Globe Life Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 20, 2021

There are 10 speakers on the call.

Operator

Good day, and welcome to the Third Quarter 2021 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mike Majors, Executive Vice President, Administration and Investor Relations. Please go ahead, sir.

Speaker 1

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, Our Co Chief Executive Officers Frank Svoboda, our Chief Financial Officer and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release, 2020 10 ks and any subsequent forms 10 Q on file with the SEC.

Speaker 1

Some of our comments may also contain non GAAP measures. Please see our earnings release and website for a discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Gary Coleman.

Speaker 2

Thank you, Mike, and good morning, everyone. In the Q3, net income was $189,000,000 or $1.84 per share compared to $189,000,000 Or $1.78 per share, an increase of 2% per share from a year ago. On a GAAP reported basis, return on equity was 8.9% and book value per share is $84.52 Excluding unrealized gains and losses on fixed maturities, return on equity was 12.5% and book value per share is 57 dollars 0.11 up 9% from a year ago. In our life insurance operations, as we've noted before, we have We've seen improved persistency since the onset of the pandemic. In the 3rd quarter, live premium revenue increased 8% From a year ago to $729,000,000 Life underwriting margin was $162,000,000 Down 5% from a year ago.

Speaker 2

The decline in margin is due primarily to higher than expected COVID related claims Resulting from the impact of the Delta variant. Frank will discuss this further in his comments. For the full year, we expect Life premium revenue to grow 8% to 9% and underwriting margin to decline about 5%. In health insurance, premium revenue grew 4% over the year ago quarter to $299,000,000 And health underwriting margin was up 6% to $77,000,000 The increase was due primarily to improved claims experience and increased premium. For the year, we expect health premium revenue to grow 5% to 6% And underwriting margin to grow around 11%.

Speaker 2

Administrative expenses were $68,000,000 for the quarter, Up 8% from a year ago. As a percentage of premium, administrative expenses were 6.6%, the same as the year ago quarter. For the full year, we expect administrative expenses to grow 8% to 9% and to be around 6.7% of premium Due primarily to higher IT and information security costs, higher pension expense and a gradual increase in travel and facilities costs. I will now turn the call over to Larry for his comments on the Q3 marketing operations.

Speaker 3

Thank you, Gary. I am very pleased with the overall agency results. Looking forward, the addition of virtual recruiting and selling opportunities We'll continue to enhance our ability to grow. I will now discuss current trends at each distribution channel. At American Income, life premiums were up 12% over the year ago quarter to $356,000,000 And life underwriting margin was up 11% to $111,000,000 The higher underwriting margin is primarily due to improved persistency And higher sales in recent quarters.

Speaker 3

In the Q3 of 2021, net life sales were $74,000,000 up 9%. The increase in net life sales is primarily due to increased agent count. The average producing agent count for the 3rd quarter was 9,959, up 7% from the year ago quarter, but down 5% from the 2nd quarter. The producing agent count at the end of the Q3 was 9,800. I've often mentioned the stair step nature of our agency growth.

Speaker 3

It is normal to see a decline in agent counts after periods of high growth as attrition occurs And more emphasis is placed on training new agents. I remain optimistic regarding our ability to grow this agency Over the long term regardless of economic conditions, at Liberty National, life premiums were up 6% over the year ago quarter to $79,000,000 and Life underwriting margin was up 10% to $16,000,000 The increase in underwriting margin is due primarily to higher sales in recent quarters and lower policy obligations. Net life sales increased 33 percent to $18,000,000 and net health sales were $7,000,000 Up 19% from the year ago quarter due primarily to increased agent count and increased agent productivity. The average producing agent count for the Q3 was 2,706, up 6% from the year ago quarter, flat compared to the 2nd quarter. The producing agent count at Liberty National ended the quarter at 2,700.

