Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with Globe Life's Condensed Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. The following management discussion will only include comparison to prior year.

"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

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Current Highlights, comparing year-to-date 2022 with 2021.

Net income as a return on equity (ROE) for the three months ended March 31, 2022 was 8.5% and net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio(1) was 11.5%.
Total premium increased 7% over the prior year. Life premium increased 7% for the period from $708 million in 2021 to $755 million in 2022. Life underwriting margin increased 10% from $137 million in 2021 to $150 million in 2022.
Net investment income increased 3% over the same period in the prior year. Excess investment income increased 1% over the prior year.
Total net sales increased 8% over the same period in the prior year from $168 million in 2021 to $182 million in 2022.
Book value per share declined 8% below the same period in the prior year from $75.10 to $69.16. Book value per share, excluding net unrealized gains on the fixed maturity portfolio(1), increased 10% over the prior year from $54.36 in 2021 to $59.65 in 2022.
The Company incurred $46 million of COVID-19 net life claims (net of reserves released upon death) for the three months ended March 31, 2022 compared with $38 million during the same period last year.
For the three months ended March 31, 2022, the Company repurchased 880 thousand shares of Globe Life Inc. common stock at a total cost of $89 million for an average share price of $100.70.

The following graphs represent net income and net operating income for the three month periods ended March 31, 2022 and 2021.

(1)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.

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 $948 million and $2.2 billion for the three months ended March 31, 2022 and 2021, 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 $9.51 and $20.74 for the three months ended March 31, 2022 and 2021, respectively.

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

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Summary of Operations. Net income declined 8% to $164 million during the three months ended March 31, 2022, compared with $179 million in the same period in 2021. This decrease was primarily attributed to $6 million of after-tax realized losses on investments in the current period, as compared to $22 million of after tax realized gains on investments in the year-ago period. See further discussion under the caption Investments. On a diluted per common share basis, net income per common share for the three months ended March 31, 2022 declined 4% from $1.70 to $1.64.

Net operating income is the consolidated total of segment profits after-tax and as such is considered a non-GAAP measure. Net income is the most directly comparable GAAP measure. We do not consider realized gains and losses to be a component of our core insurance operations or operating segments. Additionally, net income was affected by certain significant and unusual non-operating items in 2021 and through the three months ended March 31, 2022. We do not view these items as components of core operating results because they are not indicative of past performance or future prospects of the insurance operations. We remove items such as these that relate to prior periods or are non-operating items when evaluating the results of current operations, and therefore exclude such items from our segment analysis for current periods. Net operating income increased 6% to $170 million for the three months ended March 31, 2022, compared with $160 million for the same period in 2021, primarily due to a 10% increase in life underwriting margin. On a diluted per common share basis, net operating income per common share for the three months ended March 31, 2022 increased from $1.53 to $1.70.

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

COVID-19. For the three months ended March 31, 2022, the Company incurred $46 million of COVID-19 net life claims. Per the Centers for Disease Control and Prevention (CDC), there were approximately 155 thousand U.S. COVID-19 deaths in the first quarter of 2022. For the full year 2022, we expect total U.S. COVID deaths to fall within a range of 200,000 to 300,000.

At the midpoint of our 2022 guidance, we expect to incur approximately $71 million of COVID life claims for the full year based on an estimated range of $2.5 million to $3.5 million of COVID life claims per 10,000 U.S. deaths. The projected life claims are dependent on this estimate and many other variables, including, but not limited to, projected U.S. deaths from COVID-19, the timing and availability of effective treatments for the disease, vaccination rates and effectiveness of vaccines, impact from potential variants, and the ages and geographic areas in which infections and deaths occur.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Globe Life's operations on a segment-by-segment basis are discussed in depth below. Net operating income has been used consistently by management for many years to evaluate the operating performance of the Company and is a measure commonly used in the life insurance industry. It differs from GAAP net income primarily because it excludes certain non-operating items such as realized gains and losses and other significant and unusual items included in net income. Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company’s business. Net income is the most directly comparable GAAP measure.

Analysis of Profitability by Segment

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022		2021		Change		%
Life insurance underwriting margin	$	150,454	$	136,646	$	13,808	10
Health insurance underwriting margin	79,093		72,180		6,913		10
Annuity underwriting margin	2,108		2,187		(79)		(4)
Excess investment income	61,392		60,544		848		1
Other insurance:
Other income	164		295		(131)		(44)
Administrative expense	(72,565)		(66,176)		(6,389)		10
Corporate and other	(11,675)		(10,206)		(1,469)		14
Pre-tax total	208,971		195,470		13,501		7
Applicable taxes	(38,799)		(35,379)		(3,420)		10
Net operating income	170,172		160,091		10,081		6
Reconciling items, net of tax:
Realized gain (loss)—investments	(5,723)		22,240		(27,963)




Non-operating expenses	(88)		—		(88)
Legal proceedings	—		(3,814)		3,814

Net income	$	164,361	$	178,517	$	(14,156)	(8)

The life insurance segment is our primary segment and is the largest contributor to earnings in each period presented. The life insurance segment underwriting margin increased $14 million compared with the prior year quarter, primarily due to premium growth partially offset by higher life claims and higher acquisition costs. The health segment contributed to the growth in income as well, contributing $79 million of additional underwriting margin in the first quarter of 2022 compared with $72 million in the first quarter of 2021.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

In 2022, the largest contributor of total underwriting margin was the life insurance segment and the primary distribution channel was American Income Life Division. The following charts represent the breakdown of total underwriting margin by operating segment and distribution channel for the three months ended March 31, 2022.

Total premium income rose 7% for the three months ended March 31, 2022 to $1.1 billion. Total net sales increased 8% to $182 million, when compared with 2021. Total first-year collected premium (defined in the following section) was $146 million for 2022, compared with $141 million for 2021.

Life insurance premium income increased 7% to $755 million over the prior year total of $708 million. Life net sales rose 8% to $139 million for the first three months of 2022. First-year collected life premium rose 3% to $106 million. Life underwriting margins, as a percent of premium, increased to 20% in 2022 from 19%. Underwriting margin increased to $150 million in 2022, 10% over the same period in 2021.

Health insurance premium income increased 8% to $317 million over the prior year total of $294 million. Health net sales rose 8% to $43 million for the first three months of 2022. First-year collected health premium rose 4% to $40 million. Health underwriting margins, as a percent of premium, were 25% in 2022 and in 2021. Health underwriting margin increased to $79 million for the first three months of 2022, 10% over the same period in 2021.

Excess investment income, the measure of profitability of our investment segment, increased 1% during 2022 to $61.4 million from $60.5 million in the same period in 2021. Excess investment income per common share, reflecting the impact of our share repurchase program, increased 5% to $0.61 from $0.58 when compared with the same period in 2021.

Insurance administrative expenses increased 10% in 2022 when compared with the prior-year period. These expenses were 6.8% as a percent of premium during 2022 compared with 6.6% a year earlier.

For the three months ended March 31, 2022, the Company repurchased 880 thousand Globe Life Inc. shares at a total cost of $89 million for an average share price of $100.70.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

The discussions of our segments are presented in the manner we view our operations, as described in Note 10—Business Segments.

We use three statistical measures as indicators of premium growth and sales over the near term: “annualized premium in force,” “net sales,” and “first-year collected premium.”

Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period. Annualized premium in force is an indicator of potential growth in premium revenue.
Net sales, a statistical performance measure, is calculated as annualized premium issued, net of cancellations in the first thirty days after issue, except in the case of Direct to Consumer, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. Management considers net sales to be a better indicator of the rate of premium growth than annualized premium issued.
First-year collected premium is defined as the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future.

See further discussion of the distribution channels below for Life and Health.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

LIFE INSURANCE

Life insurance is the Company's predominant segment. During 2022, life premium represented 70% of total premium and life underwriting margin represented 65% of the total underwriting margin. Additionally, investments supporting the reserves for life products produce the majority of excess investment income attributable to the investment segment.

The following table presents the summary of results of life insurance. Further discussion of the results by distribution channel is included below.

