Globe Life 10-Q 2021-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ________

Commission File Number: 001-08052

GLOBE LIFE INC.

(Exact name of registrant as specified in its charter)

3700 South Stonebridge Drive, McKinney, Texas 75070

(Address of principal executive offices) (Zip Code)

(972) 569-4000

(Registrant’s telephone number, including area code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the last practicable date.

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Globe Life Inc.

Table of Contents

As used in this Form 10-Q, “Globe Life,” the “Company,” “we,” “our” and “us” refer to Globe Life Inc., a Delaware corporation incorporated in 1979, its subsidiaries and affiliates.

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PART I—FINANCIAL INFORMATION

Globe Life Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(Dollar amounts in thousands, except per share data)

See accompanying Notes to Condensed Consolidated Financial Statements.

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Globe Life Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

(Dollar amounts in thousands, except per share data)

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The following discussion should be read in conjunction with Globe Life's Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.

"Globe Life" and the "Company" refer to Globe Life Inc. and its subsidiaries and affiliates.

Results of Operations

						How Globe Life Views Its Operations. Globe Life Inc. is the holding company for a group of insurance companies that market primarily individual life and supplemental health insurance to lower middle to middle income households throughout the United States. We view our operations by segments, which are the insurance product lines of life, supplemental health, and annuities, and the investment segment that supports the product lines. Segments are aligned based on their common characteristics, comparability of the profit margins, and management techniques used to operate each segment.
						Insurance Product Line Segments. The insurance product line segments involve the marketing, underwriting, and administration of policies. Each product line is further segmented by the various distribution channels that market the insurance policies. Each distribution channel operates in a niche market offering insurance products designed for that particular market. Whether analyzing profitability of a segment as a whole, or the individual distribution channels within the segment, the measure of profitability used by management is the underwriting margin, as seen below:
						Premium revenue (Policy obligations) (Policy acquisition costs and commissions) Underwriting margin
						Investment Segment. The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability for the investment segment is excess investment income, as seen below:
						Net investment income (Required interest on net policy liabilities) (Financing costs) Excess investment income

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GLOBE LIFE INC.

Management's Discussion & Analysis

Current Highlights, comparing year-to-date 2021 with 2020.

• Net income as a return on equity (ROE) for the nine months ended September 30, 2021 was 8.9% and net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio(1) was 12.5%.

• Total premium increased 7% over the same period in the prior year. Life premium increased 9% for the period from $2.0 billion in 2020 to $2.2 billion in 2021. Life underwriting margin declined 7% from $511 million in 2020 to $477 million in 2021.

• Net investment income increased 3% over the same period in the prior year. Excess investment income declined 2% below the prior year.

• Total net sales increased 9% over the same period in the prior year from $473 million to $518 million.

• Book value per share increased 9% over the same period in the prior year from $77.60 to $84.52. Book value per share, excluding net unrealized gains on the fixed maturity portfolio(1), increased 9% over the prior year from $52.39 to $57.11.

• The Company incurred $82 million of COVID-19 net life claims (net of reserves released upon death) for the nine months ended September 30, 2021 compared with $40 million during the same period last year.

• For the nine months ended September 30, 2021, the Company repurchased 3.2 million shares of Globe Life Inc. common stock at a total cost of $310 million for an average share price of $97.17.

The following graphs represent net income and net operating income for the nine months ended September 30, 2021 and 2020.

As shown in the charts above, net operating income is the consolidated total of segment profits after tax and as such is considered a non-GAAP measure. It has been used consistently by Globe Life's management for many years to evaluate the operating performance of the Company. It differs from net income primarily because it excludes certain non-operating items such as realized gains and losses and certain significant and unusual items included in net income. Net income is the most directly comparable GAAP measure.

(1) Net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio, is considered a non-GAAP measure. Management utilizes this measure to view the business without the effect of the net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available-for-sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities, net of tax is $2.8 billion and $2.7 billion for the nine months ended September 30, 2021 and 2020, respectively.

Book value per share, excluding net unrealized gains on the fixed maturity portfolio, is also considered a non-GAAP measure. Management utilizes this measure to view the book value of the business without the effect of net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available for sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities is $27.41 and $25.21 for nine months ended September 30, 2021 and 2020, respectively.

Refer to Analysis of Profitability by Segment for non-GAAP reconciliation to GAAP.

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GLOBE LIFE INC.

Management's Discussion & Analysis

Summary of Operations. Net income increased 7% to $567 million during the nine months ended September 30, 2021, compared with $528 million in the same period in 2020. This increase was primarily attributed to $45 million of after tax realized gains on investments in the current period, as compared to $22 million of after tax realized losses on investments in the year-ago period. See further discussion under the caption Investments. The increase in after tax realized gains was partially offset by lower life underwriting results due to higher COVID-19 net life claims. On a diluted per common share basis, net income per common share for the nine months ended September 30, 2021 increased 11% from $4.90 to $5.46.

Net operating income is the consolidated total of segment profits after-tax and as such is considered a non-GAAP measure. Net operating income declined 3% to $536 million for the nine months ended September 30, 2021, compared with $553 million for the same period in 2020 primarily due to COVID-19 net life claims. On a diluted per common share basis, net operating income per common share for the nine months ended September 30, 2021 increased from $5.14 to $5.16.

Despite headwinds with COVID-19, the Company continues to see positive signs in its core operations, including strong sales, favorable persistency and a strong ROE, excluding net unrealized gains on the fixed maturity portfolio.

COVID-19. For the nine months ended September 30, 2021, the Company incurred $82 million of COVID-19 net life claims of which $33 million were incurred in the third quarter. The third quarter COVID-19 net life claims were higher than anticipated primarily due to the impact of the Delta variant, which

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There have been no quantitative or qualitative changes with respect to market risk exposure during the nine months ended September 30, 2021.

Evaluation of Disclosure Controls and Procedures: Globe Life, under the direction of the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, has established disclosure controls and procedures that are designed to ensure that information required to be disclosed by Globe Life in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. The disclosure controls and procedures are also intended to ensure that such information is accumulated and communicated to Globe Life's management, including the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

As of the end of the fiscal period completed September 30, 2021, an evaluation was performed under the supervision and with the participation of Globe Life management, including the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer, of the disclosure controls and procedures (as those terms are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon their evaluation, the Co-Chairmen and Chief Executive Officers and the Executive Vice President and Chief Financial Officer have concluded that disclosure controls and procedures are effective as of the date of this Form 10-Q. In compliance with Section 302 of the Sarbanes Oxley Act of 2002 (18 U.S.C. § 1350), each of these officers executed a Certification included as an exhibit to this Form 10-Q.

Changes in Internal Control over Financial Reporting: As of the period ended September 30, 2021, there have not been any changes in Globe Life Inc.'s internal control over financial reporting or in other factors that could significantly affect this control over financial reporting subsequent to the date of their evaluation which have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

Part II—Other Information

Item 1. Legal Proceedings

Discussion regarding litigation and unclaimed property audits is provided in *Note 5—Commitments and Contingencie*s.

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The Company had no material changes to its risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Certain Equity Securities by the Issuer and Others for the Third Quarter of 2021

On August 4, 2021, the Globe Life Board of Directors reaffirmed its continued authorization of the Company's stock repurchase program in amounts and with timing that management, in consultation with the Board, determined to be in the best interest of the Company. The program has no defined expiration date or maximum shares to be repurchased.

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*Compensatory plan or arrangement.

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SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

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