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.

The results included herein reflect the adoption of ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. Globe Life Inc. implemented the standard on January 1, 2023 using the modified retrospective transition method at adoption. As a result of this election, the prior year figures have been retrospectively adjusted as of January 1, 2021 with significant impacts to Shareholders' Equity, underwriting margins, and net operating income. While the impacts of the new accounting guidance are significant, we do not consider it a fundamental change to the overall business.

Additional information on the effects of the adoption has been included in Note 2—New Accounting Standards.

"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 liquidity. Our measure of profitability for the investment segment is excess investment income, as seen below:
						Net investment income (Required interest on policy liabilities) Excess investment income

GL Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Current Highlights, comparing year-to-date 2023 with 2022.

Net income as a return on equity (ROE) for the nine months ended September 30, 2023 was 22.6% and net operating income as an ROE, excluding accumulated other comprehensive income(1) was 14.7%.
Total premium increased 3% over the same period in the prior year. Life premium increased 3% for the period from $2.26 billion in 2022 to $2.34 billion in 2023.
Net investment income increased 7% over the same period in the prior year.
Total net sales increased 5% over the same period in the prior year from $539 million in 2022 to $568 million in 2023. The average producing agent count across all of the exclusive agencies increased 11% over the prior year.
Book value per share increased 32% over the same period in the prior year from $36.88 to $48.51. Book value per share, excluding accumulated other comprehensive income**(1)**, increased 11% over the prior year from $67.13 in 2022 to $74.31 in 2023.
For the nine months ended September 30, 2023, the Company repurchased 2.7 million shares of Globe Life Inc. common stock at a total cost of $303 million for an average share price of $111.82.

The following graphs represent net income and net operating income for the nine month periods ended September 30, 2023 and 2022.

1103 1105

(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 accumulated other comprehensive income (AOCI), is considered a non-GAAP measure. Management utilizes this measure to view the business without the effect of changes in AOCI, which are primarily attributable to fluctuation in interest rates. The impact of the adjustment to exclude AOCI is $(2.5) billion and $(3.0) billion for the nine months ended September 30, 2023 and 2022, respectively.

Book value per share, excluding AOCI, is also considered a non-GAAP measure. Management utilizes this measure to view the book value of the business without the effect of changes in AOCI, which are primarily attributable to fluctuation in interest rates. The impact of the adjustment to exclude AOCI is $(25.80) and $(30.25) for the nine months ended September 30, 2023 and 2022, respectively.

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

GL Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

Summary of Operations. Net income increased 7% to $696 million during the nine months ended September 30, 2023, compared with $652 million in the same period in 2022. On a diluted per common share basis, net income per common share for the nine months ended September 30, 2023 increased 9% from $6.58 to $7.20.

Net operating income increased 7% to $759 million for the nine months ended September 30, 2023, compared with $710 million for the same period in 2022, primarily due to a 28% increase in excess investment income as well as a 6% increase in life underwriting margin. On a diluted per common share basis, net operating income per common share for the nine months ended September 30, 2023 increased from $7.16 to $7.85, a 10% increase. 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 in 2023 and 2022 was affected by certain significant and unusual non-operating items. 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.

Insurance reserve liabilities are determined each reporting period based on the net level premium method. Net level premiums reflect a recomputed net premium ratio using actual experience since the issue date, and expected future experience based on future cash-flow assumptions. The Company regularly reviews its cash flow assumptions (mortality, morbidity, and lapses) used to calculate the change in the liability for future policy benefits and updates those cash flow assumptions as necessary annually in the third quarter, or more frequently if suggested by experience. See Note 6—Policy Liabilities for additional information. The policy liability is accrued as premium revenue is recognized and adjusted for differences between actual and expected experience in the form of remeasurement gains and losses during the period.

The Company continues to see positive signs in its core operations, including sales and premium growth, favorable persistency, and a strong ROE, excluding accumulated other comprehensive income.

GL Q3 2023 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)


	Nine Months Ended September 30,
	2023		2022		Change		%
Life insurance underwriting margin	$	887,492	$	836,603	$	50,889	6
Health insurance underwriting margin	280,451		280,913		(462)		—
Annuity underwriting margin	6,546		7,882		(1,336)		(17)
Excess investment income	94,558		73,873		20,685		28
Other insurance:
Other income	185		862		(677)		(79)
Administrative expense	(223,951)		(221,313)		(2,638)		1
Corporate and other	(107,626)		(100,429)		(7,197)		7
Pre-tax total	937,655		878,391		59,264		7
Applicable taxes	(178,424)		(168,685)		(9,739)		6
Net operating income	759,231		709,706		49,525		7
Reconciling items, net of tax:
Realized gain (loss)—investments	(62,380)		(52,808)		(9,572)




Non-operating expenses	(898)		(3,736)		2,838
Legal proceedings	—		(1,119)		1,119

Net income	$	695,953	$	652,043	$	43,910	7

The results for the first nine months of 2023 are impacted, as previously noted, by the reserve development and assumption changes in the third quarter of 2023 and 2022. 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 $51 million compared with the prior period, primarily a result of increased premiums, favorable policy obligations as a percent of premium, and a significantly lower remeasurement loss resulting from the assumption updates.

GL Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

In 2023, the largest contributor of total underwriting margin was the life insurance segment and the primary distribution channel was the American Income Life Division. The following charts represent the breakdown of total underwriting margin by operating segment and distribution channel for the nine months ended September 30, 2023.

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Total premium income rose 3% for the nine months ended September 30, 2023 to $3.3 billion. Total net sales increased 5% to $568 million, when compared with 2022. Total first-year collected premium (defined in the following section) increased 3% to $449 million for 2023 compared to $436 million in 2022.

Life insurance premium income increased 3% to $2.34 billion over the prior-year total of $2.26 billion. Life net sales rose 2% to $414 million for the first nine months of 2023. First-year collected life premium increased 1% to $313 million. Life underwriting margin, as a percent of premium, increased to 38% in 2023 from 37%. Underwriting margin increased to $887 million in 2023, compared to $837 million for the same period in 2022.

