 4 | 100 | 427,157 | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Family Heritage | 3,830 | — | 294,182 | 27 | — | — | 298,012 | 8 | ||||||||||||||||||||||||||||||||||||||||||
| Other | 201,794 | 8 | — | — | — | — | 201,794 | 6 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 2,517,784 | 100 | $ | 1,077,346 | 100 | $ | 4 | 100 | $ | 3,595,134 | 100 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| For the Year 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Total | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution Channel | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||||||||||||||||||
| American Income | $ | 1,081,333 | 45 | $ | 93,313 | 9 | $ | — | — | $ | 1,174,646 | 34 | ||||||||||||||||||||||||||||||||||||||
| Direct to Consumer | 828,935 | 34 | 76,297 | 7 | — | — | 905,232 | 26 | ||||||||||||||||||||||||||||||||||||||||||
| Liberty National | 278,878 | 12 | 191,378 | 19 | — | — | 470,256 | 14 | ||||||||||||||||||||||||||||||||||||||||||
| United American | 11,451 | 1 | 381,076 | 38 | 12 | 100 | 392,539 | 12 | ||||||||||||||||||||||||||||||||||||||||||
| Family Heritage | 3,501 | — | 273,275 | 27 | — | — | 276,776 | 8 | ||||||||||||||||||||||||||||||||||||||||||
| Other | 202,457 | 8 | — | — | — | — | 202,457 | 6 | ||||||||||||||||||||||||||||||||||||||||||
| $ | 2,406,555 | 100 | $ | 1,015,339 | 100 | $ | 12 | 100 | $ | 3,421,906 | 100 |
Due to the nature of the life insurance industry, Globe Life has no individual or group which would be considered a major customer. Substantially all of Globe Life's business is conducted in the United States.
The measure of profitability established by the chief operating decision makers for insurance segments is underwriting margin before other income and administrative expenses, in accordance with the manner the segments are managed. This measure represents gross profit margin on insurance products before insurance administrative expenses and consists primarily of premium less net policy benefits, acquisition expenses, and commissions. Required interest on net policy liabilities (benefit reserves less deferred acquisition costs) is reflected as a component of the Investment segment (rather than as a component of underwriting margin in the insurance and annuity segments) in order to match this cost with the investment income earned on the assets supporting the net policy liabilities.
The measure of profitability for the Investment segment is excess investment income, which represents the income earned on the investment portfolio in excess of net policy requirements and financing costs associated with Globe Life's debt. Other than the above-mentioned interest allocations and an intersegment commission, there are no other intersegment revenues or expenses. Expenses directly attributable to corporate operations are included in the “Corporate & Other” category. Stock-based compensation expense is considered a corporate expense by Globe Life management and is included in this category. All other unallocated revenues and expenses on a pretax basis, including insurance administrative expense, are also included in the “Corporate & Other” segment category.
Globe Life holds a sizable investment portfolio to support its insurance liabilities, the yield from which is used to offset policy benefit, acquisition, administrative and tax expenses. This yield or investment income is taken into account when establishing premium rates and profitability expectations of its insurance products. From time to time, investments are sold, called, or experience a credit loss event, each of which are reflected by the Company as realized gain (loss)—investments. These gains or losses generally occur as a result of disposition due to issuer calls, compliance with Company investment policies, or other reasons often beyond management’s control. Unlike investment income, realized gains and losses are incidental to insurance operations, and only overall yields are considered when setting premium rates or insurance product profitability expectations. While these gains and losses are not relevant to segment profitability or core operating results, they can have a material positive or negative result on net income. For these reasons, management removes realized investment gains and losses when it views its segment operations.
Management removes items that are related to prior periods when evaluating the operating results of current periods. Management also removes non-operating items unrelated to its core insurance activities when evaluating those results. Therefore, these items are excluded in its presentation of segment results, because accounting guidance requires that operating segment results be presented as management views its business. With the exception of the administrative settlements noted in the paragraphs above, all of these items are included in “Other operating expense” in the Consolidated Statements of Operations for the appropriate year. See additional detail below in the tables.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following tables set forth a reconciliation of Globe Life's revenues and operations by segment to its major income statement line items. See Note—1 Significant Accounting Policies for additional information concerning reconciling items of segment profits to pretax income.