Life Insurance

Summary of Results

(Dollar amounts in thousands)


	Three Months Ended March 31,						Change
	2022			2021
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium and policy charges	$	754,602	100	$	708,119	100	$	46,483	7

Policy obligations	549,343		73	517,631		73	31,712		6
Required interest on reserves	(189,709)		(25)	(179,925)		(25)	(9,784)		5
Net policy obligations	359,634		48	337,706		48	21,928		6
Commissions, premium taxes, and non-deferred acquisition expenses	62,203		8	56,668		8	5,535		10
Amortization of acquisition costs	182,311		24	177,099		25	5,212		3
Total expense	604,148		80	571,473		81	32,675		6
Insurance underwriting margin	$	150,454	20	$	136,646	19	$	13,808	10

The higher life insurance underwriting margins for the three months ended March 31, 2022 are primarily attributed to the increase in premium growth partially offset by higher life claims and higher acquisition costs.

The following table presents Globe Life's life insurance premium by distribution channel.

Life Insurance

Premium by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	369,987	49	$	334,895	47	$	35,092	10
Direct to Consumer	251,126		33	244,028		34	7,098		3
Liberty National	80,719		11	75,737		11	4,982		7
Other	52,770		7	53,459		8	(689)		(1)
Total	$	754,602	100	$	708,119	100	$	46,483	7

Annualized life premium in force was $2.99 billion at March 31, 2022, an increase of 7% over $2.79 billion a year earlier.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

An analysis of life net sales, an indicator of new business production, by distribution channel is presented below.

Life Insurance

Net Sales by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	85,350	61	$	69,623	54	$	15,727	23
Direct to Consumer	33,913		24	39,691		31	(5,778)		(15)
Liberty National	17,365		13	16,225		13	1,140		7
Other	2,375		2	2,688		2	(313)		(12)
Total	$	139,003	100	$	128,227	100	$	10,776	8

First-year collected life premium by distribution channel is presented in the table below.

Life Insurance

First-Year Collected Premium by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	65,294	62	$	58,597	57	$	6,697	11
Direct to Consumer	24,212		23	30,627		30	(6,415)		(21)
Liberty National	13,748		13	11,240		11	2,508		22
Other	2,397		2	2,330		2	67		3
Total	$	105,651	100	$	102,794	100	$	2,857	3

A discussion of life operations by distribution channel follows.

The American Income Life Division markets to members of labor unions and continues to diversify its lead sources by building relationships with other affinity groups, utilizing third-party internet vendor leads, and obtaining referrals to facilitate sustainable growth. This division is Globe Life's largest contributor to life premium of any distribution channel at 49% of the Company's March 31, 2022 total. Net sales increased 23% to $85 million during the first three months of 2022 compared with $70 million in 2021 for the same period. The underwriting margin, as a percent of premium, was 30% for the three months ended March 31, 2022, up from 29% in the year-ago period.

This division incurred $15 million in COVID-19 net life claims, representing approximately 4% of premium, for the three months ended March 31, 2022 compared with $9 million in COVID-19 net life claims during the year-ago period.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

This division is anticipating an increase in net sales for the full year 2022 as compared with 2021 due in part to increased productivity plus a gradual improvement in issue rates as some challenges in underwriting, such as staffing and speed of obtaining medical records and other information, are resolving. Below is the average producing agent count at the end of the period for the American Income Life Division. The average producing agent count is based on the actual count at the end of each week during the year. Recruiting challenges in a difficult job market led to a reduction in the number of producing agents in the second half of 2021. The division is seeing improvements in the job market and its ability to recruit both virtually and in-person and currently expects growth in the producing agent count in the second half of 2022. Sales growth in our exclusive agencies is generally dependent on growth in the size of the agency force.


	At March 31,		Change
	2022	2021	Amount	%
American Income	9,385	9,918	(533)	(5)

American Income Life continues to focus on growing and strengthening the agency force, specifically through emphasis on agency middle-management growth and additional agency office openings. In addition to offering financial incentives and training opportunities, the agency has made considerable investments in information technology, including launching a customer relationship management (CRM) tool for the agency force. This tool is designed to drive productivity in lead distribution, conservation of business, manager dash boards and new agent recruiting. Additionally, this division has invested in and successfully implemented technology that allows the agency force to engage in virtual recruiting, training and sales activity. Over the course of the pandemic, the agents have shifted to primarily a virtual experience with the customers and have generated a vast majority of its sales through virtual presentations. We find this flexibility to be enticing for new recruits as well as a driver of sustainability for our agency force.

The Direct to Consumer Division (DTC) offers adult and juvenile life insurance through a variety of marketing approaches, including direct mailings, insert media, and electronic media. In recent years, production from electronic media, which is comprised of sales through both the internet and inbound phone calls to our call center, has grown rapidly compared with direct mail response as management has aggressively increased marketing activities related to internet and mobile technology as well as focused on driving traffic to our inbound call center. This had been steadily increasing prior to COVID-19, but the pandemic accelerated this activity due in part to the awareness of needing life insurance from the effects of COVID-19. The different approaches support and complement one another in the division's efforts to reach the consumer. The DTC's long-term growth has been fueled by constant innovation and name recognition. We continually introduce new initiatives in this division in an attempt to increase response rates.

While the juvenile market is an important source of sales, it is also a vehicle to reach the parents and grandparents of juvenile policyholders, who are more likely to respond favorably to a DTC solicitation for life coverage on themselves in comparison to the general adult population. Also, both juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time.

DTC net sales declined 15% to $34 million for the three months ended March 31, 2022 compared with $40 million for the same period in the prior year, primarily due to the record high net life sales in the prior year. DTC incurred $25 million of COVID-19 net life claims, representing approximately 10% of premium, for the three months ended March 31, 2022 compared with $20 million for the same period in 2021. DTC’s underwriting margin, as a percent of premium, was 4% for the three months ended March 31, 2022 and 2021.

The Liberty National Division markets individual life insurance to middle-income household and worksite customers. Recent investments in new sales technologies as well as recent growth in middle management within the agency are expected to help continue this growth. The underwriting margin as a percent of premium was 17% for the three months ended March 31, 2022, up from 13% during the same period a year ago. This increase is primarily attributable to lower net policy obligations in relation to premium during the three months ended March 31, 2022 compared with the same period a year ago. This division incurred $4 million of COVID-19 net life claims, representing approximately 5% of premium, for the three months ended March 31, 2022 compared with $8 million for the same period in 2021.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Net sales rose 7% in the three months ended March 31, 2022 over the same period in 2021. With the division's ability to return to face-to-face customer interaction and the option of virtual sales, the Company continues to project total net life sales to increase for the remainder of 2022 as compared to the prior year.

Below is the average producing agent count at the end of the period for Liberty National Division.


	At March 31,		Change
	2022	2021	Amount	%
Liberty National	2,656	2,734	(78)	(3)

The Liberty National Division average producing agent count decreased 3% compared with the prior-year comparable period. We continue to execute our long-term plan to grow this agency through expansion from small-town markets in the Southeast to more densely populated areas with larger pools of potential agent recruits and customers. Continued expansion of this agency’s presence into more heavily populated, less-penetrated areas will help create long-term agency growth. Additionally, the agency continues to help improve the ability of agents to develop new worksite marketing business. Systems that have been put in place, including the addition of a CRM platform and enhanced analytical capabilities, have helped the agents develop additional worksite marketing opportunities as well as improve the productivity of agents selling in the individual life market. As the division continues to gain momentum in its sales and recruiting initiatives and advances its technology and CRM platform, the agency anticipates an increase in recruiting of new agents and an increase in the average producing agent count.

The Other Agencies distribution channels primarily include non-exclusive independent agencies selling predominantly life insurance. The Other Agencies contributed $53 million of life premium income, or 7% of Globe Life's total premium income in the three months ended March 31, 2022, and contributed 2% of net sales for the period.

HEALTH INSURANCE

Health insurance sold by the Company primarily includes Medicare Supplement insurance, accident coverage, and other limited-benefit supplemental health products including cancer, critical illness, heart, and intensive care coverage.

Health premium accounted for 30% of our total premium in 2022, while the health underwriting margin accounted for 34% of total underwriting margin. Health underwriting margin increased 10% to $79 million primarily due to higher premium growth. The Company continues to emphasize life insurance sales relative to health due to life’s superior long-term profitability and its greater contribution to excess investment income.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

The following table presents underwriting margin data for health insurance.