Health insurance premium income increased 3% to $983 million over the prior-year total of $956 million. Health net sales rose 15% to $154 million for the first nine months of 2023. First-year collected health premium rose 9% to $136 million. Health underwriting margin, as a percent of premium, was 29% in 2023 and 2022. Health underwriting margin decreased slightly to $280 million for the first nine months of 2023, compared to the same period in 2022.

Excess investment income, the measure of profitability of our investment segment, increased 28% during the first nine months of 2023 to $94.6 million from $73.9 million in the same period in 2022. Excess investment income per common share, reflecting the impact of our share repurchase program and increased net investment income, increased 31% to $0.98 from $0.75 when compared with the same period in 2022.

Insurance administrative expenses increased 1% in 2023 when compared with the prior-year period. These expenses were 6.7% as a percent of premium during 2023 compared to 6.9% in 2022.

For the nine months ended September 30, 2023, the Company repurchased 2.7 million Globe Life Inc. shares at a total cost of $303 million for an average share price of $111.82.

GL Q3 2023 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 12—Business Segments.

We use three 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.
Net sales are 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 Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

LIFE INSURANCE

Life insurance is the Company's predominant segment. During 2023, life premium represented 70% of total premium and life underwriting margin represented 76% 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)


	Nine Months Ended September 30,						Change
	2023			2022
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium and policy charges	$	2,342,429	100	$	2,264,895	100	$	77,534	3

Policy obligations	1,536,317		66	1,533,726		67	2,591		—
Required interest on reserves	(575,801)		(25)	(548,840)		(24)	(26,961)		5
Net policy obligations	960,516		41	984,886		43	(24,370)		(2)
Commissions, premium taxes, and non-deferred acquisition expenses	251,136		11	222,310		10	28,826		13
Amortization of acquisition costs	243,285		10	221,096		10	22,189		10
Total expense	1,454,937		62	1,428,292		63	26,645		2
Insurance underwriting margin	$	887,492	38	$	836,603	37	$	50,889	6

Net policy obligations amounted to 41% of premium for the nine months ended September 30, 2023 compared to 43% in the year ago period.

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

Life Insurance

Premium by Distribution Channel

(Dollar amounts in thousands)


	Nine Months Ended September 30,						Change
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	1,182,346	50	$	1,124,112	50	$	58,234	5
Direct to Consumer	744,132		32	739,017		32	5,115		1
Liberty National	260,036		11	244,149		11	15,887		7
Other	155,915		7	157,617		7	(1,702)		(1)
Total	$	2,342,429	100	$	2,264,895	100	$	77,534	3

Annualized life premium in force was $3.17 billion at September 30, 2023, an increase of 4% over $3.04 billion a year earlier.

GL Q3 2023 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)


	Nine Months Ended September 30,						Change
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	246,335	59	$	246,919	61	$	(584)	—
Direct to Consumer	90,593		22	95,303		23	(4,710)		(5)
Liberty National	69,413		17	55,138		14	14,275		26
Other	7,513		2	7,276		2	237		3
Total	$	413,854	100	$	404,636	100	$	9,218	2

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)


	Nine Months Ended September 30,						Change
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
American Income	$	197,224	63	$	195,369	63	$	1,855	1
Direct to Consumer	59,735		19	67,072		22	(7,337)		(11)
Liberty National	49,810		16	42,076		13	7,734		18
Other	6,513		2	6,841		2	(328)		(5)
Total	$	313,282	100	$	311,358	100	$	1,924	1

A discussion of life operations by distribution channel follows.

The American Income Life Division markets to members of labor unions and other affinity groups and continues to diversify its lead sources, 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 50% of the Company's September 30, 2023 total life premium. Net sales were $81 million for the three months ended September 30, 2023, up from $76 million in the year-ago period. For the nine months ended September 30, 2023, net sales decreased slightly to $246 million, as compared with $247 million during the same period in 2022. The comparison to prior year sales is challenging due to the strong sales growth a year ago; life sales for the first nine months of 2022 grew 14% over the same period in 2021. The underwriting margin, as a percent of premium, was 45% for the nine months ended September 30, 2023, down from 46% in the year-ago period due to higher acquisition costs.

Below is the average producing agent count for the nine months ended for the American Income Life Division. The average producing agent count is based on the actual count at the beginning and end of each week during the year. The average producing agent count increased 9% over the year-ago period. The increase in average producing agent count was driven by an increase in new agent recruiting. Sales growth in this division, as well as within our other exclusive agencies, is generally dependent on growth in the size of the agency force.


	At September 30,		Change
	2023	2022	Amount	%
American Income	10,395	9,511	884	9

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

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 a customer relationship management (CRM) tool for the agency force. This tool is designed to drive productivity in lead distribution, conservation of business, manager dashboards 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. The agents have shifted to primarily a virtual experience with the customers and have generated a vast majority of 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 faster than direct mail response, as customer preferences focused marketing activity to internet and mobile technology. The proportion of sales from the internet and inbound phone calls continue to outpace the activity from the direct mailings, but all three channels continue to work in an omnichannel approach. The different media channels 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, future offerings to juvenile policyholders and their parents are sources of low acquisition-cost life insurance sales in the future.

DTC net sales declined 5% to $91 million for the nine months ended September 30, 2023 compared with $95 million for the same period in the prior year. This decline is due primarily to reductions in direct mail and mailing insert marketing activity resulting from the impact of inflation on postage and paper costs. While total sales have declined, the focus has been on improving profitability and improving the underwriting margin. DTC’s underwriting margin, as a percent of premium, was 24% for the nine months ended September 30, 2023 compared with 21% for the same period in 2022.

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 32% for the nine months ended September 30, 2023, up from 30% during the same period a year ago. The increase is primarily attributable to increased premiums and lower policy obligations as a percent of premium, during the third quarter of 2023 as compared to same period in 2022.

Net sales rose 26% in the nine months ended September 30, 2023 over the same period in 2022. 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 life net sales to increase for the remainder of 2023 as compared to the prior year.

Below is the average producing agent count for the nine months ended for the Liberty National Division.


	At September 30,		Change
	2023	2022	Amount	%
Liberty National	3,177	2,718	459	17

The Liberty National Division average producing agent count increased significantly 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. In addition to the aforementioned geographic expansion, we have also started a campaign of market expansion to increase our agency presence in cities where we currently have offices, but not enough to properly serve the community, region, area and city. These tend to be larger geographic cities which will help create long-term sustainable agency growth. Additionally, the agency continues to help improve the ability of agents to develop

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

new worksite marketing business. Systems that have been put in place, including the addition of a CRM platform and enhanced analytical capabilities, help 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, as well as advances in its technology and CRM platform, the agency anticipates continued growth in recruiting activity and average producing agent count.

The other distribution channels primarily include non-exclusive independent agencies selling primarily life insurance. The other distribution channels contributed $156 million of life premium income, or 7% of Globe Life's total life premium income in the nine months ended September 30, 2023, 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 accident, cancer, critical illness, heart, and intensive care products.

Health premium accounted for 30% of our total premium in 2023, while the health underwriting margin accounted for 24% of total underwriting margin. Health underwriting margin decreased slightly to $280 million compared to $281 million in the prior year. 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.

The following table presents underwriting margin data for health insurance.

Health Insurance

Summary of Results

(Dollar amounts in thousands)


	Nine Months Ended September 30,						Change
	2023			2022
	Amount		% of Premium	Amount		% of Premium	Amount		%
Premium	$	982,916	100	$	956,397	100	$	26,519	3

Policy obligations	580,676		59	561,502		59	19,174		3
Required interest on reserves	(79,603)		(8)	(76,420)		(8)	(3,183)		4
Net policy obligations	501,073		51	485,082		51	15,991		3
Commissions, premium taxes, and non-deferred acquisition expenses	163,784		16	154,160		16	9,624		6
Amortization of acquisition costs	37,608		4	36,242		4	1,366		4
Total expense	702,465		71	675,484		71	26,981		4
Insurance underwriting margin	$	280,451	29	$	280,913	29	$	(462)	—

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

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)


	Nine Months Ended September 30,						Increase (Decrease)
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	407,137	42	$	401,966	42	$	5,171	1
Family Heritage	294,029		30	272,429		28	21,600		8
Liberty National	140,518		14	140,563		15	(45)		—
American Income	89,656		9	87,930		9	1,726		2
Direct to Consumer	51,576		5	53,509		6	(1,933)		(4)
Total	$	982,916	100	$	956,397	100	$	26,519	3

Premium related to limited-benefit supplemental health products comprise $553 million, or 56%, of the total health premiums for 2023 compared with $523 million, or 55%, in the same period in the prior year. Premium from Medicare Supplement products comprises the remaining $430 million, or 44%, for 2023 compared with $433 million, or 45%, in the same period in the prior year.

Annualized health premium in force was $1.36 billion at September 30, 2023, an increase of 4% over $1.32 billion a year earlier.

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

Health Insurance

Net Sales by Distribution Channel

(Dollar amounts in thousands)


	Nine Months Ended September 30,						Increase (Decrease)
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	44,053	29	$	38,491	29	$	5,562	14
Family Heritage	70,865		46	60,097		45	10,768		18
Liberty National	23,806		15	20,304		15	3,502		17
American Income	13,889		9	13,634		10	255		2
Direct to Consumer	1,773		1	1,637		1	136		8
Total	$	154,386	100	$	134,163	100	$	20,223	15

Health net sales related to limited-benefit supplemental health products comprise $121 million, or 79%, of the total health net sales for 2023 compared with $100 million, or 75%, in the same period in the prior year. Medicare Supplement sales make up the remaining $33 million, or 21%, for 2023 compared with $34 million, or 25%, in the same period in the prior year.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

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)


	Nine Months Ended September 30,						Increase (Decrease)
	2023			2022
	Amount		% of Total	Amount		% of Total	Amount		%
United American	$	47,819	35	$	47,345	38	$	474	1
Family Heritage	53,456		39	44,617		36	8,839		20
Liberty National	18,877		14	16,870		13	2,007		12
American Income	12,857		10	13,167		11	(310)		(2)
Direct to Consumer	2,638		2	2,228		2	410		18
Total	$	135,647	100	$	124,227	100	$	11,420	9

First-year collected premium related to limited-benefit supplemental health products is $98 million, or 72%, of total first-year collected premium for 2023 compared with $80 million, or 64%, in the same period in the prior year. First-year collected premium from Medicare Supplement policies makes up the remaining $38 million, or 28%, for 2023 compared with $44 million, or 36%, 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, with sales up 14% from the same period in the prior-year period.

This division includes three different units:

UA General Agency, which primarily sells individual Medicare Supplement insurance through independent agents;
Special Markets, which markets retiree health insurance to employer and union groups through brokers; and
Globe Life Benefits, which offers group worksite supplemental health insurance through brokers.

While the increase in sales for this division was driven primarily by sales growth at Globe Life Benefits, the majority of the premium revenue comes from Medicare Supplement and Retiree Health business. Underwriting margin as a percent of premium for the division for the nine months ended September 30, 2023 and 2022 was 11%.

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 34% for the nine months ended September 30, 2023 and 2022.

The division experienced a 18% increase in health net sales as compared with the nine-month period a year ago, primarily due to an increase in recruiting, as well as improved agent productivity and training. The division will continue to implement incentive programs to further these increases in the number of producing agents.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Below is the average producing agent count at the end of the period for the Family Heritage Division. The average producing agent count was up 13% compared with the same period a year ago, driven by a significant increase in recruiting during 2022 and 2023.


	At September 30,		Change
	2023	2022	Amount	%
Family Heritage Division	1,322	1,169	153	13

The Liberty National Division represented 14% of all Globe Life health premium income for the nine-month period ended September 30, 2023. The Liberty National Division markets limited-benefit supplemental health products, consisting primarily of cancer and critical illness insurance. Much of Liberty National's health business is generated through worksite marketing targeting small businesses. Health premium at Liberty National Division was $141 million for the nine months ended September 30, 2023 and 2022. Liberty National's first-year collected premium rose 12% to $19 million in the nine months ended September 30, 2023 compared with $17 million for the same period in 2022. Health net sales for the nine months ended September 30, 2023 rose 17% from the comparable period in 2022. The drivers of Liberty National's business discussed previously in the life insurance section also apply to the health business. Despite the increase in health sales from the prior year, health premiums remained level due to the run off of two older blocks of business that are no longer actively sold. For the nine months ended September 30, 2023 and 2022, underwriting margin as a percent of premium was 56% and 57%, respectively.

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 14% of health premium for the nine months ended September 30, 2023 compared with 15% for the same period in 2022.

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.

INVESTMENTS

We manage our capital resources, including investments 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 12—Business Segments. It is defined as net investment income less the required interest attributable to policy liabilities.

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. As excess investment income per diluted common share incorporates all invested assets and insurance liabilities, we view excess investment income per diluted common share as a useful measure to evaluate the investment segment.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

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)


	Nine Months Ended September 30,				Change
	2023		2022		Amount		%
Net investment income	$	785,275	$	736,317	$	48,958	7
Interest on policy liabilities(1)	(690,717)		(662,444)		(28,273)		4

Excess investment income	$	94,558	$	73,873	$	20,685	28

Excess investment income per diluted share	$	0.98	$	0.75	$	0.23	31

Mean invested assets (at amortized cost)	$	20,329,079	$	19,633,407	$	695,672	4
Average insurance policy liabilities	16,677,765		15,972,505		705,260		4

(1)Interest on policy liabilities is a component of total policyholder benefits, a GAAP measure. The amounts presented for 2022 have been retrospectively adjusted to exclude the interest on deferred acquisition costs due to the LDTI standard and the interest on debt.

Excess investment income increased $20.7 million, or 28%, compared with the year-ago period. Excess investment income per diluted common share was $0.98 for the nine months ended September 30, 2023, an increase of 31% 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 nine months ended September 30, 2023 was $785 million or 7% greater than the year-ago period. Mean invested assets increased 4% during the first nine months of 2023 over the same period last year. The effective annual yield rate earned on the fixed maturity portfolio was 5.18% in the first nine months of 2023, compared with 5.16% a year earlier. Investment income grew in the current period due to the growth in invested assets and the increase in interest rates compared to the prior year. In addition to fixed maturities, the Company has also invested in commercial mortgage loans and 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 nine months ended September 30, 2023 was 6.58%. See additional information in Note 4—Investments. For the full year 2023, we currently anticipate the average new money rate on our fixed maturity acquisitions to be approximately 80 basis points higher than the yield achieved on our 2022 acquisitions.

Globe Life's net investment income benefits from higher interest rates on new investments. While increasing interest rates have resulted in a net unrealized loss included in accumulated other comprehensive income (loss) as of September 30, 2023, we are not concerned because we do not generally intend to sell, nor is it likely that we will be required to sell, the fixed maturities prior to their anticipated recovery.

Required interest on insurance policy liabilities reduces excess investment income, as it is the amount of net investment income considered by management necessary to “fund” required interest on insurance policy liabilities. 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 12—Business Segments**, management regards this as a more meaningful analysis of the investment and insurance segments. Required interest is based on the original discount rate assumptions 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 original discount rate to be used to calculate the benefit reserve liability for all insurance policies issued that year. The liability reported on the balance sheet is updated in

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

subsequent periods using current discount rates as of the end of the relevant reporting period with a corresponding adjustment to Other Comprehensive Income. The rates are based on the methodology prescribed in ASU 2018-12. See Note 1—Significant Accounting Policies for additional information.

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 for purposes of recognizing income. As such, the overall original discount rate for the entire in-force block of 5.5% 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 on the entire block of in force business. Business issued in the current year has little impact on the overall weighted-average original discount rate due to the size of our in-force business.

In comparison to the year-ago period, required interest on insurance policy liabilities increased $28 million, or 4%, to $691 million, compared with the 4% growth in average interest-bearing insurance policy liabilities.

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. Gains or losses 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 Condensed 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)


	Nine Months Ended September 30,
	2023				2022
	Amount		Per Share		Amount		Per Share
Fixed maturities:
Sales	$	(61,281)	$	(0.64)	$	(43,802)	$	(0.44)
Matured or other redemptions(1)	(125)		—		20,001		0.20
Provision for credit losses	(5,924)		(0.06)		306		0.01
Fair value option—change in fair value	6,284		0.06		(12,594)		(0.13)
Other(2)	(1,334)		(0.01)		(16,719)		(0.17)


Total realized gains (losses)	$	(62,380)	$	(0.65)	$	(52,808)	$	(0.53)

(1)During the nine months ended September 30, 2023 and 2022, the Company recorded $39.0 million and $24.0 million, respectively, of exchanges of fixed maturity securities (noncash transactions) that resulted in no realized gains (losses), net of tax in either period.

(2)Other realized gains (losses) are primarily a result of changes in the fair value of exchange traded funds.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

During the nine months ended September 30, 2023, it was announced Signature Bank New York and First Republic Bank had entered receivership. As of September 30, 2023, the Company disposed of each of the holdings and incurred a $52 million after-tax realized loss. For the nine months ended September 30, 2022, as investment yields have increased, the Company disposed of certain fixed maturity investments to improve the risk-adjusted, capital-adjusted returns on the portfolio and enhance the yield, credit quality, or diversification of the portfolio.

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-term 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)


	Nine Months Ended September 30,
	2023			2022
Cost of acquisitions:
Investment-grade corporate securities	$	547,330		$	634,213
Investment-grade municipal securities	549,528			541,670
Other investment-grade securities	—			5,491
Total fixed maturity acquisitions(1)	$	1,096,858		$	1,181,374

Effective annual yield (one year compounded)(2)	5.93		%	5.00		%
Average life (in years, to next call)	17.1			12.9
Average life (in years, to maturity)	25.4			23.1
Average rating	A+			A

(1)Fixed maturity acquisitions included unsettled trades of $20 million in 2023 and $3 million in 2022.

(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 nine months of 2023, we invested primarily in the municipal, financial, and industrial sectors. For the entire portfolio, the taxable equivalent effective yield earned was 5.18%, up approximately 2 basis points from the yield in the first nine months of 2022. Further, as previously noted in the discussion of net investment income, the increase in taxable equivalent effective yield was primarily due to new purchase yields exceeding the yield on dispositions and the average portfolio yield. For the remainder of 2023, 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 Q3 2023 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
	September 30, 2023	December 31, 2022	September 30, 2022
Average annual effective yield(1)	5.23%	5.19%	5.18%
Average life, in years, to:
Next call(2)	14.4	14.7	14.9
Maturity(2)	18.4	18.5	18.6
Effective duration to:
Next call(2,3)	8.4	8.8	8.8
Maturity(2,3)	10.0	10.4	10.3

(1)Tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pre-tax 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 Q3 2023 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 September 30, 2023 and December 31, 2022.

Fixed Maturities by Sector

September 30, 2023

(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	$	107,098	$	—	$	(17,270)	$	89,828	$	2,391,154	$	17,541	$	(289,661)	$	2,119,034	13	13
Banks	36,915		—		(5,103)		31,812		1,308,142		3,588		(145,951)		1,165,779		7	7
Other financial	74,966		—		(27,160)		47,806		1,238,816		1,251		(237,194)		1,002,873		6	7
Total financial	218,979		—		(49,533)		169,446		4,938,112		22,380		(672,806)		4,287,686		26	27
Industrial
Energy	44,670		—		(10,896)		33,774		1,426,415		13,284		(136,363)		1,303,336		7	8
Basic materials	—		—		—		—		1,161,367		3,683		(143,044)		1,022,006		6	7
Consumer, non-cyclical	—		—		—		—		2,145,682		8,586		(318,626)		1,835,642		11	11
Other industrials	25,378		59		(332)		25,105		1,148,842		9,286		(152,074)		1,006,054		6	6
Communications	—		—		—		—		857,038		3,905		(143,564)		717,379		5	4
Transportation	8,403		—		(459)		7,944		532,035		4,585		(51,884)		484,736		3	3
Consumer. cyclical	79,789		—		(16,083)		63,706		536,904		2,120		(95,424)		443,600		3	3
Technology	32,544		—		(1,419)		31,125		281,747		28		(71,425)		210,350		1	1
Total industrial	190,784		59		(29,189)		161,654		8,090,030		45,477		(1,112,404)		7,023,103		42	43
Utilities	34,701		314		(2,335)		32,680		1,998,424		13,550		(190,901)		1,821,073		11	11
Total corporates	444,464		373		(81,057)		363,780		15,026,566		81,407		(1,976,111)		13,131,862		79	81
States, municipalities, and political divisions:
General obligations	—		—		—		—		932,658		2,130		(226,047)		708,741		5	4
Revenues	—		—		—		—		2,386,863		12,029		(470,744)		1,928,148		13	12
Total states, municipalities, and political divisions	—		—		—		—		3,319,521		14,159		(696,791)		2,636,889		18	16
Other fixed maturities:
Government (U.S. and foreign)	—		—		—		—		437,467		—		(68,235)		369,232		2	2
Collateralized debt obligations	36,843		4,842		—		41,685		36,843		4,842		—		41,685		—	—
Other asset-backed securities	11,845		—		(583)		11,262		86,796		2		(6,432)		80,366		1	1
Total fixed maturities	$	493,152	$	5,215	$	(81,640)	$	416,727	$	18,907,193	$	100,410	$	(2,747,569)	$	16,260,034	100	100

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Fixed Maturities by Sector

December 31, 2022

(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	$	107,355	$	22	$	(13,966)	$	93,411	$	2,375,633	$	44,578	$	(216,938)	$	2,203,273	13	13
Banks	26,944		84		(192)		26,836		1,336,868		14,035		(100,038)		1,250,865		7	8
Other financial	74,963		1		(22,026)		52,938		1,195,293		4,513		(187,513)		1,012,293		7	6
Total financial	209,262		107		(36,184)		173,185		4,907,794		63,126		(504,489)		4,466,431		27	27
Industrial
Energy	44,723		—		(10,168)		34,555		1,436,598		22,637		(101,923)		1,357,312		8	8
Basic materials	—		—		—		—		1,090,309		14,913		(95,958)		1,009,264		6	6
Consumer, non-cyclical	—		—		—		—		2,146,003		20,427		(232,196)		1,934,234		12	12
Other industrials	25,461		—		(522)		24,939		1,212,674		19,107		(121,540)		1,110,241		6	7
Communications	28,499		—		(2,253)		26,246		857,375		7,779		(110,132)		755,022		5	5
Transportation	—		—		—		—		520,029		11,684		(34,269)		497,444		3	3
Consumer. cyclical	149,465		—		(27,822)		121,643		592,657		4,903		(85,005)		512,555		3	3
Technology	—		—		—		—		247,996		90		(59,672)		188,414		1	1
Total industrial	248,148		—		(40,765)		207,383		8,103,641		101,540		(840,695)		7,364,486		44	45
Utilities	35,496		433		(3,173)		32,756		1,924,190		36,670		(125,713)		1,835,147		11	11
Total corporates	492,906		540		(80,122)		413,324		14,935,625		201,336		(1,470,897)		13,666,064		82	83
States, municipalities, and political divisions:
General obligations	—		—		—		—		915,725		5,041		(167,393)		753,373		5	5
Revenues	—		—		—		—		1,875,305		19,287		(338,054)		1,556,538		10	9
Total states, municipalities, and political divisions	—		—		—		—		2,791,030		24,328		(505,447)		2,309,911		15	14
Other fixed maturities:
Government (U.S., municipal, and foreign)	—		—		—		—		449,603		33		(51,674)		397,962		2	2
Collateralized debt obligations	37,098		13,266		—		50,364		37,098		13,266		—		50,364		—	—
Other asset-backed securities	12,493		—		(1,618)		10,875		88,336		4		(9,276)		79,064		1	1
Total fixed maturities	$	542,497	$	13,806	$	(81,740)	$	474,563	$	18,301,692	$	238,967	$	(2,037,294)	$	16,503,365	100	100

GL Q3 2023 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 fixed maturity portfolio as of September 30, 2023, representing 79% of amortized cost, net, and 81% 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 September 30, 2023, the total fixed maturity portfolio consisted of 990 issuers.

