Globe Life Q1 2022 Earnings Call Transcript

Quartr
Provided by Quartr
April 21, 2022

Key Takeaways

  • Life insurance premium revenue rose 7% to $755 million and underwriting margin increased 10%, while health premiums grew 8% with margin gains, reflecting strong core business momentum.
  • Net operating income per share climbed 11% year-over-year to $1.70, and 2022 book value per share (ex-unrealized gains) rose 10% to $59.65.
  • Higher-than-expected COVID and non-COVID life claims led to $46 million of COVID losses and $22 million of excess policy obligations in Q1, prompting a reduction in full-year EPS guidance to a $8.05 midpoint from $8.25.
  • Administrative expenses jumped 10% to $73 million, with IT, information security and employee costs driving a projected full-year expense ratio of 6.9% of premiums.
  • The company repurchased 1.1 million shares for $110 million year-to-date and plans to buy back an additional $320–330 million in 2022, underlining commitment to shareholder returns.
AI Generated. May Contain Errors.
Earnings Conference Call
Globe Life Q1 2022
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good day, and welcome to the First Quarter 2022 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Mike Majors, Executive Vice President, Administration and Investor Relations. Please go ahead, sir.

Speaker 1

To turn the call over to Gary Coleman and Larry Hutchison, our Co Chief Executive Officers to thank you

Speaker 2

for joining us today. Frank Svoboda,

Speaker 1

our Chief Financial Officer and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions to may contain forward looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release, to review the 2020 one 10 ks and any subsequent Forms 10 Q on file with the SEC. Some of our comments may also contain non GAAP measures. To turn the call over to Gary Coleman.

Speaker 2

To turn the call over to Steve.

Speaker 3

Thank you, Mike, and good morning, everyone. In the Q1, net income was $164,000,000 to review our earnings release for the Q1 of 2019,000,000 or $1.70 per share a year ago. To turn the call over to David. Net operating income for the quarter was $170,000,000 or $1.70 per share, to turn the call over to Steve to review our financial results, an increase of 11% per share from a year ago. On a GAAP reported basis, Return on equity was 8.5% and book value per share is $69.16 to Excluding unrealized gains and losses on fixed maturities, return on equity was 11.5% to And book value per share is $59.65 up 10% from a year ago.

Speaker 3

To In our life insurance operations, premium revenue increased 7% from a year ago to $755,000,000 to Life underwriting margin was $150,000,000 up 10% from a year ago. The increase in margin is due primarily to an increased premium. To For the year, we expect live premium revenue to grow around 6%. And at the midpoint of our guidance, We expect underwriting margin to grow around 23%, due primarily to an expected decline in COVID life claims. To In health insurance, premium grew 8% to $317,000,000 and health underwriting margin grew to take a look at the performance of

Speaker 2

our business and improve claims experience.

Speaker 3

For the year, we expect health premium revenue to grow 6% to 7%. To And at the midpoint of our guidance, we expect underwriting margin to grow around 5%. To Administrative expenses were $73,000,000 for the quarter, up 10% from a year ago. To turn the call over to Mr. President.

Speaker 3

As a percentage of premium, administrative expenses were 6.8% compared to 6.6% a year ago. To For the full year, we expect administrative expenses to grow 10% to 11% and be around 6.9% of premium. To That's due primarily to higher IT and information security costs, employee costs, a gradual increase in travel and facility costs to turn the call over to Larry for his comments on the Q1 marketing operations.

Speaker 4

To Thank you, Gary. At American Income, life premiums were up 10% over the year ago quarter to $370,000,000 to and life underwriting margin was up 13% to $111,000,000 A higher premium is primarily due to higher sales in recent to turn the call over to our Q1 of 2022, net life sales were $85,000,000 up 23%. To The increase in net live sales is due to increased productivity, plus a gradual improvement in issue rates to Some challenges in underwriting such as staffing and speed of obtaining medical records and other information are resolving. To The average producing agent count for the Q1 was 9,385, down 5% from the year ago quarter to turn the call over to Jim. And down 2% from the 4th quarter.

Speaker 4

The producing agent count at the end of the Q1 was 9,543. To We are confident American Income will continue to grow. The agent count was trending up the last several weeks of the quarter. To We also have seen improvement in personal recruiting, which generally yields better candidates and better retention than other recruiting sources. In addition, we have made changes to the bonus structure designed to improve agency middle management growth.