Health Insurance

Summary of Results

(Dollar amounts in thousands)


	Three Months Ended March 31,						Change
	2022			2021
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium	$	317,000	100	$	294,173	100	$	22,827	8

Policy obligations	196,855		62	187,829		64	9,026		5
Required interest on reserves	(26,865)		(8)	(24,995)		(9)	(1,870)		7
Net policy obligations	169,990		54	162,834		55	7,156		4
Commissions, premium taxes, and non-deferred acquisition expenses	28,602		9	22,990		8	5,612		24
Amortization of acquisition costs	39,315		12	36,169		12	3,146		9
Total expense	237,907		75	221,993		75	15,914		7
Insurance underwriting margin	$	79,093	25	$	72,180	25	$	6,913	10

Globe Life markets supplemental health insurance products through a number of distribution channels. The following table is an analysis of our health premium by distribution channel.

Health Insurance

Premium by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	132,664	42	$	117,087	40	$	15,577	13
Family Heritage	89,540		28	83,335		28	6,205		7
Liberty National	47,186		15	47,040		16	146		—
American Income	28,854		9	27,351		9	1,503		5
Direct to Consumer	18,756		6	19,360		7	(604)		(3)
Total	$	317,000	100	$	294,173	100	$	22,827	8

Premium related to limited-benefit plans comprise $173 million, or 54%, of the total health premiums for 2022 compared with $152 million in the same period in the prior year. Premium from Medicare Supplement products comprises the remaining $144 million, or 46% for 2022 compared with $142 million, or 48% in the same period in the prior year.

Annualized health premium in force was $1.29 billion at March 31, 2022, an increase of 9% over $1.18 billion a year earlier.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Presented below is a table of health net sales by distribution channel.

Health Insurance

Net Sales by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	12,970	30	$	12,945	33	$	25	—
Family Heritage	18,602		43	15,579		39	3,023		19
Liberty National	6,214		15	5,839		15	375		6
American Income	4,621		11	4,611		12	10		—
Direct to Consumer	421		1	642		1	(221)		(34)
Total	$	42,828	100	$	39,616	100	$	3,212	8

Health net sales related to limited-benefit plans comprise $31 million, or 72%, of the total health net sales for 2022, compared with $26 million in the same period in the prior year. Medicare Supplement sales make up the remaining $12 million, or 28% for 2022, compared with $14 million, or 34% in the same period in the prior year.

The following table presents health insurance first-year collected premium by distribution channel.

Health Insurance

First-Year Collected Premium by Distribution Channel

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase (Decrease)
	2022			2021
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	14,762	37	$	14,306	37	$	456	3
Family Heritage	14,668		37	13,811		36	857		6
Liberty National	5,444		13	4,815		13	629		13
American Income	4,323		11	4,587		12	(264)		(6)
Direct to Consumer	691		2	759		2	(68)		(9)
Total	$	39,888	100	$	38,278	100	$	1,610	4

First-year collected premium related to limited-benefit plans comprise $26 million, or 65%, of total first-year collected premium, for 2022 compared with $23 million in the same period in the prior year. First-year collected premium from Medicare Supplement policies makes up the remaining $14 million, or 35% for 2022, compared with $15 million, or 39% in the same period in the prior year.

A discussion of health operations by distribution channel follows.

The United American Division consists of non-exclusive independent agencies who may also sell for other companies. The United American Division was Globe Life's largest health agency in terms of health premium income.

This division is also Globe Life's largest producer of Medicare Supplement insurance. The United American Division represents 82% of all Medicare Supplement premium and 96% of Medicare Supplement net sales. For the three months ended March 31, 2022, Medicare Supplement premium in this agency rose 4% to $119 million in 2022 over the prior period total of $115 million. Medicare Supplement net sales declined 10% to $12 million in 2022 from the prior year period, primarily as a result of a decrease in individual sales. Underwriting margin as a percent of premium was 15% for the three months ended March 31, 2022, down from 16% in 2021.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

The Family Heritage Division primarily markets limited-benefit supplemental health insurance in non-urban areas. Most of its policies include a cash-back feature, such as a return of premium, where any excess of premiums over claims paid is returned to the policyholder at the end of a specified period stated within the insurance policy. Underwriting margin as a percent of premium was 27% for the three months ended March 31, 2022, up from 26% in the year-ago period.

The division experienced a 19% increase in net health sales as compared with the three-month period a year ago, primarily due to an increase in agent productivity and training. The division will continue to launch incentive programs to help drive an increase in productivity and the number of producing agents.

Below is the average producing agent count at the end of the period for the Family Heritage Division. While the agency has seen a decrease in agent count as compared with 2021, we anticipate that as COVID-19 and the job market stabilizes, agent recruitment opportunities should increase.


	At March 31,		Change
	2022	2021	Amount	%
Family Heritage Division	1,100	1,285	(185)	(14)

The Liberty National Division represented 15% of all Globe Life health premium income at $47 million for the three-month period ended March 31, 2022. The Liberty National Division markets limited-benefit supplemental health products, consisting primarily of critical illness insurance. Much of Liberty National's health business is generated through worksite marketing targeting small businesses of 10 to 100 employees. Health premium at Liberty National Division was $47 million for the three months ended March 31, 2022, and 2021. Liberty National's first-year collected premium rose 13% to $5.4 million in the three months ended March 31, 2022 compared with $4.8 million for the same period in 2021. Health net sales for the three months ended March 31, 2022 rose 6% from the comparable period in 2021. We anticipate an increase in net health sales going forward at this division as the Company becomes more able to interact face-to-face with customers.

Other Distribution. The Company's other distribution channels, while primarily focused on selling life insurance, also market health products. The American Income Life Division primarily markets accident plans. The Direct to Consumer Division primarily markets Medicare Supplements to employer or union-sponsored groups. On a combined basis, these other channels accounted for 15% of health premium for the three months ended March 31, 2022 compared to 16% for the same period in 2021.

ANNUITIES

Annuities represent an insignificant part of our business. We do not currently market stand-alone fixed or deferred annuity products, favoring instead protection-oriented life and supplemental health insurance products.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

INVESTMENTS

We manage our capital resources including investments, debt, and cash flow through the investment segment. Excess investment income represents the profit margin attributable to investment operations and is the measure that we use to evaluate the performance of the investment segment as described in Note 10—Business Segments. It is defined as net investment income less both the required interest on net insurance policy liabilities and the interest cost associated with capital funding or “financing costs.”

Management also views excess investment income per diluted common share as an important and useful measure to evaluate the performance of the investment segment. It is defined as excess investment income divided by the total diluted weighted average shares outstanding, representing the contribution by the investment segment to the consolidated earnings per share of the Company. Since implementing our share repurchase program in 1986, we have used $8.8 billion of excess cash flow at the Parent Company to repurchase Globe Life Inc. common shares after determining that the repurchases provided a greater risk adjusted after-tax return than other investment alternatives. If we had not used this excess cash to repurchase shares, but had instead invested it in interest-bearing assets, we would have earned more investment income and had more shares outstanding. As excess investment income per diluted common share incorporates all capital resources, we view excess investment income per diluted common share as a useful measure to evaluate the investment segment.

Excess Investment Income**.** The following table summarizes Globe Life's investment income, excess investment income, and excess investment income per diluted common share.

Analysis of Excess Investment Income

(Dollar amounts in thousands, except for per share data)


	Three Months Ended March 31,				Change
	2022		2021		Amount		%
Net investment income	$	243,834	$	235,820	$	8,014	3
Interest on net insurance policy liabilities:
Interest on reserves	(226,246)		(214,925)		(11,321)		5
Interest on deferred acquisition costs	63,748		60,827		2,921		5
Net required interest	(162,498)		(154,098)		(8,400)		5
Financing costs	(19,944)		(21,178)		1,234		(6)
Excess investment income	$	61,392	$	60,544	$	848	1

Excess investment income per diluted share	$	0.61	$	0.58	$	0.03	5

Mean invested assets (at amortized cost)	$	19,457,487	$	18,646,061	$	811,426	4
Average net insurance policy liabilities(1)	11,233,749		10,775,618		458,131		4
Average debt and preferred securities (at amortized cost)	2,130,025		1,939,394		190,631		10

(1)Net of deferred acquisition costs, excluding the associated unrealized gains and losses thereon.