Fixed maturities had a fair value of $16.3 billion at September 30, 2023, compared with $16.5 billion at December 31, 2022. The net unrealized loss position in the fixed-maturity portfolio increased from $1.8 billion at December 31, 2022 to $2.6 billion at September 30, 2023 due to an increase in market rates during the period.

For more information about our fixed maturity portfolio by component at September 30, 2023 and December 31, 2022, 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 composite quality rating at September 30, 2023 and December 31, 2022, 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 available 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 $440 million at amortized cost, net of allowance for credit losses ($388 million at fair value) for which the ratings were assigned by the third-party managers.

Fixed Maturities by Rating

At September 30, 2023

(Dollar amounts in thousands)


	Amortized Cost, net		% of Total	Fair Value		% of Total	Average Composite Quality Rating on Amortized Cost, net
Investment grade:
AAA	$	945,832	5	$	796,460	5
AA	3,193,624		17	2,488,122		15
A	5,161,393		27	4,582,392		28
BBB+	3,609,077		19	3,204,032		20
BBB	4,196,940		22	3,618,741		22
BBB-	1,307,175		7	1,153,560		7
Total investment grade	18,414,041		97	15,843,307		97	A-

Below investment grade:
BB	422,315		3	342,792		2
B	30,376		—	28,586		—
Below B	40,461		—	45,349		1
Total below investment grade	493,152		3	416,727		3	BB-
	$	18,907,193	100	$	16,260,034	100

Weighted average composite quality rating							A-

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

Fixed Maturities by Rating

At December 31, 2022

(Dollar amounts in thousands)


	Amortized Cost, net		% of Total	Fair Value		% of Total	Average Composite Quality Rating on Amortized Cost
Investment grade:
AAA	$	828,315	5	$	733,524	4
AA	2,779,587		15	2,260,257		14
A	4,752,633		26	4,438,913		27
BBB+	3,934,053		21	3,639,118		22
BBB	4,254,730		23	3,844,182		23
BBB-	1,209,877		7	1,112,808		7
Total investment grade	17,759,195		97	16,028,802		97	A-

Below investment grade:
BB	462,356		3	389,132		3
B	43,044		—	35,067		—
Below B	37,097		—	50,364		—
Total below investment grade	542,497		3	474,563		3	BB-
	$	18,301,692	100	$	16,503,365	100

Weighted average composite quality rating							A-

The overall quality rating of the portfolio is A-, the same as of year-end 2022. Fixed maturities rated BBB are 48% of the total portfolio at September 30, 2023, down from 51% at December 31, 2022. While this ratio is high relative to our peers, it is at its lowest level in over 10 years and 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 September 30, 2023. 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)


	Nine Months Ended September 30,
	2023		2022
Balance at beginning of period	$	542,497	$	701,546
Downgrades by rating agencies	56,217		50,163
Upgrades by rating agencies	(32,540)		(97,495)
Dispositions	(68,319)		(115,108)
Provision for credit losses	(7,500)		(31)
Amortization and other	2,797		4,293
Balance at end of period	$	493,152	$	543,368

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

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

downgrades of existing holdings. Below-investment grade bonds at amortized cost, net of allowance for credit losses, were 7% of our shareholders’ equity excluding accumulated other comprehensive income as of September 30, 2023. 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)


	Nine Months Ended September 30,						Increase
	2023			2022			(Decrease)
	Amount		% of Premium	Amount		% of Premium	Amount		%
Insurance administrative expenses:
Salaries	$	89,068	2.7	$	94,883	2.9	$	(5,815)	(6)
Other employee costs	27,850		0.8	31,992		1.0	(4,142)		(13)
Information technology costs	47,106		1.4	40,807		1.3	6,299		15
Legal costs	10,614		0.3	9,175		0.3	1,439		16
Other administrative costs	49,313		1.5	44,456		1.4	4,857		11
Total insurance administrative expenses	223,951		6.7	221,313		6.9	2,638		1

Parent company expense	8,254			8,089			165
Stock compensation expense	22,732			26,603			(3,871)

Legal proceedings	—			1,416			(1,416)
Non-operating expenses	1,137			4,729			(3,592)

Total operating expenses, per Condensed Consolidated Statements of Operations	$	256,074		$	262,150		$	(6,076)	(2)

Total operating expenses for September 30, 2023 decreased in comparison with the prior year primarily due to decreases in stock compensation expense and other non-operating costs. Insurance administrative expenses increased $2.6 million primarily due to higher information technology costs, information security costs, and other administrative costs offset by a decline in pension-related employee benefit costs. Insurance administrative expenses as a percent of premium were 6.7% for the nine months ended September 30, 2023 compared to 6.9% for the same period in 2022.

GL Q3 2023 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 reaffirmed by the Board of Directors annually. With no specified authorization amount, management determines 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. Since implementing our share repurchase program in 1986, we have used $9.3 billion of excess cash flow at the Parent Company to repurchase Globe Life Inc. common shares after determining that the repurchases provide a greater risk-adjusted after-tax return than other investment alternatives.

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 10, 2023, 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 nine month periods ended September 30, 2023 and 2022.

Analysis of Share Repurchases

(Amounts in thousands, except per share data)


	Nine Months Ended September 30,
	2023					2022
	Shares	Amount		Average Price		Shares	Amount		Average Price
Purchases with:
Excess cash flow at the Parent Company(1)	2,708	$	302,849	$	111.82	2,832	$	278,822	$	98.46
Option exercise proceeds	526	60,216		114.58		555	56,630		102.04
Total	3,234	$	363,065	$	112.27	3,387	$	335,452	$	99.04

(1)Excludes excise tax on the repurchase of treasury stock of $2.9 million for the nine months ended September 30, 2023.

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.

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.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

While the insurance subsidiaries annually generate more operating cash inflows than cash outflows, the companies also have the entire available-for-sale fixed maturity investment portfolio available to create additional cash flows if required.

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 11—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.