| Twelve Months Ended December 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Adjustments | Consolidated | ||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||
| Premium | $ | 2,672,804 | $ | 1,141,097 | $ | 4 | $ | — | $ | — | $ | — | $ | 3,813,905 | ||||||||||||||||||||||||||||||
| Net investment income | — | — | — | 927,062 | — | — | 927,062 | |||||||||||||||||||||||||||||||||||||
| Other income | — | — | — | — | 1,325 | — | 1,325 | |||||||||||||||||||||||||||||||||||||
| Total revenue | 2,672,804 | 1,141,097 | 4 | 927,062 | 1,325 | — | 4,742,292 | |||||||||||||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||||||||||||||
| Policy benefits | 1,809,373 | 733,481 | 30,030 | — | — | — | 2,572,884 | |||||||||||||||||||||||||||||||||||||
| Required interest on reserves | (698,112) | (93,475) | (41,413) | 833,000 | — | — | — | |||||||||||||||||||||||||||||||||||||
| Required interest on DAC | 210,152 | 26,586 | 328 | (237,066) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of acquisition costs | 463,586 | 110,177 | 2,007 | — | — | — | 575,770 | |||||||||||||||||||||||||||||||||||||
| Commissions, premium taxes, and non-deferred acquisition costs | 212,859 | 91,959 | 23 | — | — | — | 304,841 | |||||||||||||||||||||||||||||||||||||
| Insurance administrative expense(1) | — | — | — | — | 250,947 | 3,985 | (2,3) | 254,932 | ||||||||||||||||||||||||||||||||||||
| Parent expense | — | — | — | — | 9,891 | 323 | (3) | 10,214 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 35,892 | — | 35,892 | |||||||||||||||||||||||||||||||||||||
| Interest expense | — | — | — | 86,704 | — | — | 86,704 | |||||||||||||||||||||||||||||||||||||
| Total expenses | 1,997,858 | 868,728 | (9,025) | 682,638 | 296,730 | 4,308 | 3,841,237 | |||||||||||||||||||||||||||||||||||||
| Subtotal | 674,946 | 272,369 | 9,029 | 244,424 | (295,405) | (4,308) | 901,055 | |||||||||||||||||||||||||||||||||||||
| Non-operating items | — | — | — | — | — | 4,308 | (2,3) | 4,308 | ||||||||||||||||||||||||||||||||||||
| Measure of segment profitability (pretax) | $ | 674,946 | $ | 272,369 | $ | 9,029 | $ | 244,424 | $ | (295,405) | $ | — | 905,363 | |||||||||||||||||||||||||||||||
| Realized gain (loss)—investments | (3,737) | |||||||||||||||||||||||||||||||||||||||||||
| Realized loss—redemption of debt | (634) | |||||||||||||||||||||||||||||||||||||||||||
| Legal proceedings | (3,275) | |||||||||||||||||||||||||||||||||||||||||||
| Non-operating expenses | (1,033) | |||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes per Consolidated Statements of Operations | $ | 896,684 |
(1)Administrative expense is not allocated to insurance segments.
(2)Legal proceedings.
(3)Non-operating expenses.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| Twelve Months Ended December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Adjustments | Consolidated | ||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||
| Premium | $ | 2,517,784 | $ | 1,077,346 | $ | 4 | $ | — | $ | — | $ | — | $ | 3,595,134 | ||||||||||||||||||||||||||||||
| Net investment income | — | — | — | 910,459 | — | — | 910,459 | |||||||||||||||||||||||||||||||||||||
| Other income | — | — | — | — | 1,318 | — | 1,318 | |||||||||||||||||||||||||||||||||||||
| Total revenue | 2,517,784 | 1,077,346 | 4 | 910,459 | 1,318 | — | 4,506,911 | |||||||||||||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||||||||||||||
| Policy benefits | 1,638,053 | 687,764 | 31,532 | — | — | — | 2,357,349 | |||||||||||||||||||||||||||||||||||||
| Required interest on reserves | (666,168) | (87,289) | (43,522) | 796,979 | — | — | — | |||||||||||||||||||||||||||||||||||||
| Required interest on DAC | 202,502 | 25,435 | 494 | (228,431) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of acquisition costs | 436,881 | 112,825 | 2,020 | — | — | — | 551,726 | |||||||||||||||||||||||||||||||||||||
| Commissions, premium taxes, and non-deferred acquisition costs | 203,052 | 94,973 | 22 | — | — | — | 298,047 | |||||||||||||||||||||||||||||||||||||
| Insurance administrative expense(1) | — | — | — | — | 240,321 | 8,758 | (2,3) | 249,079 | ||||||||||||||||||||||||||||||||||||
| Parent expense | — | — | — | — | 10,260 | 643 | (4) | 10,903 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 44,843 | — | 44,843 | |||||||||||||||||||||||||||||||||||||
| Interest expense | — | — | — | 84,306 | — | — | 84,306 | |||||||||||||||||||||||||||||||||||||
| Total expenses | 1,814,320 | 833,708 | (9,454) | 652,854 | 295,424 | 9,401 | 3,596,253 | |||||||||||||||||||||||||||||||||||||
| Subtotal | 703,464 | 243,638 | 9,458 | 257,605 | (294,106) | (9,401) | 910,658 | |||||||||||||||||||||||||||||||||||||
| Non-operating items | — | — | — | — | — | 9,401 | (2,3,4) | 9,401 | ||||||||||||||||||||||||||||||||||||
| Measure of segment profitability (pretax) | $ | 703,464 | $ | 243,638 | $ | 9,458 | $ | 257,605 | $ | (294,106) | $ | — | 920,059 | |||||||||||||||||||||||||||||||
| Realized gain (loss)—investments | 20,621 | |||||||||||||||||||||||||||||||||||||||||||
| Administrative settlements | (400) | |||||||||||||||||||||||||||||||||||||||||||
| Legal proceedings | (8,358) | |||||||||||||||||||||||||||||||||||||||||||
| Non-operating expenses | (643) | |||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes per Consolidated Statements of Operations | $ | 931,279 |
(1)Administrative expense is not allocated to insurance segments.