Excess investment income increased $848 thousand, or 1%, compared with the year-ago period. Excess investment income per diluted common share was $0.61 for the three months ended March 31, 2022 an increase of 5% over the prior year period. Excess investment income per diluted common share generally increases at a faster pace than excess investment income because the number of diluted shares outstanding generally decreases from year to year as a result of our share repurchase program.

Net investment income for the three months ended March 31, 2022 was $244 million or 3% greater than the year-ago period. Mean invested assets increased 4% during the first three months of 2022 over the same period last year. The effective annual yield rate earned on the fixed maturity portfolio was 5.15% in the first three months of 2022, compared with 5.24% a year earlier. Growth in net investment income has been negatively impacted in recent years by the low interest rate environment during which time we have invested new money at yields lower than our

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

average portfolio yield. In addition, we have reinvested the proceeds from bonds that matured, were called, or were otherwise disposed of at yield rates less than the yield rate earned on these disposed bonds. We currently expect that the average annual turnover rate of fixed maturity assets will be less than 2% over the next five years and will not have a material negative impact on net investment income. In addition to fixed maturities, the Company has also invested in limited partnerships with debt like characteristics that diversify risk and enhance risk-adjusted, capital-adjusted returns on the portfolio. The earned yield on the investment funds for the three months ended March 31, 2022 was 6.28%. See additional information in Note 4—Investments.

Should the current low interest rate environment continue, the growth of the Company's net investment income will be negatively impacted primarily due to the investment of new money and proceeds from dispositions at rates less than the average portfolio yield rate. While net investment income would grow, it would continue to grow at rates less than the growth in mean invested assets. For the full year 2022, we currently anticipate the average new money rate on our fixed maturity acquisitions to be approximately 90 basis points higher than the yield achieved on our 2021 acquisitions. This expected increase in yields should result in the investment income growth rate being closer to the growth of our invested assets.

Should interest rates, especially long-term rates, rise, Globe Life's net investment income would benefit due to higher interest rates on new investments. While such a rise in interest rates could adversely affect the fair value of the fixed maturities portfolio, we could withstand an increase in interest rates of approximately 55 to 60 basis points before the net unrealized gains on our fixed maturity portfolio as of March 31, 2022 would be eliminated. Should interest rates increase further, we would not be concerned with potential interest rate driven unrealized losses in our fixed maturity portfolio because we do not generally intend to sell, nor is it likely that management will be required to sell, the fixed maturities prior to their anticipated recovery.

Required interest on net insurance policy liabilities reduces net investment income, as it is the amount of net investment income considered by management necessary to “fund” required interest on net insurance policy liabilities, which is the net of the benefit reserve liability and the deferred acquisition cost asset. As such, it is removed from the investment segment and applied to the insurance segments to offset the effect of the required interest from the insurance segments. As discussed in Note 10—Business Segments, management regards this as a more meaningful analysis of the investment and insurance segments. Required interest is based on the actuarial interest assumptions used in discounting the benefit reserve liability and the amortization of deferred acquisition costs for our insurance policies in force.

The great majority of our life and health insurance policies are fixed interest rate protection policies, not investment products, and are accounted for under current GAAP accounting guidance for long-duration insurance products which mandate that interest rate assumptions for a particular block of business be “locked in” for the life of that block of business. Each calendar year, we set the discount rate to be used to calculate the benefit reserve liability and the amortization of the deferred acquisition cost asset for all insurance policies issued that year. That rate is based on the new money yields that we expect to earn on cash flow received in the future from policies of that issue year and cannot be changed. The discount rate used for policies issued in the current year has no impact on the in force policies issued in prior years as the rates of all prior issue years are also locked in. As such, the overall discount rate for the entire in force block of 5.8% is a weighted average of the discount rates being used from all issue years. Changes in the overall weighted-average discount rate over time are caused by changes in the mix of the reserves and the deferred acquisition cost asset by issue year on the entire block of in force business. Business issued in the current year has very little impact on the overall weighted-average discount rate due to the size of our in force business.

Since actuarial discount rates are locked in for life on essentially all of our business, benefit reserves and deferred acquisition costs are not affected by interest rate fluctuations unless a loss recognition event occurs. Due to the strength of our underwriting margins, we do not expect an extended low interest rate environment will cause a loss recognition event.

In comparison to the year-ago period, required interest on net insurance policy liabilities increased $8 million, or 5%, to $162 million, compared with the 4% growth in average net interest-bearing insurance policy liabilities.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Financing costs for the investment segment consist primarily of interest on our various debt instruments. The table below presents the components of financing costs and reconciles interest expense per the Consolidated Statements of Operations**.

Analysis of Financing Costs

(Dollar amounts in thousands)


	Three Months Ended March 31,				Increase (Decrease)
	2022		2021		Amount		%
Interest on funded debt	$	18,644	$	19,746	$	(1,102)	(6)

Interest on short-term debt	1,300		1,432		(132)		(9)

Financing costs	$	19,944	$	21,178	$	(1,234)	(6)

During the first three months of 2022, financing costs decreased 6% compared with the prior year primarily due to lower overall rates on the funded debt. More information on our debt transactions is disclosed in the Financial Condition section of this report.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Realized Gains and Losses. Our life and health insurance companies collect premium income from policyholders for the eventual payment of policyholder benefits, sometimes paid many years or even decades in the future. Since benefits are expected to be paid in future periods, premium receipts in excess of current expenses are invested to provide for these obligations. For this reason, we hold a significant investment portfolio as a part of our core insurance operations. This portfolio consists primarily of high-quality fixed maturities containing an adequate yield to provide for the cost of carrying these long-term insurance product obligations. As a result, fixed maturities are generally held for long periods to support these obligations. Expected yields on these investments are taken into account when setting insurance premium rates and product profitability expectations.

Despite our intent to hold fixed maturity investments for a long period of time, investments are occasionally sold, exchanged, called, or experience a credit loss event, resulting in a realized gain or loss. These sales are often in response to deterioration in credit quality of the issuer in effort to maximize risk-adjusted, capital-adjusted returns. We do not engage in trading investments for profit. Therefore, gains or losses, which occur in protecting the portfolio or its yield or which result from events that are beyond our control, are only secondary to our core insurance operations of providing insurance coverage to policyholders. In a bond exchange offer, bondholders may consent to exchange their existing bonds for another class of debt securities. The Company also has investments in certain limited partnerships, held under the fair value option, with fair value changes recognized in Realized gains (losses) in the Consolidated Statements of Operations**.

Realized gains and losses can be significant in relation to the earnings from core insurance operations, and as a result, can have a material positive or negative impact on net income. The significant fluctuations caused by gains and losses can cause period-to-period trends of net income that are not indicative of historical core operating results or predictive of the future trends of core operations. Accordingly, they have no bearing on core insurance operations or segment results as we view operations. For these reasons, and in line with industry practice, we remove the effects of realized gains and losses when evaluating overall insurance operating results.

The following table summarizes our tax-effected realized gains (losses) by component.

Analysis of Realized Gains (Losses), Net of Tax

(Dollar amounts in thousands, except for per share data)


	Three Months Ended March 31,
	2022				2021
	Amount		Per Share		Amount		Per Share
Fixed maturities:
Sales	$	(2,295)	$	(0.02)	$	(8,599)	$	(0.08)
Matured or other redemptions(1)	5,889		0.06		20,800		0.20
Provision for credit losses	306		—		2,643		0.02
Fair value option—change in fair value	(4,217)		(0.04)		7,809		0.07
Other	(5,406)		(0.06)		(413)		—


Total realized gains (losses)	$	(5,723)	$	(0.06)	$	22,240	$	0.21

(1)During the three months ended March 31, 2022 and 2021, the Company recorded $0 and $85.8 million of exchanges of fixed maturity securities (noncash transactions) that resulted in $0 and $19.9 million, respectively in realized gains, net of tax.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Investment Acquisitions**.** Globe Life's investment policy calls for investing primarily in investment grade fixed maturities that meet our quality and yield objectives. We generally invest in securities with longer maturities because they more closely match the long-term nature of our policy liabilities. We believe this strategy is appropriate since our expected future cash flows are generally stable and predictable and the likelihood that we will need to sell invested assets to raise cash is low.