	Nine Months Ended September 30,				Twelve Months Ended December 31,
	2023		2022		Projected 2023	2022
Liquidity Sources:
Dividends from Subsidiaries	$	411,661	$	353,109	$460,000—470,000	$	407,042
Excess Cash Flows(1)	387,879		329,478		420,000—430,000	358,981

(1)Excess cash flows are reported gross of shareholder dividends. For the nine months ended September 30, 2023 and 2022, shareholder dividends were $63 million and $60 million, respectively. For the twelve months ended December 31, 2023, we project approximately $84 million in shareholder dividends, compared to the $81 million paid in 2022.

Dividends from subsidiaries and excess cash flows are projected to be higher in 2023 than in 2022 primarily due to lower life obligations and the growth in our underwriting margins, both of which resulted in higher statutory earnings generated by the affiliates. 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 September 30, 2023, the Parent Company had access to $69 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. The credit agreement will mature on September 30, 2026. As of September 30, 2023, 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.

GL Q3 2023 FORM 10-Q

Globe Life Inc.

Management's Discussion & Analysis

The following tables present certain information about our commercial paper borrowings.

Credit Facility—Commercial Paper

(Dollar amounts in thousands)


	At
	September 30, 2023			December 31, 2022			September 30, 2022
Balance of commercial paper at end of period (par value)	$	251,000		$	285,000		$	270,000
Annualized interest rate	5.65		%	4.78		%	3.13		%
Letters of credit outstanding	$	115,000		$	125,000		$	125,000
Remaining amount available under credit line	384,000			340,000			355,000

Credit Facility—Commercial Paper Activity

(Dollar amounts in thousands)


	Nine Months Ended September 30,
	2023			2022
Average balance of commercial paper outstanding during period (par value)	$	296,816		$	322,788
Daily-weighted average interest rate (annualized)	5.33		%	1.15		%
Maximum daily amount outstanding during period (par value)	$	477,700		$	500,529

The Company reduced the commercial paper borrowings by $34 million since year-end. We had no difficulties in accessing the commercial paper market under this facility during the nine months ended September 30, 2023 and 2022.

Globe Life expects to have readily available funds for 2023 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 $1.09 billion in the first nine months of 2023, compared with $1.05 billion in the same period of 2022. 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 and other long-term investments in the amount of $538 million during the first nine months of 2023. 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 $169 million at September 30, 2023, compared with $207 million at December 31, 2022. In addition to these liquid assets, $16 billion of fixed income securities are available for sale in the event of an unexpected need. Approximately $767 million, at fair value, are pledged for outstanding FHLB advances and reinsurance. Further, approximately 97% of our fixed income securities are publicly traded, freely tradable under SEC Rule 144, or qualified for resale under SEC Rule 144A. While our fixed income securities are classified as available for sale, we have the ability and general intent to hold any securities to recovery or maturity. 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 Q3 2023 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 $1.8 billion at September 30, 2023 and $1.6 billion at December 31, 2022.

Selected Information about Debt Issues

As of September 30, 2023

(Dollar amounts in thousands)


Instrument	Issue Date	Maturity Date	Coupon Rate	Interest Payment Dates	Par Value		Book Value		Fair Value
Senior notes	09/27/2018	09/15/2028	4.550%	semiannual	$	550,000	$	546,113	$	521,290
Senior notes	08/21/2020	08/15/2030	2.150%	semiannual	400,000		396,558		309,828
Senior notes(1)	05/19/2022	06/15/2032	4.800%	semiannual	250,000		245,778		228,709

Junior subordinated debentures	11/17/2017	11/17/2057	5.275%	semiannual	125,000		123,422		114,972
Junior subordinated debentures	06/14/2021	06/15/2061	4.250%	quarterly	325,000		317,287		242,450
Term loan(2)	05/11/2023	11/11/2024	6.200%	quarterly	170,000		169,425		169,425


Total long-term debt					1,820,000		1,798,583		1,586,674


FHLB borrowings					198,000		198,000		198,000
Commercial paper					251,000		249,537		249,537
Total short-term debt					449,000		447,537		447,537

Total debt					$	2,269,000	$	2,246,120	$	2,034,211

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

(2)Interest calculated quarterly using SOFR plus 135 basis points.

On May 11, 2023, Globe Life issued a $170 million term loan with an 18-month term and a variable interest rate. The proceeds from the term loan were used to retire the 7.875% Senior Notes which matured on May 15, 2023. Refer to Note 11—Debt for a complete analysis and description of long-term debt issues outstanding.

Financing costs for the corporate and other 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 Condensed Consolidated Statements of Operations**.

Analysis of Financing Costs

(Dollar amounts in thousands)


	Nine Months Ended September 30,				Increase (Decrease)
	2023		2022		Amount		%
Interest on funded debt	$	55,732	$	60,235	$	(4,503)	(7)
Interest on term loans	4,605		—		4,605		—
Interest on short-term debt	16,284		5,463		10,821		198
Other	19		39		(20)		(51)
Financing costs	$	76,640	$	65,737	$	10,903	17

During the first nine months of 2023, financing costs increased 17% compared with the prior year. The increase in financing costs is primarily due to higher short-term interest rates. More information on our debt transactions is disclosed in the Financial Condition section of this report.

GL Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

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 its 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 2023, Globe Life has targeted a consolidated Company Action Level RBC ratio of 300% to 320%. The Company has concluded 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. For 2022, our consolidated Company Action Level RBC ratio was 321%. 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*:* In 2023, new guidance became effective that impacted the accounting for our long duration contracts with significant effects to shareholders' equity. Please see Note 2—New Accounting Standards for additional information.

Shareholders’ equity was $4.6 billion at September 30, 2023. This compares with $3.9 billion at December 31, 2022 and $3.6 billion at September 30, 2022, as adjusted. During the nine months since December 31, 2022, shareholders’ equity increased as a result of net income of $696 million during the first nine months of 2023, but was offset by share repurchases of $303 million and an additional $60 million in share repurchases to offset the dilution from stock option exercises. Additionally, the balance of AOCI declined $331 million primarily due to increased interest rates and discount rates over the period.

On September 12, 2023, the Parent Company announced that it had declared a quarterly dividend of $0.2250 per share. This dividend was paid on November 1, 2023.

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.