(2)Administrative settlements.
(3)Legal proceedings.
(4)Non-operating expenses.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
| Twelve Months Ended December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Adjustments | Consolidated | ||||||||||||||||||||||||||||||||||||||
| Revenue: | ||||||||||||||||||||||||||||||||||||||||||||
| Premium | $ | 2,406,555 | $ | 1,015,339 | $ | 12 | $ | — | $ | — | $ | — | $ | 3,421,906 | ||||||||||||||||||||||||||||||
| Net investment income | — | — | — | 882,512 | — | — | 882,512 | |||||||||||||||||||||||||||||||||||||
| Other income | — | — | — | — | 1,236 | (99) | (2) | 1,137 | ||||||||||||||||||||||||||||||||||||
| Total revenue | 2,406,555 | 1,015,339 | 12 | 882,512 | 1,236 | (99) | 4,305,555 | |||||||||||||||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||||||||||||||
| Policy benefits | 1,591,790 | 649,188 | 34,264 | — | — | — | 2,275,242 | |||||||||||||||||||||||||||||||||||||
| Required interest on reserves | (636,040) | (83,243) | (47,357) | 766,640 | — | — | — | |||||||||||||||||||||||||||||||||||||
| Required interest on DAC | 194,297 | 24,412 | 589 | (219,298) | — | — | — | |||||||||||||||||||||||||||||||||||||
| Amortization of acquisition costs | 414,200 | 100,376 | 2,114 | — | — | — | 516,690 | |||||||||||||||||||||||||||||||||||||
| Commissions, premium taxes, and non-deferred acquisition costs | 190,007 | 88,553 | 26 | — | — | (99) | (2) | 278,487 | ||||||||||||||||||||||||||||||||||||
| Insurance administrative expense(1) | — | — | — | — | 223,941 | 3,590 | (3) | 227,531 | ||||||||||||||||||||||||||||||||||||
| Parent expense | — | — | — | — | 10,684 | 1,578 | (4) | 12,262 | ||||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | — | — | — | — | 39,792 | — | 39,792 | |||||||||||||||||||||||||||||||||||||
| Interest expense | — | — | — | 90,076 | — | — | 90,076 | |||||||||||||||||||||||||||||||||||||
| Total expenses | 1,754,254 | 779,286 | (10,364) | 637,418 | 274,417 | 5,069 | 3,440,080 | |||||||||||||||||||||||||||||||||||||
| Subtotal | 652,301 | 236,053 | 10,376 | 245,094 | (273,181) | (5,168) | 865,475 | |||||||||||||||||||||||||||||||||||||
| Non-operating items | — | — | — | — | — | 5,168 | (3,4) | 5,168 | ||||||||||||||||||||||||||||||||||||
| Measure of segment profitability (pretax) | $ | 652,301 | $ | 236,053 | $ | 10,376 | $ | 245,094 | $ | (273,181) | $ | — | 870,643 | |||||||||||||||||||||||||||||||
| Realized gain (loss)—investments | 9,274 | |||||||||||||||||||||||||||||||||||||||||||
| Realized loss—redemption of debt | (11,078) | |||||||||||||||||||||||||||||||||||||||||||
| Administrative settlements | (3,590) | |||||||||||||||||||||||||||||||||||||||||||
| Non-operating expenses | (1,578) | |||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes per Consolidated Statements of Operations | $ | 863,671 |
(1)Administrative expense is not allocated to insurance segments.