The following table summarizes selected information for fixed maturity investments. The effective annual yield shown is based on the acquisition price and call features, if any, of the securities. For non-callable bonds, the yield is calculated to maturity date. For callable bonds acquired at a premium, the yield is calculated to the earliest known call date and call price after acquisition ("first call date"). For all other callable bonds, the yield is calculated to maturity date.

Fixed Maturity Acquisitions Selected Information

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022			2021
Cost of acquisitions:
Investment-grade corporate securities	$	187,324		$	260,002
Investment-grade municipal securities	163,891			33,228
Other investment-grade securities	—			5,619
Total fixed maturity acquisitions(1)	$	351,215		$	298,849

Effective annual yield (one year compounded)(2)	3.97		%	3.41		%
Average life (in years, to next call)	15.8			29.6
Average life (in years, to maturity)	26.9			33.7
Average rating	A			A

(1)Fixed maturity acquisitions included unsettled trades of $12 million in 2022 and $3 million in 2021.

(2)Tax-equivalent basis, where the yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.

For investments in callable bonds, the actual life of the investment will depend on whether the issuer calls the investment prior to the maturity date. Given our investments in callable bonds, the actual average life of our investments cannot be known at the time of the investment. Absent sales and "make-whole calls", however, the average life will not be less than the average life to next call and will not exceed the average life to maturity. Data for both of these average life measures is provided in the above chart.

Acquisitions in both periods consisted primarily of corporate and municipal bonds with securities spanning a diversified range of issuers, industry sectors, and geographical regions. In the first three months of 2022, we invested primarily in the municipal, financial and industrial sectors. For the entire portfolio, the taxable equivalent effective yield earned was 5.15%, down approximately 9 basis points from the yield in the first three months of 2021. As previously noted in the discussion of net investment income, the decrease was primarily due to the combination of lower interest rates applicable to new purchases and fixed maturity dispositions. For the remainder of 2022, the Company will continue to execute on its existing strategy by seeking to invest in assets that satisfy our quality and other objectives, while maximizing the highest risk-adjusted capital-adjusted return.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Since fixed maturities represent such a significant portion of our investment portfolio, the remainder of the discussion of portfolio composition will focus on fixed maturities. See a breakdown of the Company's Other long-term investments in Note 4—Investments.

Selected information concerning the fixed maturity portfolio is as follows:

Fixed Maturity Portfolio Selected Information


	At
	March 31, 2022	December 31, 2021	March 31, 2021
Average annual effective yield(1)	5.15%	5.17%	5.24%
Average life, in years, to:
Next call(2)	15.5	15.7	16.2
Maturity(2)	18.9	19.0	19.0
Effective duration to:
Next call(2,3)	10.0	10.6	10.6
Maturity(2,3)	11.5	12.2	11.9

(1)Tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.

(2)Globe Life calculates the average life and duration of the fixed maturity portfolio two ways:

(a) based on the next call date which is the next call date for callable bonds and the maturity date for noncallable bonds, and

(b) based on the maturity date of all bonds, whether callable or not.

(3)Effective duration is a measure of the price sensitivity of a fixed-income security to a 1% change in interest rates.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Credit Risk Sensitivity*.* The following tables summarize certain information about the major corporate sectors and security types held in our fixed maturity portfolio at March 31, 2022 and December 31, 2021.

Fixed Maturities by Sector

March 31, 2022

(Dollar amounts in thousands)


	Below Investment Grade								Total Fixed Maturities								% of Total Fixed Maturities
	Amortized Cost, net		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost, net		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		At Amortized Cost, net	At Fair Value

Corporates:
Financial
Insurance - life, health, P&C	$	57,421	$	1,954	$	(4,893)	$	54,482	$	2,368,933	$	252,627	$	(33,048)	$	2,588,512	13	13
Banks	26,971		1,835		—		28,806		1,019,590		97,441		(10,002)		1,107,029		6	6
Other financial	93,652		1		(7,781)		85,872		1,267,845		69,711		(40,758)		1,296,798		7	7
Total financial	178,044		3,790		(12,674)		169,160		4,656,368		419,779		(83,808)		4,992,339		26	26
Utilities
Electric	36,281		1,349		(405)		37,225		1,369,668		210,650		(4,851)		1,575,467		8	8
Gas and water	—		—		—		—		543,432		41,045		(5,422)		579,055		3	3
Total utilities	36,281		1,349		(405)		37,225		1,913,100		251,695		(10,273)		2,154,522		11	11
Industrial - Energy
Pipelines	85,194		3,079		(5,800)		82,473		918,164		95,774		(11,147)		1,002,791		5	5
Exploration and production	—		—		—		—		529,934		60,030		(8,443)		581,521		3	3
Oil field services	—		—		—		—		49,773		8,279		—		58,052		—	—
Refinery	—		—		—		—		88,944		14,251		(11)		103,184		1	1

Total energy	85,194		3,079		(5,800)		82,473		1,586,815		178,334		(19,601)		1,745,548		9	9
Industrial - Basic materials
Chemicals	—		—		—		—		673,481		54,933		(7,239)		721,175		4	4
Metals and mining	—		—		—		—		364,405		70,193		(495)		434,103		2	2
Forestry products and paper	—		—		—		—		65,574		6,398		—		71,972		—	1
Total basic materials	—		—		—		—		1,103,460		131,524		(7,734)		1,227,250		6	7
Industrial - Consumer, non-cyclical	21,321		—		(4,082)		17,239		2,229,773		177,589		(20,997)		2,386,365		12	13
Other industrials	25,539		1,554		—		27,093		1,252,491		125,300		(7,963)		1,369,828		7	7
Industrial - Transportation	8,057		79		—		8,136		539,199		67,424		(781)		605,842		3	3
Other corporate sectors	179,161		7,520		(6,351)		180,330		1,718,758		106,557		(52,725)		1,772,590		10	9
Total corporates	533,597		17,371		(29,312)		521,656		14,999,964		1,458,202		(203,882)		16,254,284		84	85
Other fixed maturities:
Government (U.S., municipal, and foreign)	—		—		—		—		2,837,889		130,600		(204,119)		2,764,370		15	14
Collateralized debt obligations	36,310		23,228		—		59,538		36,310		23,228		—		59,538		—	—
Other asset-backed securities	13,362		—		(260)		13,102		101,041		481		(829)		100,693		1	1
Mortgage-backed securities(1)	—		—		—		—		206		16		—		222		—	—
Total fixed maturities	$	583,269	$	40,599	$	(29,572)	$	594,296	$	17,975,410	$	1,612,527	$	(408,830)	$	19,179,107	100	100

(1)Includes Government National Mortgage Association (GNMA).