Speaker 3

We are pleased with Liberty National's continued sales growth. At Family Heritage, health premiums increased 8 percent for the year ago quarter to $87,000,000 and health underwriting margin increased at 9% to $24,000,000 The increase in underwriting margin is due primarily to improved claims experience and improved persistency. Net health sales were down 1% to $19,000,000 due to a decreased agent count. The average producing agent count for the 3rd quarter was 11 52, down 16% from the year ago quarter And down 6% from the 2nd quarter. The producing agent count at the end of the quarter was 1192.

Speaker 3

The focus will continue to be on recruiting for the remainder of the year. At our direct to consumer division at Globe Life, life premiums were up 6% over the year ago quarter to $241,000,000 while life underwriting margin declined 65% to $12,000,000 Frank Frank will further discuss the decline in underwriting margin in his comments. Net life sales were $33,000,000 Down 25% from the year ago quarter. We expected the sales decline. As you recall, there was a 50% increase in sales The Q3 of 2020, while there is a decline in full year sales growth compared to 2020, the current Full year 2021 sales guidance is an increase of 19% over 2019.

Speaker 3

At United American General Agency, health premiums increased 3% over the year ago quarter to $118,000,000 Our health underwriting margin declined 3% to $18,000,000 net health sales were $12,000,000 Down 8% compared to the year ago quarter. The decline is due primarily to a more competitive market. We'll continue to protect our margins and pursue this market in an opportunistic manner. It is difficult to predict sales activity in this uncertain environment, but I will now provide projections based on trends we are seeing And knowledge of our business. We expect that producing agent count for the full year for each agency At the end of 2021, it could be in the following ranges: American Income, flat to an increase of 2% Liberty National, a decrease of 3% to an increase of 1% Family Heritage, a decrease of 14% to 18%.

Speaker 3

Net life sales are expected to be as follows: American income for the full year 2021, an increase of 12% to 16%. For the full year 2022, an increase of 2% to 10%, Liberty National for the full year 2021, an increase of 29% to 33%. For the full year 2022, an increase of 5% to 13% Direct to consumer for the full year 2021, a decrease of 6% to 12%. For the full year of 2022, A decrease of 2% to an increase of 8%. Net health sales are expected to be as follows: Liberty National for the full year 2021, an increase of 13% to 17%.

Speaker 3

For the full year 2022, An increase of 7% to 15%, Family Heritage for the full year 2021, An increase of 1% to 5% for the full year 2022, an increase of 3% to 11%. United American Individual Medicare Supplement for the full year 2021, a decrease of 6% to flat. For the full year 2022, a decrease of 1% to an increase of 7%. I'll now turn the call back to Gary.

Speaker 2

Thanks, Larry. We'll now turn to our investment operations. Excess investment income, which we define as net investment income less required interest on net policy obligations and debt, was $59,000,000 Flat compared to a year ago. On a per share basis, reflecting the impact of our share repurchase program, excess investment income grew 5%. For the full year, we expect excess investment income to decline approximately 2%, but be up 1% to 2% on a per share basis.

Speaker 2

In the Q3, we invested $325,000,000 The investment grade fixed maturities, primarily in the municipal, industrial and financial sectors. We invested at an average yield of 3.19%, An average rating of A plus and an average life of 29 years. We also invested $56,000,000 in limited partnerships That have debt like characteristics. These investments are expected to produce incremental additional yield and are in line with our conservative investment philosophy. For the entire fixed maturity portfolio, The 3rd quarter yield was 5.21%, down 10 basis points from the Q3 of 2020.

Speaker 2

As of September 30, the fixed maturity portfolio yield was 5.20%. Invested assets were $19,000,000,000 including $17,600,000,000 of fixed maturities and amortized costs. Of the fixed maturities, dollars 16,800,000,000 are investment grade with an average rating of A minus And below investment grade bonds are $782,000,000 compared to $840,000,000 a year ago. The The percentage of below investment grade bonds of fixed maturities is 4.4% and excluding net unrealized gains in the fixed maturity portfolio, The low investment grade bonds as a percentage of equity are 13%. Overall, the total portfolio is rated A- Compared to BBB plus a year ago.

