GLOBE LIFE INC. - Quarter Report: 2020 September (Form 10-Q)

Table of Contents

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, 2020

☐ 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, 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 October 28, 2020
Common Stock, $1.00 Par Value						104,661,999

GL Q3 2020 FORM 10-Q

Table of Contents

Globe Life Inc.

Table of Contents


			Page
PART I. FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Operations	2
		Condensed Consolidated Statements of Comprehensive Income (Loss)	3
		Condensed Consolidated Statements of Shareholders' Equity	4
		Condensed Consolidated Statements of Cash Flows	6

		Notes to Condensed Consolidated Financial Statements	7
		Note 1—Significant Accounting Policies	7
		Note 2—New Accounting Standards	11
		Note 3—Supplemental Information about Changes to Accumulated Other Comprehensive Income	13
		Note 4—Investments	15
		Note 5—Commitments and Contingencies	26
		Note 6—Liability for Unpaid Claims	29
		Note 7—Postretirement Benefits	30
		Note 8—Earnings Per Share	32
		Note 9—Debt	33
		Note 10—Business Segments	34


		Cautionary Statements	41

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	73

	Item 4.	Controls and Procedures	73

PART II. OTHER INFORMATION

	Item 1.	Legal Proceedings	73

	Item 1A.	Risk Factors	74

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75

	Item 6.	Exhibits	75

Signatures			76

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.

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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, 2020		December 31, 2019
Assets:
Investments:
Fixed maturities—available for sale, at fair value (amortized cost: 2020—$16,892,054; 2019—$16,415,776, allowance for credit losses: 2020— $4,387; 2019— $0)	$	20,277,056	$	18,907,147
Policy loans	581,211		575,492
Other long-term investments (includes: 2020—$326,641; 2019—$185,851 under the fair value option)	492,884		326,347
Short-term investments	263,879		38,285
Total investments	21,615,030		19,847,271
Cash	80,101		75,933
Accrued investment income	259,697		245,129
Other receivables	458,359		441,662
Deferred acquisition costs	4,517,255		4,341,941
Goodwill	441,591		441,591
Other assets	669,860		583,933

Total assets	$	28,041,893	$	25,977,460
Liabilities:
Future policy benefits	$	15,045,864	$	14,508,134
Unearned and advance premium	64,703		63,709
Policy claims and other benefits payable	367,453		365,402
Other policyholders' funds	97,463		96,282
Total policy liabilities	15,575,483		15,033,527
Current and deferred income taxes	1,682,060		1,476,832
Short-term debt	279,758		298,738
Long-term debt (estimated fair value: 2020—$1,842,164; 2019—$1,473,364)	1,667,506		1,348,988
Other liabilities	612,178		525,068

Total liabilities	19,816,985		18,683,153
Commitments and Contingencies (Note 5)
Shareholders' equity:
Preferred stock, par value $1 per share—5,000,000 shares authorized; outstanding: 0 in 2020 and 2019	—		—
Common stock, par value $1 per share—320,000,000 shares authorized; outstanding: (2020—117,218,183 issued; 2019— 117,218,183 issued)	117,218		117,218
Additional paid-in-capital	536,727		531,554
Accumulated other comprehensive income (loss)	2,550,619		1,844,830
Retained earnings	6,002,407		5,551,329
Treasury stock, at cost: (2020—12,160,518 shares; 2019—9,497,940 shares)	(982,063)		(750,624)
Total shareholders' equity	8,224,908		7,294,307
Total liabilities and shareholders' equity	$	28,041,893	$	25,977,460

See accompanying Notes to Condensed Consolidated Financial Statements.

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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,
	2020		2019		2020		2019
Revenue:
Life premium	$	674,021	$	630,824	$	1,994,473	$	1,886,314
Health premium	287,795		269,166		850,877		802,132
Other premium	1		3		4		4
Total premium	961,817		899,993		2,845,354		2,688,450
Net investment income	231,432		228,905		691,991		683,003
Realized gains (losses)	1,501		11,943		(29,386)		18,426

Other income	292		438		1,021		1,077
Total revenue	1,195,042		1,141,279		3,508,980		3,390,956

Benefits and expenses:
Life policyholder benefits	459,231		406,963		1,340,746		1,227,616
Health policyholder benefits	184,237		170,875		546,444		511,403
Other policyholder benefits	7,508		7,854		22,571		23,792
Total policyholder benefits	650,976		585,692		1,909,761		1,762,811

Amortization of deferred acquisition costs	140,843		138,449		430,840		412,436
Commissions, premium taxes, and non-deferred acquisition costs	74,614		74,139		229,691		221,302
Other operating expense	75,397		74,575		226,693		226,412
Interest expense	21,674		21,094		65,295		63,804
Total benefits and expenses	963,504		893,949		2,862,280		2,686,765

Income before income taxes	231,538		247,330		646,700		704,191
Income tax benefit (expense)	(42,593)		(45,512)		(119,167)		(130,370)
Income from continuing operations	188,945		201,818		527,533		573,821

Income (loss) from discontinued operations, net of tax	—		—		—		(92)
Net income	$	188,945	$	201,818	$	527,533	$	573,729

Basic net income (loss) per common share:
Continuing operations	$	1.78	$	1.85	$	4.95	$	5.24
Discontinued operations	—		—		—		—
Total basic net income per common share	$	1.78	$	1.85	$	4.95	$	5.24

Diluted net income (loss) per common share:
Continuing operations	$	1.76	$	1.82	$	4.90	$	5.14
Discontinued operations	—		—		—		—
Total diluted net income per common share	$	1.76	$	1.82	$	4.90	$	5.14

See accompanying Notes to Condensed Consolidated Financial Statements.

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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,
	2020		2019		2020		2019
Net income	$	188,945	$	201,818	$	527,533	$	573,729

Other comprehensive income (loss):

Investments:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period	380,299		649,270		861,871		2,057,614

Other reclassification adjustments included in net income	11,838		(11,020)		37,060		(14,307)
Foreign exchange adjustment on securities recorded at fair value	1,250		(301)		(914)		183
Unrealized gains (losses) on securities	393,387		637,949		898,017		2,043,490

Unrealized gains (losses) on other investments	—		1,429		(13,260)		9,063
Total unrealized investment gains (losses)	393,387		639,378		884,757		2,052,553
Less applicable tax (expense) benefit	(82,612)		(134,272)		(185,800)		(431,037)
Unrealized gains (losses) on investments, net of tax	310,775		505,106		698,957		1,621,516

Deferred acquisition costs:
Unrealized gains (losses) attributable to deferred acquisition costs	385		402		1,150		(2,627)
Less applicable tax (expense) benefit	(81)		(84)		(242)		552
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax	304		318		908		(2,075)

Foreign exchange translation:
Foreign exchange translation adjustments, other than securities	5,522		(4,082)		(4,973)		(1,031)
Less applicable tax (expense) benefit	(1,158)		858		1,045		218
Foreign exchange translation adjustments, other than securities, net of tax	4,364		(3,224)		(3,928)		(813)

Pension:



Pension adjustments	4,156		2,117		12,471		6,355
Less applicable tax (expense) benefit	(873)		(443)		(2,619)		(1,334)
Pension adjustments, net of tax	3,283		1,674		9,852		5,021

Other comprehensive income (loss)	318,726		503,874		705,789		1,623,649
Comprehensive income (loss)	$	507,671	$	705,692	$	1,233,322	$	2,197,378

See accompanying Notes to Condensed Consolidated Financial Statements.