(2)Elimination of intersegment commission.
(3)Administrative settlements.
(4)Non-operating expenses.
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Assets for each segment are reported based on a specific identification basis. The insurance segments’ assets contain DAC. The investment segment includes the investment portfolio, cash, and accrued investment income. Goodwill is assigned to the insurance segments at the time of purchase. All other assets are included in the Corporate & Other category. The tables below reconcile segment assets to total assets as reported in the consolidated financial statements.
Assets by Segment
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Consolidated | ||||||||||||||||||||||||||||||
| Cash and invested assets | $ | — | $ | — | $ | — | $ | 22,547,498 | $ | — | $ | 22,547,498 | |||||||||||||||||||||||
| Accrued investment income | — | — | — | 248,991 | — | 248,991 | |||||||||||||||||||||||||||||
| Deferred acquisition costs | 3,982,158 | 610,071 | 3,215 | — | — | 4,595,444 | |||||||||||||||||||||||||||||
| Goodwill | 309,609 | 131,982 | — | — | — | 441,591 | |||||||||||||||||||||||||||||
| Other assets | — | — | — | — | 1,213,207 | 1,213,207 | |||||||||||||||||||||||||||||
| Total assets | $ | 4,291,767 | $ | 742,053 | $ | 3,215 | $ | 22,796,489 | $ | 1,213,207 | $ | 29,046,731 |
| At December 31, 2019 | |||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Consolidated | ||||||||||||||||||||||||||||||
| Cash and invested assets | $ | — | $ | — | $ | — | $ | 19,923,204 | $ | — | $ | 19,923,204 | |||||||||||||||||||||||
| Accrued investment income | — | — | — | 245,129 | — | 245,129 | |||||||||||||||||||||||||||||
| Deferred acquisition costs | 3,768,797 | 569,126 | 4,018 | — | — | 4,341,941 | |||||||||||||||||||||||||||||
| Goodwill | 309,609 | 131,982 | — | — | — | 441,591 | |||||||||||||||||||||||||||||
| Other assets | — | — | — | — | 1,025,595 | 1,025,595 | |||||||||||||||||||||||||||||
| Total assets | $ | 4,078,406 | $ | 701,108 | $ | 4,018 | $ | 20,168,333 | $ | 1,025,595 | $ | 25,977,460 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Liabilities for each segment are reported also on a specific identification basis similar to the assets. The insurance segments' liabilities contain future policy benefits, unearned and advance premiums, and policy claims and other benefits payable. Other policyholders' funds are included in Other as well as current and deferred income taxes payable. Debt represents both short and long-term. The tables below reconcile segment liabilities to total liabilities as reported in the consolidated financial statements.
Liabilities by Segment
| At December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Consolidated | ||||||||||||||||||||||||||||||
| Future policy benefits | $ | 12,008,396 | $ | 2,172,141 | $ | 1,062,999 | $ | — | $ | — | $ | 15,243,536 | |||||||||||||||||||||||
| Unearned and advance premiums | 18,968 | 42,760 | — | — | — | 61,728 | |||||||||||||||||||||||||||||
| Policy claims and other benefits payable | 237,246 | 162,261 | — | — | — | 399,507 | |||||||||||||||||||||||||||||
| Debt | — | — | — | 1,922,804 | — | 1,922,804 | |||||||||||||||||||||||||||||
| Other | — | — | — | — | 2,648,064 | 2,648,064 | |||||||||||||||||||||||||||||
| Total liabilities | $ | 12,264,610 | $ | 2,377,162 | $ | 1,062,999 | $ | 1,922,804 | $ | 2,648,064 | $ | 20,275,639 |
| At December 31, 2019 | |||||||||||||||||||||||||||||||||||
| Life | Health | Annuity | Investment | Corporate & Other | Consolidated | ||||||||||||||||||||||||||||||
| Future policy benefits | $ | 11,403,078 | $ | 2,006,424 | $ | 1,098,632 | $ | — | $ | — | $ | 14,508,134 | |||||||||||||||||||||||
| Unearned and advance premiums | 17,701 | 46,008 | — | — | — | 63,709 | |||||||||||||||||||||||||||||
| Policy claims and other benefits payable | 201,594 | 163,808 | — | — | — | 365,402 | |||||||||||||||||||||||||||||
| Debt | — | — | — | 1,647,726 | — | 1,647,726 | |||||||||||||||||||||||||||||
| Other | — | — | — | — | 2,098,182 | 2,098,182 | |||||||||||||||||||||||||||||
| Total liabilities | $ | 11,622,373 | $ | 2,216,240 | $ | 1,098,632 | $ | 1,647,726 | $ | 2,098,182 | $ | 18,683,153 |
GL 2020 FORM 10-K
Globe Life Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 15—Selected Quarterly Data (Unaudited)
The following is an unaudited summary of quarterly results for the two years ended December 31, 2020. The information includes all adjustments (consisting of normal accruals) which management considers necessary for a fair presentation of the results of operations for these periods.