Speaker 2

Bonds rated BBB are 54% of the fixed maturity portfolio. While this ratio is in line with the overall bond market, it is high relative to our peers. However, we have little or no exposure to high risk assets such as derivatives, equities, residential mortgages, CLOs and other asset backed securities. Because we invest long, a key criterion utilized in our investment process is that an issuer have the ability to survive multiple We believe that the BBB securities that we acquire provide the best risk adjusted, Capital adjusted returns due in large part to our unique ability to hold securities to maturity regardless of fluctuations in interest rates

Speaker 4

Our equity markets.

Speaker 2

Low interest rates continue to pressure investment income. At the midpoint of our guidance, we're assuming an average new money rate for fixed maturities of around 3.45 At these new money rates, we expect the annual yield on the fixed maturity portfolio to be around 5.21% for the full year 2021 And 5.11 percent in 2022. Fortunately, the impact of lower new money rates on our investment income is somewhat limited as As we expect to have average turnover less than 2% per year in our investment portfolio over the next 5 years. While we would like to see higher interest rates going forward, Globe Life can drive on a lower to longer interest rate environment. Now I will turn the call over to Frank for his comments on capital and liquidity.

Speaker 5

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, available liquidity and capital position. In the 3rd quarter, The company repurchased 1,000,000 shares of Globe Life, Inc. Common stock at a total cost of $96,500,000 At an average share price of $94.13 For the full year, we have utilized approximately $310,000,000 of cash to purchase 3,200,000 shares at an average price of $97.17 The parent ended the 3rd quarter with liquid assets of approximately $280,000,000 down from $545,000,000 in the prior quarter. The decrease is primarily due to the redemption of the $300,000,000 outstanding principal amount of our 6.1eight percent junior subordinated ventures due 2,056.

Speaker 5

In addition to these liquid assets, the parent company will generate Excess cash flow during the remainder of 2021. The parent company's excess cash flow, as we define it, Results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on debt and the dividends paid to Globe Life shareholders. We anticipate the parent company's excess cash flow for the full year to be approximately $360,000,000 of which approximately $25,000,000 will be generated in the Q4 of 2021. Taking into account the liquid assets of $280,000,000 at the end of the 3rd quarter, plus $25,000,000 of excess cash flows to be generated in the Q4, we will have approximately $305,000,000 of assets available to the parent for the remainder of the year. As I'll discuss in more detail in just a few moments, this amount is sufficient to support the targeted capital levels within our insurance operations And to maintain the share repurchase program for the remainder of the year.

Speaker 5

As noted on previous calls, we will use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be a primary use of the parent's excess cash flows. At this time, the midpoint of our earnings guidance reflects $90,000,000 to $100,000,000 of share repurchases in the 4th quarter. In addition, we anticipate using approximately $90,000,000 to $100,000,000 of the parent assets to maintain our insurance subsidiaries RBC levels.

Speaker 5

Thus, taking into account the expected $305,000,000 of assets available to the holding company, Less than $180,000,000 to $200,000,000 expected to be used for buybacks and subsidiary capital needs, We expect to have in the range of $105,000,000 to $125,000,000 of available assets at the holding company at the end of the year. This is approximately $55,000,000 to $75,000,000 in excess of the $50,000,000 of liquid assets we have historically targeted at the holding company. We will continue to evaluate the potential impact of the pandemic on our capital needs. However, we expect that most, If not all of this excess liquidity will be returned to the shareholders in 2022 absent other more favorable alternatives. Now regarding capital levels at our insurance subsidiaries.

Speaker 5

Our goal is to maintain our capital at levels As noted on previous calls, Globe Life targets a consolidated company action level RBC ratio in The range of 300% to 320%. At December 31, 2020, Our consolidated RBC ratio was 3 0 9%. At this RBC ratio, our insurance subsidiaries have approximately $50,000,000 of capital Over the amount required at the low end of our consolidated RBC target of 300%. This excess capital, Along with the $305,000,000 of liquid assets that we expect to be available at the parent, provide sufficient capital to fund future capital needs. The drivers of additional capital needs in 2021 primarily relate to investment downgrades, Changes in the newly adopted NAIC RBC C1 Investment Factors, Growth of Our Business and Higher COVID Claims.

