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GLOBE LIFE INC. - Annual Report: 2019 (Form 10-K)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[ ☒ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
or
[ ☐ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                              to                             
Commission file number: 001-08052

GLOBE LIFE INC.
(Exact name of registrant as specified in its charter)
Delaware 63-0780404
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3700 South Stonebridge Drive, McKinney, TX
 75070
(Address of principal executive offices) (Zip Code)
972-569-4000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on
which registered
Common Stock, $1.00 par value per shareGLNew York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:     None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
Yes  x     No   ¨    
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ¨       No x   
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  
Yes  x       No ¨   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes  x       No ¨   




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.:
Large accelerated filerxAccelerated filer¨
Non-accelerated filer¨Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes  ☐    No  x

As of June 30, 2019, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $9.6 billion based on the closing sale price as reported on the New York Stock Exchange.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class  Outstanding at February 19, 2020
Common Stock, $1.00 par value per share  107,533,326 shares  
DOCUMENTS INCORPORATED BY REFERENCE
Document  Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2020 (Proxy Statement)  Part III



GLOBE LIFE INC.
Table of Contents
    Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.




Part I

Item 1. Business

Effective August 8, 2019, Torchmark Corporation changed its corporate name to Globe Life Inc. The New York Stock Exchange (NYSE) ticker was changed to "GL" on August 9, 2019. The name change is part of a brand alignment strategy which will enhance the Company's ability to build name recognition with potential customers and agent recruits through the use of a single brand. The underwriting companies owned by Globe Life Inc. (the Parent Company) will continue to exist as legal entities, but over a period of time will go to market under the Globe Life name to leverage branding initiatives implemented at Globe Life And Accident Insurance Company in recent years.

"Globe Life" and the "Company" refer to Globe Life Inc., an insurance holding company incorporated in Delaware in 1979, and its subsidiaries and affiliates. Its primary subsidiaries are Globe Life And Accident Insurance Company, American Income Life Insurance Company, Liberty National Life Insurance Company, Family Heritage Life Insurance Company of America, and United American Insurance Company.

Globe Life's website is: www.globelifeinsurance.com. Globe Life makes available free of charge through its website, its annual report on Form 10-K, its quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after they have been electronically filed with or furnished to the Securities and Exchange Commission. Other information included in Globe Life's website is not incorporated into this filing.
 

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GL 2019 FORM 10-K

The following table presents Globe Life's business by primary marketing distribution method.

gl-20191231_g1.gif
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GL 2019 FORM 10-K

 
The Company's primary subsidiaries are Globe Life And Accident Insurance Company, American Income Life Insurance Company, Liberty National Life Insurance Company, Family Heritage Life Insurance Company of America, and United American Insurance Company. Our distribution channels consist of the following exclusive agencies: American Income Life Division (American Income), Liberty National Division (Liberty National) and Family Heritage Division (Family Heritage); an independent agency, United American Division (United American); and our Direct to Consumer Division (formerly referred to as Globe Life Direct Response distribution channel). Additional information concerning industry segments may be found in Management’s Discussion and Analysis and in Note 14—Business Segments within the Notes to the Consolidated Financial Statements.

Insurance

Life Insurance
 
The distribution channels for life insurance products include direct to consumer, exclusive agents, and independent agents. These methods are described in greater detail within the primary marketing distribution channel chart seen on the previous page. The following table presents annualized premium in force for the three years ended December 31, 2019 by distribution method:
 
Annualized Premium in Force(1)
(Dollar amounts in thousands)
2019  2018  2017  
Direct to Consumer
$831,739  $812,780  $796,628  
Exclusive agents:
American Income1,220,483  1,129,384  1,059,216  
Liberty National309,792  300,846  295,235  
Independent agents:
United American10,211  11,094  12,121  
Other209,403  210,624  209,899  
$2,581,628  $2,464,728  $2,373,099  
(1)See definition of annualized premium in force under Results of Operations in Management's Discussion & Analysis.

Globe Life's insurance subsidiaries write a variety of nonparticipating ordinary life insurance products. These include traditional whole life, term life, and other life insurance. The Company does not currently sell interest-sensitive whole life products. The following tables present selected information about Globe Life's life insurance products.

Annualized Premium in Force
(Dollar amounts in thousands)
 2019  2018  2017  
Amount% of
Total		Amount% of
Total		Amount  % of
Total
Whole life:
Traditional$1,737,794  67  $1,643,122  67  $1,567,077  66  
Interest-sensitive38,691  2  41,414  2  44,286  2  
Term
683,869  26  671,840  27  664,558  28  
Other
121,274  5  108,352  4  97,178  4  
$2,581,628  100  $2,464,728  100  $2,373,099  100  

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GL 2019 FORM 10-K

Policy Count and Average Face Amount Per Policy
(Dollar amounts in thousands)
2019  2018  2017  
Policy CountAverage Face Amount per PolicyPolicy CountAverage Face Amount per PolicyPolicy CountAverage Face Amount per Policy
Whole life:
Traditional8,477,406  $14.2  8,112,745  $13.9  8,045,522  $13.6  
Interest-sensitive208,822  20.3  209,948  20.6  219,487  20.5  
Term
4,313,709  14.8  4,459,850  14.9  4,351,901  15.0  
Other
399,365  13.7  376,632  12.9  355,053  12.3  
13,399,302  $14.5  13,159,175  $14.3  12,971,963  $14.1  


Health Insurance
 
The following table presents Globe Life's health insurance annualized premium in force for the three years ended December 31, 2019 by distribution channel.
 
Annualized Premium in Force
(Dollar amounts in thousands)
2019  2018  2017  
Direct to Consumer
$78,229  $79,325  $76,672  
Exclusive agents:
Liberty National197,163  201,294  205,136  
American Income96,447  88,237  84,775  
Family Heritage312,479  290,186  268,584  
Independent agents:
United American454,720  414,656  382,853  
$1,139,038  $1,073,698  $1,018,020  

Globe Life offers Medicare Supplement and limited-benefit supplemental health insurance products that include primarily critical illness and accident plans. These products are designed to supplement health coverage that applicants already own. Medicare Supplements are offered to enrollees in the traditional fee-for-service Medicare program. Medicare Supplement plans are standardized by federal regulation and are designed to pay deductibles and co-payments not paid by Medicare.

The following table presents supplemental health annualized premium in force information for the three years ended December 31, 2019 by product category.
 
Annualized Premium in Force
(Dollar amounts in thousands)
2019  2018  2017  
Amount% of
Total		Amount% of
Total		Amount% of
Total
Medicare Supplement$557,982  49  $524,415  49  $495,982  49  
Limited-benefit plans581,056  51  549,283  51  522,038  51  
$1,139,038  100  $1,073,698  100  $1,018,020  100  


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GL 2019 FORM 10-K

Annuities
 
Annuity products include single-premium and flexible-premium deferred annuities. Annuities in each of the three years ended December 31, 2019 comprised less than 1% of premium. The Company does not currently market annuity products.

Pricing
 
Premium rates for life and health insurance products are established using assumptions as to future mortality, morbidity, persistency, investment income, expenses, and target profit margins. These assumptions are based on Company experience and projected investment earnings. Revenues for individual life and health insurance products are primarily derived from premium income, and, to a lesser extent, through policy charges to the policyholder account values on annuity products and certain individual life products. Profitability is affected by actual experience deviations from the pricing assumptions and to the extent investment income varies from that required for policy reserves.
 
Collections for annuity products and certain life products are not recognized as revenues, but are added to policyholder account values. Revenues from these products are derived from charges to the account balances for insurance risk and administrative costs. Profits are earned to the extent these revenues exceed actual costs. Profits are also earned from investment income in excess of the amounts required for policy reserves.

Underwriting
 
The underwriting standards of each Globe Life insurance subsidiary are established by management. Each subsidiary uses information obtained from the application and, in some cases, telephone interviews with applicants, including, but not limited to inspection reports, pharmacy data, doctors’ statements and/or medical examinations to determine whether a policy should be issued in accordance with the application, with a different rating, with a rider, with reduced coverage, or rejected.

Reserves
 
The life insurance policy reserves reflected in Globe Life's consolidated financial statements as future policy benefits are calculated based on accounting principles generally accepted in the United States of America (GAAP). These reserves, with premiums to be received in the future and the interest thereon compounded annually at assumed rates, must be sufficient to cover policy and contract obligations as they mature. Generally, the mortality and persistency assumptions used in the calculations of reserves are based on Company experience. Similar reserves are held on most of the health insurance policies written by Globe Life's insurance subsidiaries, since these policies generally are issued on a guaranteed-renewable basis. The assumptions used in the calculation of Globe Life's reserves are reported in Note 1—Significant Accounting Policies. Reserves for annuity products and certain life products consist of the policyholders’ account values and are increased by policyholder deposits and interest credited and are decreased by policy charges and benefit payments.

Reinsurance

Globe Life has historically participated in very limited third-party reinsurance contracts as a result of the low face amounts of the policies sold by the Company. See Schedule IV and Note 6—Commitments and Contingencies for more information.

Investments
 
The nature, quality, and percentage mix of insurance company investments are regulated by state laws. The investments of Globe Life insurance subsidiaries consist predominantly of high-quality, investment-grade securities. Approximately 95% of our invested assets at fair value are fixed maturities at December 31, 2019 (see Note 4—Investments and Management’s Discussion and Analysis).

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GL 2019 FORM 10-K

Competition
 
Globe Life competes with other insurance carriers through policyholder service, price, product design, and sales efforts. While there are insurance companies competing with Globe Life, no individual company dominates any of Globe Life's life or health insurance markets.
 