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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 December 31, 2019	$	—	$	117,218	$	531,554	$	1,844,830	$	5,551,329	$	(750,624)	$	7,294,307
Cumulative effect of change in accounting principles, net of tax(1)	—		—		—		—		(454)		—		(454)
Balance at January 1, 2020	—		117,218		531,554		1,844,830		5,550,875		(750,624)		7,293,853
Comprehensive income (loss)	—		—		—		(778,583)		165,540		—		(613,043)
Common dividends declared ($0.1875 per share)	—		—		—		—		(19,963)		—		(19,963)
Acquisition of treasury stock	—		—		—		—		—		(166,729)		(166,729)
Stock-based compensation	—		—		(12,126)		—		(482)		21,964		9,356
Exercise of stock options	—		—		—		—		(9,539)		26,347		16,808

Balance at March 31, 2020	—		117,218		519,428		1,066,247		5,686,431		(869,042)		6,520,282

Comprehensive income (loss)	—		—		—		1,165,646		173,048		—		1,338,694
Common dividends declared ($0.1875 per share)	—		—		—		—		(19,956)		—		(19,956)

Stock-based compensation	—		—		8,632		—		—		—		8,632
Exercise of stock options	—		—		—		—		(593)		1,310		717

Balance at June 30, 2020	—		117,218		528,060		2,231,893		5,838,930		(867,732)		7,848,369


Adoption of accounting standard	—		—		—		—		—		—		—
Comprehensive income (loss)	—		—		—		318,726		188,945		—		507,671
Common dividends declared ($0.1875 per share)	—		—		—		—		(19,692)		—		(19,692)
Acquisition of treasury stock	—		—		—		—		—		(129,919)		(129,919)
Stock-based compensation	—		—		8,667		—		—		—		8,667
Exercise of stock options	—		—		—		—		(5,776)		15,588		9,812

Balance at September 30, 2020	$	—	$	117,218	$	536,727	$	2,550,619	$	6,002,407	$	(982,063)	$	8,224,908

(1)Adoption of Accounting Standard Update (ASU) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, on January 1, 2020. See more information in Note 2—New Accounting Standards.

See accompanying Notes to Condensed Consolidated Financial Statements.

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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 December 31, 2018	$	—	$	121,218	$	524,414	$	319,475	$	5,213,468	$	(763,398)	$	5,415,177
Cumulative effect of change in accounting principles, net of tax(1)	—		—		—		—		(497)		—		(497)
Balance at January 1, 2019	—		121,218		524,414		319,475		5,212,971		(763,398)		5,414,680
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
Adoption of accounting standard	—		—		—		—		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)Adoption of ASU 2016-02, Leases (Topic 842), on January 1, 2019.

See accompanying Notes to Condensed Consolidated Financial Statements.

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Globe Life Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Dollar amounts in thousands)


	Nine Months Ended September 30,
	2020		2019













Cash provided from (used for) operating activities	$	1,078,616	$	1,030,175

Cash provided from (used for) investing activities:
Investments sold or matured:
Fixed maturities available for sale—sold	52,681		62,151
Fixed maturities available for sale—matured or other redemptions	333,631		604,701
Other long-term investments	35,547		—
Total investments sold or matured	421,859		666,852
Acquisition of investments:
Fixed maturities—available for sale	(905,371)		(1,056,822)
Other long-term investments	(213,075)		(107,660)
Total investments acquired	(1,118,446)		(1,164,482)
Net (increase) decrease in policy loans	(5,719)		(18,826)
Net (increase) decrease in short-term investments	(225,594)		(5,270)


Additions to properties	(28,790)		(30,049)
Other investing activities	(7,099)		32
Investments in low-income housing interests	(28,669)		(16,824)
Cash provided from (used for) investing activities	(992,458)		(568,567)

Cash provided from (used for) financing activities:
Issuance of common stock	27,337		57,573
Cash dividends paid to shareholders	(58,503)		(55,493)
Repayment of debt	(386,875)		(5,000)
Proceeds from issuance of debt	700,000		—
Payment for debt issuance costs	(5,844)		—
Net borrowing (repayment) of commercial paper	(9,605)		(76,409)
Acquisition of treasury stock	(296,648)		(334,469)
Net receipts (payments) from deposit-type products	(56,858)		(95,626)
Cash provided from (used for) financing activities	(86,996)		(509,424)

Effect of foreign exchange rate changes on cash	5,006		(6,535)
Net increase (decrease) in cash	4,168		(54,351)
Cash at beginning of year	75,933		121,026
Cash at end of period	$	80,101	$	66,675

See accompanying Notes to Condensed Consolidated Financial Statements.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Note 1—Significant Accounting Policies

Business: "Globe Life", the "Company", refer to Globe Life Inc., an insurance holding company incorporated in Delaware in 1979, and Globe Life Inc. subsidiaries and affiliates. Globe Life Inc.'s direct or indirect 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. The underwriting companies are owned by their ultimate corporate parent, Globe Life Inc. (the "Parent Company").

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 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, 2020, and the condensed consolidated results of operations, comprehensive income, and cash flows for the periods ended September 30, 2020 and 2019. 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 February 27, 2020.

Significant Accounting Policies: The following accounting policies were updated since the 2019 Form 10-K due to the adoption of ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13.)

On January 1, 2020, the Company adopted ASU 2016-13, replacing the GAAP "incurred loss" model with a new methodology referred to as current expected credit losses (CECL). The previous methodology delayed recognition of credit losses until it was probable that a loss had incurred, ultimately resulting in fewer instances of losses being recorded in earnings. The new CECL methodology is forward looking—encompassing relevant information about historical experience, current conditions, as well as reasonable and supportable forecasts that affect the collectability of a reported amount.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. The standard affected the Company's commercial mortgage loan participations (Other long-term investments) and agent debit balances (Other receivables). The Company adopted the standard using the modified retrospective method.

The Company recorded a cumulative effect adjustment, net of tax of $454 thousand to retained earnings, consisting of $265 thousand and $189 thousand for commercial mortgage loan participations and agent debit balances, respectively. Refer to the table below for pre-tax amounts and Note 4—Investments for additional details.


	As reported on December 31, 2019		Pre-tax impact of adoption		As reported on January 1, 2020
Assets:


Commercial mortgage loan participations	$	137,692	$	(335)	$	137,357
Agent debit balances	423,877		(240)		423,637

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

In addition, the standard made changes to the accounting for available-for-sale debt securities through the removal of "other-than-temporary-impairment" (OTTI) write downs and replaced them with an allowance for credit losses. The new methodology will allow the Company to record reversals of credit losses in situations where the estimate of credit losses declines through current period net income (Realized gains (losses)).

The Company adopted the standard using the prospective transition approach for available-for-sale fixed maturities for which OTTI had been recognized prior to January 1, 2020. As a result, the amortized cost basis and the effective interest rate remain unchanged after the adoption of ASU 2016-13. Amortized cost will now be reflected as "amortized cost, net of allowance for credit losses" or "amortized cost, net." The Company has not elected the fair value option for any financial assets recorded at amortized cost that would be in scope of this standard.

Investments, Available-For-Sale Fixed Maturities: Globe Life classifies all of its fixed maturity investments as available for sale. Investments classified as available for sale are carried at fair value with unrealized gains and losses, net of taxes reflected directly in Accumulated other comprehensive income ("AOCI").

Income from investments is recorded in net investment income on the Condensed Consolidated Statements of Operations. Gains and losses from sales, maturities, or other redemptions of investments are recorded in Realized gains (losses). Interest income and prepayment fees are recognized when earned. 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.

Accrued investment income consists of interest income or dividends earned on the investment portfolio, but which are yet to be received as of the balance sheet date. The Company will write-off accrued investment income that is deemed to be uncollectable related to the fixed maturities. As a practical expedient, the Company excludes the accrued investment income from the amortized cost basis of the fixed maturity and separately reports it in another financial statement line item, Accrued investment income. Additionally, the amount will be excluded from disclosures within Note 4.

Investments, Allowance For Credit Losses For Available-For-Sale Fixed Maturities: At the onset of the evaluation, the Company individually assesses each fixed maturity to determine whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either of the criteria are met, the Company will write down the fixed maturity's amortized cost basis to fair value through Realized gains (losses).

If neither of the aforementioned criteria are met, the Company will evaluate whether the decline in fair value has resulted from a credit event. The Company will evaluate many factors, as further described below, to determine the present value of the expected cash flows. A credit loss occurs when the present value of the expected cash flows is less than the amortized cost basis. This will result in the recording of an allowance for credit losses as a contra asset account to the amortized cost basis with an offsetting provision for credit losses in Realized gains (losses) on the Condensed Consolidated Statement of Operations. Additionally, the CECL methodology includes a fair value floor where the allowance for credit loss for a security cannot exceed the difference between fair value and amortized cost. When it is determined that there is not a credit loss, the decline in fair value is recognized in Other comprehensive income.

All changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses recorded to the allowance for credit losses are management's best estimate of the uncollectability of principal and interest of a fixed maturity.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The evaluation of Globe Life's securities for credit losses is a process that is undertaken at least quarterly and is overseen by a team of investment and accounting professionals. The process for making this determination is highly subjective and involves the careful consideration of many factors. The factors considered include, but are not limited to:

•The Company’s ability and intent to hold the security until anticipated recovery

•The reason(s) for the impairment

•The financial condition of the issuer and the prospects for recovery in fair value of the security

•Expected future cash flows

The relative weight given to each of these factors can change over time as facts and circumstances change. In many cases, management believes it is appropriate to give more consideration to prospective factors than to retrospective factors. Prospective factors that are given more weight include prospects for recovery, the Company’s ability and intent to hold the security until anticipated recovery, and expected future cash flows.

Among the facts and information considered in the process are:

•Financial statements of the issuer

•Changes in credit ratings of the issuer

•The value of underlying collateral

•News and information included in press releases issued by the issuer

•News and information reported in the media concerning the issuer

•News and information published by or otherwise provided by securities, economic, or research analysts

•The nature and amount of recent and expected future sources and uses of cash

•Default on a required payment

•Corporate actions such as issuer bankruptcy filings or exchanges

The expected cash flows are determined using judgment and the best information available to the Company. Inputs used to derive expected cash flows generally include expected default rates, current levels of subordination, and estimated recovery rate. The discount rate utilized in the discounted cash flows is the effective interest rate, which is the rate of return implicit in the asset at acquisition.

Investments, Commercial Mortgage Loan Participations (Commercial Mortgage Loans): Commercial mortgage loans, a type of investment where the commercial mortgage loan is shared among investors, are accounted for as financing receivables. The commercial mortgage loans are managed by a third party. The Company purchased the legal rights to interests in commercial mortgage loans that are secured by properties such as hotels, retail, multiple family, or offices. The commercial mortgage loans typically have a term of three years with an option to extend up to two years.

The commercial mortgage loans are recorded at unpaid principal balance, net of unamortized origination fees and net of allowance for loan losses. Interest income, net of the amortization of origination fees, is recorded in Net investment income under the effective yield method. Accrued investment income on the Condensed Consolidated Balance Sheets consists of interest income earned on the commercial mortgage loan portfolio, but which is yet to be received as of the balance sheet date. Accrued investment income will be placed in nonaccrual status at the time the loan is 90 days delinquent or otherwise deemed to be uncollectable by management. Any currently accrued investment income will subsequently be written off. As a practical expedient, the Company excludes the accrued investment income from the amortized cost basis of the commercial mortgage loans and separately reports it in another financial statement line item, Accrued investment income. Additionally, the amount will be excluded from disclosures within Note 4. As of September 30, 2020, the accrued interest receivable for commercial mortgage loans was $457 thousand. Commercial mortgage loans generally pay interest monthly, therefore accrued interest is typically for a period of less than 30 days. The unfunded commitment balance was $81 million as of September 30, 2020.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The Company evaluates the performance and credit quality of the commercial mortgage loan portfolio at least on a quarterly basis, or as needed, by utilizing common metrics such as loan-to-value and debt service coverage ratios as well as evaluating the fair value of the underlying collateral. The fair value of the underlying collateral is based on a third-party appraisal of the property at origination of the loan, and is reviewed on an annual basis thereafter, or more frequently when a loan is materially underperforming, 30 days delinquent, or in technical default. The Company determines the probability of estimated losses for the commercial mortgage loan portfolio on a pool basis each quarter and records an allowance. The allowance for credit losses is based on estimates, historical experience, probability of loss, value of the underlying collateral, and macro factors that affect the collectability of the loan. Each loan within the pool is assigned a risk rating (credit quality indicator) of low, medium, and high based on risk and expected future performance. A loan that is assigned as high risk would have a higher probability of a potential principal loss. The assigned risk category and the estimated loss rate is adjusted each quarter for current and forecasted economic factors management believes are relevant.

If management determines that foreclosure of a particular property is probable, the Company may elect the practical expedient for an individual mortgage loan to estimate the expected credit losses, which are based on the fair value of the property less amortized cost, adjusted for selling and other associated costs. See Note 4 for current activity.

Other Receivables, Agent Debit Balances: Agent debit balances primarily represent commissions advanced to insurance agents, a common industry practice. These balances are repaid to the Company over time, generally one year, as the premiums associated with the advanced commissions are collected by the Company and a portion of the agents' commissions on such premiums are retained in order to repay the balances. The balances were $438 million at September 30, 2020 and $424 million at December 31, 2019. When an agent sells a policy, commissions are advanced to the agent, and the collection of the advance is made as long as the policy stays in force. While there is a susceptibility to loss should an agent terminate or excessive policy lapses occur, the ability of the Company to continue to collect an agent's commission streams over time from prior sales of policies reduces the Company's exposure to loss.

The Company has a very low inherent risk with regards to the collection of agent debit balances and views these balances as recoverable since they are, in aggregate, less than the estimated present value of future commissions discounted at a conservative rate which includes assumptions for lapses and mortality. The Company’s security, or collateral, is in the form of future commission streams collected over the life of the policies sold by the respective agents, which ultimately revert to the Company in the event an agent is terminated. The Company evaluated the agent debit balances on a pool basis to determine the allowance for credit losses, as the loans have similar characteristics. A provision for credit losses will be recorded in Realized gains (losses) on the Condensed Consolidated Statement of Operations and the asset balance will be reflected as Agent Debit Balances, net of allowance for credit losses (Other receivables). Based on factors considered by management, there were no additional credit losses recorded during the three months ended September 30, 2020. As of September 30, 2020, the allowance for credit losses was $1.2 million compared with $1.0 million as of December 31, 2019.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Note 2—New Accounting Standards

Accounting Pronouncements Adopted in the Current Year

Standard

Description

Effective Date

Effect on the Consolidated Financial Statements

ASU No. 2016-13/2019-04/2019-05, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, with clarification guidance issued in April 2019.

This standard ("CECL") provides financial statement users with more decision-useful information about the expected credit losses on financial instruments that are recorded at amortized cost. Additionally, it changes the loss impairment methodology for available-for-sale fixed maturities by the use of an allowance rather than a direct write down.

This standard became effective on January 1, 2020.

The Company's available-for-sale fixed maturities and other financing receivables (commercial mortgage loans and agent debit balances) were concluded to be the relevant financial assets within the scope of the standard. See Note 1 for information on the adoption and revised accounting policies.

ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

This standard was issued primarily to provide optional expedients for simplifying the accounting for contract modifications to existing agreements, which is expected to arise from the market's transition from LIBOR to the secured overnight financing rate (SOFR) as a result of reference rate reform.

This standard became effective upon issuance, or March 12, 2020, and will remain effective until December 31, 2022.

The Company has limited assets and liabilities that utilize LIBOR as a benchmark rate. We will continue to monitor the progress towards the establishment of a new floating rate; however, we do not expect a material impact at this time.

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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. 2018-12/2019-09,

Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, with clarification guidance issued in November 2019.

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.

The current effective date for this standard is January 1, 2022. On July 9, 2020, the FASB issued a proposed ASU to delay LDTI an additional year until January 1, 2023. Early adoption is available.

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, and 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 expect to early adopt this ASU.

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. 2020-08, Codification Improvements to Subtopic 310-20, Receivables-Nonrefundable Fees and Other Costs

The standard was issued as an amendment to ASU 2017-08, and clarifies that callable debt securities with a premium should be amortized to the next call date.

This standard is effective beginning January 1, 2021, and will be applied prospectively. Early adoption is not permitted.

The Company does not expect the adoption of this standard to have an impact on the consolidated financial statements.

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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, 2020 and 2019:



	Three Months Ended September 30, 2020
	Available for Sale Assets		Deferred Acquisition Costs		Foreign Exchange		Pension Adjustments		Total
Balance at July 1, 2020	$	2,370,832	$	(5,312)	$	3,766	$	(137,393)	$	2,231,893
Other comprehensive income (loss) before reclassifications, net of tax	301,423		304		4,364		—		306,091
Reclassifications, net of tax	9,352		—		—		3,283		12,635
Other comprehensive income (loss)	310,775		304		4,364		3,283		318,726
Balance at September 30, 2020	$	2,681,607	$	(5,008)	$	8,130	$	(134,110)	$	2,550,619



	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, 2020
	Available for Sale Assets		Deferred Acquisition Costs		Foreign Exchange		Pension Adjustments		Total
Balance at January 1, 2020	$	1,982,650	$	(5,916)	$	12,058	$	(143,962)	$	1,844,830
Other comprehensive income (loss) before reclassifications, net of tax	669,680		908		(3,928)		—		666,660
Reclassifications, net of tax	29,277		—		—		9,852		39,129
Other comprehensive income (loss)	698,957		908		(3,928)		9,852		705,789
Balance at September 30, 2020	$	2,681,607	$	(5,008)	$	8,130	$	(134,110)	$	2,550,619


	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

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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, 2020 and 2019.


	Three Months Ended September 30,				Nine Months Ended September 30,				Affected line items in the Statement of Operations
Component Line Item	2020		2019		2020		2019
Unrealized investment (gains) losses on available for sale assets:
Realized (gains) losses	$	10,276	$	(12,430)	$	32,133	$	(18,337)	Realized (gains) losses

Amortization of (discount) premium	1,562		1,410		4,927		4,030		Net investment income
Total before tax	11,838		(11,020)		37,060		(14,307)
Tax	(2,486)		2,314		(7,783)		3,004		Income taxes
Total after-tax	9,352		(8,706)		29,277		(11,303)
Pension adjustments:
Amortization of prior service cost	158		158		474		474		Other operating expense
Amortization of actuarial (gain) loss	3,998		1,959		11,997		5,881		Other operating expense
Total before tax	4,156		2,117		12,471		6,355
Tax	(873)		(443)		(2,619)		(1,334)		Income taxes
Total after-tax	3,283		1,674		9,852		5,021
Total reclassification (after-tax)	$	12,635	$	(7,032)	$	39,129	$	(6,282)

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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 amortized cost, fair value, and allowance for credit losses at September 30, 2020 and December 31, 2019, and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) are as follows. Redeemable preferred stock is included within the corporates by sector.

As noted in Note 1—Significant Accounting Policies, the Company prospectively adopted ASU 2016-13 as of January 1, 2020 for the available-for-sale fixed maturities. Results after January 1, 2020 are presented under ASU 2016-13, while prior periods continue to be reported in accordance with previously applicable GAAP. See additional discussion of the allowance for credit losses later in this note.


	At September 30, 2020
	Amortized Cost		Allowance for Credit Losses		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	$	375,836	$	—	$	95,166	$	—	$	471,002	2
States, municipalities, and political subdivisions	1,703,408		—		224,303		(3,887)		1,923,824		10
Foreign governments	44,130		—		3,361		(80)		47,411		—
Corporates, by sector:
Financial	4,335,786		—		898,119		(43,631)		5,190,274		26
Utilities	1,956,732		—		557,816		(27)		2,514,521		12
Energy	1,623,191		(4,387)		244,236		(24,389)		1,838,651		9
Other corporate sectors	6,664,488		—		1,447,649		(18,713)		8,093,424		40
Total corporates	14,580,197		(4,387)		3,147,820		(86,760)		17,636,870		87
Collateralized debt obligations	56,763		—		21,708		(9,814)		68,657		—
Other asset-backed securities	131,720		—		3,446		(5,874)		129,292		1
Total fixed maturities	$	16,892,054	$	(4,387)	$	3,495,804	$	(106,415)	$	20,277,056	100

(1)Amount reported in the balance sheet.

(2)At fair value.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)


	At December 31, 2019
	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	$	396,079	$	41,737	$	(296)	$	437,520	2
States, municipalities, and political subdivisions	1,559,736		158,546		(626)		1,717,656		9
Foreign governments	25,874		2,073		(396)		27,551		—
Corporates, by sector:
Financial	4,101,917		701,196		(22,307)		4,780,806		25
Utilities	1,937,738		416,114		(1,565)		2,352,287		13
Energy	1,678,969		269,640		(33,725)		1,914,884		10
Other corporate sectors	6,514,677		955,908		(16,765)		7,453,820		40
Total corporates	14,233,301		2,342,858		(74,362)		16,501,797		88
Collateralized debt obligations	56,990		24,298		(7,184)		74,104		—
Other asset-backed securities	143,796		5,094		(371)		148,519		1
Total fixed maturities	$	16,415,776	$	2,574,606	$	(83,235)	$	18,907,147	100

(1)Amount reported in the balance sheet.

(2)At fair value.

A schedule of fixed maturities available for sale by contractual maturity date at September 30, 2020 is shown below on an amortized cost, net of allowance for credit losses basis and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.


	At September 30, 2020
	Amortized Cost, net		Fair Value
Fixed maturities available for sale:
Due in one year or less	$	46,963	$	47,877
Due after one year through five years	762,252		836,895
Due after five years through ten years	1,794,849		2,118,729
Due after ten years through twenty years	6,027,005		7,578,897
Due after twenty years	8,067,809		9,496,378
Mortgage-backed and asset-backed securities	188,789		198,280
	$	16,887,667	$	20,277,056

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Analysis of Investment Operations: Net investment income for the three and nine month periods ended September 30, 2020 and 2019 is summarized as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2020		2019		% Change	2020		2019		% Change
Fixed maturities available for sale	$	217,900	$	216,154	1	$	652,583	$	647,784	1
Policy loans	11,241		10,959		3	33,572		32,416		4
Other long-term investments(1)	6,925		5,105		36	18,694		12,484		50
Short-term investments	88		514		(83)	529		2,096		(75)
	236,154		232,732		1	705,378		694,780		2
Less investment expense	(4,722)		(3,827)		23	(13,387)		(11,777)		14
Net investment income	$	231,432	$	228,905	1	$	691,991	$	683,003	1

(1)For the three months ended September 30, 2020 and 2019, the investment funds, accounted for under the fair value option method, recorded $4.0 million and $1.5 million, respectively in net investment income. For the nine months ended September 30, 2020 and 2019, the investment funds, accounted for under the fair value option method, recorded $10.5 million and $4.2 million, respectively in net investment income.

Selected information about sales of fixed maturities available for sale is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Fixed maturities available for sale:
Proceeds from sales(1)	$	661	$	27,154	$	52,681	$	62,151
Gross realized gains	—		1,031		2,642		1,077
Gross realized losses	(38,782)		(604)		(39,153)		(3,631)

(1)There were no unsettled sales in the periods ended September 30, 2020 and 2019.

An analysis of realized gains (losses) is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Realized investment gains (losses):
Fixed maturities available for sale:
Sales and other(1)	$	(38,608)	$	12,430	$	(27,746)	$	18,337

Provision for credit losses	28,332		—		(4,387)		—
Fair value option—change in fair value	12,053		(487)		(6,798)		197
Other investments	358		—		10,179		(108)
Realized gains (losses) from investments	2,135		11,943		(28,752)		18,426

Realized loss on redemption of debt	(634)		—		(634)		—
	1,501		11,943		(29,386)		18,426
Applicable tax	463		(2,508)		6,949		(3,869)
Realized gains (losses), net of tax	$	1,964	$	9,435	$	(22,437)	$	14,557

(1)During the three months ended September 30, 2020 and 2019, the Company recorded $65.8 million and $43.7 million of exchanges of fixed maturities (noncash transactions) that resulted in $0 and $11.8 million, respectively in realized gains (losses). During the nine months ended September 30, 2020 and 2019, the Company recorded $152.1 million and $161.0 million of exchanges of fixed maturities (noncash transactions) that resulted in $7.9 million and $20.1 million, respectively in realized gains (losses).

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Fair Value Measurements: The following tables represent the fair value of fixed maturities measured on a recurring basis at September 30, 2020 and December 31, 2019:


	Fair Value Measurement at September 30, 2020 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	$	—		$	471,002		$	—		$	471,002
States, municipalities, and political subdivisions	—			1,923,824			—			1,923,824
Foreign governments	—			47,411			—			47,411
Corporates, by sector:
Financial	—			5,042,580			147,694			5,190,274
Utilities	—			2,334,286			180,235			2,514,521
Energy	—			1,801,028			37,623			1,838,651
Other corporate sectors	—			7,794,758			298,666			8,093,424
Total corporates	—			16,972,652			664,218			17,636,870
Collateralized debt obligations	—			—			68,657			68,657
Other asset-backed securities	—			116,324			12,968			129,292
Total fixed maturities	$	—		$	19,531,213		$	745,843		$	20,277,056
Percentage of total	—		%	96		%	4		%	100		%


	Fair Value Measurement at December 31, 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	$	—		$	437,520		$	—		$	437,520
States, municipalities, and political subdivisions	—			1,717,656			—			1,717,656
Foreign governments	—			27,551			—			27,551
Corporates, by sector:
Financial	—			4,628,875			151,931			4,780,806
Utilities	—			2,195,539			156,748			2,352,287
Energy	—			1,873,482			41,402			1,914,884
Other corporate sectors	—			7,131,773			322,047			7,453,820
Total corporates	—			15,829,669			672,128			16,501,797
Collateralized debt obligations	—			—			74,104			74,104
Other asset-backed securities	—			135,342			13,177			148,519
Total fixed maturities	$	—		$	18,147,738		$	759,409		$	18,907,147
Percentage of total	—		%	96		%	4		%	100		%

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

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			Total
Balance at January 1, 2020	$	13,177		$	74,104		$	672,128		$	759,409

Included in realized gains / losses	—			—			1,213			1,213
Included in other comprehensive income	(318)			(5,220)			11,324			5,786
Acquisitions	—			—			17,820			17,820
Sales	—			—			—			—
Amortization	—			3,415			11			3,426
Other(1)	109			(3,642)			(38,278)			(41,811)
Transfers into Level 3(2)	—			—			—			—
Transfers out of Level 3(2)	—			—			—			—
Balance at September 30, 2020	$	12,968		$	68,657		$	664,218		$	745,843
Percent of total fixed maturities	—		%	1		%	3		%	4		%

(1)Includes capitalized interest, foreign exchange adjustments, and principal repayments.

(2)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.


	Analysis of Changes in Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Asset- backed Securities			Collateralized Debt Obligations			Corporates			Total
Balance at January 1, 2019	$	12,982		$	73,369		$	553,471		$	639,822

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(1)	(343)			(4,412)			(10,710)			(15,465)
Transfers into Level 3(2)	—			—			—			—
Transfers out of Level 3(2)	—			—			—			—
Balance at September 30, 2019	$	13,682		$	78,161		$	577,742		$	669,585
Percent of total fixed maturities	—		%	1		%	3		%	4		%

(1)Includes capitalized interest, foreign exchange adjustments, and principal repayments.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The following table presents changes in unrealized gains or (losses) for the period included in other comprehensive income for assets held at the end of the reporting period for Level 3s:


	Changes in Unrealized Gains/Losses included in Other Comprehensive Income for Assets Held at the End of the Period
	Asset- backed Securities		Collateralized Debt Obligations		Corporates		Total
At September 30, 2020	$	(318)	$	(5,220)	$	11,324	$	5,786
At September 30, 2019	1,043		5,745		34,971		41,759

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 (CUSIPs) held:
As of September 30, 2020	172	29	201
As of December 31, 2019	82	51	133

Globe Life's entire fixed maturity portfolio consisted of 1,822 issues by 745 different issuers at September 30, 2020 and 1,633 issues by 656 different issuers at December 31, 2019. The weighted-average quality rating of all unrealized loss positions at amortized cost was BBB- as of September 30, 2020 and December 31, 2019.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale for which an allowance for credit losses has not been recorded at September 30, 2020.

Analysis of Gross Unrealized Investment Losses


	At September 30, 2020
	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	$	—	$	—	$	—	$	—	$	—	$	—
States, municipalities and political subdivisions	142,060		(3,887)		—		—		142,060		(3,887)
Foreign governments	9,514		(80)		—		—		9,514		(80)
Corporates, by sector:
Financial	246,528		(5,404)		5,897		(2,603)		252,425		(8,007)
Utilities	2,557		(27)		—		—		2,557		(27)
Energy	82,548		(4,161)		15,536		(1,388)		98,084		(5,549)
Other corporate sectors	77,577		(2,524)		—		—		77,577		(2,524)
Total corporates	409,210		(12,116)		21,433		(3,991)		430,643		(16,107)

Other asset-backed securities	29,744		(4,190)		7		—		29,751		(4,190)
Total investment grade securities	590,528		(20,273)		21,440		(3,991)		611,968		(24,264)

Below investment grade securities:
States, municipalities and political subdivisions	—		—		—		—		—		—

Corporates, by sector:
Financial	34,614		(5,332)		102,402		(30,292)		137,016		(35,624)
Utilities	—		—		—		—		—		—
Energy	117,927		(12,588)		43,620		(6,252)		161,547		(18,840)
Other corporate sectors	46,728		(9,281)		71,979		(6,908)		118,707		(16,189)
Total corporates	199,269		(27,201)		218,001		(43,452)		417,270		(70,653)
Collateralized debt obligations	—		—		10,186		(9,814)		10,186		(9,814)
Other asset-backed securities	—		—		12,339		(1,684)		12,339		(1,684)
Total below investment grade securities	199,269		(27,201)		240,526		(54,950)		439,795		(82,151)
Total fixed maturities	$	789,797	$	(47,474)	$	261,966	$	(58,941)	$	1,051,763	$	(106,415)

Gross unrealized losses may fluctuate quarter over quarter due to adverse factors in the market that affect our holdings, such as changes in interest rates or credit spreads. As noted in Note 1, the Company considers many factors when determining whether a credit loss exists. While the Company holds securities that may be in an unrealized loss position from time to time, Globe Life does not intend to sell and it is likely that management will not be required to sell the fixed maturities prior to their anticipated recovery due to the strong cash flows generated by its insurance operations.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The following table discloses unrealized investment losses by class and major sector of fixed maturities available for sale at December 31, 2019. Globe Life considered these investments to be only temporarily impaired.