Speaker 5

With respect to downgrades, our year to date downgrades have totaled $291,000,000 but have been offset by $224,000,000 in upgrades, including a net upgrade of $110,000,000 in the 3rd quarter. At this time, in our base scenario, we are not expecting any significant NAIC 1 notch net downgrades More material credit losses in the 4th quarter, consistent with the favorable outlook we continue to see in our portfolio. In August, the NAIC fully adopted the new and expanded C1 investment factors. The adoption of these Factors will result in higher amounts of required capital for our portfolio. In addition, higher sales, Growth of our in force business and higher COVID claims also increased our capital needs.

Speaker 5

As I mentioned previously, we anticipate $90,000,000 to $100,000,000 will be needed at our insurance subsidiaries to maintain the midpoint of our consolidated RBC target for 2021, including the estimated $50,000,000 of capital relating to the higher C1 charges. As previously noted, The parent company has ample liquidity to cover this additional capital. At this time, I'd like to provide a few comments related to the impact of COVID-nineteen On 3rd quarter results. Through September 30, the company has incurred approximately $82,000,000 of COVID life claims, Including $33,000,000 in the 3rd quarter on approximately 95,000 deaths reported by the CDC. The claims incurred in the Q3 were significantly higher than anticipated, primarily due to the significant impact The delta variant has had on infection rates and death totals, especially in southern states and in younger ages, yet earlier in the pandemic.

Speaker 5

Our Q3 COVID life claims include approximately $17,000,000 incurred in our direct to consumer division Or approximately 7.1 percent of its 3rd quarter premium income, approximately $8,400,000 of COVID life claims incurred in Liberty National, 10.6 percent of its premium for the quarter and approximately $6,700,000 at American Income or 1.9 percent of its 3rd quarter premium. As indicated on prior calls, We estimated that we would incur COVID life claims of roughly $2,000,000 for every 10,000 U. S. Deaths. While this was a good benchmark for our claims incurred through June 30, the spread of the COVID delta variant Has impacted our in force book of business differently than the effect of COVID in prior quarters.

Speaker 5

In the 3rd quarter, COVID deaths shifted to a younger population where Globe Life has higher risk exposure, both in terms of number of policies And average face amount. In addition, we're also seeing a greater concentration of COVID deaths in the southern region of the United States, Where a greater proportion of our in force policies reside. Given our experience to date and available information on the COVID death from the CDC And other sources, including the observed changes to the geography of the pandemic and the ages of people dying from COVID, We now estimate that our incurred losses in the second half of this year will be approximately $3,500,000 for every 10,000 U. S. Deaths.

Speaker 5

While continued changes in the mix of deaths in terms of geography or the age of those impacted by COVID will impact this estimate going forward, We anticipate the level of losses per U. S. Debt to range from $3,000,000 to $4,000,000 for every 10,000 U. S. Debts in 2022.

Speaker 5

At the midpoint of our guidance for 2022, we have assumed $3,500,000 of incurred losses For 10,000 deaths. To date, we have experienced low levels of COVID claims on policies sold since the start of the pandemic. In fact, over 2 thirds of our claims through September 30 relate to policies issued before 2010. Of the nearly $3,000,000 policy sold since March 1, 2020, only 231 COVID clients have been paid through the end of the Q3, totaling approximately $2,800,000 in debt benefits. In addition to COVID losses, we continue to experience higher policy obligations from non COVID causes of death And lower policy lapses.