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Fixed Maturities by Sector

December 31, 2021

(Dollar amounts in thousands)


	Below Investment Grade								Total Fixed Maturities								% of Total Fixed Maturities
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		At Amortized Cost, net	At Fair Value

Corporates:
Financial
Insurance - life, health, P&C	$	57,470	$	3,825	$	(4,807)	$	56,488	$	2,345,116	$	513,844	$	(5,553)	$	2,853,407	13	13
Banks	26,980		614		—		27,594		983,317		207,466		(1,635)		1,189,148		6	6
Other financial	97,800		547		(1,103)		97,244		1,240,340		186,431		(2,161)		1,424,610		7	7
Total financial	182,250		4,986		(5,910)		181,326		4,568,773		907,741		(9,349)		5,467,165		26	26
Utilities
Electric	36,284		3,888		—		40,172		1,388,094		382,892		(395)		1,770,591		8	8
Gas and water	—		—		—		—		543,297		107,227		(617)		649,907		3	3
Total utilities	36,284		3,888		—		40,172		1,931,391		490,119		(1,012)		2,420,498		11	11
Industrial - Energy
Pipelines	85,222		11,051		(1,445)		94,828		918,746		203,324		(1,445)		1,120,625		5	5
Exploration and production	33,316		4,890		—		38,206		530,336		105,604		(238)		635,702		3	3
Oil field services	—		—		—		—		49,778		13,653		—		63,431		—	—
Refinery	—		—		—		—		89,032		24,199		—		113,231		1	1

Total energy	118,538		15,941		(1,445)		133,034		1,587,892		346,780		(1,683)		1,932,989		9	9
Industrial - Basic materials
Chemicals	—		—		—		—		673,699		145,114		(50)		818,763		4	4
Metals and mining	—		—		—		—		405,915		118,115		—		524,030		2	3
Forestry products and paper	—		—		—		—		65,608		15,946		—		81,554		—	—
Total basic materials	—		—		—		—		1,145,222		279,175		(50)		1,424,347		6	7
Industrial - Consumer, non-cyclical	84,106		13,059		(2,697)		94,468		2,256,802		475,012		(3,397)		2,728,417		13	13
Other industrials	25,565		3,182		—		28,747		1,254,243		286,889		(589)		1,540,543		7	7
Industrial - Transportation	25,555		5,588		—		31,143		559,399		135,581		(38)		694,942		3	3
Other corporate sectors	179,323		21,807		(3,429)		197,701		1,663,793		277,807		(9,288)		1,932,312		9	9
Total corporates	651,621		68,451		(13,481)		706,591		14,967,515		3,199,104		(25,406)		18,141,213		84	85
Other fixed maturities:
Government (U.S., municipal, and foreign)	—		—		—		—		2,695,796		304,537		(8,203)		2,992,130		15	14
Collateralized debt obligations	36,468		27,037		—		63,505		36,468		27,037		—		63,505		—	—
Other asset-backed securities	13,457		—		(414)		13,043		104,905		3,701		(430)		108,176		1	1
Mortgage-backed securities(1)	—		—		—		—		238		25		—		263		—	—
Total fixed maturities	$	701,546	$	95,488	$	(13,895)	$	783,139	$	17,804,922	$	3,534,404	$	(34,039)	$	21,305,287	100	100

(1)Includes GNMAs.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Corporate securities, which consist of bonds and redeemable preferred stocks, were the largest component of the March 31, 2022 fixed maturity portfolio, representing 84% of amortized cost, net and 85% of fair value. The remainder of the portfolio is invested primarily in securities issued by the U.S. government and U.S. municipalities. The Company holds insignificant amounts in foreign government bonds, collateralized debt obligations, asset-backed securities, and mortgage-backed securities. Corporate securities are diversified over a variety of industry sectors and issuers. At March 31, 2022, the total fixed maturity portfolio consisted of 876 issuers.

Fixed maturities had a fair value of $19.2 billion at March 31, 2022, compared with $21.3 billion at December 31, 2021. The net unrealized gain position in the fixed-maturity portfolio decreased from $3.5 billion at December 31, 2021 to $1.2 billion at March 31, 2022 due to an increase in market rates during the period.

For more information about our fixed maturity portfolio by component at March 31, 2022 and December 31, 2021, including a discussion of allowance for credit losses, an analysis of unrealized investment losses and a schedule of maturities, see Note 4—Investments.

An analysis of the fixed maturity portfolio by a composite quality rating at March 31, 2022 and December 31, 2021, is shown in the following tables. The composite rating for each security, other than private-placement securities managed by third parties, is the average of the security’s ratings as assigned by Moody’s Investor Service, Standard & Poor’s, Fitch Ratings, and Dominion Bond Rating Service, LTD. The ratings assigned by these four nationally recognized statistical rating organizations are evenly weighted when calculating the average. The composite quality rating is created utilizing a methodology developed by Globe Life using ratings from the various rating agencies noted above. The composite quality rating is not a Standard & Poor's credit rating. Standard & Poor's does not sponsor, endorse or promote the composite quality rating and shall not be liable for any use of the composite quality rating. Included in the following chart are private placement fixed maturity holdings of $519 million at amortized cost, net of allowance for credit losses ($523 million at fair value) for which the ratings were assigned by the third-party managers.

Fixed Maturities by Rating

At March 31, 2022

(Dollar amounts in thousands)


	Amortized Cost, net		% of Total	Fair Value		% of Total	Average Composite Quality Rating on Amortized Cost, net
Investment grade:
AAA	$	762,200	4	$	784,358	4
AA	2,347,897		13	2,228,778		12
A	4,487,319		25	4,974,961		26
BBB+	3,901,821		22	4,272,763		22
BBB	4,285,247		24	4,603,423		24
BBB-	1,607,657		9	1,720,528		9
Total investment grade	17,392,141		97	18,584,811		97	A-

Below investment grade:
BB	455,835		2	447,982		2
B	91,124		1	86,776		1
Below B	36,310		—	59,538		—
Total below investment grade	583,269		3	594,296		3	BB-
	$	17,975,410	100	$	19,179,107	100

Weighted average composite quality rating							A-

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Fixed Maturities by Rating

At December 31, 2021

(Dollar amounts in thousands)


	Amortized Cost		% of Total	Fair Value		% of Total	Average Composite Quality Rating on Amortized Cost
Investment grade:
AAA	$	761,526	4	$	867,728	4
AA	2,215,179		13	2,412,947		11
A	4,487,607		25	5,584,588		26
BBB+	3,779,051		21	4,616,977		22
BBB	4,289,044		24	5,174,667		24
BBB-	1,570,969		9	1,865,241		9
Total investment grade	17,103,376		96	20,522,148		96	A-

Below investment grade:
BB	537,064		3	583,608		3
B	128,402		1	136,026		1
Below B	36,080		—	63,505		—
Total below investment grade	701,546		4	783,139		4	BB-
	$	17,804,922	100	$	21,305,287	100

Weighted average composite quality rating							A-

The overall quality rating of the portfolio is A-, the same as year-end 2021. Fixed maturities rated BBB are 55% of the total portfolio at March 31, 2022 compared with 54% at year-end 2021. While this ratio is high relative to our peers, we have limited exposure to higher-risk assets such as derivatives, equities, and asset-backed securities. Additionally, the Company does not participate in securities lending and has no off-balance sheet investments as of March 31, 2022. Of our fixed maturity purchases, BBB securities generally provide the Company with the best risk-adjusted, capital-adjusted returns largely due to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets.

An analysis of changes in our portfolio of below-investment grade fixed maturities at amortized cost, net of allowance for credit losses is as follows:

Below-Investment Grade Fixed Maturities

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022		2021
Balance at beginning of period	$	701,546	$	840,739
Downgrades by rating agencies	—		—
Upgrades by rating agencies	(96,080)		—
Dispositions	(23,041)		(43,141)
Provision for credit losses	(31)		3,346
Amortization and other	875		768
Balance at end of period	$	583,269	$	801,712

Our investment policy calls for investing primarily in fixed maturities that are investment grade and meet our quality and yield objectives. Thus, any increases in below-investment grade issues are typically a result of ratings downgrades of existing holdings. Below-investment grade bonds at amortized cost, net of allowance for credit

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

losses, were 10% of our shareholders’ equity, excluding the effect of unrealized gains and losses on fixed maturities as of March 31, 2022. Globe Life invests long term and as such, one of our key criterion in our investment process is to select issuers that have the ability to weather multiple financial cycles.

OPERATING EXPENSES

Operating expenses are included in the "Corporate and Other" segment and are classified into two categories: insurance administrative expenses and expenses of the Parent Company. Insurance administrative expenses generally include expenses incurred after a policy has been issued. As these expenses relate to premium for a given period, management measures the expenses as a percentage of premium income. The Company also views stock-based compensation expense as a Parent Company expense. Expenses associated with the issuance of our insurance policies are reflected as acquisition expenses and included in the determination of underwriting margin.

An analysis of operating expenses is shown below.