Globe Life's health insurance products compete with, in addition to the products of other health insurance carriers, health maintenance organizations, preferred provider organizations, and other health care-related institutions which provide medical benefits based on contractual agreements.
 
Management believes our companies operate at lower policy acquisition and administrative expense levels than peer companies. This allows Globe Life to have competitive rates while maintaining higher underwriting margins.

Regulation

Insurance—Insurance companies are subject to regulation and supervision in the states in which they do business. The laws of the various states establish agencies with broad administrative and supervisory powers which include, among other things, granting and revoking licenses to transact business, regulating trade practices, licensing agents, approving policy forms, approving certain premium rates, setting minimum reserve and loss ratio requirements, determining the form and content of required financial statements, and prescribing the type and amount of investments permitted. Insurance companies are also required to file detailed annual reports with supervisory agencies, and records of their business are subject to examination at any time. Under the rules of the National Association of Insurance Commissioners (NAIC), insurance companies are examined periodically by one or more of the supervisory agencies.

Risk-Based Capital (RBC)—The NAIC requires that a risk-based capital formula be applied to all life and health insurers. The risk-based capital formula is a threshold formula rather than a target capital formula. It is designed only to identify companies that require regulatory attention and is not to be used to rate or rank companies that are adequately capitalized. All Globe Life's insurance subsidiaries are more than adequately capitalized under the risk-based capital formula. See further discussion of RBC in Capital Resources.

Guaranty Assessments—State guaranty laws provide for assessments from insurance companies to be placed into a fund which is used, in the event of failure or insolvency of an insurance company, to fulfill the obligations of that company to its policyholders. The amount which a company is assessed is based on its proportional share of the premium in each state. A significant portion of assessments are recoverable as offsets against state premium taxes.

Holding Company—States have enacted legislation requiring registration and periodic reporting by insurance companies domiciled within their respective jurisdictions that control or are controlled by other corporations so as to constitute a holding company system. Globe Life and its subsidiaries have registered as a holding company system pursuant to such legislation in Indiana, Nebraska, Ohio, and New York.

Insurance holding company system statutes and regulations impose various limitations on investments in subsidiaries, and may require prior regulatory approval for material transactions between insurers and affiliates and for the payment of certain dividends and other distributions.

Personnel
 
At the end of 2019, Globe Life had 3,196 employees.
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GL 2019 FORM 10-K

Item 1A. Risk Factors
 
Risks Related to Our Business
 
The insurance industry is a regulated industry, populated by many public and private companies. We operate in the industry's life and health insurance sectors, each of which has its own set of risks.

Operational Risks:

The development and maintenance of our various distribution channels are critical to growth in product sales and profits. Development and retention of producing agents are critical to support sales growth in this market because our insurance sales are primarily made to individuals, and the face amounts of the life insurance policies sold are typically lower than those of policies sold in higher-income markets. If we do not provide compensation that is competitive with other career opportunities and that motivates producing agents to increase sales of our products, our growth could be impeded. In addition, a failure to effectively develop new methods of reaching consumers and realizing cost efficiencies in our Direct to Consumer Division business could result in reduced sales and profits.
 
Economic conditions may materially adversely affect our business and results of operations. We primarily serve the lower middle-income to middle-income market for individual life and supplemental health insurance and, as a result, we compete directly with alternative uses of a customer’s disposable income. If disposable income within this demographic group declines or the use of disposable income becomes more limited as a result of a significant, sustained economic downturn or otherwise, then new sales of our insurance products may become more challenging, and our policyholders could choose to defer or stop payment of insurance premiums altogether. Economic conditions could also impact our investment portfolio as discussed under Investment Risks below.
 
Variations in expected-to-actual rates of mortality, morbidity and persistency could materially negatively affect our results of operations and financial condition. We establish policy reserves to pay future policyholder benefits. These reserves do not represent an exact calculation of liability, but rather are actuarial estimates based on models that include many assumptions and projections which are inherently uncertain. The reserve computations involve the exercise of significant judgment with respect to levels of mortality, morbidity and persistency, as well as the timing of premium and benefit payments. Even though our actuaries continually test actual-to-expected results, actual results may differ significantly from the levels assumed and could result in increased policy obligations and negatively affect our profit margins and income.
 
A ratings downgrade or other negative action by a rating agency could materially affect our business, financial condition and results of operations. Various rating agencies review the financial performance and condition of insurers, including our insurance subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to fulfill its contractual obligations. These ratings are important to maintaining public confidence in our insurance products. A downgrade or other negative action by a rating agency with respect to the financial strength ratings of our insurance subsidiaries could negatively affect us by limiting or restricting the ability of our insurance subsidiaries to pay dividends to us and reducing our sales by adversely affecting our ability to sell insurance products through independent insurance agencies.
 
Rating agencies also publish credit ratings for us. Credit ratings are indicators of a debt issuer’s ability to meet the terms of debt obligations in a timely manner. These ratings are important to our overall ability to access certain types of capital. Actual or anticipated downgrades in our credit ratings, or an announcement that our ratings are under further review for a downgrade, could potentially have a negative effect on our financial condition and results of operations. Such an event could limit our access to capital markets, increase the cost of debt, or impair our ability to raise capital to refinance maturing debt obligations, thereby potentially limiting our capacity to support growth at our insurance subsidiaries or making it more difficult to maintain or improve the current financial strength ratings of our insurance subsidiaries.

Ratings reflect only a rating agency’s views and are not recommendations to buy, sell or hold our securities. Rating agencies assign ratings based upon several factors. While most of the factors relate to the rated company, some of the factors relate to the views of the rating agency, general economic conditions and circumstances outside the rated company’s control. In addition, rating agencies use various models and formulas to assess the strength of a rated company, and from time to time rating agencies have, in their discretion, altered the models. Changes to the models could impact a rating agency's judgment of the rating to be assigned to the rated company. There can be no
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GL 2019 FORM 10-K

assurance that our current credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies. We cannot predict what actions the rating agencies may take, or what actions we may take in response to the actions of the rating agencies which could negatively affect our business, financial condition and results of operations.

Life Insurance Marketplace Risk:

Our life insurance products are sold in selected niche markets. We are at risk should any of these markets diminish. We have several life distribution channels that focus on distinct market niches, two of which are labor unions and sales via Direct to Consumer solicitations. Deterioration of our relationships with organized labor or adverse changes in the public’s receptivity to direct to consumer marketing initiatives could negatively affect our life insurance business.
 
Supplemental Health Insurance Marketplace Risks:

The supplemental health insurance market is subject to substantial regulatory scrutiny. Regulatory changes could impact our Medicare Supplement and other supplemental health business. The nature and timing of any such changes cannot be predicted and could have a material adverse effect on our supplemental health insurance business.
 
Competition in the health insurance market can be significant. Sales of our supplemental health insurance products are subject to competition from other health insurance companies and alternative healthcare providers, such as those that provide alternatives to traditional Medicare to seniors. In addition, some insurers may be willing to significantly reduce their profit margins or underprice new sales in order to gain market share. We choose not to compete for market share based on these terms. Accordingly, changes in the competitive landscape, including the pricing strategies employed by our competitors, could negatively impact the future sales of our health insurance products.
 
Obtaining timely and appropriate premium rate increases for certain supplemental health insurance policies is critical. A significant percentage of the supplemental health insurance premiums that our insurance subsidiaries earn is from Medicare Supplement insurance. Medicare Supplement insurance, including conditions under which the premiums for such policies may be increased, is highly regulated at both the state and federal level. As a result, our Medicare Supplement business is characterized by lower profit margins than life insurance and requires strict administrative discipline and economies of scale for success. Since Medicare Supplement policies are coordinated with the federal Medicare program, which experiences health care inflation every year, annual premium rate increases for the Medicare Supplement policies are typically necessary. Obtaining timely rate increases is of critical importance to our success in this market. Accordingly, the inability of our insurance subsidiaries to obtain approval of appropriate premium rate increases in a timely manner from state insurance regulatory authorities could adversely impact their profitability and thus our business, financial condition and results of operations.

Information Security and Technology Risks:
 
The failure to maintain effective and efficient information systems at the Company could compromise data security, thereby adversely affecting our financial condition and results of operations. Our business is highly dependent upon the internet, third-party service providers, and information systems to operate in an efficient and resilient manner. We gather and maintain data for the purpose of conducting marketing, actuarial analysis, sales and policy administration functions.

Our information systems may be vulnerable to disruption from physical or electronic attacks by malicious third-parties which could render our systems inaccessible for business use for a period of time. Additionally, we may not become aware of sophisticated cyber-attacks for some time after they occur, thereby potentially increasing the data subject to loss. These risks are heightened as the frequency and sophistication of cyber-attacks increase.

Malicious third-parties, employee or agent errors or disasters affecting our information systems could impair our business operations, regulatory compliance and financial condition. Employee or agent errors in the handling of our information systems may inadvertently result in unauthorized access to customer or proprietary information, or an inability to use our information systems to efficiently support business operations. Disasters, terrorist attacks, or war could cause our information or system availability to be inaccessible for business use for a period of time.
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GL 2019 FORM 10-K

More frequent and sophisticated cyber-attacks and more impactful regulatory oversight models could result in additional costs to protect against security breaches. Any breach of confidential information systems resulting from the above factors could damage our reputation in the marketplace, deter potential customers from purchasing our products, result in the loss of existing customers, subject us to significant civil and criminal liability, constrain cash flows, or require us to incur significant technical, legal or other expenses.

Reputational Risk:
 
Damage to the reputation of Globe Life or its subsidiaries could affect our ability to conduct business. Negative publicity through traditional media, Internet, social media and other public forums could damage our reputation and adversely impact our agent recruiting efforts, the ability to market our products and the persistency of in-force policies. As discussed in Information Security and Technology Risks, the Company could be subjected to adverse publicity as a result of a significant security breach.

Investment Risks:
 
Our investments are subject to market and credit risks. Significant downgrades, delinquencies and defaults in our investment portfolio could potentially result in lower net investment income and increased realized and unrealized investment losses. Our invested assets are subject to the customary risks of defaults, downgrades and changes in market values. Our investment portfolio consists predominately of fixed maturity and short-term investments, where we are exposed to the risk that individual issuers will not have the ability to make required interest or principal payments. A concentration of these investments in any particular issuer, industry, group of related industries or geographic areas could increase this risk. Factors that may affect both market and credit risks include interest rate levels (consisting of both treasury rate and credit spread), financial market performance, disruptions in credit markets, general economic conditions, legislative changes, particular circumstances affecting the businesses or industries of each issuer and other factors beyond our control.

Additionally, as the majority of our investments are long-term fixed maturities that we typically hold until maturity, a significant increase in interest rates or a market downturn could cause a material temporary decline in the fair value of our fixed investment portfolio, even with regard to performing assets. These declines could cause a material increase in unrealized losses in our investment portfolio. Significant unrealized losses could substantially reduce our capital position and shareholders’ equity. It is possible our investment in certain of these securities with unrealized losses could experience a default event and a portion or all of that unrealized loss could be unrecoverable. In that case, the unrealized loss would be realized, at which point we would take an impairment charge, reducing our net income.
 
We cannot be assured that any particular issuer, regardless of industry, will be able to make required interest and principal payments on a timely basis or at all. Significant downgrades or defaults of issuers could negatively impact our risk-based capital ratios, leading to potential downgrades of the Company by rating agencies, potential reduction in future dividend capacity from our insurance subsidiaries, and/or higher financing costs at the Parent Company should additional statutory capital be required.
 
Changes in interest rates could negatively affect income. Declines in interest rates expose insurance companies to the risk that they will fail to earn the level of interest on investments assumed in pricing products and in setting discount rates used to calculate net policy liabilities, which could have a negative impact on income. Significant decreases in interest rates could result in calls by issuers of investments, where such features are available to issuers. Any such calls could result in a decline in our investment income, as reinvestment of the proceeds would likely be at lower interest rates.

A rise in interest rates could result in certain policyholders surrendering their life, health or annuity policies for cash, thereby potentially requiring our insurance subsidiaries to liquidate invested assets if other sources of liquidity are not available to meet their obligations. In such a case, realized losses could result from the sale of the invested assets and could adversely affect our statutory income, consolidated RBC ratio and results of operations.


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GL 2019 FORM 10-K

Liquidity Risks:
 
Our ability to fund operations is substantially dependent on available funds from our insurance subsidiaries. As a holding company with no direct operations, our principal asset is the capital stock of our insurance subsidiaries, which periodically declare and distribute dividends on their capital stock. Moreover, our liquidity, including our ability to pay our operating expenses and to make principal and interest payments on debt securities or other indebtedness owed by us, as well as our ability to pay dividends on our common stock or any preferred stock, depends significantly upon the surplus and earnings of our insurance subsidiaries and the ability of these subsidiaries to pay dividends or to advance or repay funds to us. Other sources of liquidity include a variety of short-term and long-term instruments, including our credit facility, commercial paper, long-term debt, intercompany financing and reinsurance.

The principal sources of our insurance subsidiaries’ liquidity are insurance premiums, as well as investment income, maturities, repayments and other cash flow from our investment portfolio. Our insurance subsidiaries are subject to various state statutory and regulatory restrictions applicable to insurance companies that limit the amount of cash dividends, loans and advances that those subsidiaries may pay to us, including laws establishing minimum solvency and liquidity thresholds. For example, in the states where our companies are domiciled, an insurance company generally may pay dividends only out of its unassigned surplus as reflected in its statutory financial statements filed in that state. Additionally, dividends paid by insurance subsidiaries are restricted based on regulations by their states of domicile. Accordingly, impairments in assets or disruptions in our insurance subsidiaries’ operations that reduce their capital or cash flow could limit or disallow the payment of dividends, a principal source of our cash flow, to us.
 
Changes in laws or regulations in the states in which our companies are domiciled could constrain the ability of our insurance subsidiaries to pay dividends or to advance or repay funds to us in sufficient amounts and at times necessary to pay our debt obligations, corporate expenses, or dividends on our capital stock. Additionally, if our insurance subsidiaries were unable to obtain approval of supplemental health insurance premium rate increases in a timely manner from state insurance regulatory authorities, their profitability, and their ability to declare and distribute dividends to us could be negatively impacted.

Adverse capital and credit market conditions may significantly affect our ability to meet liquidity needs or access capital, as well as affect our cost of capital. Should interest rates rise in the future, the interest rate on any new debt obligation we may issue could increase and our net income could be reduced. In addition, if the credit and capital markets were to experience significant disruption, uncertainty and instability, these conditions could adversely affect our access to capital. Such market conditions could limit our ability to replace maturing debt obligations in a timely manner or at all and/or access the capital necessary to grow our business.
 
In the unlikely event that current sources of liquidity do not satisfy our needs, we may have to seek additional financing or raise capital. The availability and cost of additional financing or capital depend on a variety of factors such as market conditions, the general availability of credit or capital, the volume of trading activities, the overall availability of credit to the insurance industry and our credit ratings and credit capacity. Additionally, customers, lenders or investors could develop a negative perception of our financial prospects if we were to incur large investment losses or if the level of our business activity decreased due to a market downturn. Our access to funds may also be impaired if regulatory authorities or rating agencies take negative actions against us. If our internal sources of liquidity prove to be insufficient, we may not be able to successfully obtain additional financing on favorable terms or at all. As such, we may be forced to delay raising capital, issue shorter term securities than we would prefer or bear an unattractive cost of capital which could decrease our profitability and significantly reduce our financial flexibility. If so, our results of operations, financial condition and cash flows could be materially negatively affected.

Regulatory Risks:
 
Our businesses are heavily regulated and changes in regulation may reduce our profitability and growth. Insurance companies, including our insurance subsidiaries, are subject to extensive supervision and regulation in the states in which they do business. The primary purpose of this supervision and regulation is the protection of policyholders, not investors. Regulatory agencies have broad administrative power over numerous aspects of our business, including premium rates and other terms and conditions included in the insurance policies offered by our insurance subsidiaries, marketing practices, advertising, agent licensing, policy forms, capital adequacy, solvency,
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GL 2019 FORM 10-K

reserves and permitted investments. Also, regulatory authorities have relatively broad discretion to grant, renew or revoke licenses or approvals. The insurance laws, regulations and policies currently affecting our companies may change at any time, possibly having an adverse effect on our business. Should regulatory changes occur, we may be unable to maintain all required licenses and approvals, or fully comply with the wide variety of applicable laws and regulations or the relevant authority’s interpretation of such laws and regulations. If we do not have the requisite licenses and approvals or do not comply with applicable regulatory requirements, the insurance regulatory authorities could preclude or temporarily suspend some or all of our business activities and/or impose substantial fines.
 
We cannot predict the timing or substance of any future regulatory initiatives. In recent years, there has been increased scrutiny of insurance companies, including our insurance subsidiaries, by insurance regulatory authorities, which has included more extensive examinations and more detailed review of disclosure documents. These regulatory authorities may bring regulatory or other legal actions against us if, in their view, our practices, or those of our agents, are improper. Such actions could result in substantial fines, penalties and/or prohibitions or restrictions on our business activities, and could have a material adverse effect on our business, results of operations or financial condition. Additionally, changes in the overall legal or regulatory environment may cause us to change our views regarding the actions that we need to take from a legal or regulatory risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow, impact regulatory capital requirements, or otherwise negatively impact our profitability.
 
Changes in U.S. federal income tax law could increase our tax costs or negatively impact our insurance subsidiaries' capital. Changes to the Internal Revenue Code, administrative rulings, or court decisions affecting the insurance industry, including the products insurers offer, could increase our effective tax rate and lower our net income, adversely impact our insurance subsidiaries' capital, or limit the ability of our insurance subsidiaries to sell certain of their products.
 
Changes in accounting standards issued by accounting standard-setting bodies may affect our financial statements, reduce our reported profitability and change the timing of profit recognition. Our financial statements are subject to the application of GAAP and accounting practices as promulgated by the National Association of Insurance Commissioners’ statutory accounting practices (NAIC SAP), which principles are periodically revised and/or expanded. Accordingly, from time to time we are required to adopt new or revised accounting standards or guidance issued by recognized authoritative bodies. Future accounting standards that we are required to adopt could change the current accounting treatment that we apply to our consolidated financial statements and such changes could have a material adverse effect on our business, financial condition and results of operations. (Refer to Note 1— Significant Accounting Policies under the caption Accounting Pronouncements Yet to be Adopted) Further, standard setters have a full agenda of unissued topics under review at any given time, many of which have the potential to negatively impact our profitability.

Non-compliance with laws or regulations related to customer and consumer privacy and information security, including a failure to ensure that our business associates with access to sensitive customer and consumer information maintain its confidentiality, could materially adversely affect our reputation and business operations. The collection, maintenance, use, disclosure and disposal of personally identifiable information by our insurance subsidiaries are regulated at the international, federal and state levels. These laws and rules are subject to change by legislation or administrative or judicial interpretation. Various state laws address the use and disclosure of personally identifiable information to the extent they are more restrictive than those contained in the privacy and security provisions in the federal Gramm-Leach-Bliley Act of 1999 (GLBA), the Health Information Technology for Economic and Clinical Health Act (HITECH), and in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). HIPAA also requires that we impose privacy and security requirements on our business associates (as that term is defined in the HIPAA regulations). Noncompliance with any privacy laws, whether by us or by one of our business associates, could have a material adverse effect on our business, reputation and results of operations and could include material fines and penalties, various forms of damages, consent orders regarding our privacy and security practices, adverse actions against our licenses to do business, and injunctive relief.


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GL 2019 FORM 10-K

Litigation Risks:
 
Litigation could result in substantial judgments against us or our subsidiaries. We are, and in the future may be, subject to litigation in the ordinary course of business. Some of these proceedings have been brought on behalf of various alleged classes of complainants, and, in certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Members of our management and legal teams review litigation on a quarterly and annual basis. However, the outcome of any such litigation cannot be predicted with certainty. A number of civil jury verdicts involving insurers’ sales practices, alleged agent misconduct, failure to properly supervise agents and other matters have been returned against insurers in the jurisdictions in which our insurance subsidiaries do business. These lawsuits have resulted in the award of substantial judgments against insurers that are disproportionate to the actual damages, including material amounts of punitive damages. In some states in which we operate, juries have substantial discretion in awarding punitive damages. This discretion creates the potential for an unpredictable material adverse judgment in any given punitive damages suit.
 
Our pending and future litigation could adversely affect us because of the costs of defending these cases, the costs of settlement or judgments against us, or changes in our operations that could result from such litigation. Substantial legal liability in these pending or future legal actions could also have a material adverse financial effect or cause significant harm to our reputation, which, in turn, could materially harm our business and our business prospects.

Actual or alleged misclassification of independent contractors at our insurance subsidiaries could result in adverse legal, tax or financial consequences. A significant portion of our sales agents are independent contractors. Although we believe we have properly classified such individuals, a risk nevertheless exists that a court, the Internal Revenue Service or other authority will take the position that those sales agents are employees. The laws and regulations that govern the status and classification of workers are subject to change and differing interpretations, which we cannot predict.
If there is an adverse determination regarding the classification of some or all of the independent contractors at our insurance subsidiaries by a court or governmental agency, we could incur significant costs with respect to payroll tax liabilities, employee benefits, wage payments, fines, judgments and/or legal settlements, any of which could have a material adverse effect on our business, financial condition and results of operations. In addition, any resulting reclassification could necessitate significant changes in our affected insurance subsidiaries’ business models.

Catastrophic Event Risk:
 
Our business is subject to the risk of the occurrence of catastrophic events. Our insurance policies are issued to and held by a large number of policyholders throughout the United States in relatively low-face amounts. Accordingly, it is unlikely that a large portion of our policyholder base would be affected by a single natural disaster. However, our insurance operations could be exposed to the risk of catastrophic mortality or morbidity caused by events such as a pandemic, hurricane, earthquake, or man-made catastrophes, including acts of terrorism or war, which may produce significant claims in larger areas, especially those that are heavily populated. Claims resulting from natural or man-made catastrophic events could cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or harm our financial condition.

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GL 2019 FORM 10-K

Item 1B. Unresolved Staff Comments
 
As of December 31, 2019, Globe Life had no unresolved SEC staff comments.

Item 2. Properties
 
Globe Life, through its subsidiaries, owns or leases buildings that are used in the normal course of business. Globe Life owns and occupies over 500,000 combined square feet in McKinney, Texas (headquarters) and at the Waco, Texas and Oklahoma City, Oklahoma campuses. Additionally, the Company leases other buildings across the U.S. for business purposes.

Item 3. Legal Proceedings

Discussion regarding litigation and unclaimed property audits is provided in Note 6—Commitments and Contingencies.

Item 4. Mine Safety Disclosures
 
Not Applicable.

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GL 2019 FORM 10-K

Part II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

The principal market in which Globe Life's common stock is traded is the New York Stock Exchange (NYSE: GL). There were 2,350 shareholders of record on December 31, 2019, excluding shareholder accounts held in nominee form.

The line graph shown below compares Globe Life's cumulative total return on its common stock with the cumulative total returns of the Standard and Poor’s 500 Stock Index (S&P 500) and the Standard and Poor’s Life & Health Insurance Index (S&P Life & Health Insurance). Globe Life is one of the companies whose stock is included within both the S&P 500 and the S&P Life & Health Insurance Index.

gl-20191231_g2.jpg
*$100 invested on 12/31/2014 in stock or index, including reinvestment of dividends. Fiscal year ended December 31.
Copyright© 2020 Standard & Poor's, a division of S&P Global. All rights reserved.


Purchases of Certain Equity Securities by the Issuer and Others for the Fourth Quarter 2019
Period(a) Total Number
of Shares
Purchased		(b) Average
Price Paid
Per Share		(c) Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs		(d) Maximum Number of
Shares (or Approximate Dollar
Amount) that May Yet Be
Purchased Under the
Plans or Programs
October 1-31, 2019328,698  $84.90  328,698  —  
November 1-30, 2019456,288  106.14  456,288  —  
December 1-31, 2019465,138  104.83  465,138  —  
 
On August 8, 2019, Globe Life's Board reaffirmed its continued authorization of the Company’s stock repurchase program in amounts and with timing that management, in consultation with the Board, determined to be in the best interest of the Company. The program has no defined expiration date or maximum number of shares to be purchased.
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GL 2019 FORM 10-K

Item 6. Selected Financial Data
The following information should be read in conjunction with Globe Life's Consolidated Financial Statements and related notes reported elsewhere in this Form 10-K:
(Dollar amounts in thousands except per share and percentage data)
Year ended December 31,
2019  2018  2017  2016  2015  
Life$2,517,784  $2,406,555  $2,306,547  $2,189,333  $2,073,065  
Health1,077,346  1,015,339  976,373  947,663  925,520  
Other4  12  15  38  135  
Total premium 3,595,134  3,421,906  3,282,935  3,137,034  2,998,720  
Net investment income910,459  882,512  847,885  806,903  773,951  
Realized gains (losses)20,621  (1,804) 23,611  (10,683) (8,791) 
Total revenue 4,527,532  4,303,751  4,155,573  3,934,629  3,766,065  
Income from continuing operations, net of tax760,882  701,510  1,458,263  539,590  516,293  
Income from discontinued operations, net of tax(92) (44) (3,769) 10,189  10,807  
Net income760,790  701,466  1,454,494  549,779  527,100  
Basic net income (loss) per common share:
Continuing operations6.97  6.22  12.53  4.50  4.13  
Discontinued operations —  —  (0.03) 0.08  0.08  
Net income6.97  6.22  12.50  4.58  4.21  
Diluted net income (loss) per common share:
Continuing operations6.83  6.09  12.26  4.41  4.07  
Discontinued operations—  —  (0.04) 0.08  0.09  
Net income6.83  6.09  12.22  4.49  4.16  
Cash dividends paid0.68  0.630.590.560.53
Basic weighted average shares outstanding 109,214  112,873  116,343  120,001  125,095  
Diluted weighted average shares outstanding 111,381  115,249  118,983  122,368  126,757  
As of December 31,
2019  2018  2017  2016  2015  
Cash and invested assets$19,923,204  $17,239,570  $17,853,047  $15,955,891  $14,405,073  
Total assets 25,977,460  23,095,722  23,474,985  21,436,087  19,853,213  
Short-term debt298,738  307,848  328,067  264,475  490,129  
Long-term debt1,348,988  1,357,185  1,132,201  1,133,165  743,733  
Shareholders' equity7,294,307  5,415,177  6,231,421  4,566,861  4,055,552  
Per diluted common share66.02  48.11  52.95  37.76  32.71  
Effect of fixed maturity revaluation on diluted
equity per common share(1)
17.76  3.79  13.18  5.63  2.62  
Annualized premium in force:
Life2,581,628  2,464,728  2,373,099  2,262,736  2,150,498  
Health1,139,038  1,073,698  1,018,020  998,634  973,042  
Total 3,720,666  3,538,426  3,391,119  3,261,370  3,123,540  
Basic shares outstanding 107,720  110,693  114,593  118,031  122,370  
Diluted shares outstanding 110,494  112,561  117,696  120,958  123,996  
(1)See discussion under the caption Capital Resources in Management’s Discussion and Analysis in this report concerning the effect this rule has on Globe Life's equity.
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GL 2019 FORM 10-K

CAUTIONARY STATEMENTS
 
We caution readers regarding certain forward-looking statements contained in the foregoing discussion and elsewhere in this document, and in any other statements made by, or on behalf of Globe Life whether or not in future filings with the Securities and Exchange Commission. Any statement that is not a historical fact, or that might otherwise be considered an opinion or projection concerning the Company or its business, whether express or implied, is meant as and should be considered a forward-looking statement. Such statements represent management's opinions concerning future operations, strategies, financial results or other developments. We specifically disclaim any obligation to update or revise any forward-looking statement because of new information, future developments, or otherwise.
 
Forward-looking statements are based upon estimates and assumptions that are subject to significant business, economic and competitive uncertainties, many of which are beyond our control. If these estimates or assumptions prove to be incorrect, the actual results of Globe Life may differ materially from the forward-looking statements made on the basis of such estimates or assumptions. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, which may be national in scope, related to the insurance industry generally, or applicable to the Company specifically. Such events or developments could include, but are not necessarily limited to:
 
1)Economic and other conditions leading to unexpected changes in lapse rates and/or sales of our policies, as well as levels of mortality, morbidity, and utilization of health care services that differ from Globe Life's assumptions;
2)Regulatory developments, including changes in accounting standards or governmental regulations (particularly those impacting taxes and changes to the Federal Medicare program that would affect Medicare Supplement);
3)Market trends in the senior-aged health care industry that provide alternatives to traditional Medicare (such as Health Maintenance Organizations and other managed care or private plans) and that could affect the sales of traditional Medicare Supplement insurance;
4)Interest rate changes that affect product sales and/or investment portfolio yield;
5)General economic, industry sector or individual debt issuers’ financial conditions that may affect the current market value of securities we own, or that may impair an issuer’s ability to make principal and/or interest payments due on those securities;
6)Changes in pricing competition;
7)Litigation results;
8)Levels of administrative and operational efficiencies that differ from our assumptions;
9)The ability to obtain timely and appropriate premium rate increases for health insurance policies from our regulators;
10)The customer response to new products and marketing initiatives;
11)Reported amounts in the consolidated financial statements which are based on management estimates and judgments which may differ from the actual amounts ultimately realized; and
12)Compromise by a malicious actor or other event that causes a loss of secure data from, or inaccessibility to, our computer and other information technology systems.

Readers are also directed to consider other risks and uncertainties described in other documents on file with the Securities and Exchange Commission.

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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion should be read in conjunction with Globe Life's Consolidated Financial Statements and Notes thereto appearing elsewhere in this report.
 
"Globe Life" and the "Company" refer to Globe Life and its subsidiaries and affiliates.

Results of Operations

gl-20191231_g3.jpg
How Globe Life Views Its Operations. Globe Life Inc. is the holding company for a group of insurance companies that market primarily individual life and supplemental health insurance to lower middle to middle income households throughout the United States. We view our operations by segments, which are the insurance product lines of life, supplemental health, and annuities, and the investment segment that supports the product lines. Segments are aligned based on their common characteristics, comparability of the profit margins, and management techniques used to operate each segment.
gl-20191231_g4.jpg
Insurance Product Line Segments. The insurance product line segments involve the marketing, underwriting, and administration of policies. Each product line is further segmented by the various distribution channels that market the insurance policies. Each distribution channel operates in a niche market offering insurance products designed for that particular market. Whether analyzing profitability of a segment as a whole, or the individual distribution channels within the segment, the measure of profitability used by management is the underwriting margin, as seen below:

Premium revenue
                                                           (Policy obligations)
                                                           (Policy acquisition costs and commissions)
                                                           Underwriting margin

gl-20191231_g5.jpg
Investment Segment. The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability for the investment segment is excess investment income, as seen below:
Net investment income
(Required interest on net policy liabilities)
                                                           (Financing costs)
                                                           Excess investment income


The following discussion in Management's Discussion & Analysis will only reflect current year to prior year. For reference to 2017 results, refer to 2018 form 10-K. Any material comparisons will be discussed.

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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
Current Highlights, comparing 2019 with 2018.
•Net income as a return on equity ("ROE") was 11.6% and net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio(1) was 14.5%.
•Total premium increased 5% over the same period in the prior year. Life premium increased 5% for the period from $2.4 billion in 2018 to $2.5 billion in 2019. Life underwriting margin increased 8% from $652 million in 2018 to $703 million in 2019.
•Net investment income increased 3% over the same period in the prior year. In addition, excess investment income increased 5% over the prior year.
•Total net sales increased 6% over the same period in the prior year from $584 million to $621 million.
•Book value per share increased 37% over the same period in the prior year from $48.11 to $66.02. Book value per share, excluding net unrealized gains on the fixed maturity portfolio(1), increased 9% over the prior year from $44.32 to $48.26.
•In 2019, the Company repurchased 3.9 million Globe Life Inc. common shares at a total cost of $350 million for an average share price of $89.04.

The following graphs represent net income and net operating income from continuing operations for the three years ended December 31, 2019.
gl-20191231_g6.gif
(1)Net operating income is the consolidated total of segment profits after tax and as such is considered a non-GAAP measure. It has been used consistently by Globe Life's management for many years to evaluate the operating performance of the Company. It differs from net income primarily because it excludes certain non-operating items such as realized gains and losses and certain significant and unusual items included in net income. Net income is the most directly comparable GAAP measure.
Net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio, is considered a non-GAAP measure. Management utilizes this measure to view the business without the effect of the net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available-for-sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities is $2.0 billion and $426 million for 2019 and 2018, respectively.

Book value per share, excluding net unrealized gains on the fixed maturity portfolio, is also considered a non-GAAP measure. Management utilizes this measure to view the book value of the business without the effect of net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available for sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities is $17.76 and $3.79 for 2019 and 2018, respectively.
(2)In 2017, tax legislation revised the corporate income tax rate from 35% to 21% effective January 1, 2018. As such, the Company recorded an adjustment of $874 million to net income in 2017.


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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
Summary of Operations. Net income increased 8% to $761 million in 2019, compared with $701 million in 2018. This increase was primarily related to favorable underwriting income. On a diluted per common share basis, net income per common share for 2019 increased 12% from $6.09 to $6.83. The percentage growth in net income per share continues to exceed the growth in dollar amounts due to our share repurchase program. Included in net income were after-tax realized gains of $16 million in 2019, compared with realized after-tax losses of $1 million for 2018. Realized gains and losses are presented more fully under the caption Realized Gains and Losses in this report.

Net operating income from continuing operations increased 6% to $752 million in 2019, compared with $707 million in 2018. On a diluted per common share basis, net operating income per common share increased 10% from $6.13 to $6.75. Net operating income is the consolidated total of segment profits after tax and as such is considered a non-GAAP measure. Net income is the most directly comparable GAAP measure. We do not consider realized gains and losses to be a component of our core insurance operations or operating segments. Additionally, net income was affected by certain significant and unusual non-operating items in 2018 and 2019. We do not view these items as components of core operating results because they are not indicative of past performance or future prospects of the insurance operations. We remove items such as these that relate to prior periods or are non-operating items when evaluating the results of current operations, and therefore exclude such items from our segment analysis for current periods.

Globe Life's operations on a segment-by-segment basis are discussed in depth under the appropriate captions following in this report.

Analysis of Profitability by Segment
(Dollar amounts in thousands)
2019201820172019 Change%2018 Change%
Life insurance underwriting margin$703,464  $652,301  $604,337  $51,163  8  $47,964  8  
Health insurance underwriting margin243,638  236,053  219,508  7,585  3  16,545  8  
Annuity underwriting margin9,458  10,376  10,562  (918) (9) (186) (2) 
Excess investment income257,605  245,094  239,363  12,511  5  5,731  2  
Other insurance:
Other income1,318  1,236  1,270  82  7  (34) (3) 
Administrative expense(240,321) (223,941) (210,590) (16,380) 7  (13,351) 6  
Corporate and other(55,103) (50,476) (43,285) (4,627) 9  (7,191) 17  
Pre-tax total920,059  870,643  821,165  49,416  6  49,478  6  
Applicable taxes(167,957) (163,669) (247,484) (4,288) 3  83,815  (34) 
Net operating income
752,102  706,974  573,681  45,128  6  133,293  23  
Reconciling items, net of tax:
Realized gain (loss)—investments16,291  7,327  20,217  8,964  (12,890) 
Realized loss—redemption of debt—  (8,752) (2,627) 8,752  (6,125) 
Part D adjustments—discontinued operations(92) (44) (3,769) (48) 3,725  
Administrative settlements(400) (3,590) (5,628) 3,190  2,038  
Non-operating fees(508) (1,247) (187) 739  (1,060) 
Legal proceedings(6,603) —  —  (6,603) —  
Guaranty fund assessments—  —  (1,171) —  1,171  
Tax reform adjustment—  798  873,978  (798) (873,180) 
Net income
$760,790  $701,466  $1,454,494  $59,324  8  $(753,028) (52) 

The life insurance segment is our primary segment and is the largest contributor to earnings in each year presented. This segment contributed $51 million in 2019 and $48 million in 2018 to the growth in our underwriting margin. The health segment also contributed to growth in income in both years contributing $8 million of additional margin in 2019 and $17 million in 2018.
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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
In 2019, the largest contributor of total underwriting margin was the life insurance segment and the primary distribution channel was American Income Life Division. The following tables represent the breakdown of total underwriting margin by operating segment and distribution channel for the year ended December 31, 2019.

gl-20191231_g7.gif

Total premium income rose 5% for the year ended December 31, 2019 to $3.6 billion. Total net sales increased 6% to $621 million, when compared with the same period in 2018. Total first-year collected premium was $492 million for the 2019 period, compared with $468 million for the 2018 period.

Life insurance premium income increased 5% to $2.5 billion over the prior year total of $2.4 billion. Life net sales rose 4% to $430 million for the year of 2019. First-year collected life premium rose 3% to $329 million. Life underwriting margins, as a percent of premium, increased to 28% in 2019 from 27% in the prior year. Underwriting margin increased to $703 million for the year ended December 31, 2019, 8% over the same period in 2018.

Health insurance premium income increased 6% to $1.1 billion over the prior year total of $1.0 billion. Health net sales rose 11% to $191 million for the year of 2019. First-year collected health premium rose 10% to $163 million. Health underwriting margins, as a percent of premium, were 23% in both periods. Underwriting margin increased to $244 million for the year of 2019, 3% over the same period in 2018.

Excess investment income, the measure of profitability of our investment segment, increased 5% during the year of 2019 to $258 million from $245 million in the same period in 2018. Excess investment income per common share, reflecting the impact of our share repurchase program, increased 8% to $2.31 from $2.13 in the same period last year.

Insurance administrative expenses increased 7.3% in 2019 when compared with the prior year period. These expenses were 6.7% as a percentage of premium during the year of 2019 compared with 6.5% a year earlier. The increase in administrative expenses was primarily due to an increase in investments in information technology.

For the twelve months ended December 31, 2019, the Company repurchased 3.9 million shares at a total cost of $350 million for an average share price of $89.04.
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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
A discussion of each of Globe Life's segments follows. The following discussions are presented in the manner we view our operations, as described in Note 14—Business Segments.
 
We use three statistical measures as indicators of premium growth and sales over the near term: “annualized premium in force,” “net sales,” and “first-year collected premium.”
•Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period. Annualized premium in force is an indicator of potential growth in premium revenue.
•Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty days after issue, except in the case of our Direct to Consumer Division, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. We believe that net sales is a better indicator of the rate of premium growth as compared with annualized premium issued.
•First-year collected premium is defined as the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future.

LIFE INSURANCE

Life insurance is the Company's predominant segment, with 2019 life premium representing 70% of total premium and life underwriting margin representing 74% of the total. Additionally, investments supporting the reserves for life products produce the majority of excess investment income attributable to the investment segment.
 
The following table presents the summary of results of life insurance. Further discussion of the results by distribution channel is included below.

Life Insurance
Summary of Results
(Dollar amounts in thousands)
 201920182017
 Amount
% of
Premium
Amount
% of
Premium
Amount
% of
Premium
Premium and policy charges$2,517,784  100  $2,406,555  100  $2,306,547  100  
Policy obligations1,638,053  65  1,591,790  66  1,549,602  67  
Required interest on reserves(666,168) (26) (636,040) (26) (607,007) (26) 
Net policy obligations971,885  39  955,750  40  942,595  41  
Commissions, premium taxes, and non-deferred acquisition expenses203,052  8  190,007  8  177,111  8  
Amortization of acquisition costs639,383  25  608,497  25  582,504  25  
Total expense1,814,320  72  1,754,254  73  1,702,210  74  
Insurance underwriting margin
$703,464  28  $652,301  27  $604,337  26  

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GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
Life insurance products are marketed through several distribution channels. Premium income by distribution channel for each of the last three years is as follows:
 
Life Insurance
Premium by Distribution Channel
(Dollar amounts in thousands)
 201920182017
 Amount% of
Total		Amount% of
Total		Amount% of
Total
American Income$1,160,495  46  $1,081,333  45  $999,279  43  
Direct to Consumer855,543  34  828,935  34  812,907  35  
Liberty National285,551  11  278,878  12  274,635  12  
Other216,195  9  217,409  9  219,726  10  
Total
$2,517,784  100  $2,406,555  100  $2,306,547  100  
 
Annualized life premium in force was $2.6 billion at December 31, 2019, an increase of 5% over $2.5 billion a year earlier.

The following table shows net sales information for each of the last three years by distribution channel.

Life Insurance
Net Sales by Distribution Channel
(Dollar amounts in thousands)
 201920182017
 Amount% of
Total		Amount% of
Total		Amount% of
Total
American Income$237,587  55  $223,924  54  $223,259  54  
Direct to Consumer126,208  29  126,133  31  135,704  33  
Liberty National53,718  13  49,173  12  46,886  11  
Other12,301  3  13,293  3  10,233  2  
Total
$429,814  100  $412,523  100  $416,082  100  

The table below discloses first-year collected life premium by distribution channel.
 
Life Insurance
First-Year Collected Premium by Distribution Channel
(Dollar amounts in thousands)
 201920182017
 Amount% of
Total		Amount% of
Total		Amount% of
Total
American Income$195,225  59  $190,680  60  $182,538  58  
Direct to Consumer82,615  25  82,432  26  92,057  29  
Liberty National39,840  12  36,463  11  33,191  10  
Other11,564  4  10,342  3  9,633  3  
Total
$329,244  100  $319,917  100  $317,419  100  


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Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
The table below discloses average life exclusive producing agents by distribution channel.
 
Life Insurance
Average Producing Agent by Distribution Channel(1)

2019201820172019 Change%2018 Change%
American Income7,360  6,971  6,962  389  6  9  —  
Liberty National2,350  2,156  2,017  194  9  139  7  
(1)The average producing agent count is based on the actual count at the end of each week during the year.


A discussion of life operations by distribution channel follows.

The American Income Life Division markets to members of labor unions and continues to diversify its lead sources by building relationships with other affinity groups, utilizing third-party internet vendor leads and obtaining referrals to ensure sustainable growth. This division is Globe Life's largest contributor to life premium of any distribution channel at 46% of the Company's 2019 total. Net sales increased to $238 million in 2019 over the 2018 total of $224 million. Sales growth in our exclusive agencies is generally dependent on growth in the size of the agency force.

American Income continues to focus on growing and strengthening the agency force, specifically through additional agency office openings and focus on middle-management growth. In addition to offering financial incentives and training opportunities, the agency has made considerable investments in information technology, including launching a lead mapping and customer relationship management tool for the agency force. We anticipate this tool will help enhance agent productivity and agent retention.

The Direct to Consumer Division offers adult and juvenile life insurance through a variety of marketing approaches, including direct mailings, insert media, and electronic media. In recent years, electronic media production has grown rapidly as management has aggressively increased marketing activities related to internet and mobile technology, and has focused on driving traffic to our inbound call center. The different approaches support and complement one another in the division's efforts to reach the consumer. The Direct to Consumer Division's long-term growth has been fueled by constant innovation and name recognition. We continually introduce new initiatives in this division in an attempt to increase response rates.

While the juvenile market is an important source of sales, it also is a vehicle to reach the parents and grandparents of juvenile policyholders, who are more likely to respond favorably to a Direct to Consumer solicitation for life coverage on themselves than is the general adult population. Also, both juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time. The underwriting margin, as a percent of premium, was 18% for the two years ended 2019.

The Liberty National Division markets individual life insurance to middle-income household and worksite customers. Recent investments in new sales technologies as well as recent growth in middle management within the agency will help continue this growth. The underwriting margin as a percent of premium was 26%, up from 24% for the year ended 2018. The increase is primarily attributable to higher than normal policy obligations during 2018 compared with lower policy obligations during the same period in 2019.

The Liberty National Division average producing agent count increased 9% in 2019. We continue to execute our long term plan to grow this agency through expansion from small-town markets in the Southeast to more densely populated areas with larger pools of potential agent recruits and customers. Continued expansion of this agency’s presence into more heavily populated, less-penetrated areas will help create long-term agency growth. Additionally, the agency continues to help improve the ability of agents to develop new worksite marketing business. Systems that have been put in place, including the addition of a customer relationship management (CRM) platform and enhanced analytical capabilities, have helped the agents develop additional worksite marketing opportunities as well improve the productivity of agents selling in the individual market.

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GLOBE LIFE INC.
Management's Discussion & Analysis
The Other distribution channels offering life insurance include the Military Agency, the United American Division (which predominantly writes health insurance), and various smaller distribution channels. The Other channels contributed $216 million of life premium income, or 9% of Globe Life's total in 2019, but contributed only 3% of net sales for the year.
HEALTH INSURANCE

Health insurance sold by the Company includes primarily Medicare Supplement insurance, accident coverage, and other limited-benefit supplemental health products including cancer, critical illness, heart, and intensive care coverage.

Health premium accounted for 30% of our total premium in 2019, while the health underwriting margin accounted for 25% of total underwriting margin, reflective of the lower underwriting margin as a percent of premium for health compared with life insurance. As noted under the caption Life Insurance, the Company has emphasized life insurance sales relative to health due to life’s superior profitability and its greater contribution to excess investment income.

The following table presents underwriting margin data for health insurance.

Health Insurance
Summary of Results
(Dollar amounts in thousands)
 201920182017
 Amount
% of
Premium
Amount
% of
Premium
Amount
% of
Premium
Premium and policy charges$1,077,346  100  $1,015,339  100  $976,373  100  
Policy obligations687,764  64  649,188  64  628,640  65  
Required interest on reserves(87,289) (8) (83,243) (8) (77,792) (8) 
Net policy obligations600,475  56  565,945  56  550,848  57  
Commissions, premium taxes, and non-deferred acquisition expenses94,973  8  88,553  9  86,044  9  
Amortization of acquisition costs138,260  13  124,788  12  119,973  12  
Total expense833,708  77  779,286  77  756,865  78  
Insurance underwriting margin
$243,638  23  $236,053  23  $219,508  22  

Health premium increased 6% from $1.02 billion in 2018 to $1.08 billion in 2019. Health underwriting margin increased 3% from $236 million in 2018 to $244 million in 2019. Further discussion is included below by distribution channel.

We market supplemental health insurance products through a number of distribution channels. The following table is an analysis of our health premium by distribution channel for each of the last three years.

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GLOBE LIFE INC.
Management's Discussion & Analysis
Health Insurance
Premium by Distribution Channel
(Dollar amounts in thousands) 
 201920182017
 Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
United American$416,582  39  $381,076  38  $364,128  37  
Family Heritage294,182  27  273,275  27  253,534  26  
Liberty National189,578  18  191,378  19  196,207  20  
American Income99,447  9  93,313  9  89,036  9  
Direct to Consumer77,557  7  76,297  7  73,468  8  
Total
$1,077,346  100  $1,015,339  100  $976,373  100  

Of total health premium ($1.1 billion), premium from limited-benefit plans comprise $556 million, or 52% of the total, for 2019 compared with $525 million in the prior year. Premium from Medicare Supplement products comprises the remaining 48% or $521 million for 2019 compared with $490 million in 2018. Annualized health premium in force was $1.14 billion at December 31, 2019, an increase of 6% over the prior year balance of $1.07 billion.

Presented below is a table of health net sales by distribution channel for the last three years.
 
Health Insurance
Net Sales by Distribution Channel
(Dollar amounts in thousands) 
 201920182017
 Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
United American$79,218  41  $69,967  41  $61,170  39  
Family Heritage65,626  34  60,268  35  56,534  36  
Liberty National24,504  13  22,098  13  20,407  13  
American Income18,059  10  14,432  8  13,943  9  
Direct to Consumer3,827  2  4,769  3  5,582  3  
Total
$191,234  100  $171,534  100  $157,636  100  

Of total net sales ($191 million), sales of limited-benefit plans comprise $108 million, or 57% of the total, for 2019 compared with $98 million in 2018. Medicare Supplement sales make up the remaining 43%, or $83 million for 2019 compared with $74 million in 2018.


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GLOBE LIFE INC.
Management's Discussion & Analysis
The following table discloses first-year collected health premium by distribution channel.

 Health Insurance
First-Year Collected Premium by Distribution Channel
(Dollar amounts in thousands) 
 201920182017
 Amount
% of
Total
Amount
% of
Total
Amount
% of
Total
United American$72,021  44  $62,720  42  $54,851  40  
Family Heritage50,204  31  47,422  32  44,535  33  
Liberty National19,698  12  17,809  12  16,427  12  
American Income17,142  11  15,249  10  14,673  11  
Direct to Consumer3,749  2  5,111  4  5,657  4  
Total
$162,814  100  $148,311  100  $136,143  100  

First-year premium related to limited-benefit plans comprise $88 million, or 54% of total first-year collected premium, for 2019 compared with $81 million in 2018. First-year collected premium from Medicare Supplement policies make up the remaining 46%, or $75 million for 2019 compared with $67 million in 2018.

A discussion of health operations by distribution channel follows.

The United American Division consists of non-exclusive independent agencies who may also sell for other companies. The United American Division was Globe Life's largest health agency in terms of health premium income.
This division is also Globe Life's largest producer of Medicare Supplement insurance. The United American Division represents 78% of all Medicare Supplement premium and 95% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 10% to $406 million in 2019 over the prior period balance of $370 million. Underwriting margin as a percent of premium was 14%, down from 16% for the prior year. This decrease was primarily due to higher policy obligations and amortization of deferred acquisition costs as a percentage of premium in 2019 compared with 2018.

The Family Heritage Division primarily markets limited-benefit supplemental health insurance in non-urban areas. Most of its policies include a cash-back feature, such as a return of premium, where any excess of premiums over claims paid is returned to the policyholder at the end of a specified period stated within the insurance policy. Underwriting margin as a percent of premium was 25%, up from 24% for the year ended December 31, 2018. The increase was primarily attributable to favorable policy obligations in the current period compared with the prior year. A focused effort across the division for more consistent recruiting activity along with two targeted incentive programs in the second half of 2019 helped drive the 5% average producing agent count growth in 2019 as noted below.

2019201820172019 Change%2018 Change%
Average producing agents1,112  1,064  995  48  5  69  7  


The Liberty National Division represented 18% of all Globe Life health premium income at $190 million in 2019. Liberty National markets limited-benefit supplemental health products consisting primarily of critical illness insurance. Much of Liberty National’s health business is now generated through worksite marketing targeting small businesses of 10 to 100 employees. In 2019, health premium income declined 1%, primarily attributable to the runoff of a block of discontinued Medicare Supplement policies previously sold by the division. Liberty National's first-year collected premium increased 11% to $20 million in 2019 compared with $18 million in 2018, reflecting the steady increase in net sales of limited-benefit plans in the division.


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GLOBE LIFE INC.
Management's Discussion & Analysis
The American Income Life Division and the Direct to Consumer Division also market health products, although their main emphasis is on life insurance. On a combined basis, they accounted for 16% of health premium in 2019 and 16% in 2018. The American Income Life Division primarily markets accident plans. The Direct to Consumer Division markets primarily Medicare Supplements to employer or union-sponsored groups, adding $4 million of Medicare Supplement net sales in 2019 and $5 million in 2018. 

ANNUITIES

Our fixed annuity balances at the end of 2019 and 2018 were $1.10 billion and $1.18 billion, respectively. Underwriting margin was $9.5 million for 2019 and $10.4 million for 2018.

We do not currently market stand-alone fixed or deferred annuity products, favoring instead protection-oriented life and health insurance products. Therefore, we do not expect that annuities will be a significant portion of our business or marketing strategy going forward.


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GLOBE LIFE INC.
Management's Discussion & Analysis
INVESTMENTS

We manage our capital resources including investments, debt, and cash flow through the investment segment. Excess investment income represents the profit margin attributable to investment operations and is the measure that we use to evaluate the performance of the investment segment as described in Note 14—Business Segments. It is defined as net investment income less both the required interest on net insurance policy liabilities and the interest cost associated with capital funding or “financing costs.”

Management also views excess investment income per diluted common share as an important and useful measure to evaluate the performance of the investment segment. It is defined as excess investment income divided by the total diluted weighted average shares outstanding, representing the contribution by the investment segment to the consolidated earnings per share of the Company. Since implementing our share repurchase program in 1986, we have used $7.8 billion of excess cash flow at the Parent Company to repurchase Globe Life Inc. common shares after determining that the repurchases provided a greater risk adjusted after-tax return than other investment alternatives. If we had not used this excess cash to repurchase shares, but had instead invested it in interest-bearing assets, we would have earned more investment income and had more shares outstanding. As excess investment income per diluted common share incorporates all capital resources, we view excess investment income per diluted share as a useful measure to evaluate the investment segment.

Excess Investment Income. The following table summarizes Globe Life's investment income, excess investment income, and excess investment income per diluted common share.

Analysis of Excess Investment Income
(Dollar amounts in thousands except for per share data) 
201920182017
Net investment income$910,459  $882,512  $847,885  
Interest on net insurance policy liabilities:
Interest on reserves(796,979) (766,640) (734,370) 
Interest on deferred acquisition costs228,431  219,298  210,380  
Net required interest(568,548) (547,342) (523,990) 
Financing costs(84,306) (90,076) (84,532) 
Excess investment income$257,605  $245,094  $239,363  
Excess investment income per diluted share$2.31  $2.13  $2.01  
Mean invested assets (at amortized cost)$17,026,058  $16,249,161  $15,376,781  
Average net insurance policy liabilities(1)
10,068,120  9,744,200  9,359,780  
Average debt and preferred securities (at amortized cost)1,650,081  1,650,138  1,458,706  
(1)Net of deferred acquisition costs, excluding the associated unrealized gains and losses thereon.

Excess investment income increased $13 million or 5% during 2019. Excess investment income per diluted common share increased 8% during 2019. Excess investment income per diluted common share generally increases at a faster pace than excess investment income because the number of diluted shares outstanding generally decreases from year to year as a result of our share repurchase program.

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GLOBE LIFE INC.
Management's Discussion & Analysis
Net investment income increased at a compound annual growth rate of 4% during the last three years. Growth in net investment income has been negatively impacted in recent years by the low interest rate environment during which time we have invested new money at yields lower than our average portfolio yield. In addition, we have reinvested the proceeds from bonds that matured or were called or otherwise disposed of at yield rates less than what we earned on these bonds before their maturity or disposition. We currently expect that the turnover rate of fixed maturity assets will be less than 3% in 2020 and the average annual turnover rate during the next five years will not exceed 1% to 1.5% of the portfolio. The following chart presents the growth in net investment income and the growth in mean invested assets.
201920182017
Growth in net investment income3.2 %4.1 %5.1 %
Growth in mean invested assets (at amortized cost)4.8 %5.7 %6.3 %

Should interest rates, especially long-term rates, rise, Globe Life's net investment income would benefit due to higher interest rates on new purchases. While such a rise in interest rates could adversely affect the fair value of the fixed maturities portfolio, we could withstand an increase in interest rates of approximately 115 to 120 basis points before the net unrealized gains on our fixed maturity portfolio as of December 31, 2019 would be eliminated. Should interest rates increase further than that, we would not be concerned with potential interest rate driven unrealized losses in our fixed maturity portfolio because we have the intent and the ability to hold our investments to maturity.

Required interest on net insurance policy liabilities reduces net investment income, as it is the amount of net investment income considered by management necessary to “fund” required interest on net insurance policy liabilities, which is the net of the benefit reserve liability and the deferred acquisition cost asset. As such, it is removed from the investment segment and applied to the insurance segments to offset the effect of the required interest from the insurance segments. As discussed in Note 14—Business Segments, management regards this as a more meaningful analysis of the investment and insurance segments. Required interest is based on the actuarial interest assumptions used in discounting the benefit reserve liability and the amortization of deferred acquisition costs for our insurance policies in force.

The great majority of our life and health insurance policies are fixed interest rate protection policies, not investment products, and are accounted for under current accounting guidance for long-duration insurance products which mandate that interest rate assumptions for a particular block of business be “locked in” for the life of that block of business. Each calendar year, we set the discount rate to be used to calculate the benefit reserve liability and the amortization of the deferred acquisition cost asset for all insurance policies issued that year. That rate is based on the new money yields that we expect to earn on cash flow received in the future from policies of that issue year, and cannot be changed. The discount rate used for policies issued in the current year has no impact on the in force policies issued in prior years as the rates of all prior issue years are also locked in. As such, the overall discount rate for the entire in force block of 5.6% is a weighted average of the discount rates being used from all issue years. Changes in the overall weighted-average discount rate over time are caused by changes in the mix of the reserves and the deferred acquisition cost asset by issue year on the entire block of in force business. Business issued in the current year has very little impact on the overall weighted-average discount rate due to the size of our in force business.

Since actuarial discount rates are locked in for life on essentially all of our business, benefit reserves and deferred acquisition costs are not affected by interest rate fluctuations unless a loss recognition event occurs. Due to the strength of our underwriting margins, we do not expect an extended low interest rate environment to cause a loss recognition event.

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GLOBE LIFE INC.
Management's Discussion & Analysis
Information about interest on net policy liabilities is shown in the following table.

Required Interest on Net Insurance Policy Liabilities
(Dollar amounts in thousands)
Required
Interest
Average Net
Insurance
Policy  Liabilities
Average
Discount
Rate
2019
Life and Health$518,623  $8,947,308  5.80 %
Annuity49,925  1,120,812  4.45  
Total$568,548  $10,068,120  5.65  
Increase in 20193.87 %3.32 %
2018
Life and Health$493,557  $8,535,842  5.78 %
Annuity53,785  1,208,358  4.45  
Total$547,342  $9,744,200  5.62  
Increase in 20184.46 %4.11 %
2017
Life and Health$468,038  $8,099,319  5.78 %
Annuity55,952  1,260,461  4.44  
Total$523,990  $9,359,780  5.60  
Increase in 20174.90 %4.63 %

Financing costs for the investment segment consist primarily of interest on our various debt instruments. The table below presents the components of financing costs and reconciles interest expense per the Consolidated Statements of Operations.

Analysis of Financing Costs
(Dollar amounts in thousands)
201920182017
Interest on funded debt$69,844  $74,324  $74,115  
Interest on term loan3,262  3,177  2,336  
Interest on short-term debt11,165  12,570  8,076  
Other35  5  5  
Financing costs
$84,306  $90,076  $84,532  
 
In 2019, financing costs decreased 6% due to the refinancing of a long-term debt instrument at a lower rate in late 2018. More information on our debt transactions are disclosed in the Financial Condition section of this report and in Note 11—Debt.

Realized Gains and Losses. Our life and health insurance companies collect premium income from policyholders for the eventual payment of policyholder benefits, sometimes paid many years or even decades in the future. Since benefits are expected to be paid in future periods, premium receipts in excess of current expenses are invested to provide for these obligations. For this reason, we hold a significant investment portfolio as a part of our core insurance operations. This portfolio consists primarily of high-quality fixed maturities containing an adequate yield to provide for the cost of carrying these long-term insurance product obligations. As a result, fixed maturities are generally held for long periods to support the liabilities. Expected yields on these investments are taken into account when setting insurance premium rates and product profitability expectations.
 
Despite our intent to hold fixed maturity investments for a long period of time, investments are occasionally sold or called, resulting in a realized gain or loss. These gains and losses generally occur only incidentally, usually as the

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GLOBE LIFE INC.
Management's Discussion & Analysis
result of bonds sold because of deterioration in investment quality of issuers or calls by the issuers. Investment losses are also caused by write downs due to impairments. We do not engage in trading investments for profit. Therefore, gains or losses which occur in protecting the portfolio or its yield, or which result from events that are beyond our control, are only secondary to our core insurance operations of providing insurance coverage to policyholders. In a bond exchange offer, bondholders may consent to exchange their existing bonds for another class of debt securities. The exchanges on our bonds have generally been the result of mergers and acquisitions, and are offered to move debt to the new or surviving entity.
 
Realized gains and losses can be significant in relation to the earnings from core insurance operations, and as a result, can have a material positive or negative impact on net income. The significant fluctuations caused by gains and losses can cause period-to-period trends of net income that are not indicative of historical core operating results or predictive of the future trends of core operations. Accordingly, they have no bearing on core insurance operations or segment results as we view operations. For these reasons, and in line with industry practice, we remove the effects of realized gains and losses when evaluating overall insurance operating results.
 
The following table summarizes our tax-effected realized gains (losses) by component for each of the three years ended December 31, 2019.

Analysis of Realized Gains (Losses), Net of Tax
(Dollar amounts in thousands, except for per share data)
 Year Ended December 31,
 201920182017
 Amount
Per
Share
AmountPer
Share		AmountPer
Share
Fixed maturities:
Sales$(1,933) $(0.02) $(11,005) $(0.10) $2,587  $0.02  
Other(1)
17,223  0.16  15,520  0.14  20,292  0.17  
Other-than-temporary impairments —  —  —  —  (159) —  
Fair value option—change in fair value992  0.01  2,093  0.01  —  —  
Other9  —  719  0.01  (2,503) (0.02) 
Realized investment gains (losses)16,291  0.15  7,327  0.06  20,217  0.17  
Loss on redemption of debt—  —  (8,752) (0.07) (2,627) (0.02) 
Total realized gains (losses)$16,291  $0.15  $(1,425) $(0.01) $17,590  $0.15  
(1)During the three years ended December 31, 2019, 2018, and 2017, the Company recorded $243.2 million, $193.4 million and $84.3 million of exchanges of fixed maturity securities (noncash transactions) that resulted in $16.2 million, $8.0 million, and $3.1 million, respectively in realized gains (losses), net of tax.


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GLOBE LIFE INC.
Management's Discussion & Analysis
Investment Acquisitions. Globe Life's investment policy calls for investing primarily in investment grade fixed maturities that meet our quality and yield objectives. We generally prefer to invest in securities with longer maturities because they more closely match the long-term nature of our policy liabilities. We believe this strategy is appropriate since our expected future cash flows are generally stable and predictable and the likelihood that we will need to sell invested assets to raise cash is low. If longer-term securities that meet our quality and yield objectives are not available, we do not compromise on our quality objectives; instead, we consider investing in shorter-term or lower-yielding securities taking into consideration the slope of the yield curve and other factors such as risk adjusted capital adjusted returns.

During calendar years 2017 through 2019, Globe Life invested predominately in fixed maturity securities, primarily in corporate and municipal bonds with longer-term maturities. The following table summarizes selected information for fixed maturity purchases for the last three years. Premiums and discounts are amortized using the interest method. When amortized cost of a callable debt security exceeds the first call price, the premium is amortized to the earliest call date. Otherwise, the period of amortization or accretion generally extends from the purchase date to the maturity date.

Fixed Maturity Acquisitions Selected Information
(Dollar amounts in thousands)
 Year Ended December 31,
 201920182017
Cost of acquisitions(1):
Investment-grade corporate securities$922,927  $877,512  $1,308,567  
Investment-grade municipal securities627,967  269,360  —  
Other investment-grade securities10,483  8,708  6,042  
Total fixed maturity acquisitions
$1,561,377  $1,155,580  $1,314,609  
Effective annual yield (one year compounded)(2)
4.47 %4.97 %4.67 %
Average life (in years to next call)18.7  17.0  23.0  
Average life (in years to maturity)29.4  22.8  24.0  
Average ratingAA-BBB+
(1)Fixed maturity acquisitions included unsettled trades of $8 million in 2019, $41 thousand in 2018 and $0 in 2017.
(2)Tax-equivalent basis, where the yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.

For investments in callable bonds, the actual life of the investment will depend on whether the issuer calls the investment prior to the maturity date. Given our investments in callable bonds, the actual average life of our investments cannot be known at the time of the investment. Absent sales and "make-whole calls", however, the average life will not be less than the average life to next call and will not exceed the average life to maturity. Data for both of these average life measures is provided in the above chart.
 
During 2018 and 2019, acquisitions consisted of securities spanning a diversified range of issuers, industry sectors, and geographical regions. All of the acquired securities were investment grade. In addition to the fixed maturity acquisitions, Globe Life invested $123 million in other long-term investments in 2019 and $94 million in 2018. These investments include commercial mortgage loan participations and investment funds. See Note—4 for further discussion.

New cash flow available for investment has been primarily provided through our insurance operations, cash received on existing investments, and proceeds from dispositions. While dispositions increase funds available for investment, as noted earlier in this discussion, they can also have a negative impact on investment income if the proceeds from the dispositions are reinvested at lower yields than the bonds that were disposed. Dispositions were $919 million in 2019 and $376 million in 2018.

In 2017, it was announced by the head of the United Kingdom's Financial Conduct Authority that they plan to phase out the floating rate, London Interbank Offered Rate (LIBOR), by the end of 2021. As of December 31, 2019, Globe

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GLOBE LIFE INC.
Management's Discussion & Analysis
Life had limited assets and liabilities that utilize LIBOR as a benchmark rate. As such, we do not expect the phase out of LIBOR to have a meaningful impact on our operations.

Since fixed maturities represent such a significant portion of our investment portfolio, the remainder of the discussion of portfolio composition will focus on fixed maturities. See a breakdown of the Company's other investments in Other Investment Information within Note 4—Investments.

Selected information concerning the fixed-maturity portfolio is as follows:

Fixed Maturity Portfolio Selected Information
At December 31,
20192018
Average annual effective yield(1)
5.41%  5.55%  
Average life, in years, to:
Next call(2)
16.8  16.9  
Maturity(2)
19.2  18.7  
Effective duration to:
Next call(2,3)
10.8  10.0  
Maturity(2,3)
11.8  10.8  
(1)Tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities.
(2)Globe Life calculates the average life and duration of the fixed maturity portfolio two ways:
(a) based on the next call date which is the next call date for callable bonds and the maturity date for noncallable bonds, and
(b) based on the maturity date of all bonds, whether callable or not.
(3)Effective duration is a measure of the price sensitivity of a fixed-income security to a particular change in interest rates.


33
GL 2019 FORM 10-K
Table of Contents
GLOBE LIFE INC.
Management's Discussion & Analysis
Credit Risk Sensitivity. The following tables summarize certain information about the major corporate sectors and security types held in our fixed maturity portfolio at December 31, 2019 and 2018.

Fixed Maturities by Sector
December 31, 2019
(Dollar amounts in thousands)
Below Investment GradeTotal Fixed Maturities% of Total Fixed Maturities
 Cost or
Amortized
Cost		Gross
Unrealized
Gains		Gross
Unrealized
Losses		Fair
Value		Cost or
Amortized
Cost		Gross
Unrealized
Gains