Speaker 5

The increase from non COVID causes of death are primarily medical related, Including heart and circulatory, non lung cancer and neurological disorders. The losses we are seeing are elevated over 2019 levels due at least in part, we believe, to the pandemic and the existence of either delayed or unavailable healthcare. In the Q3, the policy obligations relating to the non COVID causes of death and lapses were just slightly more than we anticipated, primarily due to higher reserves associated with better persistency at our direct to consumer channel. Higher than expected non COVID claims at direct to consumer during the quarter were mostly offset by lower than expected non COVID claims experience at Liberty National. For the full year, We anticipated on our last call that we would incur approximately $70,000,000 in excess policy obligations in 2021, With about $42,000,000 of those related to higher reserves due to lower policy lapses in 2020 2021.

Speaker 5

We now anticipate that our total excess obligations will be approximately $78,000,000 of which approximately $48,000,000 relate to higher reserves from lower lapses. Finally, with respect to our earnings guidance for 2021 2022, After taking into account various estimates of COVID deaths in the U. S. In the 4th quarter, we estimate 4th quarter COVID deaths of approximately 75,000 to $125,000 resulting in approximately $25,000,000 to $45,000,000 of COVID incurred losses. At the midpoint of our guidance, we estimate approximately $35,000,000 of COVID losses on 100,000 U.

Speaker 5

S. Deaths. The 100,000 U. S. Deaths is consistent with the October 15 projection by the IHME.

Speaker 5

As a result of the higher COVID claims in the second half of this year than previously anticipated, we are lowering the midpoint of our guidance from $7.44 to $6.95 with a range of $6.85 to $7.05 For the year ended December 31, 2021, the $0.49 decrease in the midpoint is Almost entirely due to an increase in COVID incurred losses of nearly $63,000,000 or $0.48 of earnings per share over the amount previously anticipated. Looking forward to 2022, We anticipate that COVID deaths will continue to be with us throughout the year, but at a lower level than in 2021. We estimate COVID deaths could range from 100,000 deaths for the year to 200,000 and that our losses per 10,000 U. S. Deaths could range from $3,000,000 to $4,000,000 At the midpoint of our guidance, we anticipate between 50 to $55,000,000 of COVID incurred losses on approximately 150,000 U.

Speaker 5

S. Deaths, most of which are expected to occur in the first half of the year. Absent the impact of COVID, we believe our core earnings should be strong, buoyed by premium growth in the 6% to 8% range as a result of strong sales in 2020 2021 And continued favorable persistency. We also anticipate that the level of excess policy obligations will moderate somewhat, resulting in underwriting margins as a percentage of premium, excluding COVID losses, Returning to pre pandemic levels of around 28%. We also anticipate our health underwriting income to increase 4% to 7% during the year with underwriting margins as a percent of premium approximately 24% to 25%.

Speaker 5

Overall, we estimate our earnings for 2022 will range from $7.95 to $8.75 with a midpoint of $8.35 The wider than historical range is to take into account the wide range of potential impacts of COVID in 2022, which are largely dependent on the emergence of new variants, Adoption and effectiveness of available vaccines and therapeutics, masking practices and many other factors. Our 2022 results also reflect a full year of operations for our newest acquisition, Beasley Benefits, which has been rebranded as Globe Life Benefits. The acquisition, which we closed upon in the 3rd quarter, is expected to add over $50,000,000 of health premium in 2022 and over $11,000,000 of underwriting income. We are excited about the future of this new acquisition and the ability to grow this business over the long term. The agency fits well into our overall business model as they offer group supplemental health insurance solutions to employer groups through brokers And thus is complementary to our existing agencies that focus more on individual sales.

Speaker 5

Their underwriting results will be reflected in our other helplines Along with our United American General Agency Division. Those are my comments. I will now call return the call back to Larry.

Speaker 3

Thank you, Frank. Those are our comments. We will now open the call up for questions.

Operator

Thank We'll take our first question from Jimmy Bhullar with JPMorgan.