As previously noted, the liability for future policy benefits under ASU 2018-12 is required to be computed using current discount rates with the impact of changes in discount rates included in accumulated other comprehensive income. Additionally, the guidance requires the liability for future policy benefits to be calculated using net premiums rather than gross premiums. Given that gross premiums are considerably higher than net premiums for our business, as seen in Note 6—Policy Liabilities, the measurement of the liability is higher than what it would be had it been computed using gross premiums. This is an important consideration when analyzing shareholders' equity.

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 income tax, are reflected directly in 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 Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

CRITICAL ACCOUNTING POLICIES

The following critical accounting policies were updated since the 2022 Form 10-K due to the adoption of ASU 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (ASU 2018-12). Additional information on our accounting policies is disclosed in Note 1—Significant Accounting Policies.

Future Policy Benefits. The liability for future policy benefits for traditional and limited-payment long duration life and health products comprises approximately 91% of the total liability for future policy benefits. The liability is determined each reporting period based on the net level premium method. This method requires the liability for future policy benefits to be calculated as the present value of estimated future policyholder benefits and the related termination expenses, less the present value of estimated future net premiums to be collected from policyholders. Net level premiums reflect a recomputed net premium ratio using actual experience since the issue date or the Transition Date, and expected future experience. The liability is accrued as premium revenue is recognized and adjusted for differences between actual and expected experience. Long-duration insurance contracts issued by the Company are grouped into cohorts based on the contract issue year, distribution channel, legal entity, and product type.

The Company reviews, and updates as necessary, its cash flow assumptions (mortality, morbidity, and lapses) used to calculate the change in the liability for future policy benefits at least annually. These cash flow assumptions are reviewed at the same time every year, or more frequently, if suggested by experience. If cash flow assumptions are changed, the net premium ratio is recalculated from the original issue date, or the Transition Date, using actual experience and projected future cash flows. When the expected future net premiums exceed the expected future gross premiums, or the present value of future policyholder benefits exceeds the present value of expected future gross premiums, the liability for future policy benefits is adjusted with changes recognized in policyholder benefits on the Condensed Consolidated Statements of Operations. The cash flow assumptions do not include an adjustment for adverse deviation. Mortality tables used for individual life insurance include various industry tables and reflect modifications based on Company experience. Morbidity assumptions for individual health are based on Company experience and industry data. Lapse assumptions are based on Globe Life's experience.

The liability for future policy benefits is discounted using a current upper-medium grade fixed-income instrument yield that reflects the duration characteristics of the liability for future policy benefits. The discount rate assumption is updated each reporting period with the effect of the changes in the liability included in Other Comprehensive Income (OCI). The methodology for determining current discount rates consists of constructing a discount rate curve intended to be reflective of the currency and tenor of the insurance liability cash flows. The methodology is designed to prioritize observable inputs based on market data available in the local debt markets denominated in the same currency as the policies. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company will use estimation techniques consistent with the fair value guidance in ASC 820. We further accrete interest as a component of policyholder benefits using the original discount rate that is locked-in during the year of contract issuance. The original discount rates (or the locked-in discount rates) are used for interest accretion purposes and for the determination of net premiums, whereas the current discount rates are used for purposes of valuing the liability.

The discount rate assumption is key in determining the change in the value of the liability for future benefits for long duration life and health contracts. Since the liability for future policy benefits for traditional and limited-payment long duration life and health products comprises approximately 91% of the total liability for future policy benefits, it is subject to interest rate risk. A decrease in discount rates will cause an increase in the obligation, and changes in assumptions may cause significant differences in results.

GL Q3 2023 FORM 10-Q

GLOBE LIFE INC.

Management's Discussion & Analysis

The following table illustrates the interest rate sensitivity of our liability for future policy benefits as of September 30, 2023 and 2022. This table measures the effect of a parallel shift in discount rates on the liability. The data measures the change in reported value arising from an immediate change in rates in increments of 50 and 100 basis points, which would be recorded as a component of OCI.

Value of Liability for Future Policy Benefits

(Dollar amounts in thousands)


	At September 30,
Change in Discount Rates(1)	2023		2022
(200)	$	25,040,320	$	25,687,257
(100)	20,510,540		20,998,753
(50)	18,739,489		19,162,906
0	17,218,098		17,585,172
50	15,902,308		16,220,542
100	14,757,077		15,033,077
200	12,871,415		13,079,552

(1) In basis points.

Deferred Acquisition Costs. Certain costs of acquiring new insurance business are deferred and recorded as an asset. These costs are capitalized on a grouped contract basis and amortized over the expected term of the related contracts, and are essential for the acquisition of new insurance business. Deferred acquisition costs (DAC) are directly related to the successful issuance of an insurance contract, and primarily include sales commissions, policy issue costs, Direct to Consumer advertising costs, and underwriting costs. Additionally, DAC includes the value of business acquired (VOBA), which are the costs of acquiring blocks of insurance from other companies or through the acquisition of other companies. These costs represent the difference between the fair value of the contractual insurance assets acquired and liabilities assumed, compared against the assets and liabilities for insurance contracts that the Company issues or holds measured in accordance with GAAP.

DAC is amortized on a constant-level basis over the expected term of the grouped contracts, with the related expense included in amortization of deferred acquisition costs on the Condensed Consolidated Statements of Operations. The in-force metric used to compute the DAC amortization rate is annualized premium in force. The assumptions used to amortize acquisition costs include mortality, morbidity, and lapses. These assumptions will be reviewed at least annually and revised in conjunction with any change in the future policy benefit assumptions. The effect of changes in the assumptions will be recognized over the remaining expected contract term as a revision of future amortization amounts.

VOBA is amortized on a basis that is consistent with DAC, as described above, and is subject to periodic recoverability and loss recognition testing to determine if there is a premium deficiency. These tests evaluate whether the present value of future contract-related cash flows will support the capitalized VOBA asset. These cash flows consist primarily of premium income, less benefits and expenses. The present value of these cash flows, less the reserve liability, is then compared with the unamortized balance. In the event the estimated present value of net cash flows is less, the deficiency would be recognized by a charge to earnings and either a reduction of unamortized acquisition costs or an increase in the liability for future benefits.

GL Q3 2023 FORM 10-Q

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