Speaker 4

To At Liberty National, life premiums were up 7% over the year ago quarter to $81,000,000 to and life underwriting margin was up 35% to $13,000,000 The increase in underwriting margin is primarily due to improved claims experience. To Net life sales increased 7% to $17,000,000 and net health sales were $6,000,000 to up 6% from year ago quarter due to increased agent productivity. The average producing agent count for the Q1 to was 2,656, down 3% from the year ago quarter and down 2% compared to the 4th quarter. To The producing agent count at Liberty National ended the quarter at 2,687. We've introduced new training systems to help to improve agent retention and updated our sales presentations to help agent productivity.

Speaker 4

We are pleased with the continued growth at Liberty National. To At Family Heritage, health premiums increased 7% over the year ago quarter to $90,000,000 to Health underwriting margin increased 9% to $24,000,000 The increase in underwriting margin to is due to increased premium and improved claims experience. Net held sales were up 19% to $19,000,000

Speaker 2

to note

Speaker 4

that the average producing agent count for the Q1 was 1100, to down 14% from the year ago quarter and down 8% from the 4th quarter. The producing agent count at the end of to turn the call

Speaker 2

over to Steve. The quarter was 11.30.

Speaker 4

We have modified our agency compensation structure and are increasing our focus on agency middle management development to drive recruiting growth going forward. We are pleased with the record level of productivity at Family Heritage. To In our direct to consumer division of Globe Life, life premiums were up 3% over the year ago quarter to $251,000,000 to And life underwriting margin increased 3% to $9,000,000 Net life sales were $34,000,000 to take a look at the Q1 of 2021. Although sales declined from the Q1 of 2021, to We're so pleased with this quarter's sales results. At United America General Agency, health premiums increased to turn the call over to the operator to $133,000,000 and health underwriting margin increased 6% to $20,000,000 to Net health sales were $13,000,000 flat compared to the year ago quarter.

Speaker 4

It is difficult to predict to turn the call over to our operator for questions. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 4

Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.

Speaker 2

Good morning, everyone. Good morning, Steve. Good morning, everyone. Good morning, Steve. Good morning, everyone.

Speaker 2

Good morning, everyone.

Speaker 4

Good morning, everyone. Good morning, everyone.

Speaker 2

Good morning, everyone. Good morning, everyone. Good morning, everyone.

Speaker 4

To We expect the producing agent count for each agency at the end of 2022 to be in the following ranges: American Income, to review a decrease of 2% to an increase of 3% Liberty National, flat to an increase of 14% to Family Heritage, an increase of 8% to 25%. Net life sales for the full year 20 to turn the call over to John. Thank you. Thank you. Thank you.

Speaker 4

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 4

To Liberty National, an increase of 4% to 12%, direct to consumer, a decrease of 13% to turn the call over to a decrease of 3%. Net Hill sales for the full year 2022 are expected to be as follows. To introduce Liberty National, an increase of 3% to 11%, Family Heritage, an increase of 4% to 12% to turn the call back to Gary. To turn the call back to Gary.

Speaker 3

Thanks, Larry. We will now turn to the investment operations. To turn the call over to Bob. Excess investment income, which we define as net investment income less required interest on net policy liabilities and debt, to turn the call over to our operator for questions. Was $61,000,000 up 1% from a year ago.

Speaker 3

On a per share basis, reflecting the impact of our share repurchase program, to discuss our financial results. Excess investment income was up 5%. For the full year, we expect excess investment income to decline between 1% 2%, to be up around 2% on a per share basis. As investment yield, in the Q1, we invested $351,000,000 in to invest in investment grade fixed maturities, primarily in the municipal and financial sectors. We invested at an average yield of 3.97 percent,

Speaker 2

to take

Speaker 3

an average rating of A and an average life of 27 years. We also invested $118,000,000 in limited partnerships to take a look at the financial results that have debt like characteristics. These investments are expected to produce additional yield and are in line with our conservative investment philosophy. To For the entire fixed maturity portfolio, the 1st quarter yield was 5.15%, to be down 9 basis points from the Q1 of 2021. As of March 31, the portfolio yield was also to review

Speaker 2

the financial results.

Speaker 3

Regarding the investment portfolio, invested assets are $19,500,000,000 to discuss our financial results, including $18,000,000,000 of fixed maturities and amortized costs. Of the fixed maturities, to review our

Speaker 2

financial results.

Speaker 3

$17,400,000,000 are investment grade with an average rating of A- and below investment grade bonds are $583,000,000 to Compared to $802,000,000 a year ago. The percentage of below investment grade bonds with fixed maturities is 3.2%. And I would add that this is the lowest ratio it has been for more than 20 years. Excluding net unrealized gains in the fixed maturity portfolio, to The low investment grade bonds as a percentage of equity or 10%. Overall, the total portfolio is rated A- to Same as a year ago.

Speaker 3

Bonds rated BBB are 54% of the fixed maturity portfolio. To While this ratio is in line with the overall bond market, it is high relative to our peers. However, to We have little or no exposure to higher risk assets such as derivatives, equities, residential mortgages, to close the call to questions. Because we primarily invest long, to A key criterion utilized in our investment process is that an issuer must have the ability to survive multiple cycles. To turn the call over to Mr.

Speaker 3

President. We believe that the BBB securities that we acquire provide the best risk adjusted, capital adjusted returns to due in large part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. To I would also mention that we have no direct exposure to investments in Ukraine or Russia, to And we do not expect any material impact to our investments in multinational companies that have exposure to those countries. To For the full year, at the midpoint of our guidance, we expect to invest approximately $1,100,000,000 to note that our non GAAP net income statement is being

Speaker 2

recorded. At this time, I would like to note that our non

Speaker 5

GAAP net income statement

Speaker 3

is to provide an overview of our financial results. To We are encouraged by the recent increase in interest rates and the prospect of higher interest rates in the future. Higher new money rates will have a positive impact on operating income to provide a reconciliation

Speaker 2

of our financial results by

Speaker 3

driving our net investment income. We're not concerned about potential unrealized losses that are interest rate driven to Since we do not expect to realize them, we have the intent and more importantly, the ability to hold our investments to maturity. To In addition, our life products have fixed benefits that are non interest sensitive. Now, I will turn the call over to Frank for his comments

Speaker 6

to Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, to Available liquidity and capital position. The parent began the year with liquid assets of $119,000,000 to In addition to these liquid assets, the parent company will generate excess cash flows in 2022. The parent company's excess cash flow, to As we define it, results primarily from the dividends received by the parent from its subsidiaries less the interest paid on parent company debt. To During 2022, we anticipate the parent will generate $350,000,000 to $370,000,000 of excess cash flows.

Speaker 6

To This amount of excess cash flows, which again is before the payment of dividends to shareholders, to is lower than the $450,000,000 received in 2021, primarily due to higher COVID life losses to And the nearly 15% growth in our exclusive agency sales in 2021, both of which result in lower statutory income in 20 to turn the call over to the operator for the Q1 and thus lower cash flows to the parent in 2022 than were received in 2021. To Obviously, while an increase in sales creates a drag to the parent's cash flows in the short term, the higher sales will result in higher operating cash flows in the future. To Including the excess cash flows and the $119,000,000 of assets on hand at the beginning of the year, we currently expect to have around $470,000,000 to $490,000,000 of assets available to the parent during the year, to take a moment to discuss our

Speaker 2

financial results.

Speaker 6

Out of which we anticipate distributing a little over $80,000,000 to our shareholders in the form of dividend payments. To turn the call over to Bob. In the Q1, the company repurchased 880,000 shares of Globe Life Inc. Common stock to turn the call over to Mr. President.

Speaker 2

At a total cost of

Speaker 6

$88,600,000 and at an average share price of $100.70 to Year to date, we have repurchased 1,097,000 shares for approximately $110,000,000 to turn the call over to Mr. President of the call over to Mr. President of the

Speaker 2

call over to Mr. President of the call over to Mr.

Speaker 4

President of

Speaker 2

the call over to Mr. President of the call over to Mr. President of the call over

Speaker 6

to Mr. President of the call over to Mr. President of the call over to Mr. President of the call over to Mr. President of the call over to Mr.

Speaker 6

President of the to take a look at the Q1. After these payments, we anticipate the parent will have $270,000,000 to turn the call over to the operator for the remainder of the year. To As noted on previous calls, we will use our cash as efficiently as possible. We still believe that share repurchases to provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share to turn the call over

Speaker 2

to Steve. This will continue to be a primary use of the

Speaker 6

parent's excess cash flows along with the payment of shareholder dividends. To It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to issue new insurance policies, expand and modernize our information technology and other operational capabilities to and acquire new long duration assets to fund their future cash needs. As discussed on prior calls, We have historically targeted $50,000,000 to $60,000,000 of liquid assets to be held at the parent. We will continue to evaluate the to take a look at the potential impact

Speaker 2

of the pandemic

Speaker 6

on our capital needs. And should there be excess liquidity, we anticipate the company will return such excess to the shareholders to take a look at our earnings guidance, we anticipate between $400,000,000 $410,000,000 will be returned to to share with you the shareholders in 2022, including approximately $320,000,000 to $330,000,000 through share repurchases. To now with regard to our capital levels at our insurance subsidiaries, our goal is to maintain our capital levels necessary to support our current ratings. To Global Life targets a consolidated company action level RBC ratio in the range of 300% to 3 20%.

Speaker 4

To turn the call

Speaker 6

over to John. For 2021, our consolidated RBC ratio was 3 15%. At this RBC ratio, to Our subsidiaries have approximately $85,000,000 of capital over the amount required at the low end of our consolidated RBC target to provide a few comments related to the impact of COVID-nineteen on Q1 results. To In the Q1, the company incurred approximately $46,000,000 of COVID life claims, equal to 6.1% of our life premium. To The claims incurred in the quarter were approximately $17,000,000 higher than anticipated due to higher levels of COVID deaths than is expected, to be part

Speaker 2

of the discussion

Speaker 6

of the call to the call to the call

Speaker 2

to the call to the call to the call to the call to the call to the call

Speaker 6

to the call to the call to the call to the call

Speaker 2

to the call to the call to the call to the call to the call to the call to the call to the call to the call to the call to the call to the call to

Speaker 6

the call to the call to the call to the call. Thank you, to report that approximately 155,000 U. S. Deaths occurred due to COVID in the Q1, to review the financial results of

Speaker 2

the year. The highest quarter of COVID deaths in the U. S. Since the

Speaker 6

Q1 of 2021. This was substantially higher than the 85,000 deaths we to report our U. S. Deaths and added a provision for higher deaths in January as reported by the CDC, to but that were not reflected in IHME's projection. IHME's projection anticipated a significant drop off in debt starting in mid February.

Speaker 6

To Obviously, the decline in debt did not occur as quickly as anticipated, especially during the latter half of the quarter. To With respect to our average cost per 10,000 U. S. Deaths, based on data we currently have available, we estimate COVID losses on deaths in the Q1 to turn the call over to the operator for questions. We're at the rate of $3,000,000 per 10,000 U.

Speaker 6

S. Deaths, which is at the low end of the range previously provided. This reflects an increase in the average age of COVID deaths and a decrease in the percentage of those deaths occurring in the South. To The Q1 COVID life claims include approximately $25,000,000 in claims incurred in our direct to consumer division to or 10% of its 1st quarter premium income, approximately $4,000,000 at Liberty National to or 5.5 percent of its premium for the quarter and approximately $15,000,000 at American Income to note that we have a number of COVID

Speaker 2

claims on policies sold since

Speaker 6

the start of the pandemic. Approximately 2 thirds of COVID claim counts come from policies issued more than 10 years ago. To For business issued since March of 2020, we paid 624 COVID life claims to With a total amount paid of $9,300,000 The 6.24 policies with COVID claims to comprise only 0.01 percent of the approximately 4,000,000 policies issued by Globe Life during that time. To These levels are not out of line with our expectations. As noted on past calls, in addition to COVID losses, to we continue to experience higher life policy obligations from lower policy lapses and non COVID causes of death.

Speaker 6

To The increase from non COVID causes of death are primarily medical related, including deaths due to lung ailments, to begin with the Q1 of 2019. The losses we are seeing continue to be elevated over 2019 levels to be at least in part, we believe, to the pandemic and the existence of either delayed or unavailable healthcare and potentially to discuss the following slides. In the Q1, the life to turn the call over to Mr. President. Policy obligations relating to the non COVID causes of death and favorable lapses were approximately $7,000,000 higher than expected, to turn the call over to John.

Speaker 6

Primarily due to higher non COVID deaths in our direct to consumer division than we anticipated.

Speaker 3

To turn the call over to Mr.

Speaker 6

President. For the quarter, we incurred approximately $22,000,000 in excess life policy obligations, to Of which approximately $15,000,000 relates to non COVID life claims. For the full year, to We anticipate that our excess life policy obligations will now be approximately $64,000,000 or 2.1 percent of our total life premium, to 2 thirds of which are related to higher non COVID causes of death. This amount is approximately $11,000,000 greater than we previously anticipated. To With respect to our earnings guidance for 2022, we are projecting net operating income per share will be in the range of to turn the call over to Kevin for the year ended December 31, 2022.

Speaker 6

To turn the call over to the operator for questions. The $8.05 midpoint is lower than the midpoint of our previous guidance of $8.25 primarily due to higher COVID life policy obligations to discuss the Q1 results related to higher expected U. S. Deaths during the year. We continue to evaluate data available from multiple sources, to discuss the IHME and CDC to estimate total U.

Speaker 6

S. Deaths due to COVID and to estimate the impact of those deaths on our in force book. To At the midpoint of our guidance, we estimate we will incur approximately $71,000,000 of COVID life claims, to assuming approximately 245,000 COVID deaths in the U. S. This is an increase of $21,000,000 over our prior estimate.

Speaker 6

To This estimate assumes daily deaths will diminish somewhat from recent levels, but remain in an endemic state throughout the year. To With respect to our cost per 10,000 deaths, we now estimate we will incur COVID life claims at the rate of 2,500,000 to turn the call over to $3,500,000 for 10,000 U. S. COVID deaths for the full year or approximately $2,800,000 for 10,000 U. S.

Speaker 6

Deaths to turn the call back over the final three quarters of the year. Those are my comments. I will now turn the call back to Larry.

Speaker 4

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

Operator

Thank

Speaker 2

to open the call for questions.

Operator

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

Speaker 7

To Hi, good morning. So I had a couple of questions. First, if you could talk about the decline in the agent count. And I guess it's multiple factors, but to what extent is the difficulty finding new agents in this labor market versus just to Sort of departures of people that you've hired over the past couple of years for other jobs. And then, Lindley, to How do you think this applies for sales?

Speaker 7

Do you think this is something that will pressure sales as you get into late this year and into next year?

Speaker 2

To take

Speaker 4

the second part. Jenny, I'll address the first question first. I'm not sure if the second part is true that Recruiting has been challenging because there's so many work opportunities. I'd also remind everyone that there's typically a decline in agent count to Sequentially from the Q4 to Q1 because of seasonality of the holidays that affect American Income and Family Heritage. You also have open enrollments to At Liberty National, so in addition to the holidays, people are focused on open enrollment during that period.

Speaker 4

I do believe continued agency growth to Because our agency is selling in the underserved middle income market, also there's absolutely no shortage of underemployed workers looking for a better opportunity. To Historically, we've been able to grow the agencies regardless of economic conditions. For example, during the economic downturn and high unemployment of 2,008 to 2010, to American Income had very strong agency growth. In 2018 2019, when U. S.

Speaker 4

Experienced record low unemployment, to American Income, Liberty National and Family Heritage had strong growth. Our long term ability to grow the agencies, Jimmy, really depends on growing middle management, to expand the new office openings and providing additional sales tools for our agents. During 2022, to anticipate opening new offices, increasing the number of vendor managers in all three agencies. We're also providing additional sales technology to support our agents. Shumik, can you repeat the sales question?

Speaker 4

I don't think I heard the sales question.

Speaker 7

It was just that like obviously to the to You are losing people who were recently hired, then you don't lose a lot of production from them because they hadn't ramped up. But how do you think that like Does the decline in the agent count, both people leaving who are already agents and difficulty in hiring new to Does that make you less optimistic about sales later this year and into next year?

Speaker 2

Well, it does

Speaker 4

make me less optimistic. New agents to provide an update on our financial results. As you look across the 3 agents, the increases in sales are partially explained to by the increase in productivity. As example, the largest decline is the Family Heritage, and we had a 16% increase in the percentage of agents submitting business, to also have a 22% increase in the average premium written per agent. So that level of productivity that comes from the veteran agents, the existing agents.

Speaker 4

To In American Income, in the Q1, we saw personal recruits increase about 15% versus the Q1 of 2021. To That's important because personal recruits are they stay twice as long or twice as productive to Yes, the recruits from other sources. So I have confidence even though the agent increase will be slower this year, to We still have the sales within the range that I gave during the script.

Speaker 2

Okay.

Speaker 7

And then any comments on to What you're seeing in terms of non COVID mortality, because it seems like claims for a number of life companies have been elevated even to Beyond COVID because of other health issues related to potentially to COVID, but not direct COVID claims.

Speaker 6

To Yes, Jimmy. I mean that is really consistent with what we're seeing right now as well and that we are seeing especially in the Q1, we really did see to elevated levels at especially in our direct to consumer, but thought across the distributions and really across all the to several different causes of death, but primarily, as I mentioned, in the heart and circulatory, to Lung, some of the neurological disorder type areas. We really do attribute that to to The various side effects of COVID and whether just the not getting care when they needed it throughout 2021 or side effects of having had us and decline health for the survivors of COVID. To As we're looking at in 2022, looking back, we saw some early trends back in December that kind of to led us to believe that we would start to see a decrease in those claims in 2022. And so we had originally anticipated to Those kind of trending back to more normal levels over the course of the year.

Speaker 6

To In the Q1, it really wasn't worse than what we've seen in the past. It was a little bit elevated, but not substantially so. But it was just greater than what we had anticipated. We do think over time that these will again kind of to revert back to normal levels, but probably a little bit more slowly than what we had originally anticipated.

Speaker 7

To And then just lastly on the accounting changes, do you have any sort of initial commentary on what you expect the impact to be to Both in terms of the balance sheet and on the income statement?

Speaker 6

Yes. No updates from what we had talked about on the last quarter. To We do anticipate giving some more quantitative disclosure here after the end of the second quarter. We're still in the process of finalizing, if you will, our models, doing the testing, making sure our controls are in place, to Looking at the various aspects of to be validating our numbers, if you will. So as I said on the last call, we do anticipate to take a favorable impact from an operating earnings perspective, primarily through reduced the changes being made on the amortization side of the to take a look at the balance sheet or of the income statement.

Speaker 6

And then with respect to the equity on the AOCI that there will be some decrease there clearly from Just the changes in the interest rate and the impact of that.

Speaker 5

Okay. Thank you.

Operator

To turn the call over to Andrew Gleigerman with Credit Suisse.

Speaker 8

Hi, good morning. To I thought I'd go back to the producing agent count numbers. So the new targets to take a look at the numbers for American Income are negative 2% to positive 3%, that's versus 3% to 8% at your last quarterly guidance. Liberty National 0 to 14 is versus to 30 last time. So I guess the question is, Was it the tight labor market that's primarily driving this to change in guidance, is there something else?

Speaker 8

What are some of the key drivers of this new guidance?

Speaker 4

To Thank you for American Income, one of the key drivers is just the amount of agent growth we had in 2020 2021. As you recall, we had greater than 20% agency growth. To Agency growth is always a stair step process. So I wouldn't expect the same level of agency growth in 2022 to We had in 2020 through 2021. I think the uncertainty really is around the other two agencies has to do with COVID.

Speaker 4

Now as you recall, Liberty National really sells the majority of the sales of worksite presentations and those take place at the place of business. To And those appointments have been more difficult to set during the pandemic. The COVID continues to decline and the Asia count growth of Liberty National would be at the upper end of the range to because you'll be able to recruit to an ad business sale. If COVID doesn't decline, I'd expect our guidance to be at the lower end of the range. To Likewise, with Family Heritage, they don't sell life insurance with leads.

Speaker 4

They sell in the home, physically in the home or at the business. To And those appointments were very difficult to set during the pandemic. So again, the COVID continues to decline and the agent count growth of Family Heritage would be up or under the range to be able to recruit to an at home or at business sale. If COVID doesn't decline, I'd expect Family Heritage to What's encouraging, I think, is the sales levels we had in the Q1 with a 19% sales growth at Family Heritage, to That's really easy to recruit to because the agents are having such success. Likewise, we saw worksite sales increase to turn the call over to the operator.

Speaker 4

Okay. And then just

Speaker 8

a quick follow-up on the call. Okay.

Speaker 4

Thank you. Thank you. Thank you. Thank you.

Speaker 2

Thank you. Thank you. Thank you. Thank you.

Speaker 4

Thank you. Thank you. Thank you. Thank you. Thank you.

Speaker 4

Thank you. Thank you. Thank you. Our next question comes from the line of

Speaker 8

to That makes a lot of sense. Just to hear Liberty and Family Heritage, to But I guess again on American Income, you knew about the agency growth that was so strong in 2020 2021 And yet you gave the guidance of 3% to 8%. Now it's off a bit sharply. Anything else, to Larry, that might that changed your thinking in the course of 2 or 3 months?

Speaker 9

To Well, not in the

Speaker 4

2 or 3 months. I'd remind you at American Income, we had a large number of offices opened in 2018 2019 And that recruited that resulted in a higher agency growth for those new offices during COVID. It was more difficult to open those new offices. So we have lower new office remains in 2022 than we had in 2021 2022 excuse me, 2021 2022 versus 2018 2019. To And again, I would say that when you look at American Income with approximately 10,000 agents, a 3% increase is 300 agents.

Speaker 4

That's a large number of agents to bring in and train and enter your systems. So again, referring back to the stair step process, to We always have solar agent growth following the fashion growth. If you go back to 'seventeen and 'eighteen, we see that at American Income to At Family Heritage, we had almost 0 agent growth in those 2 years. And then in 2019 2020, we had the accelerated agent growth. So this follows a pattern to The historic what we've seen in all three agencies.

Speaker 8

I see. Okay. And then you talked a little bit about going forward some to Building out the middle management and increasing the offices further as we go through 'twenty two, could you put any numbers around it or any further color?

Speaker 4

For the year, for all three agencies, we expect to increase middle management to 5% to 8%. That's so important because middle management really drives most of the recruiting in all three agencies. So the lack of agent growth at Family Heritage, Perkin and Middle Management growth to turn the call

Speaker 2

over to John. During 2022, as we see

Speaker 4

the agent growth accelerate, more people will take that opportunity and move into middle management. Again, we've had such to Rapid Asian growth at American Income, I think the 5% to 8% growth is certainly to review a reasonable number to assume for a reasonable range to assume for 2022. The Family Heritage as we excuse me, at Liberty National, if you see the to Sales increase, we'll see that same increase in metal management.

Speaker 8

Got it. And I guess lastly, you were just touching on how sort of those elevated to sort of non COVID, but COVID related claims reverting back over time. And we've heard that to take a look at the U. S. Life reinsurers as well.

Speaker 8

Anything further there? Is it just to Once COVID subsides, all these kind of situations where people aren't getting medical to check up, etcetera, that will just kind of subside with COVID. Anything else that gives you confidence that will revert over time?

Speaker 6

To I think, Andrew, that that's larger when you think about getting back to access to healthcare to And just generally people feeling getting more comfortable with to getting out of their homes and getting back into the doctor's office and getting the care that they need to take care of their conditions. I think as time goes on, obviously, we'll start to get more experience in the numbers and be able to get a little better sense of that. I think at this point in time, it's where to You look at this elevated level and you kind of see the situation and it's more from the belief that over time that to As we get past the COVID pandemic and just again use of healthcare gets back to normal levels, that's where we would anticipate that it would to give the non COVID deaths would get back into kind of normal levels as well, at least until we start to see to Something in the numbers that would indicate otherwise.

Speaker 8

Yes, that seems very encouraging for 2023 2024. Anyway, to Thank you very much for answering the questions.

Speaker 6

Sure. Thanks.

Operator

Next, we'll go to Erik Bass with Autonomous Research.

Speaker 5

Hi. Thank you. It looks like the lapses ticked up a little bit from where they've been running in the Life business. So just wondering, are you starting to see persistency begin to normalize? And is that something you would expect to continue?

Speaker 3

Eric, I think that's true of Liberty National. It appears that we're getting back more towards the pre pandemic level lapses. To On the direct to consumer side, the lapse rates were a little bit higher, 1st year lapse rate was a little bit higher than It had been in late 2020 2021, but it along with the renewal So lapse rates are still favorable compared to where we were pre pandemic. American Income, I I think we've had a fluctuation there this quarter. The 1st year lapse rate was a little over 10%, which is normally less than 9%.

Speaker 3

I think that will settle down as we go forward. And I think like direct to consumer, The rates there in American Income will be a little bit higher than what we experienced in 2021, but still favorable versus the pre pandemic level.

Speaker 5

Got it. Thank you. And then can you remind me, I think one of the other factors driving the excess life claims that you're assuming is the better persistency you're assuming there and how that works through?

Speaker 6

Yes. About a third, I've mentioned in the opening comments that for the U. S. To We're estimating around $64,000,000 and about a third of that is due to the higher lapses. To Just over time, I mean, we are bringing that down, if you will, over the course of 2022.

Speaker 6

And as Gary to You indicated we still anticipate having favorable persistency versus pre pandemic levels, to But we are kind of grading that back over time. But by the end of the year, still anticipating some favorable persistency and then that favorable to turn the call over to the operator. And I think that's a great question. And I think that's a great question. And I think that

Speaker 5

to Thanks. And if I could sneak one more in. On your excess investment income, I think it was up year over year this to quarter and your guidance is still for it to decline on kind of a dollar basis. Was there anything unusual in the investment income this quarter?

Speaker 3

Yes, Eric, we had the income from the limited partnerships that we have was about $2,500,000 higher than expected. And I think that's a little bit of a tiny thing. So the investment income is that investment income was weighted heavier towards the Q1 than it will be later in the year.

Speaker 5

To Got it. Thank you.

Operator

Moving on, we'll go to Ryan Krueger with KBW.

Speaker 9

To Hi, good morning. On the $15,000,000 of non COVID excess mortality claims in the quarter, can you Give that by division. I guess I'm curious if it was more concentrated in direct The consumer like your like the direct COVID claims were?

Speaker 6

Yes. So The total excess obligations, I think, I indicated were about $7,000,000 higher

Speaker 9

to I was looking for the $15,000,000 of the I think you said there was $22,000,000 of indirect Policy obligations and $15,000,000 was from mortality.

Speaker 6

Yes. Okay. Yes. And about to $10,000,000 of that was from related to DTC and about $2,000,000 each from I guess about $11,000,000 of DTC and $2,000,000 each from AIL and L and L.

Speaker 9

Got it. I guess is there any as you to Doug into the data, are there any conclusions as to why you think you're seeing more concentration in both Direct and indirect COVID claims, indirect to consumer relative to the agent driven divisions?

Speaker 6

To I think just in general as we look at it, remember that direct to consumer is just a higher mortality to Business. So just in the normal course of time, their policy obligations make up about 54%, 55% of their total premium, whereas for both Liberty and American Income, they're in that 30 to 35% range kind of on a pre pandemic level. So just from a proportion perspective, DTC to see it just has just that higher mortality. Other than just being part of that, there just tend to be a broader to take a look at the U. S.

Speaker 6

Population, if you will, and having just tend to be, I'm going to say, just be a little less healthy group of policyholders to Just because we do less underwriting and members of yes, simplified underwriting and direct to consumer, that to We don't really see anything else in the numbers, if you will, that specifically point to anything specific for DTC.

Speaker 9

To Thanks. And then when I look at your if I take your life underwriting to income in both 2021 and in the Q1. And if I add back the direct and indirect to COVID and mortality impacts that you cited, it looks like the margin would have been about 29% of premium, if you add everything back, Which is higher than it was running pre pandemic, which I think was more in the 27% to 28% range. Is 29% more indicative of what you'd expect once the pandemic fully ends or are there some other offsets? To

Speaker 3

Yes. Ryan, I think one additional piece there is that we're seeing improved to Our lower amortization of deferred acquisition costs because of the improved persistency. And so That's a piece that gets you from the 20 what we would say a normal 28 to the 29 that you came up with.

Speaker 9

Okay, understood. Thank

Operator

Next, we'll go to John Barnidge with Piper Sandler.

Speaker 10

To Thank you very much. Can you maybe talk about how inflation changes the dynamics for distribution of products into your targeted to take a look

Speaker 2

at the demographic,

Speaker 10

maybe ask a bit differently, how do you think through sales persistency holding up in a soft economic environment driven by inflation?

Speaker 4

I'll first talk about the impact of inflation. It's really different in each distribution to turn the call over to Jim for the agency channels. We expect a little impact on the level of sales due to inflation. Remember, we saw on a needs basis. To Sales may favorably be impacted if customers need a larger face amount and should a client need to purchase additional coverage, the long monthly premiums associated with the products we sell is resulting in a slight to take a look at the consumer's credit card.

Speaker 4

Our premiums are designed to comprise only a small percentage of the agent's budget. The direct to consumer inflation could be a negative for the mail and to turn the call over to the operator's channel's inflation increases overall cost of insert mail media due to postal rate and paper cost increases. To As such, we'll probably need to adjust mail volumes to maintain profit margins. However, we can expand the use of the Internet and e mail channels to offset those decreases. To For Medicare Supplement at United American, inflation can lead to higher medical trend.

Speaker 4

This higher trend will be offset with rate increases over time to achieve the lifetime loss ratios. To the extent medical trends are higher than assumed, profit margins may actually improve

Speaker 10

to That's very helpful. And then maybe on the investment portfolio as a follow-up. To The rate environment is clearly changed a lot. This has changed maybe interest in floating rate securities versus more versus fixed at all or maybe talk about

Speaker 3

We primarily invest long and that's the reason we do that is because our liabilities are long. Yes, we have seen especially in the treasury race, we've seen in the quarter from the beginning of the quarter to the end of the quarter of However, when you take into consideration spreads, still a longer, The 25 year bonds that we're buying still provide a substantial yield to enhancement over the shorter bonds. So but we don't we're trying to look for The best opportunities that we don't rule out investing short. There are specialty times that we want to improve to

Speaker 2

take a look at

Speaker 3

the expectation or quality or whatever the we do go shorter. And in fact, we are going short to a certain extent when you talk about the to Alternatives that we're investing in, as I mentioned that we're going to invest approximately $200,000,000 in 2022 in these to Limited partnerships that are credit, structured credit type of arrangements. Yes, they're shorter and they still give us a good yield. But for the most part, When we're investing for assets to support our policy liabilities, we need to invest long and Yes, where we stand today, as I mentioned, 15% will be going to the shorter investments, but that means 85% are still going to be in the longer investments.

Speaker 10

To Thank you very much for your answer and best of luck in the quarter ahead.

Operator

To turn it back to Mr. Mike Majors for any additional or closing comments.

Speaker 2

To All

Speaker 1

right. Thank you for joining us this morning. Those are our comments, and we'll talk to you again next quarter.

Operator

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

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