Speaker 6

Hi, good morning. First, just had a question on margins in the Life business. And it seems like direct response margins have declined a lot more Then in other channels and obviously COVID has something to do with it, but is the makeup geographic and age group For Direct Response that much different than the other channels, that's the only reason causing it or is it something other than COVID that's Driving the sharp drop in margins that drove this

Speaker 5

month. Well, Jimmy, as you think about direct to consumer, You'll remember that they just have a higher mortality aspect to their business than our other channels. But when you look at The impact of COVID, in the Q3, they did have about a 7%, but Liberty National had a 10.6 Which really reflected, one, it's a little bit higher concentration in the southern part. And then they also had In the ages that were impacted a little bit more by the Delta variant, which tend to be in the Maybe like in the 40 to 50 year olds, they just have a little bit more exposure proportionally than direct to consumer did. But Yes, direct to consumer is also being hit pretty hard with, if you will, with the excess COVID compared to the other lines of business.

Speaker 5

And the For the full year with direct to consumer, we kind of expect that to have maybe like 5.7% higher policy obligations, Which most of that's due to lapses or a little over half of that's due to lapses versus the excess non COVID claims, whereas Liberty National and American Income, their excess non COVID claims range from Pretty flat to 1.5% or so.

Speaker 6

Okay. And then how do you think about your ability to be able to Sort of retain the agency that you've hired through the pandemic, especially early on, you had seen a big pickup in recruiting Because of the tight labor or weak labor market and now it seems like the labor market has improved even in some of the previously troubled sectors such as travel and hospitality. So Is there a risk that as the economy recovers further that agent growth becomes an issue beyond this Any sort of metrics you're able to share on retention would be helpful as well.

Speaker 3

Jimmy, in terms of agent retention, We think the ability to sell with the digital presentation has made the vision opportunity more attractive. And therefore, we've seen an increase in retention, American income versus the prior 2 years. Agents are now going to make more presentations. They spend less time away from home and they incur far fewer travel expenses. Digital presentations also remove the geographic restriction So in addition to that, virtual recruiting will continue to be effective.

Speaker 3

We can reach more recruits and virtual training has proven to be well accepted and efficient. I'd estimate right now that 80% to 85% of Sales in American Income are virtual. We think that will continue past the pandemic.

Speaker 6

Thank you.

Operator

And moving on, we'll go to Andrew Kligerman with Credit

Speaker 7

Hi, good morning everyone. A couple of questions. I'm a direct to consumer, and I know you've been touching on a number of pieces of it, notably that only 231 of the COVID claims came from business written post 2019, And that was for all the businesses. So with that as a backdrop, I'd like to know What the portion of claims from 29 new I'm sorry, post-twenty 19 vintages In direct to consumer were. And your thoughts around Whether these claims in direct to consumer that spiked up were a function of the adverse selection or as you were talking about, I'll use the term adverse persistency.

Speaker 5

Yes, Andrew, really of the 2 And 30 some additional claims, roughly half of that is at You know, is that direct to consumer? So it's not substantially all just within that line. With respect to second part of your question, I'm not sure exactly what's If you want, I think that's just more of the numbers there. It's I don't have any particular reason as to why From their total claims or where that's coming from?

Speaker 7

So you wouldn't I guess, and again, I need to kind of sharpen my pencil after the call, but so let's say it's half of 231 Claims at direct to consumer, is that a number that would appear to be adverse selection on the amount of business written post 2019 or would that be a normal number relative to everything else on business written post 2019 or into the pandemic. Does it seem like Yes, a normal COVID number relative to everything else?

Speaker 5

Yes, I'm going to say that might be just a little bit higher, but that's not a number that gives us Great pause with respect to looking at that level of claims over that period of time on that business. We're always going to have Some claims that come in, especially in our direct to consumer business, that there will always be some claims that will happen in those first and second Durations, if you will, after the policy has been issued. And so that level really doesn't give us any real concern, if

Speaker 3

This is Mario. I want to clarify, are you talking about you've been talking about post March 20 or 2019, I think COVID began March of 2020. In terms of adverse selection, since that time, we've monitored income and insurance applications, Any indication of changes in the risk profile that monitoring includes factors like age, amount of insurance and geography. At this point, we've not seen any material change in the risk profile, and so we're comfortable with those direct to consumer sales to date.