Operating Expenses Selected Information

(Dollar amounts in thousands)


	Three Months Ended March 31,						Increase
	2022			2021			(Decrease)
	Amount		% of Premium	Amount		% of Premium	Amount		%
Insurance administrative expenses:
Salaries	$	30,283	2.8	$	28,180	2.8	$	2,103	7
Other employee costs	11,276		1.1	11,447		1.2	(171)		(1)
Information technology costs	12,899		1.2	11,404		1.1	1,495		13
Legal costs	3,643		0.3	2,833		0.3	810		29
Other administrative costs	14,464		1.4	12,312		1.2	2,152		17
Total insurance administrative expenses	72,565		6.8	66,176		6.6	6,389		10

Parent company expense	2,640			2,318			322
Stock compensation expense	9,035			7,888			1,147

Legal proceedings	—			4,828			(4,828)
Non-operating expenses	112			—			112

Total operating expenses, per Condensed Consolidated Statements of Operations	$	84,352		$	81,210		$	3,142	4

Total operating expenses increased 4% over the prior year period primarily due to a 10% increase in insurance administrative expenses. Insurance administrative expenses increased $6 million primarily due to higher information technology costs, including associated information technology salaries, higher employee costs in general, and higher costs due to the addition of Globe Life Benefits. The increase in stock-based compensation expense was primarily due to the higher expense associated with equity awards, reflecting the Parent Company's increased share price in 2022 as compared with 2021. Insurance administrative expenses as a percent of premium were 6.8%, compared to 6.6% for the same period in 2021.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

SHARE REPURCHASES

Globe Life has an ongoing share repurchase program that began in 1986, and is reviewed with the Board of Directors by management quarterly and annually reaffirmed by the Board of Directors. With no specified authorization amount, we determine the amount of repurchases based on the amount of the excess cash flows after the payment of dividends to the Parent Company shareholders, general market conditions, and other alternative uses. Excess cash flow at the Parent Company is primarily comprised of dividends received from the insurance subsidiaries less interest expense paid on its debt and other limited operating activities. The majority of our share repurchases are made from excess cash flow after the payment of shareholder dividends. Additionally, when stock options are exercised, proceeds from these exercises and the resulting tax benefit are used to repurchase additional shares on the open market to minimize dilution as a result of the option exercises. On August 4, 2021, the Board of Directors reauthorized the Parent Company’s share repurchase program in amounts and with timing that management, in consultation with the Board, determines to be in the best interest of the Company and its shareholders.

The following chart summarizes share repurchases for the three month periods ended March 31, 2022 and 2021.

Analysis of Share Repurchases

(Amounts in thousands, except per share data)


	Three Months Ended March 31,
	2022					2021
	Shares	Amount		Average Price		Shares	Amount		Average Price
Purchases with:
Excess cash flow at the Parent Company	880	$	88,621	$	100.70	944	$	90,149	$	95.47
Option exercise proceeds	299	30,861		103.07		435	42,571		97.89
Total	1,179	$	119,482	$	101.30	1,379	$	132,720	$	96.23

Throughout the remainder of this discussion, share repurchases will only refer to those made from excess cash flow at the Parent Company.

FINANCIAL CONDITION

Liquidity. Liquidity provides Globe Life with the ability to meet on demand the cash commitments required to support our business operations and meet our financial obligations. Our liquidity is primarily derived from multiple sources: positive cash flow from operations, a portfolio of marketable securities, a revolving credit facility, commercial paper and the Federal Home Loan Bank (FHLB).

Insurance Subsidiary Liquidity**.** The operations of our insurance subsidiaries have historically generated substantial cash inflows in excess of immediate cash needs. Cash inflows for the insurance subsidiaries primarily include premium and investment income. In addition to investment income, maturities and scheduled repayments in the investment portfolio are cash inflows. Cash outflows from operations include policy benefit payments, commissions, administrative expenses, and taxes. A portion of the excess cash inflows in the current year will provide for the payment of future policy benefits and are invested primarily in long-term fixed maturities as they better match the long-term nature of these obligations. Excess cash available from the insurance subsidiaries’ operations is generally distributed as a dividend to the Parent Company, subject to regulatory restrictions. The dividends are generally paid in amounts equal to the subsidiaries’ prior year statutory net income excluding realized capital gains. While the leading source of the excess cash is investment income, a significant portion of the excess cash also comes from underwriting income due to our high underwriting margins and effective expense control. While the insurance subsidiaries routinely generate more operating cash inflows than cash outflows annually, the companies also have the entire available-for-sale fixed maturity investment portfolio available to create additional cash flows if required.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Four of our insurance subsidiaries are members of the FHLB of Dallas. FHLB membership provides the insurance subsidiaries with access to various low-cost collateralized borrowings and funding agreements. While not the only source of liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed. Refer to Note 9—Debt for further details.

Parent Company Liquidity. An important source of Parent Company liquidity is the dividends from its insurance subsidiaries. These dividends are received throughout the year and are used by the Parent Company to pay dividends on common and preferred stock, interest and principal repayment requirements on Parent Company debt, and operating expenses of the Parent Company.


	Three Months Ended March 31,				Twelve Months Ended December 31,
	2022		2021		Projected 2022		2021
Liquidity Sources:
Dividends from Subsidiaries	$	107,083	$	120,728	$	400,000	$	478,535
Excess Cash Flows	69,270		88,922		280,000		370,120

Additional sources of liquidity for the Parent Company are cash, intercompany receivables, intercompany borrowings, public debt markets, term loans, and a revolving credit facility. At March 31, 2022, the Parent Company had access to $134 million of invested cash, net intercompany receivables and other liquid assets.

Short-Term Borrowings. An additional source of Parent Company liquidity is a credit facility with a group of lenders allowing for unsecured borrowings and stand-by letters of credit up to $750 million, which could be extended up to $1 billion. While the Parent Company may request the extension, it is not guaranteed. Up to $250 million in letters of credit can be issued against the facility. The facility serves as a back-up line of credit for a commercial paper program under which commercial paper may be issued at any time, with total commercial paper outstanding not to exceed the facility maximum, less any letters of credit issued. Interest charged on the commercial paper program resembles variable rate debt due to its short term nature. On September 30, 2021, Globe Life amended the credit agreement dated August 24, 2020. The five-year credit agreement will now mature on September 30, 2026. As of March 31, 2022, the Parent Company was in full compliance with all covenants related to the aforementioned debt.

As a part of the credit facility, Globe Life has stand-by letters of credits. These letters of credit are issued on behalf of our insurance subsidiaries.

The following table presents certain information about our commercial paper borrowings.

Credit Facility—Commercial Paper

(Dollar amounts in thousands)


	At
	March 31, 2022			December 31, 2021			March 31, 2021
Balance of commercial paper at end of period (par value)	$	372,524		$	330,033		$	275,000
Annualized interest rate	0.69		%	0.29		%	0.23		%
Letters of credit outstanding	$	125,000		$	125,000		$	135,000
Remaining amount available under credit line	252,476			294,967			340,000

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Credit Facility—Commercial Paper Activity

(Dollar amounts in thousands)


	Three Months Ended March 31,
	2022			2021
Average balance of commercial paper outstanding during period (par value)	$	426,243		$	300,444
Daily-weighted average interest rate (annualized)	0.43		%	0.24		%
Maximum daily amount outstanding during period (par value)	$	500,529		$	355,000

The Company increased the commercial paper borrowings by $42 million since year-end, reflecting timing of cash needs of the Parent Company. We had no difficulties in accessing the commercial paper market under this facility during the three months ended March 31, 2022 and 2021.

Globe Life expects to have readily available funds for 2022 and the foreseeable future to conduct its operations and to maintain target capital ratios in the insurance subsidiaries through liquid assets currently available, internally-generated cash flow and the credit facility. In the unlikely event that more liquidity is needed, the Parent Company could generate additional funds through multiple sources including, but not limited to, the issuance of debt, an additional short-term credit facility or term loan, and intercompany borrowing.

Consolidated Liquidity. Consolidated net cash inflows from operations were $397 million in the first three months of 2022, compared with $372 million in the same period of 2021. The increase is primarily attributable to fluctuations in the settlement of certain amounts included in other liabilities. In addition to cash inflows from operations, our insurance companies received proceeds from dispositions of fixed maturities available for sale in the amount of $115 million during the 2022 period. As previously noted under the caption Credit Facility**, the Parent Company has in place a revolving credit facility. The insurance companies have no additional outstanding credit facilities.

