Q4 2023 Summary
Published Jan 10, 2025, 5:10 PM UTC- Significant Agent Count Growth Expected to Drive Sales in 2024: GL's American Income division saw accelerating agent count growth throughout 2023, with increases of 3.5% in Q1, 8.5% in Q2, 16% in Q3, and 20% in Q4. This acceleration bodes well for sales growth in 2024 as new agents become productive.
- Raised 2024 EPS Outlook Due to Continued Remeasurement Gains: The company increased its 2024 EPS guidance, with the biggest driver being continued remeasurement gains in the life segments observed in Q3 and Q4 of 2023. GL expects these gains to continue into the first half of 2024, positively impacting earnings.
- Potential Tailwinds in Medicare Supplement Business: GL anticipates potential tailwinds in its Medicare Supplement business due to possible disenrollment from Medicare Advantage plans and competitors' price increases. This could benefit GL's supplemental products in 2024 as customers seek alternatives.
- Globe Life's increased EPS outlook for 2024 relies heavily on continued remeasurement gains, which may not be sustainable. The company's executive noted that the biggest driver of the higher guidance is "continued remeasurement gains in our life segments," and these gains are projected based on favorable mortality experience that may not persist.
- The company expects higher mortality in the first quarter due to seasonal flu and ongoing COVID-19 deaths, which could negatively impact life insurance claims. The executive mentioned, "In the first quarter, usually mortality is a little bit higher, just because of seasonal flu... we still expect to see COVID deaths... we expect that we'd see 60,000 to 80,000 U.S. deaths in the U.S. next year."
- Globe Life's free cash flow conversion ratio is significantly below the industry average, at only 40% to 45% of GAAP EPS guidance, raising concerns about cash generation and capital efficiency. An analyst pointed out this low conversion rate, and the executive acknowledged the issue, stating they are "taking a look at" ways to improve it but are "not sure" how to reach a higher conversion rate.
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Mortality Experience Improvement
Q: Is mortality returning to pre-pandemic levels?
A: Management observed that mortality in the third and fourth quarters of 2023 has improved significantly, getting fairly close to pre-pandemic levels. Excess mortality seems to have dropped faster than their assumptions anticipated, which is promising for future results ( , ). -
Earnings Guidance Increase
Q: What's driving the higher 2024 EPS outlook?
A: The increased guidance is primarily due to continued remeasurement gains in the life segments, reflecting better-than-expected mortality experience. Additionally, potential assumption updates in the third quarter of 2024 could further impact earnings positively ( , ). -
Agent Count and Sales Growth
Q: Why didn't sales grow as much as agent count?
A: Agent count growth accelerated in the last half of 2023, rising by 20% in Q4. The lag in sales growth is due to the time needed to onboard and train new agents. Management expects these agents to become more productive in 2024, boosting sales ( ). -
Commercial Real Estate Exposure
Q: What's the outlook for 2024 CRE maturities?
A: The company has $70 million in direct commercial mortgage loans maturing in 2024, with about $16 million related to office exposure. Most of these loans have a loan-to-value below 50%, indicating a conservative risk profile ( ). -
Investment Income and Rate Sensitivity
Q: How will rates affect net investment income?
A: Management expects fixed maturities yields of around 5.5% in 2024, slightly lower than 2023 due to tighter spreads. They anticipate spreads to expand modestly over the year, which could benefit investment income ( ). -
Health Segment Sales Outlook
Q: What's driving strong health sales guidance?
A: In the Family Heritage segment, increased agent count and the rollout of a new CRM system are boosting productivity. For Medicare Supplement products, strong fourth-quarter sales and potential market tailwinds from competitors adjusting pricing may enhance 2024 sales ( , ). -
Tri-Agency Rule Impact
Q: Will new regulations affect your products?
A: The proposed Tri-Agency rule targets certain supplemental health plans the company sells. However, management is awaiting the final ruling expected in April and does not anticipate a significant impact on marketing efforts ( ). -
Capital Allocation and Cash Flow
Q: Can you improve cash flow conversion?
A: The company is examining ways to enhance its cash flow conversion ratio, currently around 40-45%, which is lower than industry averages. They aim to manage growth investments and capital requirements more efficiently, targeting a conversion ratio closer to 60% ( ). -
Remeasurement Gains Timing
Q: When will remeasurement gains impact earnings?
A: Remeasurement gains are expected to continue in the first and second quarters of 2024. Potential assumption updates in the third quarter may adjust future gains, with remeasurement gains likely to be lighter in the fourth quarter ( ). -
Recruiting Focus in 2024
Q: Will you continue aggressive recruiting?
A: While they won't reduce recruiting efforts, the company plans to focus more on agent retention and productivity in 2024. Improved retention trends and training are expected to enhance agent effectiveness and sales performance ( ). -
Holding Company Liquidity
Q: How much liquid assets do you keep?
A: The company maintains $50 million to $60 million in liquid assets at the parent holding company as a liquidity buffer ( ).