Speaker 7

Thanks, Laurie. That's good to hear. And then just one follow-up on American Income. Year over year, the agent count looked fine. It was up 7%, but sequentially, the American income ending agents were down 5% And I'm wondering if this implies any recruiting or retention concerns.

Speaker 7

I would love to have your feedback

Speaker 3

Sure. The decrease in agent count is primarily driven by lower new agent recruiting. There's been a negative impact on recruiting across the 3 agencies because there's so many work opportunities in this current economy. We believe this COVID declines and economic conditions normalize, our recruiting will return to normal levels. And again, as I stated earlier to Jimmy, the ability to sell the digital presentation has made that agent opportunity much more attractive as agents are now able to make More presentations, they can utilize leads better, they can work from home, they incur far fewer travel expenses.

Speaker 3

I I think that will help with retention and recruiting as we move forward.

Speaker 7

Excellent. Thank you.

Operator

And next we'll go to Erik Bass with Autonomous Research.

Speaker 4

Hi, thank you. Can you talk about your expectations for 2022 free cash flow and what you have assumed in your guidance for share repurchases?

Speaker 5

Yes. Our free cash flow is actually going to be down a little bit. We anticipate in 2022 and be in the range of around $280,000,000 to $320,000,000 Down from roughly the $360,000,000 that we're seeing in 2021, really due primarily to the $50,000,000 of higher COVID losses, COVID claims that we're seeing here in 2021 Versus 2020, but also really due to the significant growth that we've had In the agency businesses and in their sales. And so of course, we've talked about it in past calls that when you have Double digit growth in those agencies, that's going to have an additional strain in that 1st year, but of course very good long term. So It doesn't surprise surprises that that's down a little bit.

Speaker 5

But so again, kind of at that midpoint around $300,000,000 there and then we've Soon for buybacks, somewhere in the range of $340,000,000 to $380,000,000 over the course of the year, Anticipating that we would use some of that excess cash at the holding company.

Speaker 4

Got it. Thank you. And then just to clarify for the Health business, the growth in margin that you talked about, does that Include the Beasley business?

Speaker 5

It does.

Speaker 4

So the $11,000,000

Speaker 5

Yes. And on the premium side, the $50,000,000 of premiums as well.

Speaker 4

Got it. And then I guess lastly, just around expenses, can you talk about what your assumption is for admin expenses, which I think were a bit elevated this year from some of the IT investments and other things. Do you see that continuing or will that start to revert to a more normal level?

Speaker 2

Yes. Hi, Eric. Administrative expenses for 2022, we expect to be up around 8%. That includes about $4,000,000 per Beasley. Excluding that, expenses will be up 7%.

Speaker 2

And it's again, So we are still we'll see higher information technology and information security costs, also slightly higher travel and facility costs as well.

Speaker 4

Got it. Thank you.

Operator

We'll take our next question from Ryan Krueger with

Speaker 8

Can you give us your excess net investment income guidance for 2022?

Speaker 2

Yes. At the midpoint of the guidance, we're looking at excess investment income being down around 2%. On a per share basis, it will be up 1% to 3%.

Speaker 8

Thanks. In the Life business, The 28% margin excluding COVID, was that just excluding direct COVID claims or did you also make an adjustment for any Indirect impacts?

Speaker 5

That is just the direct COVID claims, excluding that for the year.

Speaker 8

Okay. And did you assume or can you quantify what you assumed for any sort of indirect COVID impact for 2022?

Speaker 5

Yes, for 2022, in total, about 1.5% of premium is what we're anticipating At the midpoint, with about half of that, roughly 0.8% or so due to the continued higher lapses and Yes, the other $0.7 being still a little bit of elevated claims, predominantly still at the DTC market or channel.