Cash and short-term investments were $185 million at March 31, 2022, compared with $161 million at December 31, 2021. In addition to these liquid assets, the entire $19.2 billion (fair value at March 31, 2022) portfolio of fixed income securities is available for sale in the event of an unexpected need. Approximately 97% of our fixed income securities are publicly traded, freely tradable under SEC Rule 144, or qualified for resale under SEC Rule 144A. We generally expect to hold fixed income securities to maturity, and even though these securities are classified as available for sale, we have the ability and general intent to hold any securities to recovery. Our strong cash flows from operations, on-going investment maturities, and available liquidity under our credit facility make any need to sell securities for liquidity highly unlikely.

GL Q1 2022 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Capital Resources. The Parent Company's capital structure consists of short-term debt (the commercial paper facility and current maturities of long-term debt), long-term debt, and shareholders’ equity.

Long-Term Borrowings**.** The outstanding long-term debt at book value was $1.5 billion at March 31, 2022 and December 31, 2021. Refer to Note 9—Debt for a complete analysis and description of long-term debt issues outstanding.

Selected Information about Debt Issues

As of March 31, 2022

(Dollar amounts in thousands)


Instrument	Issue Date	Maturity Date	Coupon Rate	Interest Payment Dates	Par Value		Book Value		Fair Value
Senior notes	05/27/1993	05/15/2023	7.875%	semiannual	$	165,612	$	165,285	$	174,991
Senior notes(1)	09/24/2012	09/15/2022	3.800%	semiannual	150,000		149,839		151,500
Senior notes	09/27/2018	09/15/2028	4.550%	semiannual	550,000		545,112		576,906
Senior notes	08/21/2020	08/15/2030	2.150%	semiannual	400,000		395,889		358,344

Junior subordinated debentures	11/17/2017	11/17/2057	5.275%	semiannual	125,000		123,399		127,150
Junior subordinated debentures	06/14/2021	06/15/2061	4.250%	quarterly	325,000		317,173		288,340

					1,715,612		1,696,697		1,677,231
Less current maturity of long-term debt(1)					150,000		149,839		151,500
Total long-term debt					1,565,612		1,546,858		1,525,731

Current maturity of long-term debt(1)					150,000		149,839		151,500
Commercial paper					372,524		372,240		372,240
Total short-term debt					522,524		522,079		523,740

Total debt					$	2,088,136	$	2,068,937	$	2,049,471

(1)An additional $150 million par value and book value is held by insurance subsidiaries that eliminates in consolidation.

Subsidiary Capital*:* The National Association of Insurance Commissioners (NAIC) has established a risk-based factor approach for determining threshold risk-based capital levels for all insurance companies. This approach was designed to assist the regulatory bodies in identifying companies that may require regulatory attention. A Risk-Based Capital (RBC) ratio is typically determined by dividing adjusted total statutory capital by the amount of risk-based capital determined using the NAIC’s factors. If a company’s RBC ratio approaches two times the RBC amount, the company must file a plan with the NAIC for improving their capital levels (this level is commonly referred to as “Company Action Level” RBC). Companies typically hold a multiple of the Company Action Level RBC depending on their particular business needs and risk profile.

Our goal is to maintain statutory capital within our insurance subsidiaries at levels necessary to support our current ratings. For 2022, Globe Life has targeted a consolidated Company Action Level RBC ratio of 300% to 320%. The Company concludes that this capital level is more than adequate and sufficient to support its current ratings, given the nature of its business and its risk profile. As of December 31, 2021, our consolidated Company Action Level RBC ratio was 315%. The Parent Company is committed to maintaining the targeted consolidated RBC ratio at its insurance subsidiaries and has sufficient liquidity available to provide additional capital if necessary.

Shareholders' Equity: On March 8, 2022, the Parent Company announced that it had declared a quarterly dividend of $0.2075 per share. This dividend was paid on April 29, 2022.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Shareholders’ equity was $6.9 billion at March 31, 2022. This compares with $8.6 billion at December 31, 2021 and $7.8 billion at March 31, 2021. During the three months since December 31, 2021, shareholders’ equity decreased primarily due to $1.8 billion of after-tax unrealized losses in the fixed-maturity portfolio as interest rates have increased over the period. In addition, shareholders' equity increased by net income of $164 million during the first three months of 2022, but was offset by share repurchases of $89 million and an additional $31 million in share purchases to offset the dilution from stock option exercises.

We plan to use excess cash available at the Parent Company as efficiently as possible in the future. Possible uses of excess cash flow include, but are not limited to, share repurchases, acquisitions, shareholder dividend payments, investments in securities, or repayment of short-term debt. We will determine the best use of excess cash after ensuring that targeted capital levels are maintained in our insurance subsidiaries. If market conditions are favorable, we currently expect that share repurchases will continue to be a primary use of those funds.

Globe Life is required under GAAP to revalue its available for sale fixed maturity portfolio to fair market value at the end of each accounting period. These changes, net of their associated impact on deferred acquisition costs and income tax, are reflected directly in shareholders’ equity.

While a majority of our invested assets are revalued, current accounting rules do not permit interest-bearing insurance policy liabilities to be valued at fair value in a consistent manner as that of our invested assets, with changes in value applied directly to shareholders’ equity. Due to the size of our policy liabilities in relation to our shareholders’ equity, an inconsistency exists in measurement, which may have a material impact on the reported value of shareholders’ equity. Fluctuations in interest rates cause undue volatility in the period-to-period presentation of our shareholders’ equity, capital structure, and financial ratios. Due to the long-term nature of our fixed maturity investments and policy liabilities and the strong cash flows consistently generated by our insurance subsidiaries, we have the ability to hold our securities to maturity. As such, we do not expect to incur losses due to fluctuations in market value of fixed maturities caused by market rate changes and temporarily illiquid markets. Accordingly, our management, credit rating agencies, lenders, many industry analysts, and certain other financial statement users prefer to remove the effect of this accounting rule when analyzing our balance sheet, capital structure, and financial ratios.

GL Q1 2022 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

The following table presents selected data related to our capital resources. Additionally, the table presents the effect of this accounting guidance on relevant line items, so that investors and other financial statement users may determine its impact on Globe Life's capital structure. Excluding the effect of unrealized gains and losses on the fixed maturity portfolio from shareholders' equity is considered non-GAAP. Below we include the reconciliation to GAAP.

Selected Financial Data

(Dollar amounts in thousands, except per share data)


	At
	March 31, 2022						December 31, 2021						March 31, 2021
	GAAP			Effect of Accounting Rule Requiring Revaluation(1)			GAAP			Effect of Accounting Rule Requiring Revaluation(1)			GAAP			Effect of Accounting Rule Requiring Revaluation(1)
Fixed maturities	$	19,179,107		$	1,203,697		$	21,305,287		$	3,500,365		$	20,154,910		$	2,742,951
Deferred acquisition costs(2)	4,999,935			(3,951)			4,914,728			(4,327)			4,662,509			(5,596)
Total assets	27,850,328			1,199,746			29,768,048			3,496,038			28,112,896			2,737,355
Short-term debt	522,079			—			479,644			—			274,919			—
Long-term debt	1,546,858			—			1,546,494			—			1,668,322			—
Shareholders' equity	6,894,020			947,799			8,642,806			2,761,870			7,832,337			2,162,510

Book value per diluted share	69.16			9.51			85.97			27.47			75.10			20.74
Debt to capitalization(3)	23.1		%	(2.7)		%	19.0		%	(6.6)		%	19.9		%	(5.6)		%

Diluted shares outstanding	99,689						100,535						104,292
Actual shares outstanding	98,875						99,567						103,193

(1)Amount added to (deducted from) comprehensive income to produce the stated GAAP item, per accounting rule ASC 320-10-35-1.

(2)Includes the value of business acquired (VOBA).

(3)Globe Life's debt covenants require that the effect of this accounting rule be removed to determine this ratio. This ratio is computed by dividing total debt by the sum of total debt and shareholders’ equity.

GL Q1 2022 FORM 10-Q

Previous: Item 1. Condensed Consolidated Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk