GLOBE LIFE INC. - Quarter Report: 2019 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 1-8052
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, Texas 75070
(Address of principal executive offices) (Zip Code)
(972) 569-4000
(Registrant’s telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value per share | GL | New York Stock Exchange |
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 ☒ 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 ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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 filer | ☒ | Accelerated 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 ☒
Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the last practicable date.
Class | Outstanding at November 4, 2019 | |
Common Stock, $1.00 Par Value | 108,288,348 | |
GLOBE LIFE INC.
Table of Contents
As used in this Form 10‑Q, “Globe Life,” the “Company,” “we,” “our” and “us” refer to Globe Life Inc., a Delaware corporation incorporated in 1979, its subsidiaries and affiliates.
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
GLOBE LIFE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollar amounts in thousands, except per share data)
September 30, 2019 | December 31, 2018 | ||||||
Assets: | |||||||
Investments: | |||||||
Fixed maturities—available for sale, at fair value (amortized cost: 2019—$16,209,723; 2018—$15,753,471) | $ | 18,797,674 | $ | 16,297,932 | |||
Policy loans | 568,892 | 550,066 | |||||
Other long-term investments (includes: 2019—$184,466; 2018—$108,241 under the fair value option) | 315,535 | 207,258 | |||||
Short-term investments | 77,556 | 63,288 | |||||
Total investments | 19,759,657 | 17,118,544 | |||||
Cash | 66,675 | 121,026 | |||||
Accrued investment income | 253,125 | 243,003 | |||||
Other receivables | 432,236 | 415,157 | |||||
Deferred acquisition costs | 4,281,018 | 4,137,925 | |||||
Goodwill | 441,591 | 441,591 | |||||
Other assets | 557,604 | 549,899 | |||||
Assets related to discontinued operations | — | 68,577 | |||||
Total assets | $ | 25,791,906 | $ | 23,095,722 | |||
Liabilities: | |||||||
Future policy benefits | $ | 14,358,592 | $ | 13,953,826 | |||
Unearned and advance premium | 62,586 | 61,208 | |||||
Policy claims and other benefits payable | 351,729 | 350,826 | |||||
Other policyholders' funds | 95,875 | 97,459 | |||||
Total policy liabilities | 14,868,782 | 14,463,319 | |||||
Current and deferred income taxes | 1,498,025 | 1,047,737 | |||||
Short-term debt | 233,314 | 307,848 | |||||
Long-term debt (estimated fair value: 2019—$1,466,868; 2018—$1,384,455) | 1,351,190 | 1,357,185 | |||||
Other liabilities | 528,064 | 453,270 | |||||
Liabilities related to discontinued operations | — | 51,186 | |||||
Total liabilities | 18,479,375 | 17,680,545 | |||||
Commitments and Contingencies (Note 5) | |||||||
Shareholders' equity: | |||||||
Preferred stock, par value $1 per share—5,000,000 shares authorized; outstanding: 0 in 2019 and 2018 | — | — | |||||
Common stock, par value $1 per share—320,000,000 shares authorized; outstanding: (2019—121,218,183 issued; 2018— 121,218,183 issued) | 121,218 | 121,218 | |||||
Additional paid-in-capital | 538,051 | 524,414 | |||||
Accumulated other comprehensive income (loss) | 1,943,124 | 319,475 | |||||
Retained earnings | 5,686,636 | 5,213,468 | |||||
Treasury stock, at cost: (2019—12,773,862 shares; 2018—10,525,147 shares) | (976,498 | ) | (763,398 | ) | |||
Total shareholders' equity | 7,312,531 | 5,415,177 | |||||
Total liabilities and shareholders' equity | $ | 25,791,906 | $ | 23,095,722 | |||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Revenue: | |||||||||||||||
Life premium | $ | 630,824 | $ | 605,547 | $ | 1,886,314 | $ | 1,806,384 | |||||||
Health premium | 269,166 | 255,201 | 802,132 | 758,439 | |||||||||||
Other premium | 3 | 2 | 4 | 12 | |||||||||||
Total premium | 899,993 | 860,750 | 2,688,450 | 2,564,835 | |||||||||||
Net investment income | 228,905 | 221,627 | 683,003 | 658,279 | |||||||||||
Realized gains (losses) | 11,943 | 1,032 | 18,426 | 14,796 | |||||||||||
Other income | 438 | 393 | 1,077 | 1,104 | |||||||||||
Total revenue | 1,141,279 | 1,083,802 | 3,390,956 | 3,239,014 | |||||||||||
Benefits and expenses: | |||||||||||||||
Life policyholder benefits | 406,963 | 396,701 | 1,227,616 | 1,196,616 | |||||||||||
Health policyholder benefits | 170,875 | 162,574 | 511,403 | 483,654 | |||||||||||
Other policyholder benefits | 7,854 | 8,581 | 23,792 | 25,852 | |||||||||||
Total policyholder benefits | 585,692 | 567,856 | 1,762,811 | 1,706,122 | |||||||||||
Amortization of deferred acquisition costs | 138,449 | 129,492 | 412,436 | 388,189 | |||||||||||
Commissions, premium taxes, and non-deferred acquisition costs | 74,139 | 69,632 | 221,302 | 208,698 | |||||||||||
Other operating expense | 74,575 | 74,059 | 226,412 | 209,503 | |||||||||||
Interest expense | 21,094 | 22,433 | 63,804 | 66,466 | |||||||||||
Total benefits and expenses | 893,949 | 863,472 | 2,686,765 | 2,578,978 | |||||||||||
Income before income taxes | 247,330 | 220,330 | 704,191 | 660,036 | |||||||||||
Income tax benefit (expense) | (45,512 | ) | (41,630 | ) | (130,370 | ) | (123,232 | ) | |||||||
Income from continuing operations | 201,818 | 178,700 | 573,821 | 536,804 | |||||||||||
Income (loss) from discontinued operations, net of tax | — | 24 | (92 | ) | (55 | ) | |||||||||
Net income | $ | 201,818 | $ | 178,724 | $ | 573,729 | $ | 536,749 | |||||||
Basic net income (loss) per common share: | |||||||||||||||
Continuing operations | $ | 1.85 | $ | 1.59 | $ | 5.24 | $ | 4.74 | |||||||
Discontinued operations | — | — | — | (0.01 | ) | ||||||||||
Total basic net income per common share | $ | 1.85 | $ | 1.59 | $ | 5.24 | $ | 4.73 | |||||||
Diluted net income (loss) per common share: | |||||||||||||||
Continuing operations | $ | 1.82 | $ | 1.55 | $ | 5.14 | $ | 4.64 | |||||||
Discontinued operations | — | — | — | — | |||||||||||
Total diluted net income per common share | $ | 1.82 | $ | 1.55 | $ | 5.14 | $ | 4.64 | |||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollar amounts in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income | $ | 201,818 | $ | 178,724 | $ | 573,729 | $ | 536,749 | |||||||
Other comprehensive income (loss): | |||||||||||||||
Investments: | |||||||||||||||
Unrealized gains (losses) on fixed maturities: | |||||||||||||||
Unrealized holding gains (losses) arising during period | 649,270 | (173,598 | ) | 2,057,614 | (1,202,762 | ) | |||||||||
Reclassifications adjustments included in net income | (11,020 | ) | (458 | ) | (14,307 | ) | (9,715 | ) | |||||||
Foreign exchange adjustment on securities recorded at fair value | (301 | ) | 8,624 | 183 | 7,360 | ||||||||||
Unrealized gains (losses) on fixed maturities | 637,949 | (165,432 | ) | 2,043,490 | (1,205,117 | ) | |||||||||
Unrealized gains (losses) on other investments | 1,429 | 1,310 | 9,063 | (492 | ) | ||||||||||
Total unrealized investment gains (losses) | 639,378 | (164,122 | ) | 2,052,553 | (1,205,609 | ) | |||||||||
Less applicable tax (expense) benefit | (134,272 | ) | 34,464 | (431,037 | ) | 253,176 | |||||||||
Unrealized gains (losses) on investments, net of tax | 505,106 | (129,658 | ) | 1,621,516 | (952,433 | ) | |||||||||
Deferred acquisition costs: | |||||||||||||||
Unrealized gains (losses) attributable to deferred acquisition costs | 402 | 1,178 | (2,627 | ) | 3,669 | ||||||||||
Less applicable tax (expense) benefit | (84 | ) | (248 | ) | 552 | (771 | ) | ||||||||
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax | 318 | 930 | (2,075 | ) | 2,898 | ||||||||||
Foreign exchange translation: | |||||||||||||||
Foreign exchange translation adjustments, other than securities | (4,082 | ) | (168 | ) | (1,031 | ) | (7,684 | ) | |||||||
Less applicable tax (expense) benefit | 858 | 36 | 218 | 1,615 | |||||||||||
Foreign exchange translation adjustments, other than securities, net of tax | (3,224 | ) | (132 | ) | (813 | ) | (6,069 | ) | |||||||
Pension: | |||||||||||||||
Amortization of pension costs | 2,117 | 3,778 | 6,355 | 11,334 | |||||||||||
Less applicable tax (expense) benefit | (443 | ) | (793 | ) | (1,334 | ) | (2,380 | ) | |||||||
Pension adjustments, net of tax | 1,674 | 2,985 | 5,021 | 8,954 | |||||||||||
Other comprehensive income (loss) | 503,874 | (125,875 | ) | 1,623,649 | (946,650 | ) | |||||||||
Comprehensive income (loss) | $ | 705,692 | $ | 52,849 | $ | 2,197,378 | $ | (409,901 | ) | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollar amounts in thousands, except per share data)
Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders' Equity | |||||||||||||||||||||
Balance at January 1, 2019 | $ | — | $ | 121,218 | $ | 524,414 | $ | 319,475 | $ | 5,213,468 | $ | (763,398 | ) | $ | 5,415,177 | ||||||||||||
Adoption of ASU 2016-02(1) | — | — | — | — | (497 | ) | — | (497 | ) | ||||||||||||||||||
Comprehensive income (loss) | — | — | — | 550,592 | 185,345 | — | 735,937 | ||||||||||||||||||||
Common dividends declared ($0.1725 per share) | — | — | — | — | (18,943 | ) | — | (18,943 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (110,896 | ) | (110,896 | ) | ||||||||||||||||||
Stock-based compensation | — | — | (5,885 | ) | — | (6,817 | ) | 23,261 | 10,559 | ||||||||||||||||||
Exercise of stock options | — | — | — | — | (7,736 | ) | 19,825 | 12,089 | |||||||||||||||||||
Balance at March 31, 2019 | — | 121,218 | 518,529 | 870,067 | 5,364,820 | (831,208 | ) | 6,043,426 | |||||||||||||||||||
Other | — | — | — | — | 105 | — | 105 | ||||||||||||||||||||
Comprehensive income (loss) | — | — | — | 569,183 | 186,566 | — | 755,749 | ||||||||||||||||||||
Common dividends declared ($0.1725 per share) | — | — | — | — | (18,838 | ) | — | (18,838 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (119,201 | ) | (119,201 | ) | ||||||||||||||||||
Stock-based compensation | — | — | 7,989 | — | — | 3,267 | 11,256 | ||||||||||||||||||||
Exercise of stock options | — | — | — | — | (18,136 | ) | 46,037 | 27,901 | |||||||||||||||||||
Balance at June 30, 2019 | — | 121,218 | 526,518 | 1,439,250 | 5,514,517 | (901,105 | ) | 6,700,398 | |||||||||||||||||||
Comprehensive income (loss) | — | — | — | 503,874 | 201,818 | — | 705,692 | ||||||||||||||||||||
Common dividends declared ($0.1725 per share) | — | — | — | — | (18,695 | ) | — | (18,695 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (104,372 | ) | (104,372 | ) | ||||||||||||||||||
Stock-based compensation | — | — | 11,533 | — | — | — | 11,533 | ||||||||||||||||||||
Exercise of stock options | — | — | — | — | (11,004 | ) | 28,979 | 17,975 | |||||||||||||||||||
Balance at September 30, 2019 | $ | — | $ | 121,218 | $ | 538,051 | $ | 1,943,124 | $ | 5,686,636 | $ | (976,498 | ) | $ | 7,312,531 | ||||||||||||
(1) |
See accompanying Notes to Condensed Consolidated Financial Statements.
4
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Continued)
(Unaudited)
(Dollar amounts in thousands, except per share data)
Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total Shareholders' Equity | |||||||||||||||||||||
Balance at January 1, 2018 | $ | — | $ | 124,218 | $ | 508,476 | $ | 1,424,274 | $ | 4,806,208 | $ | (631,755 | ) | $ | 6,231,421 | ||||||||||||
Adoption of ASU 2016-01 | — | — | — | — | 4,896 | — | 4,896 | ||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (484,075 | ) | 173,600 | — | (310,475 | ) | ||||||||||||||||||
Common dividends declared ($0.16 per share) | — | — | — | — | (18,216 | ) | — | (18,216 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (109,954 | ) | (109,954 | ) | ||||||||||||||||||
Stock-based compensation | — | — | 465 | — | (1,803 | ) | 10,398 | 9,060 | |||||||||||||||||||
Exercise of stock options | — | — | — | — | (9,077 | ) | 22,646 | 13,569 | |||||||||||||||||||
Balance at March 31, 2018 | — | 124,218 | 508,941 | 940,199 | 4,955,608 | (708,665 | ) | 5,820,301 | |||||||||||||||||||
Comprehensive income (loss) | — | — | — | (336,700 | ) | 184,425 | — | (152,275 | ) | ||||||||||||||||||
Common dividends declared ($0.16 per share) | — | — | — | — | (18,062 | ) | — | (18,062 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (96,635 | ) | (96,635 | ) | ||||||||||||||||||
Stock-based compensation | — | — | 8,136 | — | — | 2,361 | 10,497 | ||||||||||||||||||||
Exercise of stock options | — | — | — | — | (6,900 | ) | 14,683 | 7,783 | |||||||||||||||||||
Balance at June 30, 2018 | — | 124,218 | 517,077 | 603,499 | 5,115,071 | (788,256 | ) | 5,571,609 | |||||||||||||||||||
Comprehensive income (loss) | — | — | — | (125,875 | ) | 178,724 | — | 52,849 | |||||||||||||||||||
Common dividends declared ($0.16 per share) | — | — | — | — | (17,953 | ) | — | (17,953 | ) | ||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (91,725 | ) | (91,725 | ) | ||||||||||||||||||
Stock-based compensation | — | — | 10,412 | — | — | — | 10,412 | ||||||||||||||||||||
Exercise of stock options | — | — | — | — | (7,878 | ) | 21,591 | 13,713 | |||||||||||||||||||
Balance at September 30, 2018 | $ | — | $ | 124,218 | $ | 527,489 | $ | 477,624 | $ | 5,267,964 | $ | (858,390 | ) | $ | 5,538,905 | ||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
5
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollar amounts in thousands)
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
Cash provided from (used for) operating activities | $ | 1,030,175 | $ | 937,289 | |||
Cash provided from (used for) investing activities: | |||||||
Investments sold or matured: | |||||||
Fixed maturities available for sale—sold | 62,151 | 12,162 | |||||
Fixed maturities available for sale—matured or other redemptions | 604,701 | 266,736 | |||||
Other long-term investments | — | 47 | |||||
Total investments sold or matured | 666,852 | 278,945 | |||||
Acquisition of investments: | |||||||
Fixed maturities—available for sale | (1,056,822 | ) | (727,296 | ) | |||
Other long-term investments | (107,660 | ) | (74,396 | ) | |||
Total investments acquired | (1,164,482 | ) | (801,692 | ) | |||
Net increase (decrease) in policy loans | (18,826 | ) | (14,307 | ) | |||
Net increase (decrease) in short-term investments | (5,270 | ) | (506,419 | ) | |||
Additions to properties | (30,049 | ) | (27,316 | ) | |||
Dispositions of properties | 32 | 17 | |||||
Investment in low-income housing interests | (16,824 | ) | (19,075 | ) | |||
Cash provided from (used for) investing activities | (568,567 | ) | (1,089,847 | ) | |||
Cash provided from (used for) financing activities: | |||||||
Issuance of common stock | 57,573 | 35,065 | |||||
Cash dividends paid to shareholders | (55,493 | ) | (53,481 | ) | |||
Repayment of debt | (5,000 | ) | (23,125 | ) | |||
Proceeds from issuance of debt | — | 550,000 | |||||
Payment for debt issuance costs | — | (6,797 | ) | ||||
Net borrowing (repayment) of commercial paper | (76,409 | ) | (7,196 | ) | |||
Acquisition of treasury stock | (334,469 | ) | (298,314 | ) | |||
Net receipts (payments) from deposit product | (95,626 | ) | (87,561 | ) | |||
Cash provided from (used for) financing activities | (509,424 | ) | 108,591 | ||||
Effect of foreign exchange rate changes on cash | (6,535 | ) | 2,843 | ||||
Net increase (decrease) in cash | (54,351 | ) | (41,124 | ) | |||
Cash at beginning of year | 121,026 | 118,563 | |||||
Cash at end of period | $ | 66,675 | $ | 77,439 | |||
See accompanying Notes to Condensed Consolidated Financial Statements.
6
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 1—Significant Accounting Policies
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 (American Income), Liberty National Life Insurance Company (Liberty National), Family Heritage Life Insurance Company of America (Family Heritage), and United American Insurance Company (United American).
Globe Life provides a variety of life and supplemental health insurance products and annuities to a broad base of customers. The Company is organized into four reportable segments: life insurance, supplemental health insurance, annuities, and investments.
Basis of Presentation: The accompanying condensed consolidated financial statements of Globe Life Inc. have been prepared in accordance with the instructions to Form 10-Q. Therefore, they do not include all of the disclosures required by accounting principles generally accepted in the United States of America (GAAP) for annual financial statements. However, in the opinion of management, these statements include all adjustments, consisting of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial position at September 30, 2019, and the condensed consolidated results of operations, comprehensive income, and cash flows for the periods ended September 30, 2019 and 2018. The interim period condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements that are included in the Form 10-K filed with the Securities Exchange Commission (SEC) on March 1, 2019.
Note 2—New Accounting Standards
Accounting Pronouncements Adopted in the Current Year | ||||||
Standard | Description | Effective date | Effect on the consolidated financial statements | |||
ASU No. 2016-02/2018-11, Leases (Topic 842), with clarification guidance issued in July 2018. | The standard requires lessees to record a right-of-use asset and corresponding lease liability on the balance sheet for all operating leases that do not qualify for the practical expedients allowed for in this standard. Additional qualitative and quantitative disclosures are required. | This standard became effective for the Company beginning January 1, 2019. | The Company adopted the optional transition method allowed for under ASU 2018-11 by not restating comparative periods and recognizing an immaterial cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2019. The Company does not have any significant lessor contracts. The adoption did not have a material impact on the consolidated financial statements. | |||
ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Topic 310-20): Premium Amortization on Purchased Callable Debt Securities | This standard was issued to shorten the amortization period for certain callable debt securities held at a premium. The standard requires the premium to be amortized to the earliest call date. | This standard became effective for the Company beginning January 1, 2019. | This adoption did not have a material impact on the condensed consolidated financial statements. | |||
7
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Accounting Pronouncements Yet to be Adopted | ||||||
Standard | Description | Effective date | Effect on the consolidated financial statements | |||
ASU No. 2016-13/2018-19/2019-04/2019-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, with clarification guidance issued in November 2018, along with April and May 2019. | This standard ("CECL") provides financial statement users with more decision-useful information about the expected credit losses on financial instruments, such as assets recorded at amortized cost, as well as to change the loss impairment methodology for available-for-sale fixed maturities by use of an allowance rather than a direct write-down. | This standard will become effective on January 1, 2020 with a modified retrospective transition and an opening balance sheet adjustment to retained earnings on January 1, 2020. The applicable section of the standard related to debt securities requires a prospective transition. | The Company's available-for-sale fixed maturities and other financing receivables will be the relevant financial assets within the scope of the standard. Based on current analysis, the adoption of the guidance is not expected to have a material impact on the consolidated financial statements. | |||
ASU No. 2018-12, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts | ASU 2018-12 is a significant change to our current accounting and disclosure of long-duration contracts, which is our primary business. The guidance was primarily issued to 1) improve the timeliness of recognizing changes in the liability for future policy benefits and modify the rate used to discount future cash flows, 2) simplify and improve the accounting for certain market-based options or guarantees associated with deposit (or account balance) contracts, 3) simplify the amortization of deferred acquisition costs, and 4) improve the effectiveness of the required disclosures. | This standard is effective beginning January 1, 2021. In July 2019, the FASB tentatively approved a proposal to defer the adoption date by one year to January 1, 2022. While final approval was received in the third quarter, the corresponding ASU has not yet been issued. Early adoption of the amendments is permitted. An entity may select to either adopt a modified retrospective transition or a full retrospective transition. Each adoption allows for an opening balance sheet adjustment through AOCI. | The Company is currently in the process of evaluating the impact this standard will have on the consolidated financial statements and disclosures, specifically assessing key accounting policies, assumption and data inputs, controls, as well as enhanced system solutions. Due to the overall nature of the standard, the impact on the consolidated financial statements is expected to be significant. At this time, the Company does not have an estimate of the impact. The Company does not anticipate to early adopt this ASU. | |||
ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement | The amendment modifies the disclosure requirements for fair value measurements by removing, modifying, or adding certain disclosures. | The revised standard is effective beginning January 1, 2020. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. Early adoption is permitted. | The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements. | |||
8
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Accounting Pronouncements Yet to be Adopted (continued) | ||||||
Standard | Description | Effective date | Effect on the consolidated financial statements | |||
ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20), Changes to the Disclosure Requirements for Defined Benefit Plans | The standard removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant to defined benefit plans. | This standard is effective beginning January 1, 2021, and will be applied retrospectively. Early adoption is permitted. | The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. | |||
ASU No. 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract | The standard was issued to now allow the capitalization of implementation costs incurred in a hosting arrangement that is a service contract with similar treatment of developed or obtained internal-use software. | The standard is effective beginning January 1, 2020, and the Company plans to apply the standards on a prospective basis. Early adoption of the amendments is also permitted. | The Company does not expect the adoption of this standard to have a material impact on the consolidated financial statements. | |||
9
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income
Components of Accumulated Other Comprehensive Income: An analysis of the change in balance by component of Accumulated Other Comprehensive Income is as follows for the three and nine month periods ended September 30, 2019 and 2018:
Three Months Ended September 30, 2018 | |||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||
Balance at July 1, 2018 | $ | 746,514 | $ | (6,579 | ) | $ | 10,365 | $ | (146,801 | ) | $ | 603,499 | |||||||
Other comprehensive income (loss) before reclassifications, net of tax | (129,296 | ) | 930 | (132 | ) | — | (128,498 | ) | |||||||||||
Reclassifications, net of tax | (362 | ) | — | — | 2,985 | 2,623 | |||||||||||||
Other comprehensive income (loss) | (129,658 | ) | 930 | (132 | ) | 2,985 | (125,875 | ) | |||||||||||
Balance at September 30, 2018 | $ | 616,856 | $ | (5,649 | ) | $ | 10,233 | $ | (143,816 | ) | $ | 477,624 | |||||||
Three Months Ended September 30, 2019 | |||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||
Balance at July 1, 2019 | $ | 1,552,108 | $ | (6,556 | ) | $ | 8,906 | $ | (115,208 | ) | $ | 1,439,250 | |||||||
Other comprehensive income (loss) before reclassifications, net of tax | 513,812 | 318 | (3,224 | ) | — | 510,906 | |||||||||||||
Reclassifications, net of tax | (8,706 | ) | — | — | 1,674 | (7,032 | ) | ||||||||||||
Other comprehensive income (loss) | 505,106 | 318 | (3,224 | ) | 1,674 | 503,874 | |||||||||||||
Balance at September 30, 2019 | $ | 2,057,214 | $ | (6,238 | ) | $ | 5,682 | $ | (113,534 | ) | $ | 1,943,124 | |||||||
Nine Months Ended September 30, 2018 | |||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||
Balance at January 1, 2018 | $ | 1,569,289 | $ | (8,547 | ) | $ | 16,302 | $ | (152,770 | ) | $ | 1,424,274 | |||||||
Other comprehensive income (loss) before reclassifications, net of tax | (944,758 | ) | 2,898 | (6,069 | ) | — | (947,929 | ) | |||||||||||
Reclassifications, net of tax | (7,675 | ) | — | — | 8,954 | 1,279 | |||||||||||||
Other comprehensive income (loss) | (952,433 | ) | 2,898 | (6,069 | ) | 8,954 | (946,650 | ) | |||||||||||
Balance at September 30, 2018 | $ | 616,856 | $ | (5,649 | ) | $ | 10,233 | $ | (143,816 | ) | $ | 477,624 | |||||||
Nine Months Ended September 30, 2019 | |||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||
Balance at January 1, 2019 | $ | 435,698 | $ | (4,163 | ) | $ | 6,495 | $ | (118,555 | ) | $ | 319,475 | |||||||
Other comprehensive income (loss) before reclassifications, net of tax | 1,632,819 | (2,075 | ) | (813 | ) | — | 1,629,931 | ||||||||||||
Reclassifications, net of tax | (11,303 | ) | — | — | 5,021 | (6,282 | ) | ||||||||||||
Other comprehensive income (loss) | 1,621,516 | (2,075 | ) | (813 | ) | 5,021 | 1,623,649 | ||||||||||||
Balance at September 30, 2019 | $ | 2,057,214 | $ | (6,238 | ) | $ | 5,682 | $ | (113,534 | ) | $ | 1,943,124 | |||||||
10
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Reclassification adjustments: Reclassification adjustments out of Accumulated Other Comprehensive Income are presented below for the three and nine month periods ended September 30, 2019 and 2018.
Three Months Ended September 30, | Nine Months Ended September 30, | Affected line items in the Statement of Operations | ||||||||||||||||
Component Line Item | 2019 | 2018 | 2019 | 2018 | ||||||||||||||
Unrealized investment gains (losses) on available for sale assets: | ||||||||||||||||||
Realized (gains) losses | $ | (12,430 | ) | $ | (1,510 | ) | $ | (18,337 | ) | $ | (12,327 | ) | Realized investment gains (losses) | |||||
Amortization of (discount) premium | 1,410 | 1,052 | 4,030 | 2,612 | Net investment income | |||||||||||||
Total before tax | (11,020 | ) | (458 | ) | (14,307 | ) | (9,715 | ) | ||||||||||
Tax | 2,314 | 96 | 3,004 | 2,040 | Income taxes | |||||||||||||
Total after-tax | (8,706 | ) | (362 | ) | (11,303 | ) | (7,675 | ) | ||||||||||
Pension adjustments: | ||||||||||||||||||
Amortization of prior service cost | 158 | 119 | 474 | 357 | Other operating expense | |||||||||||||
Amortization of actuarial (gain) loss | 1,959 | 3,659 | 5,881 | 10,977 | Other operating expense | |||||||||||||
Total before tax | 2,117 | 3,778 | 6,355 | 11,334 | ||||||||||||||
Tax | (443 | ) | (793 | ) | (1,334 | ) | (2,380 | ) | Income taxes | |||||||||
Total after-tax | 1,674 | 2,985 | 5,021 | 8,954 | ||||||||||||||
Total reclassification (after-tax) | $ | (7,032 | ) | $ | 2,623 | $ | (6,282 | ) | $ | 1,279 | ||||||||
11
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 4—Investments
Portfolio Composition: Summaries of fixed maturities available for sale by cost or amortized cost and estimated fair value at September 30, 2019 and December 31, 2018 are as follows. Redeemable preferred stock is included within the corporates by sector.
At September 30, 2019 | |||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value(1) | % of Total Fixed Maturities(2) | |||||||||||||
Fixed maturities available for sale: | |||||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 393,186 | $ | 55,730 | $ | (291 | ) | $ | 448,625 | 2 | |||||||
States, municipalities, and political subdivisions | 1,459,986 | 174,070 | (242 | ) | 1,633,814 | 9 | |||||||||||
Foreign governments | 24,428 | 2,442 | (98 | ) | 26,772 | — | |||||||||||
Corporates, by sector: | |||||||||||||||||
Financial | 4,031,919 | 721,475 | (27,772 | ) | 4,725,622 | 25 | |||||||||||
Utilities | 1,939,618 | 454,518 | (1,640 | ) | 2,392,496 | 13 | |||||||||||
Energy | 1,658,861 | 269,339 | (35,836 | ) | 1,892,364 | 10 | |||||||||||
Other corporate sectors | 6,500,351 | 970,984 | (21,765 | ) | 7,449,570 | 40 | |||||||||||
Total corporates | 14,130,749 | 2,416,316 | (87,013 | ) | 16,460,052 | 88 | |||||||||||
Collateralized debt obligations | 56,815 | 28,275 | (6,929 | ) | 78,161 | — | |||||||||||
Other asset-backed securities | 144,559 | 5,967 | (276 | ) | 150,250 | 1 | |||||||||||
Total fixed maturities | $ | 16,209,723 | $ | 2,682,800 | $ | (94,849 | ) | $ | 18,797,674 | 100 | |||||||
(1) | Amount reported in the balance sheet. |
(2) | At fair value. |
At December 31, 2018 | |||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value(1) | % of Total Fixed Maturities(2) | |||||||||||||
Fixed maturities available for sale: | |||||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 390,351 | $ | 5,104 | $ | (2,787 | ) | $ | 392,668 | 2 | |||||||
States, municipalities, and political subdivisions | 1,354,810 | 83,600 | (1,750 | ) | 1,436,660 | 9 | |||||||||||
Foreign governments | 19,006 | 1,810 | — | 20,816 | — | ||||||||||||
Corporates, by sector: | |||||||||||||||||
Financial | 3,759,768 | 262,875 | (87,515 | ) | 3,935,128 | 24 | |||||||||||
Utilities | 1,989,506 | 217,846 | (24,399 | ) | 2,182,953 | 13 | |||||||||||
Energy | 1,652,700 | 93,880 | (62,371 | ) | 1,684,209 | 10 | |||||||||||
Other corporate sectors | 6,382,707 | 283,524 | (242,509 | ) | 6,423,722 | 40 | |||||||||||
Total corporates | 13,784,681 | 858,125 | (416,794 | ) | 14,226,012 | 87 | |||||||||||
Collateralized debt obligations | 57,769 | 22,014 | (6,414 | ) | 73,369 | 1 | |||||||||||
Other asset-backed securities | 146,854 | 2,187 | (634 | ) | 148,407 | 1 | |||||||||||
Total fixed maturities | $ | 15,753,471 | $ | 972,840 | $ | (428,379 | ) | $ | 16,297,932 | 100 | |||||||
(1) | Amount reported in the balance sheet. |
(2) | At fair value. |
12
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
A schedule of fixed maturities available for sale by contractual maturity date at September 30, 2019 is shown below on an amortized cost basis and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.
At September 30, 2019 | |||||||
Amortized Cost | Fair Value | ||||||
Fixed maturities available for sale: | |||||||
Due in one year or less | $ | 100,626 | $ | 102,237 | |||
Due after one year through five years | 643,842 | 691,898 | |||||
Due after five years through ten years | 1,670,278 | 1,924,341 | |||||
Due after ten years through twenty years | 5,246,650 | 6,314,401 | |||||
Due after twenty years | 8,346,465 | 9,535,865 | |||||
Mortgage-backed and asset-backed securities | 201,862 | 228,932 | |||||
$ | 16,209,723 | $ | 18,797,674 | ||||
Analysis of investment operations: Net investment income for the three and nine month periods ended September 30, 2019 and 2018 is summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Fixed maturities available for sale | $ | 216,154 | $ | 210,929 | $ | 647,784 | $ | 629,242 | |||||||
Policy loans | 10,959 | 10,490 | 32,416 | 30,889 | |||||||||||
Other long-term investments | 5,105 | 3,682 | 12,484 | 8,656 | |||||||||||
Short-term investments | 514 | 489 | 2,096 | 1,313 | |||||||||||
232,732 | 225,590 | 694,780 | 670,100 | ||||||||||||
Less investment expense | (3,827 | ) | (3,963 | ) | (11,777 | ) | (11,821 | ) | |||||||
Net investment income | $ | 228,905 | $ | 221,627 | $ | 683,003 | $ | 658,279 | |||||||
Selected information about sales of fixed maturities available for sale is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Fixed maturities available for sale: | |||||||||||||||
Proceeds from sales(1) | $ | 27,154 | $ | 12,162 | $ | 62,151 | $ | 12,162 | |||||||
Gross realized gains | 1,031 | 66 | 1,077 | 66 | |||||||||||
Gross realized losses | (604 | ) | — | (3,631 | ) | — | |||||||||
(1) | There were no unsettled sales in the periods ended September 30, 2019 and 2018. |
13
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
An analysis of realized gains (losses) is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||||
Realized investment gains (losses): | |||||||||||||||
Fixed maturities available for sale: | |||||||||||||||
Sales and other(1) | $ | 12,430 | $ | 1,510 | $ | 18,337 | $ | 12,327 | |||||||
Fair value option—change in fair value | (487 | ) | (456 | ) | 197 | 2,405 | |||||||||
Other investments | — | (22 | ) | (108 | ) | 64 | |||||||||
Realized gains (losses) from investments | 11,943 | 1,032 | 18,426 | 14,796 | |||||||||||
Applicable tax | (2,508 | ) | (217 | ) | (3,869 | ) | (3,107 | ) | |||||||
Realized gains (losses), net of tax | $ | 9,435 | $ | 815 | $ | 14,557 | $ | 11,689 | |||||||
(1) | During the three months ended September 30, 2019, the Company recorded $43.7 million of exchanges of fixed maturities (noncash transactions) that resulted in $11.8 million in realized gains (losses). During the same period of 2018, there were no exchanges. During the nine months ended September 30, 2019 and 2018, the Company recorded $161.0 million and $128.9 million of exchanges of fixed maturities (noncash transactions) that resulted in $20.1 million and $10.4 million, respectively in realized gains. |
Fair value measurements: The following tables represent the fair value of fixed maturities measured on a recurring basis at September 30, 2019 and December 31, 2018:
Fair Value Measurement at September 30, 2019 Using: | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Fixed maturities available for sale | |||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | — | $ | 448,625 | $ | — | $ | 448,625 | |||||||
States, municipalities, and political subdivisions | — | 1,633,814 | — | 1,633,814 | |||||||||||
Foreign governments | — | 26,772 | — | 26,772 | |||||||||||
Corporates, by sector: | |||||||||||||||
Financial | — | 4,680,315 | 45,307 | 4,725,622 | |||||||||||
Utilities | — | 2,234,140 | 158,356 | 2,392,496 | |||||||||||
Energy | — | 1,850,580 | 41,784 | 1,892,364 | |||||||||||
Other corporate sectors | 25 | 7,117,250 | 332,295 | 7,449,570 | |||||||||||
Total corporates | 25 | 15,882,285 | 577,742 | 16,460,052 | |||||||||||
Collateralized debt obligations | — | — | 78,161 | 78,161 | |||||||||||
Other asset-backed securities | — | 136,568 | 13,682 | 150,250 | |||||||||||
Total fixed maturities | $ | 25 | $ | 18,128,064 | $ | 669,585 | $ | 18,797,674 | |||||||
Percentage of total | — | % | 96 | % | 4 | % | 100 | % | |||||||
14
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Fair Value Measurement at December 31, 2018 Using: | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Fixed maturities available for sale | |||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | — | $ | 392,668 | $ | — | $ | 392,668 | |||||||
States, municipalities, and political subdivisions | — | 1,436,660 | — | 1,436,660 | |||||||||||
Foreign governments | — | 20,816 | — | 20,816 | |||||||||||
Corporates, by sector: | |||||||||||||||
Financial | — | 3,891,728 | 43,400 | 3,935,128 | |||||||||||
Utilities | — | 2,032,127 | 150,826 | 2,182,953 | |||||||||||
Energy | — | 1,645,077 | 39,132 | 1,684,209 | |||||||||||
Other corporate sectors | — | 6,103,609 | 320,113 | 6,423,722 | |||||||||||
Total corporates | — | 13,672,541 | 553,471 | 14,226,012 | |||||||||||
Collateralized debt obligations | — | — | 73,369 | 73,369 | |||||||||||
Other asset-backed securities | — | 135,425 | 12,982 | 148,407 | |||||||||||
Total fixed maturities | $ | — | $ | 15,658,110 | $ | 639,822 | $ | 16,297,932 | |||||||
Percentage of total | — | % | 96 | % | 4 | % | 100 | % | |||||||
The following tables represent changes in fixed maturities measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||
Asset- backed Securities | Collateralized Debt Obligations | Corporates(1) | Total | ||||||||||||
Balance at January 1, 2019 | $ | 12,982 | $ | 73,369 | $ | 553,471 | $ | 639,822 | |||||||
Total gains or losses: | |||||||||||||||
Included in realized gains / losses | — | — | — | — | |||||||||||
Included in other comprehensive income | 1,043 | 5,745 | 34,971 | 41,759 | |||||||||||
Acquisitions | — | — | — | — | |||||||||||
Sales | — | — | — | — | |||||||||||
Amortization | — | 3,459 | 10 | 3,469 | |||||||||||
Other(2) | (343 | ) | (4,412 | ) | (10,710 | ) | (15,465 | ) | |||||||
Transfers into (out of) Level 3(3) | — | — | — | — | |||||||||||
Balance at September 30, 2019 | $ | 13,682 | $ | 78,161 | $ | 577,742 | $ | 669,585 | |||||||
Percent of total fixed maturities | — | % | 1 | % | 3 | % | 4 | % | |||||||
(1) | Includes redeemable preferred stocks. |
(2) | Includes capitalized interest, foreign exchange adjustments, and principal repayments. |
(3) | Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available. |
15
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | |||||||||||||||
Asset- backed Securities | Collateralized Debt Obligations | Corporates(1) | Total | ||||||||||||
Balance at January 1, 2018 | $ | 14,049 | $ | 71,581 | $ | 582,810 | $ | 668,440 | |||||||
Total gains or losses: | |||||||||||||||
Included in realized gains / losses | — | — | 698 | 698 | |||||||||||
Included in other comprehensive income | (950 | ) | 8,691 | (21,854 | ) | (14,113 | ) | ||||||||
Acquisitions | — | — | 27,453 | 27,453 | |||||||||||
Sales | — | — | — | — | |||||||||||
Amortization | — | 3,572 | 13 | 3,585 | |||||||||||
Other(2) | (315 | ) | (4,928 | ) | (37,619 | ) | (42,862 | ) | |||||||
Transfers into (out of) Level 3(3) | — | — | 4,533 | 4,533 | |||||||||||
Balance at September 30, 2018 | $ | 12,784 | $ | 78,916 | $ | 556,034 | $ | 647,734 | |||||||
Percent of total fixed maturities | — | % | 1 | % | 3 | % | 4 | % | |||||||
(1) | Includes redeemable preferred stocks. |
(2) | Includes capitalized interest, foreign exchange adjustments, and principal repayments. |
(3) | Considered to be transferred at the end of the period. Transfers into Level 3 occur when observable inputs are no longer available. Transfers out of Level 3 occur when observable inputs become available. |
The following table presents transfers in and out of each of the valuation levels of fair values:
Nine Months Ended September 30, | |||||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||||
In | Out | Net | In | Out | Net | ||||||||||||||||||
Level 1 | $ | 14,597 | $ | — | $ | 14,597 | $ | — | $ | — | $ | — | |||||||||||
Level 2 | — | (14,597 | ) | (14,597 | ) | — | (4,533 | ) | (4,533 | ) | |||||||||||||
Level 3 | — | — | — | 4,533 | — | 4,533 | |||||||||||||||||
Other investment information: Other long-term investments consist of the following:
September 30, 2019 | December 31, 2018 | ||||||
Investment in limited partnerships(1) | $ | 184,466 | $ | 108,241 | |||
Commercial mortgage loan participations(2) | 127,953 | 96,266 | |||||
Other | 3,116 | 2,751 | |||||
Total | $ | 315,535 | $ | 207,258 | |||
(1) | See the following section for more information regarding the fair value method used to account for these investments. |
(2) | Globe Life invests in a portfolio of commercial mortgage loan participations. As of September 30, 2019 and December 31, 2018, the Company evaluated the portfolio on a loan-by-loan basis to determine any allowance for loan loss. Factors considered include, but are not limited to, collateral value, loan-to-value ratio, debt service coverage ratio, local market conditions, credit quality of the borrower and tenants, and loan performance. There were no material changes to these factors during the period. As of September 30, 2019 and December 31, 2018, there were no allowances for loan loss. |
16
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Fair Value Option: The following table represents the fair value of certain limited partnership investments elected for the fair value option method measured on a recurring basis at September 30, 2019, and the changes in fair value for the nine months ended September 30, 2019. All changes in fair value are recognized in "Realized Investment Gains (Losses)" in the Condensed Consolidated Statements of Operations. Distributions received on a periodic basis are recorded in Net Investment Income.
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total Fair Value | ||||||||||||
Fair Value Measurements at: | |||||||||||||||
September 30, 2019 | $ | — | $ | 184,466 | $ | — | $ | 184,466 | |||||||
December 31, 2018 | — | 108,241 | — | 108,241 | |||||||||||
Changes in Fair Values for the Period for Items Measured at Fair Value Pursuant to Election of the Fair Value Option | |||||||||||
Net Gains and Losses Recognized During the Period | Less Net Gains and Losses Recognized due to Sales | Total Changes in Fair Values Included in Current-Period Earnings | |||||||||
Nine Months Ended September 30, | |||||||||||
2019 | $ | 197 | $ | — | $ | 197 | |||||
2018 | 2,405 | — | 2,405 | ||||||||
Other-than-temporary impairments (OTTI): In accordance with the other-than-temporary impairment (OTTI) policy, the Company evaluated its fixed maturities available for sale in an unrealized loss position to determine if there was any impairment for the quarter. Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in the interest rates or credit spreads. While the Company holds securities that may be in an unrealized loss position from time to time, Globe Life has the ability and intent to hold these investments to recovery. Additionally, the Company does not expect to be required to sell any of its securities due to the strong cash flows generated by its insurance operations.
For the nine months ended September 30, 2019 and 2018, the Company concluded that there were no other-than-temporary impairments.
Unrealized Loss Analysis: The following table discloses information about fixed maturities available for sale in an unrealized loss position.
Less than Twelve Months | Twelve Months or Longer | Total | ||||||
Number of issues (CUSIP numbers) held: | ||||||||
As of September 30, 2019 | 46 | 59 | 105 | |||||
As of December 31, 2018 | 495 | 234 | 729 | |||||
Globe Life's entire fixed maturity portfolio consisted of 1,585 issues at September 30, 2019 and 1,548 issues at December 31, 2018. The weighted-average quality rating of all unrealized loss positions at amortized cost as of September 30, 2019 was BB+ compared with BBB+ as of December 31, 2018. The drop in quality rating is attributed to the overall decreasing interest rate that has caused certain securities to move from an unrealized loss position to an unrealized gain position.
17
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
The following tables disclose unrealized investment losses by class and major sector of fixed maturities available for sale at September 30, 2019 and December 31, 2018, respectively. Globe Life considers these investments to be only temporarily impaired.
Analysis of Gross Unrealized Investment Losses
At September 30, 2019 | |||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Fixed maturities available for sale: | |||||||||||||||||||||||
Investment grade securities: | |||||||||||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 1,158 | $ | (1 | ) | $ | 21,089 | $ | (290 | ) | $ | 22,247 | $ | (291 | ) | ||||||||
States, municipalities and political subdivisions | 19,654 | (242 | ) | — | — | 19,654 | (242 | ) | |||||||||||||||
Foreign governments | 6,400 | (98 | ) | — | — | 6,400 | (98 | ) | |||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | 157,535 | (2,335 | ) | 6,763 | (1,737 | ) | 164,298 | (4,072 | ) | ||||||||||||||
Utilities | 3,706 | (8 | ) | — | — | 3,706 | (8 | ) | |||||||||||||||
Energy | 71,563 | (2,439 | ) | 29,469 | (5,975 | ) | 101,032 | (8,414 | ) | ||||||||||||||
Other corporate sectors | 125,509 | (1,711 | ) | 99,645 | (4,376 | ) | 225,154 | (6,087 | ) | ||||||||||||||
Total corporates | 358,313 | (6,493 | ) | 135,877 | (12,088 | ) | 494,190 | (18,581 | ) | ||||||||||||||
Other asset-backed securities | — | — | — | — | — | — | |||||||||||||||||
Total investment grade securities | 385,525 | (6,834 | ) | 156,966 | (12,378 | ) | 542,491 | (19,212 | ) | ||||||||||||||
Below investment grade securities: | |||||||||||||||||||||||
States, municipalities and political subdivisions | — | — | — | — | — | — | |||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | — | — | 109,052 | (23,700 | ) | 109,052 | (23,700 | ) | |||||||||||||||
Utilities | 7,651 | (14 | ) | 14,631 | (1,618 | ) | 22,282 | (1,632 | ) | ||||||||||||||
Energy | 6,328 | (582 | ) | 38,839 | (26,840 | ) | 45,167 | (27,422 | ) | ||||||||||||||
Other corporate sectors | — | — | 63,797 | (15,678 | ) | 63,797 | (15,678 | ) | |||||||||||||||
Total corporates | 13,979 | (596 | ) | 226,319 | (67,836 | ) | 240,298 | (68,432 | ) | ||||||||||||||
Collateralized debt obligations | — | — | 13,070 | (6,929 | ) | 13,070 | (6,929 | ) | |||||||||||||||
Other asset-backed securities | — | — | 14,049 | (276 | ) | 14,049 | (276 | ) | |||||||||||||||
Total below investment grade securities | 13,979 | (596 | ) | 253,438 | (75,041 | ) | 267,417 | (75,637 | ) | ||||||||||||||
Total fixed maturities | $ | 399,504 | $ | (7,430 | ) | $ | 410,404 | $ | (87,419 | ) | $ | 809,908 | $ | (94,849 | ) | ||||||||
18
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Analysis of Gross Unrealized Investment Losses
At December 31, 2018 | |||||||||||||||||||||||
Less than Twelve Months | Twelve Months or Longer | Total | |||||||||||||||||||||
Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | ||||||||||||||||||
Fixed maturities available for sale: | |||||||||||||||||||||||
Investment grade securities: | |||||||||||||||||||||||
U.S. Government direct, guaranteed, and government-sponsored enterprises | $ | 37,182 | $ | (212 | ) | $ | 89,664 | $ | (2,575 | ) | $ | 126,846 | $ | (2,787 | ) | ||||||||
States, municipalities and political subdivisions | 124,907 | (1,648 | ) | 7,981 | (102 | ) | 132,888 | (1,750 | ) | ||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | 931,161 | (36,337 | ) | 241,442 | (21,572 | ) | 1,172,603 | (57,909 | ) | ||||||||||||||
Utilities | 329,753 | (11,680 | ) | 121,308 | (9,442 | ) | 451,061 | (21,122 | ) | ||||||||||||||
Energy | 475,736 | (29,426 | ) | 54,937 | (9,382 | ) | 530,673 | (38,808 | ) | ||||||||||||||
Other corporate sectors | 2,515,541 | (149,168 | ) | 575,796 | (62,994 | ) | 3,091,337 | (212,162 | ) | ||||||||||||||
Total corporates | 4,252,191 | (226,611 | ) | 993,483 | (103,390 | ) | 5,245,674 | (330,001 | ) | ||||||||||||||
Other asset-backed securities | 44,603 | (634 | ) | — | — | 44,603 | (634 | ) | |||||||||||||||
Total investment grade securities | 4,458,883 | (229,105 | ) | 1,091,128 | (106,067 | ) | 5,550,011 | (335,172 | ) | ||||||||||||||
Below investment grade securities: | |||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | 22,087 | (8,674 | ) | 81,101 | (20,932 | ) | 103,188 | (29,606 | ) | ||||||||||||||
Utilities | 28,613 | (3,277 | ) | — | — | 28,613 | (3,277 | ) | |||||||||||||||
Energy | 42,874 | (3,901 | ) | 36,122 | (19,662 | ) | 78,996 | (23,563 | ) | ||||||||||||||
Other corporate sectors | 146,373 | (7,235 | ) | 69,053 | (23,112 | ) | 215,426 | (30,347 | ) | ||||||||||||||
Total corporates | 239,947 | (23,087 | ) | 186,276 | (63,706 | ) | 426,223 | (86,793 | ) | ||||||||||||||
Collateralized debt obligations | — | — | 13,586 | (6,414 | ) | 13,586 | (6,414 | ) | |||||||||||||||
Total below investment grade securities | 239,947 | (23,087 | ) | 199,862 | (70,120 | ) | 439,809 | (93,207 | ) | ||||||||||||||
Total fixed maturities | $ | 4,698,830 | $ | (252,192 | ) | $ | 1,290,990 | $ | (176,187 | ) | $ | 5,989,820 | $ | (428,379 | ) | ||||||||
19
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 5—Commitments and Contingencies
Guarantees: The Parent Company has guaranteed letters of credit in connection with its credit facility with a group of banks. The letters of credit were issued by TMK Re, Ltd., a wholly-owned subsidiary, to secure TMK Re, Ltd.’s obligation for claims on certain policies reinsured by TMK Re, Ltd. that were sold by other Globe Life Inc. insurance subsidiaries. These letters of credit facilitate TMK Re, Ltd.’s ability to reinsure the business of Globe Life's insurance carriers. The agreement expires in 2021. The maximum amount of letters of credit available is $250 million. The Parent Company would be liable to the extent that TMK Re, Ltd. does not pay the reinsured party. On April 2, 2019, the letters of credit were amended to reduce the current amount outstanding from $155 million to $150 million. As of September 30, 2019, the outstanding balance remained unchanged.
Litigation: Globe Life Inc. (formerly Torchmark Corporation) and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including putative class action litigation, alleged breaches of contract, torts, including bad faith and fraud claims based on alleged wrongful or fraudulent acts of agents of the Parent Company's insurance subsidiaries, employment discrimination, and miscellaneous other causes of action. Based upon information presently available, and in light of legal and other factual defenses available to the Parent Company and its subsidiaries, management does not believe that it is reasonably possible that such litigation will have a material adverse effect on Globe Life's financial condition, future operating results or liquidity; however, assessing the eventual outcome of litigation necessarily involves forward-looking speculation as to judgments to be made by judges, juries and appellate courts in the future. This bespeaks caution, particularly in states with reputations for high punitive damage verdicts. Globe Life's management recognizes that large punitive damage awards bearing little or no relation to actual damages continue to be awarded by juries in jurisdictions in which the Company has substantial business, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.
On September 12, 2018, putative class action litigation was filed against American Income in California’s Contra Costa County Superior Court (Joh v. American Income Life Insurance Company, Case No. C18-01863) (Joh Action). An amended complaint was filed on October 18, 2018. American Income removed the case to the United States District Court for the Northern District of California (Case No. 3:18-cv-06364-TSH). A second amended complaint was filed on May 20, 2019. The plaintiffs, former insurance sales agents of American Income, are suing on behalf of all current and former trainees and sales agents who sold insurance for American Income in the State of California for the four years prior to the filing of the complaint. The second amended complaint alleges that such individuals are employees and asserts claims under the California Labor Code, California Business and Professions Code, and California Private Attorney General Act. The complaint seeks compensatory damages, penalties and attorney fees on claims for failure to pay wages/commissions, failure to appropriately pay agents at termination, failure to provide itemized wage statements, failure to reimburse expenses, misclassification and unfair business practices.
On October 18, 2018, putative class action litigation was filed against Torchmark Corporation and American Income in California’s Los Angeles County Superior Court (Golz v. American Income Life Insurance Company, et al., Case No. 18STCV01354) (Golz Action). American Income removed the case to the United States District Court for the Central District of California (Case No. 2:18-cv-09879 R (SSx)). An amended complaint was filed on February 5, 2019. On February 6, 2019, Torchmark Corporation was dismissed without prejudice and the case proceeded with respect to American Income. On April 2, 2019, the District Court granted American Income’s motion to dismiss four of the five causes of action asserted. The amended complaint’s remaining claim alleges that plaintiff, as an American Income insurance agent trainee in California, was an employee who should have been compensated accordingly. The plaintiff seeks to represent a class of individuals in California who trained to contract as American Income agents and who subsequently worked as contracted agents. The class period is alleged to begin four years prior to the complaint’s filing. The complaint seeks restitution under the California Business and Professions Code for alleged unfair business practices such as failure to pay minimum wage and overtime, failure to provide meal and rest breaks, and failure to reimburse business expenses.
20
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
On December 14, 2018, putative class action litigation was filed against American Income in United States District Court for the Northern District of California (Hamilton v. American Income Life Insurance Company, Case No. 4:18-cv-7535-KAW) (Hamilton Action). An amended complaint was filed on January 23, 2019. The plaintiffs, former insurance sales agents of American Income, are suing on behalf of all current and former sales agents who sold insurance for American Income in the State of California for the last four years prior to the filing of the complaint. The lawsuit alleges that putative class members are employees and asserts claims under the California Labor Code, California Business and Professions Code, and California Private Attorney General Act. The complaint seeks compensatory damages, penalties and attorney fees on claims for failure to pay minimum wage and overtime, failure to provide meal and rest breaks, failure to appropriately pay agents at termination, failure to provide itemized wage statements, failure to reimburse expenses, misclassification and unfair business practices.
On January 16, 2019, putative class action litigation was filed against American Income in Orange County, California Superior Court (Putros v. American Income Life Insurance Company, Case No. 30-2019-01044772-CU-OE-CXC) (Putros Action). An amended complaint was filed on January 22, 2019. The plaintiff, a former insurance sales agent of American Income, is suing on behalf of all current and former sales agents who sold insurance for American Income in the State of California for the year prior to the filing of the complaint. The lawsuit alleges that putative class members are employees and asserts claims under the California Private Attorney General Act. The complaint seeks penalties for failure to pay minimum wage, failure to provide meal and rest breaks, failure to appropriately pay agents at termination, failure to provide itemized wage statements, failure to reimburse expenses, and misclassification.
With respect to the four related cases above, on August 1, 2019, Plaintiffs in the Joh/Hamilton Actions jointly moved for preliminary approval of a settlement of all class and representative claims—which broadly covers “all individuals who trained to become and/or worked as sales agents in California for Defendant during the last four years prior to the filing of the original Complaint in Joh and whose training and/or work began before the date of preliminary approval of this Settlement”—and explained that “The proposed settlement reached here will resolve all claims in Joh and Hamilton, and, in doing so, encompasses all claims asserted in the Putros and Golz actions as well.” On August 16, 2019, the Northern District of California granted the Motion for Preliminary Approval of Class Action Settlement and scheduled a hearing for final approval of the settlement for January 9, 2020.
With respect to the aforementioned litigation, at this time, management believes that the possibility of a material judgment adverse to the Company is remote.
21
GL Q3 2019 FORM 10-Q
GLOBE LIFE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollar amounts in thousands, except per share data)
Note 6—Liability for Unpaid Claims
Activity in the liability for unpaid health claims is summarized as follows:
Nine Months Ended September 30, | |||||||
2019 | 2018 | ||||||
Balance at beginning of period | $ | 154,528 | $ | 146,865 | |||
Incurred related to: | |||||||
Current year | 454,186 | 411,662 | |||||
Prior year | (851 | ) | (3,795 | ) | |||
Total incurred | 453,335 | 407,867 | |||||
Paid related to: | |||||||
Current year | 326,553 | 293,800 | |||||
Prior year | 123,803 | 113,109 | |||||
Total paid | 450,356 | 406,909 | |||||
Balance at end of period | $ | 157,507 | $ | 147,823 | |||