Analysis of Gross Unrealized Investment Losses


	At December 31, 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	$	1,255	$	(2)	$	21,044	$	(294)	$	22,299	$	(296)
States, municipalities and political subdivisions	66,774		(626)		—		—		66,774		(626)
Foreign governments	6,496		(396)		—		—		6,496		(396)
Corporates, by sector:
Financial	117,389		(1,733)		7,183		(1,317)		124,572		(3,050)
Utilities	8,400		(166)		—		—		8,400		(166)
Energy	52,312		(1,058)		1,833		(115)		54,145		(1,173)
Other corporate sectors	136,386		(1,584)		61,473		(3,260)		197,859		(4,844)
Total corporates	314,487		(4,541)		70,489		(4,692)		384,976		(9,233)

Other asset-backed securities	—		—		—		—		—		—
Total investment grade securities	389,012		(5,565)		91,533		(4,986)		480,545		(10,551)

Below investment grade securities:
States, municipalities and political subdivisions	—		—		—		—		—		—

Corporates, by sector:
Financial	—		—		113,481		(19,257)		113,481		(19,257)
Utilities	7,529		(135)		14,985		(1,264)		22,514		(1,399)
Energy	14,968		(146)		69,956		(32,406)		84,924		(32,552)
Other corporate sectors	—		—		67,655		(11,921)		67,655		(11,921)
Total corporates	22,497		(281)		266,077		(64,848)		288,574		(65,129)
Collateralized debt obligations	—		—		12,816		(7,184)		12,816		(7,184)
Other asset-backed securities	—		—		13,879		(371)		13,879		(371)
Total below investment grade securities	22,497		(281)		292,772		(72,403)		315,269		(72,684)
Total fixed maturities	$	411,509	$	(5,846)	$	384,305	$	(77,389)	$	795,814	$	(83,235)

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Fixed Maturities, Allowance for Credit Losses: A summary of the activity in the allowance for credit losses is as follows. Refer to Note 1 for factors considered in the recording of the allowance for credit losses.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Allowance for credit losses beginning balance	$	32,719	$	—	$	—	$	—
Additions to allowance for which credit losses were not previously recorded	4,387		—		37,106		—
Additions (reductions) to allowance for fixed maturities that previously had an allowance	—		—		—		—
Reduction of allowance for which the Company intends to sell or more likely than not will be required to sell or sold during the period	(32,719)		—		(32,719)		—
Allowance for credit losses ending balance	$	4,387	$	—	$	4,387	$	—

An energy holding in our investment portfolio, which had a credit loss allowance of $32.7 million as of June 30, 2020, filed for Chapter 11 bankruptcy on July 31, 2020. On August 3, 2020, management sold all holdings of this company for $660 thousand and recognized an additional realized loss of $6 million. Total realized loss was $38.8 million. An additional $1 million of accrued investment income was written off.

As of September 30, 2020 and December 31, 2019, the Company did not have any fixed maturities in non-accrual status.

Other Long-Term Investments: Other long-term investments consist of the following assets:


	September 30, 2020		December 31, 2019

Investment funds	$	326,641	$	185,851
Commercial mortgage loan participations	164,902		137,692
Other	1,341		2,804
Total	$	492,884	$	326,347

The investment funds consist of limited partnerships whereby the Company has a pro-rata share of ownership ranging from 1% to 20%. For each investment, the Company has elected the fair value option, but would have been otherwise accounted for as an equity method investment. The fair value option is assessed for each individual investment and concluded at the inception of the investment. Additionally, each investment is evaluated under ASC 810, Consolidation to determine if it is a variable interest entity and would qualify for consolidation; none of the investments qualify for consolidation as the Company is not the primary beneficiary in any of these investments.

The investments are reported at the Company's pro-rata share of the investment fund's net asset value or its equivalent (NAV) as a practical expedient for fair value. Changes in the net asset value are recorded in Realized gains (losses) on the Condensed Consolidated Statements of Operations. Distributions received from the funds arise from income generated by the underlying investments as well as the liquidation of the underlying investments. Periodic distributions are recorded in net investment income until cumulative distributions exceed our pro-rata share of operating earnings at which point the distributions will reduce the carrying value. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. During the quarter, the Company has not committed to any new limited partnerships. The Company had $50 million of capital called during the quarter from existing investment funds, reducing our unfunded commitments. Our unfunded commitments were $408 million as of September 30, 2020.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Commercial Mortgage Loan Participations (commercial mortgage loans): Summaries of commercial mortgage loans by property type and geographical location at September 30, 2020 and December 31, 2019 are as follows:


	September 30, 2020			December 31, 2019
	Carrying Value		% of Total	Carrying Value		% of Total
Property type:
Office	$	41,622	25	$	42,350	31
Mixed use	48,348		29	27,501		20
Hospitality	23,030		14	22,324		16
Industrial	17,885		11	17,612		13
Retail	19,137		12	17,318		12
Multi-family	18,599		11	10,587		8

Total recorded investment	168,621		102	137,692		100
Less allowance for credit losses	(3,719)		(2)	—		—
Carrying value, net of allowance for credit losses	$	164,902	100	$	137,692	100


	September 30, 2020			December 31, 2019
	Carrying Value		% of Total	Carrying Value		% of Total
Geographic location:
South Atlantic	$	52,397	32	$	50,867	37
Pacific	62,297		38	36,546		27
Middle Atlantic	28,268		17	25,328		18
East North Central	10,597		6	10,568		8
West South Central	8,971		5	8,072		6
East South Central	4,700		3	4,676		3
West North Central	1,391		1	—		—
New England	—		—	1,635		1
Total recorded investment	168,621		102	137,692		100
Less allowance for credit losses	(3,719)		(2)	—		—
Carrying value, net of allowance for credit losses	$	164,902	100	$	137,692	100

As of September 30, 2020, the Company evaluated the commercial mortgage loan portfolio on a pool basis to determine the allowance for credit losses, except for individual loans where the practical expedient was elected. At the end of the period, the Company had 25 loans in the portfolio.

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

As noted in Note 1, the Company adopted ASU 2016-13 using the modified retrospective method for commercial mortgage loans. On January 1, 2020, a cumulative effect adjustment was recorded to retained earnings of $335 thousand ($265 thousand, net of tax). For the three months ended September 30, 2020, the allowance for credit losses was decreased by $119 thousand to $3.7 million. The provision for credit losses, recorded in Realized gains (losses) in Other investments, includes the provision for credit losses for the pool and the individual loan as described below.

The Company determined that one of the commercial mortgage loans (multi-family) was probable of foreclosure and elected the practical expedient to record the loan at the fair value of the property less amortized cost, adjusted for selling and other associated costs. As of September 30, 2020, the allowance was $1 million.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Allowance for credit losses beginning balance	$	3,838	$	—	$	—	$	—
Cumulative effect of adoption ASU 2016-13	—		—		335		—
Provision (reversal) for credit losses	(119)		—		3,384		—
Loans charge-off	—		—		—		—
Allowance for credit losses ending balance	$	3,719	$	—	$	3,719	$	—

The following table presents the aging of the amortized cost basis of delinquent commercial mortgage loans. Loans are considered delinquent after 30 days.


As of September 30, 2020	30-59 Days Delinquent		60-89 days Delinquent		Greater than 90 Days Delinquent		Total Delinquent
Commercial mortgage loans	$	—	$	—	$	3,524	$	3,524
Number of delinquent commercial mortgage loans	—		—		1		1

There were no delinquent commercial mortgage loans as of December 31, 2019. As of September 30, 2020, the Company had one commercial mortgage loan in non-accrual status. As of December 31, 2019, the Company did not have any commercial mortgage loans in non-accrual status. Additionally, all other commercial mortgage loans were current with respect to payment status and none of the commercial mortgage loans were classified as a troubled debt restructuring (TDR).

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The following tables are reflective of the key factors, debt service coverage ratios and loan-to-value ratios (LTVs), that are utilized by management to monitor the performance of the portfolios. The Company primarily invests in commercial mortgage loans that have a loan-to-value ratio less than 80%. Generally, higher LTV ratios can potentially equate to higher risk of loss.


	September 30, 2020
	Recorded Investment
	Debt Service Coverage Ratios(1)
	<1.00x		1.00x—1.20x		>1.20x		Total		% of Total
Loan-to-value ratio(2):
Less than 70%	$	15,282	$	107,381	$	—	$	122,663	74
70% to 80%	1,368		16,753		—		18,121		11
81% to 90%	7,591		—		—		7,591		5
Greater than 90%	5,290		11,237		—		16,527		10
Total	$	29,531	$	135,371	$	—	$	164,902	100


	December 31, 2019
	Recorded Investment
	Debt Service Coverage Ratios(1)
	<1.00x		1.00x—1.20x		>1.20x		Total		% of Total
Loan-to-value ratio(2):
Less than 70%	$	64,160	$	47,634	$	12,666	$	124,460	90
70% to 80%	11,445		1,787		—		13,232		10
81% to 90%	—		—		—		—		—
Greater than 90%	—		—		—		—		—
Total	$	75,605	$	49,421	$	12,666	$	137,692	100

(1)Annual net operating income divided by annual mortgage debt service (principal and interest).

(2)Loan balance divided by the fair value of the property. LTVs are generally assessed on an annual basis, or more frequently when a loan is materially underperforming, greater than 30 days delinquent, or in technical default.

Note 5—Commitments and Contingencies

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

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

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. The lawsuit is currently stayed.

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 trainees and 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.

With respect to the related cases above, on August 6, 2020, the plaintiffs in the Joh and 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 August 16, 2019.” Plaintiffs’ preliminary motion anticipated that the proposed settlement would resolve all claims in the Joh and Hamilton Actions, and in doing so, encompass pending claims asserted in the Golz Action for the settlement period. On August 1, 2020, 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 7, 2021.

On December 19, 2019, putative collective action litigation was filed against American Income in United States District Court for the Eastern District of Arkansas (Patterson v. American Income Life Insurance Company, et al, Case No. 4:19-cv-918 KGB). The plaintiff, a former insurance sales agent of American Income, is pursuing a national collective action on behalf of all “similarly situated” individuals for the three years prior to the filing of the complaint. The lawsuit alleges that insurance agent trainees should have been classified as employees and asserts claims for minimum wage, overtime, liquidated damages and attorney’s fees under the Fair Labor Standards Act. The plaintiff also asserts an individual claim under the Arkansas Minimum Wage Act. American Income filed a motion to compel arbitration of plaintiff’s individual claims. The motion is fully briefed and remains pending.

On February 27, 2020, putative collective action litigation was filed against American Income in United States District Court for the Western District of Pennsylvania (Berry, et al v. American Income Life Insurance Company, et al, Case No. 2:20-cv-00110-LPL). The plaintiffs, former insurance sales agents of American Income, are pursuing

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

relief on behalf of “all individuals who trained to become and/or worked as sales agents/insurance producers for American Income Life Insurance” in the three years prior to the filing of the complaint. The lawsuit alleges that agent trainees and insurance agents should have been classified as employees. It asserts a national collective action under the Fair Labor Standards Act seeking compensation for minimum wage, overtime, expense reimbursement, missed meal and rest breaks, recoupment of certain commissions and improper recordkeeping. In addition, the lawsuit asserts a class action under the Pennsylvania Minimum Wage Act and Pennsylvania Wage Payment and Collection Law seeking similar relief. Plaintiffs also seek liquidated damages and attorney’s fees, and assert an unjust enrichment claim. On September 20, 2020, American Income’s motion to compel arbitration of the plaintiffs’ individual claims was granted. The litigation is stayed pending outcome of the individual arbitrations.

On August 5, 2020, putative class and collective action litigation was filed against American Income and National Income Life Insurance Company (“National Income”) in United States District Court for the Central District of California (Natalie Bell, Gisele Mobley, Ashly Rai, and John Turner v. American Income Life Insurance Company and National Income Life Insurance Company, Case No. 2:20-cv-07046). The lawsuit alleges that insurance agent trainees should have been classified as employees, and after contracting should have been classified as employees instead of independent contractors. Plaintiffs Bell and Rai are former California agents who also assert claims under California law on behalf of a putative California class, for the four years prior to February 13, 2020 through case conclusion. They make claims under (a) the California Labor Code for alleged meal and rest break violations, overtime, minimum wage, alleged failure to pay wages at the time of termination, expense reimbursement, and alleged failure to provide accurate wage statements; and (b) the California Business and Professions Code for alleged unfair business practices. They also seek liquidated damages, penalties and attorney’s fees under California law. Plaintiff Turner is a former New York agent who asserts a claim under New York law on behalf of a putative New York class for the six years prior to February 13, 2020 through case conclusion. He makes a claim under the New York Labor Law for alleged failure to pay minimum wage and overtime, and for expense reimbursement. Plaintiff Mobley is a former Florida agent who asserts a claim under Florida law on behalf of a putative Florida class for the five years prior to February 13, 2020 through case conclusion. She makes a claim under the Florida General Labor Regulations, including the Florida Minimum Wage Act, for alleged failure to pay all wages owed. The plaintiffs also assert a national collective action on behalf of all “similarly situated” individuals for minimum wage, overtime, liquidated damages, penalties, an accounting and attorney’s fees and costs under the Fair Labor Standards Act for the three years prior to February 13, 2020 through case conclusion.

With respect to the aforementioned litigation, at this time, management believes that the possibility of a material judgment adverse to the Company is remote.

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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,
	2020		2019
Balance at beginning of period	$	163,808	$	154,528
Incurred related to:
Current year	439,860		454,186
Prior year	(13,136)		(851)
Total incurred	426,724		453,335
Paid related to:
Current year	307,582		326,553
Prior year	123,066		123,803
Total paid	430,648		450,356
Balance at end of period	$	159,884	$	157,507

Below is the reconciliation of the liability of "Policy claims and other benefits payable" in the Condensed Consolidated Balance Sheets.


	September 30, 2020		December 31, 2019

Policy claims and other benefits payable:
Life insurance	$	207,569	$	201,594
Health insurance	159,884		163,808
Total	$	367,453	$	365,402

GL Q3 2020 FORM 10-Q

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Note 7—Postretirement Benefits

Globe Life has qualified noncontributory defined benefit pension plans and contributory savings plans that cover substantially all employees. There is also a nonqualified noncontributory supplemental executive retirement plan (SERP) that covers a limited number of employees. The tables included herein will focus on the defined benefit plans ("Pension Plan") and SERP.

Pension Assets: The following table presents the assets of the Company's defined benefit pension plan at September 30, 2020 and December 31, 2019.

Pension Assets by Component at September 30, 2020


	Fair Value Determined by:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Amount		% to Total
Corporate bonds:
Financial	$	—	$	53,219	$	—	$	53,219	11
Utilities	—		45,364		—		45,364		9
Energy	—		21,100		—		21,100		4
Other corporates	—		92,372		—		92,372		19
Total corporate bonds	—		212,055		—		212,055		43
Exchange traded fund(1)	217,649		—		—		217,649		43
Other bonds	—		264		—		264		—
Guaranteed annuity contract(2)	—		30,250		—		30,250		6
Short-term investments	18,023		—		—		18,023		4
Other	6,883		—		—		6,883		1
	$	242,555	$	242,569	$	—	485,124		97
Other long-term investments(3)							15,649		3
Total pension assets							$	500,773	100

(1)A fund including marketable securities that mirror the S&P 500 index.

(2)Representing a guaranteed annuity contract issued by Globe Life Inc.'s subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Life Insurance Company Non-Exempt Employees Defined Benefit Pension Plan ("American Income Pension Plan").

(3)Included in other long-term investments is an investment fund that reports the Pension Plan's pro-rata share of the limited partnership's net asset value per share or its equivalent (NAV), as a practical expedient for fair value. The Pension Plan owns less than 1% of the investment fund. As of September 30, 2020, the expected term of the investment fund is approximately 4 years and the commitment of the investment is fully funded. The investment is non-redeemable. The investment fund strategy is opportunistic, applying a comprehensive relative value approach across various asset classes and opportunities in public and private markets, geographies, and capital structures.

GL Q3 2020 FORM 10-Q

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Pension Assets by Component at December 31, 2019


	Fair Value Determined by:
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Amount		% to Total
Corporate bonds:
Financial	$	—	$	51,111	$	—	$	51,111	11
Utilities	—		42,758		—		42,758		9
Energy	—		21,907		—		21,907		5
Other corporates	—		89,725		—		89,725		19
Total corporate bonds	—		205,501		—		205,501		44
Exchange traded fund(1)	207,176		—		—		207,176		44
Other bonds	—		251		—		251		—
Guaranteed annuity contract(2)	—		28,278		—		28,278		6
Short-term investments	8,414		—		—		8,414		2
Other	6,876		—		—		6,876		1
	$	222,466	$	234,030	$	—	456,496		97
Other long-term investments(3)							12,267		3
Total pension assets							$	468,763	100

(1)A fund including marketable securities that mirror the S&P 500 index.

(2)Representing a guaranteed annuity contract issued by Globe Life Inc.'s subsidiary, American Income Life Insurance Company, to fund the obligations of the American Income Pension Plan.

(3)Included in other long-term investments is an investment fund that reports the Pension Plan's pro-rata share of the limited partnership's net asset value per share or its equivalent (NAV), as a practical expedient for fair value. The Pension Plan owns approximately 1% of the investment fund. As of December 31, 2019, the expected term of the investment fund is approximately 5 years and the unfunded commitment of the investment fund is $4.1 million. The investment is non-redeemable. The investment fund strategy is opportunistic, applying a comprehensive relative value approach across various asset classes and opportunities in public and private markets, geographies, and capital structures.

SERP: The following table includes information regarding the SERP.


	Nine Months Ended September 30,
	2020		2019
Premiums paid for insurance coverage	$	2,480	$	2,394

	September 30, 2020		December 31, 2019
Total investments:
Company owned life insurance	$	50,985	$	47,733
Exchange traded funds	68,862		65,585
	$	119,847	$	113,318

GL Q3 2020 FORM 10-Q

Table of Contents

Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Pension and SERP Liabilities: The following table presents liabilities for the defined benefit pension plans and SERP at September 30, 2020 and December 31, 2019.


	September 30, 2020		December 31, 2019
Defined benefit pension	$	602,174	$	578,860
SERP	87,018		86,347
Pension benefit obligation	$	689,192	$	665,207

Net Periodic Benefit Cost: The following table presents the net periodic benefit costs for the defined benefit pension plans and SERP by expense components for the three and nine months ended September 30, 2020 and 2019.

Components of Net Periodic Benefit Cost


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Service cost	$	6,116	$	4,982	$	18,347	$	14,947
Interest cost	5,653		5,964		16,951		17,892
Expected return on assets	(7,390)		(6,966)		(22,171)		(20,898)
Amortization:
Prior service cost	158		158		474		474
Actuarial (gain) loss	3,921		1,894		11,770		5,684


Net periodic benefit cost	$	8,458	$	6,032	$	25,371	$	18,099

Note 8—Earnings Per Share

Earnings per Share: A reconciliation of basic and diluted weighted-average shares outstanding used in the computation of basic and diluted earnings per share is as follows:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020	2019	2020	2019
Basic weighted average shares outstanding	106,146,809	108,813,355	106,622,704	109,582,748
Weighted average dilutive options outstanding	906,302	2,100,378	1,082,474	2,009,262
Diluted weighted average shares outstanding	107,053,111	110,913,733	107,705,178	111,592,010

Antidilutive shares	4,007,482	—	2,415,182	1,359,186

Antidilutive shares are excluded from the calculation of diluted earnings per share.

GL Q3 2020 FORM 10-Q

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Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

Note 9—Debt

Short-term debt: On July 31, 2020, the Company paid down the remaining principal of $82.5 million on the 5-year $100 million term loan (Term Loan I) with a maturity date of May 17, 2021.

On April 9, 2020, Globe Life entered into a 364-Day Term Loan Agreement ("Term Loan II"). The Agreement provided the Company with access up to $300 million in unsecured term loans, all maturing on April 8, 2021. Globe Life borrowed the full amount on April 15, 2020 to utilize for general corporate purposes, including additional liquidity at the Parent Company. The net proceeds from the Term Loan II were $299.1 million. On August 17, 2020, the Company repaid $150 million of the Term Loan II with the remaining balance of $150 million repaid on August 26, 2020. The Company recorded a $634 thousand loss on redemption of debt from the write off of unamortized issue expenses.

Long-term debt: On August 21, 2020, Globe Life completed the issuance and sale of $350 million in aggregate principal amount of Globe Life's 2.15% unsecured Senior Notes due August 15, 2030. The net proceeds from the sale of the Senior Notes were $345.8 million.

On September 3, 2020, Globe Life completed the issuance and sale of $50 million in aggregate principal of Globe Life's 2.15% unsecured Senior Notes also due August 15, 2030. These Senior Notes were issued as additional notes under a Second Supplemental Indenture governing the 2.15% Senior Notes issued on August 21, 2020. The Senior Notes are fully fungible and have the same terms as the first issuance. The net proceeds from the sale of the Senior Notes were $49.3 million, after giving effect to the underwriting expenses.

Globe Life utilized the total net proceeds of $395 million to extinguish the Term Loan II and for general corporate purposes, which may include additional capital investments in its insurance subsidiaries and additional holding company liquidity.

Credit facility: On August 24, 2020, Globe Life entered into a new credit agreement, replacing the prior agreement that was due on May 17, 2021, which provides for a $750 million revolving credit facility that may be increased to $1.0 billion. The credit facility matures August 24, 2023 and may be extended up to two one-year periods upon the Company's request. Pursuant to this agreement, the participating lenders have agreed to make revolving loans to Globe Life and to issue secured or unsecured letters of credit. The Company has not drawn on any of the credit to date. As of September 30, 2020, the Company was in full compliance with these covenants.

GL Q3 2020 FORM 10-Q

Table of Contents

Globe Life Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(Dollar amounts in thousands, except per share data)

The following table presents information about the terms and outstanding balances of Globe Life's debt.

Selected Information about Debt Issues

As of

September 30,
2020

December 31, 2019

Instrument

Issue Date

Maturity Date

Coupon Rate

Interest Payment Dates

Par
Value

Book
Value

Fair
Value

Book
Value

Senior notes

5/27/1993

5/15/2023

7.875%

semiannual

165,612

164,892

194,604