| Three Months Ended | |||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||
| 2020: | |||||||||||||||||||||||
| Premium income | $ | 929,835 | $ | 953,702 | $ | 961,817 | $ | 968,551 | |||||||||||||||
| Net investment income | 228,991 | 231,568 | 231,432 | 235,071 | |||||||||||||||||||
| Realized gains (losses) | (26,097) | (4,790) | 1,501 | 25,015 | |||||||||||||||||||
| Total revenue | 1,133,054 | 1,180,884 | 1,195,042 | 1,228,941 | |||||||||||||||||||
| Policyholder benefits | 607,969 | 650,816 | 650,976 | 663,123 | |||||||||||||||||||
| Amortization of deferred acquisition costs | 143,837 | 146,160 | 140,843 | 144,930 | |||||||||||||||||||
| Pretax income from continuing operations | 202,921 | 212,241 | 231,538 | 249,984 | |||||||||||||||||||
| Income from continuing operations | 165,540 | 173,048 | 188,945 | 204,240 | |||||||||||||||||||
| Income (loss) from discontinued operations | — | — | — | — | |||||||||||||||||||
| Net income | 165,540 | 173,048 | 188,945 | 204,240 | |||||||||||||||||||
| Basic net income per common share: | |||||||||||||||||||||||
| Continuing operations | 1.54 | 1.63 | 1.78 | 1.96 | |||||||||||||||||||
| Discontinued operations | — | — | — | — | |||||||||||||||||||
| Total basic net income per common share | 1.54 | 1.63 | 1.78 | 1.96 | |||||||||||||||||||
| Diluted net income per common share: | |||||||||||||||||||||||
| Continuing operations | 1.52 | 1.62 | 1.76 | 1.93 | |||||||||||||||||||
| Discontinued operations | — | — | — | — | |||||||||||||||||||
| Total diluted net income per common share | 1.52 | 1.62 | 1.76 | 1.93 |
| Three Months Ended | |||||||||||||||||||||||
| March 31, | June 30, | September 30, | December 31, | ||||||||||||||||||||
| 2019: | |||||||||||||||||||||||
| Premium income | $ | 890,973 | $ | 897,484 | $ | 899,993 | $ | 906,684 | |||||||||||||||
| Net investment income | 226,673 | 227,425 | 228,905 | 227,456 | |||||||||||||||||||
| Realized gains (losses) | 1,329 | 5,154 | 11,943 | 2,195 | |||||||||||||||||||
| Total revenue | 1,119,216 | 1,130,461 | 1,141,279 | 1,136,576 | |||||||||||||||||||
| Policyholder benefits | 587,757 | 589,362 | 585,692 | 594,538 | |||||||||||||||||||
| Amortization of deferred acquisition costs | 135,822 | 138,165 | 138,449 | 139,290 | |||||||||||||||||||
| Pretax income from continuing operations | 228,101 | 228,760 | 247,330 | 227,088 | |||||||||||||||||||
| Income from continuing operations | 185,394 | 186,609 | 201,818 | 187,061 | |||||||||||||||||||
| Income (loss) from discontinued operations | (49) | (43) | — | — | |||||||||||||||||||
| Net income | 185,345 | 186,566 | 201,818 | 187,061 | |||||||||||||||||||
| Basic net income per common share: | |||||||||||||||||||||||
| Continuing operations | 1.68 | 1.70 | 1.85 | 1.73 | |||||||||||||||||||
| Discontinued operations | — | — | — | — | |||||||||||||||||||
| Total basic net income per common share | 1.68 | 1.70 | 1.85 | 1.73 | |||||||||||||||||||
| Diluted net income per common share: | |||||||||||||||||||||||
| Continuing operations | 1.65 | 1.67 | 1.82 | 1.69 | |||||||||||||||||||
| Discontinued operations | — | — | — | — | |||||||||||||||||||
| Total diluted net income per common share | 1.65 | 1.67 | 1.82 | 1.69 |
GL 2020 FORM 10-K
Previous: Item 7A. Quantitative and Qualitative Disclosures about Market Risk · Next: Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES