Globe Life - Q4 2025

Transcript

Operator (participant)

Hello, and welcome to Globe Life Inc.'s fourth quarter earnings release call. My name is Jim. I will be your coordinator for today's event. Please note this call is being recorded, and all phone lines have been placed in a listen-only mode to prevent any potential background noise. Also, if you would like to ask a question during today's question and answer session, simply press Star and the digit One on your telephone keypad. Pressing, or pressing Star and One will place your line into a queue, and we'll take your questions one at a time. I will now hand you over to your host, Stephen Mora, Senior Director of Investor Relations, to begin today's conference. Thank you, sir.

Stephen Mota (Head of Investor Relations)

Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and Matt Darden, our Co-Chief Executive Officers, Tom Kalmbach, our Chief Financial Officer, Mike Majors, our Chief Strategy Officer, and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements. They're provided for general guidance purposes only. Accordingly, please refer to our earnings release, 2024 10-K, and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Frank.

Frank Svoboda (Co-CEO)

Thank you, Stephen, and good morning, everyone. In the fourth quarter, net income was $266 million or $3.29 per share, compared to $255 million or $3.01 per share a year ago. Net operating income for the quarter was $274 million, or $3.39 per share, an increase of 8% over the $3.14 per share from a year ago. For the full year 2025, net operating income was $14.52, 2 cents above the midpoint of our previous guidance. On a GAAP reported basis, return on equity through December thirty-first is 20.9%, and book value per share is $74.17.

Excluding accumulated other comprehensive income, or AOCI, return on equity is 16%, and book value per share as of December 31 is $96.16, up 11% from a year ago. Before discussing the third quarter insurance operations, I would like to say a few words about the nature of our business. As I reflect on the results of the past year, I remain confident that our business model effectively positions us for future success. Globe Life helps provide financial security in the vastly underserved lower-middle to middle-income market that has largely been ignored by the financial services industry. We distribute basic protection products that are simple for agents and consumers to understand and are designed specifically to meet the needs of this market. Studies indicate that over 50% of Americans are underinsured.

As such, we have a significant sustainable growth opportunity without having to compete for market share with other insurance companies. The history of of growth at Globe Life is clearly demonstrated by both our recent and long-term results, and we are fully focused and confident in our ability to continue to grow in the future. We are honored to serve this market and grateful to have the opportunity to make tomorrow better for millions of working families. Now, in our insurance operations, total premium revenue in the fourth quarter grew 5% over the year-ago quarter. For the full year 2026, we expect total premium revenue to grow approximately 7% to 8%. Life premium revenue for the fourth quarter increased 3% from the year-ago quarter to $850 million.

Life underwriting margin was $350 million, up 4% from a year ago, driven by premium growth and lower overall policy obligations. In 2026, we expect life premium revenue to grow between 4% and 4.5%, compared to 3% growth for the full year 2025. As a % of premium, we anticipate life underwriting margin to be between 41.5% and 44.5%. In health insurance, premium revenue grew 9% to $392 million, and health underwriting margin was also up 9% to $99 million. In 2026, we expect health premium revenue to grow in the range of 14% to 16%, compared to 9% growth for 2025.

This is due to strong sales activity and premium rate increases on our Medicare Supplement business. As a percent of premium, we anticipate health underwriting margin to be between 23% and 27%. The midpoint of the range is slightly below the underwriting margin percentage for 2025, primarily due to the strong premium growth expected in 2026 from our United American General Agency division, which does have a lower underwriting margin percentage than our other distributions. Administrative expenses were $92 million for the quarter, an increase of approximately 1% over the fourth quarter of 2024. As a percent of premium, administrative expenses were 7.4%. In 2026, we expect administrative expenses to be approximately 7.3% of premium, the same as in 2025.

I will now turn the call over to Matt for his comments on the fourth quarter marketing operations.

Matt Darden (Co-CEO)

Thank you, Frank.

... Now, as a reminder, I mentioned last quarter that while growth in our agent count has historically been subject to frequent short-term fluctuations, we continually see significant long-term growth. Over the last 10 years, our agent count has nearly doubled, and I am confident we can continue to see strong long-term growth due to the enormous pool of potential agent recruits and the opportunity that we provide. Our recruiting strategy does not target insurance agents. We are simply recruiting individuals from all walks of life who are looking to improve their financial position and have more control over their career. Now let's discuss the results of each distribution, starting with our exclusive agencies.

At American Income Life, the life premiums were up 6% over the year ago quarter to $457 million, and the life underwriting margin was up 5% to $208 million. In the fourth quarter, net life sales were $102 million, up 10% from a year ago. The average producing agent count for the fourth quarter was 11,699, down 2% from a year ago. While we generated strong recruiting activity, we had more agent turnover than expected. Now, this is not always a bad thing, as it can result in a more productive agency, depending on the quality of the agent's loss. The 10% sales growth this quarter was due to better overall agent productivity.

That being said, we place great importance on agent retention and have introduced an initiative to emphasize agent retention to help ensure continued agency growth. Now, at Liberty National, the life premiums were up 4% over the year-ago quarter to $98 million, and the life underwriting margin was up 6% to $36 million. Net life sales were $28 million, up 6% from the year-ago quarter. Net health sales were $9 million, roughly flat from the year-ago quarter. The average producing agent count for the fourth quarter was 3,965, up 6% from a year ago. I believe the initiatives that I'd mentioned last quarter are having a positive impact, and I'm confident we will continue to see growth at this agency as we move forward.

At Family Heritage, health premiums increased 10% over the year ago quarter to $121 million, and the health underwriting margin also increased 10% to $44 million. Net health sales were up 15% to $31 million due to increases in agent count and productivity. The average producing agent count for the fourth quarter was 1,640, up 8% from a year ago. We've now seen six consecutive quarters of strong agent count growth for Family Heritage, resulting from the continued focus on recruiting and growing agency middle management. In our direct-to-consumer division at Globe Life, the life premiums were approximately flat over the year ago quarter to $244 million, while the life underwriting margin increased 3% to $74 million.

While life premiums were flat this quarter, net life sales were $29 million, up 24% from the year ago quarter. We are excited to see this continued sales turnaround from the declining trend of recent years. As we've mentioned before, new technology introduced earlier this year has helped improve the conversion of customer inquiries into sales without incurring incremental underwriting risk. The resulting margin improvement has allowed us to increase marketing volume and further grow direct-to-consumer inquiries and sales. Now, we've also seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also contributed to margin improvement, allowing us to invest more heavily in advertising, further increasing lead volume, which in turn leads to sales growth in both our direct-to-consumer and agency channels. We expect this division to increase leads generated for our three exclusive agencies during 2026 by approximately 10%.

United American is our general agency division, and here the health premiums increased 14% over the year-ago quarter to $173 million. And this is driven by sales growth and Medicare Supplement rate increases that we have discussed previously. Health underwriting margin was $8 million, up $2 million from the year-ago quarter. Strong activity across the entire agency resulted in net health sales of $77 million, an increase of approximately $47 million over the year-ago quarter. We attribute this tremendous growth primarily to the significant movement of Medicare beneficiaries from Medicare Advantage plans to Medicare Supplement plans. As a result—no, as a reminder, we do not market Medicare Advantage plans.

Now I'd like to discuss our projections, and based on recent trends and our experience with our business, we expect the average producing agent count trends for the full year 2026 to be as follows: at American Income, mid-single-digit growth, Liberty National, high single-digit growth, and at Family Heritage, low double-digit growth. Net life sales for 2026 are expected to be as follows: at American Income, high single-digit growth, Liberty National, low double-digit growth, and direct-to-consumer, mid-single-digit growth. Net health sales for 2026 are expected to be as follows: For Liberty National and Family Heritage, both low double-digit growth. Now, for United American, considering we nearly doubled our sales in 2025, we are currently projecting flat sales growth for 2026. We acknowledge there are considerable dynamics in the Medicare marketplace, and we will refine our estimates as we move through the year.

I'll now turn the call back to Frank.

Frank Svoboda (Co-CEO)

Thanks, Matt. We will now turn to the investment operations. Excess investment income, which we define as net investment income, less only required interest, was $31 million, down approximately $8 million from the year ago quarter. Net investment income was $281 million, approximately flat, while average invested assets grew 1%. Required interest is up approximately 3% over the year ago quarter, relatively consistent with growth in average policy liabilities. Net investment income was negatively impacted in the current quarter by lower average invested asset growth, as discussed on prior calls, and lower average earned yields on our short-term direct commercial mortgage loan and limited partnership investments as compared to a year ago.

Net investment income also declined sequentially from the third quarter, as we had very good returns from our limited partnership investments in the third quarter, but that returned to more normal levels in the fourth quarter. As a reminder, the income reported from these investments is based on income earned by the partnerships in the quarter and will vary from quarter to quarter. In addition, we held a little more cash during the current quarter than normal due to the Bermuda reinsurance transactions executed in the quarter. For the full year 2026, we do expect net investment income to grow between 3% and 4%, required interest to grow around 4%, and excess investment income to be relatively flat. Now, regarding our investment yield. In the fourth quarter, we invested $131 million in fixed maturities, primarily in the financial and industrial sectors.

These investments were at an average yield of 6.23%, an average rating of A-, and an average life of 27 years. We also invested approximately $145 million in commercial mortgage loans and limited partnerships with debt-like characteristics at an average expected cash return over time of approximately 9%-10%. These non-fixed maturity investments are expected to produce additional cash yields over our fixed maturity investments, while still being in line with our overall conservative investment philosophy. For the entire fixed maturity portfolio, the fourth quarter yield was 5.29%, up two basis points from the fourth quarter of 2024. Including the investment income from our other long-term, non-fixed maturity investments, the fourth quarter earned yield was 5.4%.

While we do own floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Invested assets are $21.7 billion, including $18.8 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.3 billion are investment grade, with an average rating of A. Overall, the total fixed maturity portfolio is rated A minus, same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of $1.2 billion due to the current market rates being higher than the book value on our holdings. As we have historically noted, we are not concerned by the unrealized loss position, as it is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years.

We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprise 42% of the fixed maturity portfolio, compared to 46% from the year ago quarter. This percentage is at its lowest level since 2003. As we have discussed on prior calls, the BBB securities we acquire generally provide the best risk-adjusted, capital-adjusted returns, due in part to our ability to hold securities to maturity, regardless of fluctuations in interest rates or equity markets. That said, our allocation to BBB-rated bonds has decreased over the past few years, as we have found better risk-adjusted, capital-adjusted value in higher-rated bonds, given the narrowing of corporate spreads.

While the concentration of our BBB bonds might still be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets, such as derivatives, equities, residential mortgages, CLOs, and other asset-backed securities. Below investment-grade bonds remain near historical lows at $521 million, compared to $529 million a year ago. The percentage of below investment-grade bonds to total fixed maturities is just 2.8%, consistent with year-end 2024. The amount of our below investment-grade bonds, at just 6.7% of our total equity, excluding AOCI, is at its lowest percentage of equity at any year-end in over 25 years. Due to the long duration of our fixed maturity liabilities, we invest in long-dated assets.

As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. While there may be uncertainty as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn due to holding historically low percentages of invested assets in triple B and below investment grade bonds as a percentage of equity. In addition, we have very strong underwriting profits and long-dated liabilities, so we will not be forced to sell bonds in order to pay claims.

With respect to our anticipated investment acquisitions for the full year 2026, at the midpoint of our guidance, we assume investment of approximately $900 million to $1.1 billion in fixed maturities at an average yield between 5.9% and 6%, and approximately $300 million to$400 million in commercial mortgage loans and limited partnership investments with debt-like characteristics at an average expected cash return over time of 7% to9%. Also, at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.3% for the full year 2026. With respect to our non-fixed maturity long-term investments, we anticipate the yield impacting net investment income to be in the range of 7% to 8% for 2026.

In total, including these additional investments, we anticipate the blended earned yield to be approximately 5.4% to 5.5%. Now, I will turn the call over to Tom for his comments on capital and liquidity.

Tom Kalmbach (CFO)

Thanks, Frank. First, I'll spend a few minutes discussing our available liquidity, share repurchases, and the capital position. The parent began the year with liquid assets of approximately $90 million and ended the year with liquid assets of approximately $80 million. In the fourth quarter, the company repurchased approximately 1.3 million shares of Globe Life Inc. common stock for a total cost of approximately $170 million at an average share price of $134.44. For the full year, we purchased 5.4 million shares for a total cost of $685 million at an average share price of $126.41. Including shareholder dividend payments of approximately $85 million, the company returned approximately $770 million to shareholders during 2025.

In addition to the liquid assets held by the parent, the parent will generate excess cash flows during 2026. The parent company's excess cash flows, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less interest paid on debt, and is available to return to its shareholders in the form of dividends and through share repurchases. We continue to invest in our growth through making investments in the business, in new business, technology, and insurance operations. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made these substantial investments and acquired new long-duration assets to fund their future cash needs. In 2025, parent excess cash flow, excluding the benefit of extraordinary dividends, was approximately $620 million.

Although statutory results are not yet final, for 2026, we anticipate excess cash flow to increase to approximately $625 million to $675 million, given recent favorable mortality trends and growth in premium. Excuse me. We will continue to 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 the primary use of parent's excess cash flow after the payment of shareholder dividends. In our guidance, we anticipate distributing between $85 million-$95 million... Sorry, $85 million to $90 million to our shareholders in the form of dividend payments, with the remainder being used for share repurchases in the range of $535 million to $585 million.

We anticipate liquid assets at the parent to be in the range of $50 million to $60 million at the end of 2026. Now, with regards to the capital positions at our insurance subsidiaries, our goal is to maintain capital within our insurance operations at levels necessary to support our current ratings. Globe Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. Although this target range is lower than many of our peers, it is appropriate given the stable premium revenue from our large number of in-force policies, the nature of our protection products with benefits that are not sensitive to interest rates or equity markets, our conservative investment portfolio, and strong, consistent underwriting margins, which result in consistent statutory earnings at our insurance companies.

Since our statutory financial statements are not yet final, our consolidated RBC ratio for year-end 2025 is not yet known. However, we anticipate the final 2025 RBC ratio will be within our targeted range. During the quarter, we finalized the licensing and formation of Globe Life Re Ltd, a Bermuda reinsurance affiliate, for the purposes of reinsuring a portion of new business and in-force life insurance policies issued by Globe Life affiliates and executed the initial reinsurance transactions. As previously noted, we estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. We anticipate parent's annual excess cash flow will increase over time toward $200 million as earnings emerge from reinsuring additional in-force and new business.

This additional excess cash flow will enhance the financial strength of the company and will provide additional financial flexibility for the parent to support growth. Now, with regards to policy obligations for the current quarter. For the fourth quarter, policy obligations as a percent of premium has declined from 36.7% in the year ago quarter to 35.4%, consistent with continued favorable trends in mortality. Health policy obligations as a percent of premium were 53.7%, compared with 54.1% from the year ago quarter. For United American, individual Medicare supplement claim trends have been relatively stable. However, we did see seasonally high claims in the fourth quarter for both individual and group health products. Now, with regards to our full-year underwriting margins, normalized for the impact of assumption updates.

As I mentioned on previous calls, as required by GAAP accounting standards, each year, we review and generally update actuarial assumptions for mortality, morbidity, and lapses. We have chosen to do this in the third quarter each year. When assumptions changes are made, GAAP accounting standards require a cumulative catch-up adjustment. This cumulative catch-up is the assumption-related remeasurement gain or loss. An assumption remeasurement gain lowers the reserve balances and indicates an improved outlook, as less premium is needed to fund reserves to meet future policy obligations. The opposite is true if there is an assumption remeasurement loss. To better understand the performance of the business for the full year, we think it is beneficial to look at normalized underwriting margins, which exclude the impact of assumption changes and provide an improved basis for comparison of year-over-year results.

For the full year 2025, normalized life underwriting margin, as a percentage of premium, increased to 41%, compared with 39.7% for the prior year. Normalized life policy obligations as a percent of premium, improved by over 2 percentage points from the prior year due to favorable mortality trends, but was partially offset by higher amortization of acquisition costs. Normalized health margin as a percent of premium was 25.4%, compared with 27.3% for the prior year, and is reflective of higher claims experience and the timing of premium rate increases during the year at United American.

Finally, with respect to our 2026 guidance, for the full year 2026, we estimate net operating earnings per diluted share will be in the range of $14.95-$15.65, representing 5% earnings per share growth at the midpoint of the range. This is an increase from our prior guidance, related primarily to continued improved mortality and experience trends that we are monitoring, including anticipated positive impacts from life assumption updates that will occur in the third quarter. In addition, we are anticipating higher health underwriting margins, given the strong premium growth at United American. Normalized earnings per share growth, which removes the impact of assumption updates in both 2025 and the midpoint of 2026, is approximately 10%.

At the midpoint of our guidance, we anticipate total premium revenue growth of 7% to 8%, with life premium growth growing 4% to 4.5% and health premium revenue growth growing 14% to 16%. Health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2025, but also $80 million to $90 million of additional annualized premiums, resulting from approved rate increases on individual Medicare Supplement policies that would be phased in throughout 2026 and fully implemented by 2027. Recall, the majority of these rate increases will be effective beginning in the second quarter of 2026. As a result, this delay, along with seasonally high claims, typically incurred in the first quarter, we anticipate United American's health margin percentage in the first quarter will be lower than the full year margin percent of 8% to 10%.

However, we anticipate an average of 10% to 11% in the last three quarters of the year, as the full effect of the premium rate increases is realized. We anticipate underwriting margins as a percent of premium to be in the range of 41.5% to 44.5% for the life segment and 23% to 27% for the health segment. In our guidance, we anticipate recent favorable trends will continue through 2026. Given this, our 2026 guidance range reflects an estimated third quarter benefit from assumption updates and resulting remeasurement gain of $50 million to $100 million, which is expected to increase the life margin as a percent of premium in the third quarter to a range of 48% to 52%. Those are my comments. I'll now turn it over to Matt.

Matt Darden (Co-CEO)

Thank you, Tom. Those are our comments, and we will now open up the call for questions.

Operator (participant)

Ladies and gentlemen, at this time, a reminder that if you would like to ask a question, simply press star and one on your telephone keypad. Pressing star and one will place you into a queue, and we will open your lines one at a time. Once again, ladies and gentlemen, that is star and one on your telephone keypad. Our first question today will come from the line of Jimmy Bhullar at JPMorgan. Please go ahead. Your line is open.

Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)

Hey, good morning. I had a couple of questions. First, was just on the first-year lapses. They seemed to pick up across various channels, especially in direct response. So hoping that you could give us some color on what's going on there.

Tom Kalmbach (CFO)

Yeah. Thanks, Jimmy. Yes, we... You're definitely right. First quarter lapses for direct-to-consumer, and actually Liberty National, were actually a little bit higher than what we had expected. You know, at this point, we see them as, as fluctuations, and we'll continue to monitor them. On DTC, you know, our, our sales increases are primarily coming from the internet channel, which we actually see higher lapses on the internet channel. So a little bit higher, not to be unexpected, but it was higher than what we would have anticipated from that channel. The one thing I'd say is, is I think the growth in sales, even with a little bit higher lapses, is, is a positive because it does add to underwriting margins overall, but it is something we'll continue to pay attention to.

Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)

Okay. And then on MedSup, maybe if you could just talk about the dynamics between MedSup and Med Advantage. Historically, obviously, with the Republican government, you'd assume Med Advantage is gonna grow. This time, it's sort of going in the opposite direction. But the two questions I had on that was, do you expect, like, I'm assuming your outlook for growth in MedSup is fairly constructive. And if that is correct, then if we think about you filed prices, I think, around the middle of last year, maybe third quarter or so, and since then, claim trends have sort of stayed elevated. So should we assume that, you'd have to sort of go through a round of price increases to get the margins on the business that you've signed to more of a normal level?

Maybe we should expect slightly weaker margins initially, and then improved after you implement the higher prices.

Tom Kalmbach (CFO)

Yeah, Jimmy, on the claim trends, you know, we've actually seen claim trends stabilize in the third and fourth quarter. So that's different than what we saw in 2024, where we had seen claim trends increase in the third and fourth quarter. So those trends that we've seen recently are actually a little bit less than the anticipated trends that we had in our rate increases. So we do feel like the rate increases that we got approvals for are adequate to bring us over the course of 2026 and into 2027, back to kind of our normal margins in that 10%-12% range.

You know, as I mentioned in my comments, you know, we'd expect 10%-11% in quarters 2, 3, and 4 of 2026, and those rate increases will carry into the first quarter of 2027 as well.

Frank Svoboda (Co-CEO)

Yeah, I'd probably just add, just kind of a reminder, that fourth quarter would just as, again, seasonality would be probably just a little bit on the lower end of that range and probably just slightly behind where second and third quarter would have been. And then really, as you get all that rate increase, you know, fully into 2027, that's where we would really anticipate getting back into, you know, those more normal levels as you get it for the full year.

Matt Darden (Co-CEO)

Then I'll touch on your market trend. You know, obviously, our results are very strong for the fourth quarter. A lot of that is, we believe, the dynamic of what's going on with the Medicare Advantage market and people continuing to find value in Medicare Supplement. You know, there's been a lot of discussion related to the government, you know, reimbursement rates and associated impact on Medicare Advantage carriers, as well as what they're doing from either premium increase, cost reductions, or, you know, scaling back. We see that also on the provider side of scaling back taking Medicare Advantage plans. All of those are beneficial to us for a marketplace perspective.

You know, I think it is gonna be very interesting to see how Q1 and Q2 play out with the dynamics of that market. As we've mentioned before, you know, we are pricing for profitability. We're not pricing just to gain market share. And so it's very important, as Tom has mentioned, the management of our rate increases, consistent with our claims performance, is very important for the overall profitability of that block of business. And, you know, we're clearly, from what we see, not out of line with what other carriers are experiencing, nor the rate increases that we're requesting, you know, which bodes well for our premium earnings in 2026. And so there...

You know, the sales side is really hard to predict right now, but we had tremendous growth in the current, well, prior year, now 2025. And so it'll be. We'll really see how things come through as we get into the first and second quarter of this year.

Tom Kalmbach (CFO)

Maybe one other thing to mention, Jimmy, is just, as we think about claim trends, is CMS did introduce prior authorization requirements for traditional Medicare supplements starting in six states in 2026. So we'd like to see kind of how that impacts overall claim trends, but I think overall it should be a favorable, a favorable impact as they try to reduce fraud, waste, and other abuses that they've seen in the Medicare program.

Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)

Thank you.

Operator (participant)

Our next question today will come from Wilma Burdis at Raymond James.

Wilma Burdis (Director and Senior Equity Research Analyst)

Hey, good morning. Sales have been quite strong in the last few years, even probably stronger than the long term. And you cited some efficiencies there with branding and lead sharing and sourcing. Is there more tailwind to unlock there, or has a lot of that work been done? Thanks.

Matt Darden (Co-CEO)

... No, I think, you know, as we continue to leverage on our technology investments, I think we'll continue to see tailwinds from an efficiency perspective. On the agency side, I think there's still more to unlock. There's a variety of technology that has been implemented, but there's a lot of things on the horizon that we're in process that will come online in 2026 and in 2027. So I think that'll continue to help our agent, you know, productivity, which clearly drives sales growth and drives it a little bit faster to the extent that we do that effectively, drives it a little bit faster than our agent count growth, which is our overall goal with those investments.

Then the technology on the DTC side, the way we market, as was mentioned, a significant amount of those sales are coming from our online channel. As we market and target customers that are in our demographic, that are looking for our type of product, the sophistication there from a technology perspective continues to be a significant focus of ours, and we continue to invest in that area. I think that's why you'll continue to see growth trends there, as well as just any sort of efficiency that we have through the distribution model. As we've talked about, of converting people that are interested, those leads and inquiries into ultimate sales, and then keeping them on the books through a great customer experience will continue to benefit us going forward.

So I'd say my punchline to all that is, I don't think we've fully achieved all that we can through the use of, you know, technology enhancements, but we'll continue to focus on that in the coming days to get the growth that we're looking for.

Wilma Burdis (Director and Senior Equity Research Analyst)

Great to hear. Thanks. Could you talk a little bit about remeasurement gains, which were strong in both life and in health, which actually reversed recently, but health remeasurement gains look pretty strong. Can you go into a little bit more detail on the drivers there and how you expect that to trend? Thanks.

Tom Kalmbach (CFO)

Yeah. With regards to kind of what I'd say is quarterly actual to expected remeasurement gains, you know, we are seeing life mortality experience and lapse experience that's favorable relative to our long-term assumptions, and similarly on the health side as well. I think, you know, we continue to expect mortality to continue at kind of where they've been recently, which would result in continued, life, you know, actual to expected remeasurement gains. And as we're, you know, looking at that experience and looking to see how the first quarter and second quarter emerge, we kind of follow our process of updating assumptions. We'd also, as I mentioned, expect an assumption remeasurement gain in the $50-$100 million range, in the third quarter of 2026.

Now, when we make those assumption changes, you know, I think we can, you know, depending upon where we set those long-term assumptions, I think that we would continue to see remeasurement gains, you know, potentially even in the third and the fourth quarter of next year as well. So I don't think we'd necessarily eliminate all of them. For the health side, it's a little bit different, you know, the premium rate increases on the health side will help our ability to generate experience that could produce continued remeasurement gains. But the health side, remeasurement gains are much more volatile, just because of the way, Medicare Supplement and the rate increases are applied to in the reserve practices is just a little bit unique versus, you know, our normal supplemental health business.

So we will see a little bit of volatility around remeasurement gains and losses in the health line.

Wilma Burdis (Director and Senior Equity Research Analyst)

Thank you.

Matt Darden (Co-CEO)

Our next question will come from Jeff Schmitt at BMO.

Jeff Schmitt (VP & Senior Private Banker)

Hi, good morning. First question I have is on excess cash flow. I think that the guidance this year is the same midpoint as before, even with the higher GAAP earnings outlook. So I was getting that partly related to the kind of the GAAP assumption for measurement gain that you're embedding now. But anything else that's different across GAAP versus statutory that we should be thinking about there?

Matt Darden (Co-CEO)

Yeah, and I'm sorry, Jack, you were just a little bit-

Tom Kalmbach (CFO)

Garbled.

Matt Darden (Co-CEO)

It's hard to understand your question, but I think it was looking for, you know, differences that were kind of happening, that we're seeing on the GAAP or the statutory side that was impacting the excess cash flows. I mean, I think in what Tom was providing from his guidance of 625 to 675, we are just seeing that, you know, is really being driven in and of itself by, you know, just good, solid statutory earnings in 2025, that then converted to dividends to the parent company in 2026. That is growing a little bit over, I'm going to say, the normal statutory earnings that we had in the prior year there. Of course, we had some extraordinary dividends in 2025 that were brought up as well.

But if you kind of pull those out, we're seeing, you know, just a, a nice increase, feel better that we're actually at a, at a kind of another level, with respect to our statutory earnings and therefore the cash flow generation, at the parent company. No real significant changes in the statutory or the GAAP models. You know, if you think about 2025 or even 2026 at this point in time, that's really impacting it, like we maybe have had in, in some of the prior years.

Jeff Schmitt (VP & Senior Private Banker)

... Yeah, and just for clarity, we don't expect any benefit from the Globe Life Re Bermuda transaction in 2026 at this point in time?

Frank Svoboda (Co-CEO)

Yeah, and to the extent that that changes at all, you know, over the course of the year, as we talk to our regulators, you know, we'll be sure to disclose that and talk about that on future calls.

Jeff Schmitt (VP & Senior Private Banker)

Great. Thank you. And then, follow up on the American Income agent count. I know that there's usually, like, a stairstep pattern over time, but it looks like a bit of a larger drop this quarter than what we usually would see. You guys any sense on what's driving that, and then any more detail on the retention initiatives that you referenced in your prepared remarks?

Matt Darden (Co-CEO)

Yeah, I would say for American Income, it is not uncommon for the fourth quarter, end of the year for our agent count from a sequential basis to go down. If you look at three of the last four years, we've had that phenomenon. So I'd say it's not unexpected. Typically, we see those agents that, you know, may be struggling with their productivity and production, you know, kind of toward the end of the year, may be a time that they fall off. What we're doing from a focus on that perspective is, as we've talked about in the past, it's our middle management and managers that are out there recruiting, training, onboarding, and retaining agents. And so we're looking at some incentives, changing their incentive compensation a little bit to continue to focus on that agent retention.

So those will go in toward the beginning of the year, then obviously, they take a little bit of time to get implemented. So, like I said, if you look at it over a long term, it's not a concerning trend. It's why we're projecting that we're going to have agent count growth. But, you know, overall, we are focused on the productivity of our entire agency, and that continues to be very strong for all our agencies, but including American Income. So I think that's why you see a little bit higher sales growth than just the agent count growth. Again, quarter to quarter, we're going to get some of those fluctuations.

Jeff Schmitt (VP & Senior Private Banker)

Thank you.

Operator (participant)

We'll take our next question from Andrew Kligerman at TD Cowen.

Andrew Kligerman (Managing Director and Senior Research Analyst)

Good morning. Almost good afternoon. I want to stay on Jack's question with regard to sales. So it sounds like you're going to put the retention initiatives in place this year. So that wasn't the case last year. So I guess that explains why you cited average producing agents going up mid-single-digit, and then at American Income, and then net life sales going up high single-digit. So maybe that's... I'm trying to get at the productivity a little bit more. What drove it up in the fourth quarter to see a 2% drop in average producing agents with a 10% increase in sales? Was it... I think you touched on earlier those, you know, the lead generation coming from direct-to-consumer.

But, I can see that you're baking in more productivity even going forward. I'd like to get a better understanding of what's driving that.

Matt Darden (Co-CEO)

Sure. I think, you know, as we've talked about in the past, you got to look at the agent count growth as a leading indicator, and then the sales growth follows. And so if you go back for American Income, Q4 of 2024 was a 7% growth, and then Q1, Q2, and Q3 were all low single-digit growth quarters for just the agent count. And so, you know, that carries forward into sales in Q4. We're also seeing some productivity gains, as well as just the premium on a per sale basis is up, compared to the same quarter in the prior year. And so that's also driving it as well.

And as we've talked about, you know, the thing with the product in the marketplace is that the consumer is we go through a needs-based analysis that is sitting down with the customer and determining what their needs are, and then based upon what those are, you know, we have the right amount of coverage, which obviously has an impact on the amount of premium that we collect on a per policy basis. I think some of the when I talked about the quality of the leads and the conversion of those Globe leads generated out of our DTC channel into American Income is also helping on that productivity is reflected in the premium on a per sale basis, as well as just the agents that are producing every single week what their sales are from that perspective.

You are correct, just recognizing the agent count. We think the agent count growth might be just a little bit slower than the sales growth for 2026, and it's just reflective of some of those dynamics. We'll see how some of these incentives come into place. I wouldn't characterize it that we had no incentives in 2025 for our managers to recruit and retain agents. It's just we found that we always have to kind of adjust to that and make sure we've got the right incentives correct between that balance of sales and recruiting, training, and retaining agents. We're doing some few tweaks that will go in here at the beginning of 2026, and we'll see if we got it right as we move throughout the year.

Andrew Kligerman (Managing Director and Senior Research Analyst)

Very helpful. And if I can go back to the Med Supp, I mean, what a fabulous year in terms of sales growth at United American, and just saying that you think sales will be flat in 2026 is pretty darn good. As we look further out, is there a chance that the dynamic between Med Advantage and Med Supplement kinda shifts in the favor of Med Advantage, where they kind of align better with regulations and compliance and pricing, and you could see a dip in the opposite direction, some real pressure on sales as more Med Advantage gets sold?

Matt Darden (Co-CEO)

I mean, it, it's certainly possible. As we mentioned before, we've been in this business for decades. Have more and more people, from an age perspective, entering into, the market in general. So that would be, I would think, a tailwind. But it's really hard to predict the government support within the Medicare Advantage space. And so, you know, that will play some into the dynamics. But I think from a Medicare Supplement perspective, there's always going to be a, a need in a marketplace for that particular product. People that want, you know, the, the freedom of choice and some of the benefits that the Medicare Supplement marketplace provides. So, you know, again, I think there'll always be a place in that market.

We are very much focused on maintaining our margins, and we're really not gonna chase market share at the expense of just pricing to gain market share for the sake of it. So I think you've seen that over a long period of time with us, is that our sales growth will ebb and flow in that area, depending on the marketplace, but it's very important that we maintain our pricing for the existing in-force block as well. That really translates into that underwriting margin dollar that we're really focused on from a long-term stability perspective.

Andrew Kligerman (Managing Director and Senior Research Analyst)

Thanks very much, Matt.

Matt Darden (Co-CEO)

Thanks, Andrew.

Operator (participant)

A reminder to our phone audience, that is star and one if you would like to ask a question. Moving on, we'll hear from John Barnidge at Piper Sandler.

John Barnidge (Managing Director and Senior Research Analyst)

Good morning. Thank you for the opportunity. My first question, on the investment portfolio, can you talk about exposure to software and how you see the portfolio impacted by AI, along with any de-risking activities that have been pursued? Thank you.

Frank Svoboda (Co-CEO)

Sure. Thanks, John. You know, on our, I think a lot of the discussion on, you know, potential exposure has kind of been in that alternative portfolio category. We've kind of taken a look at within the limited partnerships and the different investments, looking at information that we have available there. You know, our best estimate is that, you know, there's really less than probably $15 million within that alternative portfolio that is really related to software companies. So we do think it's pretty limited. You know, overall, our private credit is probably about 1% of our total invested assets. I think that's about what we had last quarter, and that really hasn't changed again this year. So, you know, overall, we have pretty low allocation to the alternative space in general than private credit.

And then it doesn't look like right now, at least in that side, we have much from the software. As we think about it on the fixed maturity portfolio, you know, we've always been underweight, I would say, on tech. You kind of think about, you know, we're out there trying to buy bonds that are 20, 30 years out, and it's hard to find the technology companies that we, you know, really feel comfortable fit into that space. So less than 2% of our invested assets of our fixed maturity portfolio is, you know, in some type of a technology type activity within that sector. What we have exposure to mostly are the hardware hardware providers, data service providers, and that type of thing. There's probably a couple names in there.

We kinda think probably less than $50 million that, you know, have a little bit more susceptibility to be displaced. They do have some moats with respect to some proprietary data that they have with respect to, you know, the space that they operate in. So that, I think, gives them some protection, but that we're kinda keeping an eye on. It is, I think, the whole AI disruption is a risk that the investment team has been considering, you know, you know, for a number of years, and clearly within part of the matrix that they utilize as they think about the bonds that the companies that we're gonna invest in.

And again, we're looking for those names that are really long-term, you know, we think are gonna be around for the long term. And so it's, you know, the IBMs and the Amazons and the Microsofts that are mostly in our portfolio.

John Barnidge (Managing Director and Senior Research Analyst)

... Thank you. Appreciate the answer.

Operator (participant)

Our next question will come from Wes Carmichael at Wells Fargo.

Wes Carmichael (Vice President and Senior Equity Research Analyst)

Hey, thank you. Good morning. I had a couple of questions on Bermuda. One, I think the press release in December, I think you noticed or you noted that the first reinsurance transaction you executed with your business plan. Wondering if you could provide a little more detail on that transaction, just in terms of the size and scope.

Tom Kalmbach (CFO)

Sure. Yeah, we were pleased to get, you know, the licensing information of the company and the approval of our U.S. regulators, as well as the Bermuda regulators, to complete that transaction. And our goal there was really to get the company established and, 'cause we wanted to actually get it established in 2025 so we could have audited financial statements for that entity beginning in 2026, that we'd finalize those 2025 results. So that allows us to be on a path for the requirements of reciprocal jurisdiction, and so we're well on that path, and we're executing relative to kind of our business plan at this point in time. That initial transaction was about $1.2 billion of statutory reserves that got transferred.

So, during the course of 2026, we do intend, and this is consistent with our business plan as well, that was approved by Bermuda, we do intend to reinsure some new business as well as incrementally a little bit more in-force business in 2026. So we'll grow the amount of business that's reinsured in Bermuda over the next, you know, 3-5 years.

Wes Carmichael (Vice President and Senior Equity Research Analyst)

Thanks. And I guess my follow-up was on that point, is it still possible to get early approval for reciprocal jurisdiction? And I'm just trying to understand when you get that status, are there near-term plans to increase the pace of reinsurance? And just really trying to understand how much of a lift in excess cash flows do you kinda expect in 2026 or 2027.

Tom Kalmbach (CFO)

Yeah, we've kind of thought through that, and that's really part of kind of our business plan that we established earlier on. We do think it is possible to get early reciprocal jurisdiction, but it is subject to regulatory approval. So we really wanna, you know, go through the process, and we'll update you if we do, in fact, get reciprocal jurisdiction early. And that would allow the potential for again, I'd say potential for additional dividend distributions from the Bermuda sub, but those are also subject to Bermuda regulatory approval. So, you know, again, we don't wanna get too far ahead of ourselves, and we wanna actually go through the process of having those discussions with our regulators.

Frank Svoboda (Co-CEO)

I just add, you know, if I, I think the kind of the timeframe on that as far as, you know, working with the regulators is probably something that happens a little bit more mid-year. We do anticipate that if we were able to get that, that, you know, any potential distributions that we might get in 2026 would be toward the end of the year.

Tom Kalmbach (CFO)

Right.

Frank Svoboda (Co-CEO)

and so, we have not built any of that into our 2026 plan as of this time, and we'll clearly take a look at that as the year progresses. We do anticipate, you know, that there would be, you know, some opportunity then in starting in 2027, and as Thomas kind of talked about, you know, we think that it can be, you know, up to, you know, $200 million or at least working toward $200 million over time. You know, and that would be just kind of a reminder, that is what we would anticipate would be annual, you know, cash flows up to the parent.

But again, part of that is with the business plan and continuing to build that up with continuing transactions here over the next few years.

Wes Carmichael (Vice President and Senior Equity Research Analyst)

Very helpful. Thanks. Good luck with the regulators.

Operator (participant)

We'll hear from Mark Hughes at Truist Securities.

Mark Hughes (Managing Director and Equity Research Analyst)

Yeah, thanks for sneaking me in. On the claims, you said were seasonally higher in individual and group health, was that normal seasonality, or is that a little bit above and beyond?

Tom Kalmbach (CFO)

I think, first of all, we normally expect a little bit higher claims in the fourth quarter in the, you know, individual and group health lines. However, I would say is that in the group lines, we did see a little bit higher severity, and so it was a little bit higher than what we had anticipated.

Mark Hughes (Managing Director and Equity Research Analyst)

Understood. And then, you've talked to a lot of factors that could influence profitability in the health business, the 23%-27%, the four-point swing. Anything else that we should consider when we think about the high end or low end of that range?

Tom Kalmbach (CFO)

I think some of it, Frank alluded to this in his comments as well, is that, Medicare Supplement has a lower underwriting margin, just on its, you know, as a line of business. And so to the extent that that grows faster than some of the other lines, we're going to see a little bit of downward pressure on just the overall health underwriting margins as a percent of premium. Now, the underwriting margin dollars from health would grow, and so, I think we just gotta. So that's why the range of 23%-27% is somewhat dependent upon, how strong Medicare Supplement comes in, sales come in.

Frank Svoboda (Co-CEO)

Yeah, Mark, that's, that's exactly right. When you kind of look at 2025, you know, United American, that whole side of it, the, then the Medicare, Medicare Supplement side, you know, comprised about 49% of the total health premium, whereas in Family Heritage, Liberty, American Income, that have that other limited or true limited benefit, product, that's a little bit more stable. You know, the margins on that limited benefit side are more in that 43% to 44% range versus, you know, what we had in, in 2025, you know, of around 5% to 6% with respect to, you know, overall margins on the, on the med sub side. Now, in, in 2026, we expect that med sub margin to be up in that 8% to 10% range.

But again, it's now at about 53% of the overall premium is what we kind of anticipate, right now. And so it's just taking a little higher percentage of that overall, premium piece, and so it's kind of just bringing down the average just a little bit. You know, despite the lower margins that we have on that, I mean, it is still a very good business for us and because it is, you know, very, lower amount of capital required ultimately. So when you start thinking about internal rates of return and returns on capital and that type of thing, it is, a very good business from that perspective. So, we don't find it really overly concerning, as, you know, when you kind of see a, the, a slight decrease in the overall health margin percentage.

As we think about it, as long as it's kind of just from that overall mix of business, we think overall that's, that's still a good diversification for us.

Mark Hughes (Managing Director and Equity Research Analyst)

Yeah, I appreciate that detail. Thank you.

Operator (participant)

That was our final question from our audience today. I'm happy to turn the floor back to Mr. Stephen Mora for any additional or closing remarks.

Stephen Mota (Head of Investor Relations)

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

Operator (participant)

Ladies and gentlemen, thank you for joining today's Globe Life Inc. fourth quarter earnings. You may now disconnect your lines. Enjoy the rest of your day.