Speaker 8

Got it. So if you excluded that too, you would actually expect a 29% plus margin in life?

Speaker 5

That's exactly right. And so, yes, excluding both the COVID and what we've seen in other higher policy obligations, So we would say around 29.6 percent, 29.5 percent. A little bit higher than where we were in 2019, Really because with the strong persistency again and the higher premium base, then the amortization percentage ends up being a little less as a percentage of premium, and that's probably elevated. That will probably be 1% to 1.5% lower than some of those historic levels, so the 2019 levels anyway.

Speaker 8

Okay, great.

Speaker 5

Thank

Speaker 4

you.

Operator

Our next question will come from John Varnage with Piper Sandler.

Speaker 9

Thank you. Most of my questions have been answered, but I do have one. Sadly, COVID has remained around longer than we thought where we sat probably at the beginning of the year and a year ago. Given that, What are you doing to encourage maybe wellness programs among your life insureds to maybe better deal with it from a long term perspective?

Speaker 5

I will Say that we do continue from an organization perspective, continue to support those organizations that are around Good health practices and helping to support those types of Lifestyle, but I would say nothing specific, if you will, around Some of the more sensitive areas around masking and some of those politically charged topics.

Speaker 4

Okay. Thank you.

Operator

Moving on, we'll go to Tom Gallagher with Evercore ISI.

Speaker 9

Good morning. Just had a few follow-up questions On free cash flow, the I just want to confirm the $280,000,000 to $320,000,000 you mentioned for 2022, that does not include your common dividends. So I should add that back to think about total shareholder, That will say capital generation, is that correct?

Speaker 5

Yes, that's correct. And we would anticipate somewhere in that $80,000,000 to 80 $2,000,000 of common dividends in 2022.

Speaker 9

Got you. So I guess my question is, When I look at your free cash flow conversion And I heard your comment on the overall the sale The COVID impact and then the sales strain. But when I just look at the ratio and I compare it to the proportion of GAAP earnings, It's now drifting below 50%. And I guess historically, it's been a little bit higher, But that number has actually been coming down. The is there have you thought about that as a corporate Strategy at all improving on that ratio.

Speaker 9

Now part of it is a high class problem, right? When you're growing their sales strain and you have to pay for that. But When I compare how your ratio looks versus peers like the MetLife's of the world that are now up 70%. I guess, your proportion of cash flow relative to GAAP earnings It's looking like an outlier on the lower side. Is that something you've thought at all about as a way to maybe enhance that?

Speaker 5

Well, we do I mean, we do think about that and we do recognize that. But I do recognize that It was down from historic levels where we've been more in that 70% to 80% pre tax law change back in 2018. And as We've talked about really in the past what that tax law did was it reduced or it increased our GAAP earnings Because of the lower tax rate, but it really didn't change our statutory income very much because our statutory taxes Largely, as they changed the tax base, it really did change the amount of cash taxes that we're paying out. So it didn't have a statutory impact. So then that knocked it down a little bit from those levels because we're our statutory capital didn't change significantly.

Speaker 5

With the onset of COVID here the last couple of years, coupled with really low interest rates, Our basic statutory income is not growing as much. And when you look at the And this is the part that none of us here want to change, which is that growth in sales. And when you look at That statutory drain and the money that we're investing in those new sales, that's going to maintain really strong premiums for the long term. It does kind of have in the near term an adverse impact on our ability to return some of that excess cash flow As a percentage of our GAAP earnings, but we think in the long term as those statutory earnings will once we We feel really good about where we're at from a statutory income perspective and would expect that to improve In future years as we get out of this.

Speaker 9

Okay. All right. Thank you.

Operator

And there are no further questions. I'd like to turn it back to management for any additional or closing comments.

Speaker 1

All right. Thank you for joining us this morning, and we'll talk to you again next quarter.

Operator

Thank you. And that does conclude today's conference. We'd like to thank everyone for their participation. You may now disconnect.

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Earnings Conference Call
Globe Life Q3 2021
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