GLOBE LIFE INC. - Quarter Report: 2022 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, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to ________
Commission File Number: 001-08052
GLOBE LIFE INC.
(Exact name of registrant as specified in its charter)
Delaware | 63-0780404 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
3700 South Stonebridge Drive, McKinney, 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 | ||||||
4.250% Junior Subordinated Debentures | GL PRD | 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 of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at October 31, 2022 | |||||||
Common Stock, $1.00 Par Value | 97,270,229 |
Q3 2022 FORM 10-Q
Globe Life Inc.
Table of Contents
Page | |||||||||||
PART I. FINANCIAL INFORMATION | |||||||||||
Item 1. | |||||||||||
Item 2. | |||||||||||
Item 3. | |||||||||||
Item 4. | |||||||||||
PART II. OTHER INFORMATION | |||||||||||
Item 1. | |||||||||||
Item 1A. | |||||||||||
Item 2. | |||||||||||
Item 6. | |||||||||||
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.
Q3 2022 FORM 10-Q
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, 2022 | December 31, 2021 | ||||||||||
Assets: | |||||||||||
Investments: | |||||||||||
Fixed maturities—available for sale, at fair value (amortized cost: 2022—$18,173,471; 2021—$17,805,309, allowance for credit losses: 2022— $0; 2021— $387) | $ | 16,005,140 | $ | 21,305,287 | |||||||
Policy loans | 605,426 | 589,634 | |||||||||
Other long-term investments (includes: 2022—$748,219; 2021—$640,263 under the fair value option) | 907,390 | 793,925 | |||||||||
Short-term investments | 85,773 | 69,145 | |||||||||
Total investments | 17,603,729 | 22,757,991 | |||||||||
Cash | 85,586 | 92,163 | |||||||||
Accrued investment income | 269,212 | 251,307 | |||||||||
Other receivables | 475,363 | 487,443 | |||||||||
Deferred acquisition costs | 5,162,172 | 4,914,728 | |||||||||
Goodwill | 481,791 | 481,791 | |||||||||
Other assets | 760,935 | 782,625 | |||||||||
Total assets | $ | 24,838,788 | $ | 29,768,048 | |||||||
Liabilities: | |||||||||||
Future policy benefits | $ | 16,556,827 | $ | 16,034,727 | |||||||
Unearned and advance premium | 64,223 | 65,472 | |||||||||
Policy claims and other benefits payable | 417,739 | 412,940 | |||||||||
Other policyholders' funds | 103,161 | 98,935 | |||||||||
Total policy liabilities | 17,141,950 | 16,612,074 | |||||||||
Current and deferred income taxes | 568,282 | 1,765,021 | |||||||||
Short-term debt | 434,737 | 479,644 | |||||||||
Long-term debt (estimated fair value: 2022—$1,445,523; 2021—$1,667,009) | 1,627,547 | 1,546,494 | |||||||||
Other liabilities | 704,674 | 722,009 | |||||||||
Total liabilities | 20,477,190 | 21,125,242 | |||||||||
Commitments and Contingencies (Note 5) | |||||||||||
Shareholders' equity: | |||||||||||
Preferred stock, par value $1 per share—5,000,000 shares authorized; outstanding: 0 in 2022 and 2021 | — | — | |||||||||
Common stock, par value $1 per share—320,000,000 shares authorized; outstanding: (2022—109,218,183 issued; 2021—109,218,183 issued) | 109,218 | 109,218 | |||||||||
Additional paid-in-capital | 540,636 | 520,564 | |||||||||
Accumulated other comprehensive income (loss) | (1,811,549) | 2,677,583 | |||||||||
Retained earnings | 6,633,369 | 6,182,100 | |||||||||
Treasury stock, at cost: (2022—12,225,433 shares; 2021—9,650,845 shares) | (1,110,076) | (846,659) | |||||||||
Total shareholders' equity | 4,361,598 | 8,642,806 | |||||||||
Total liabilities and shareholders' equity | $ | 24,838,788 | $ | 29,768,048 |
See accompanying Notes to Condensed Consolidated Financial Statements.
1
GL Q3 2022 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, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Revenue: | |||||||||||||||||||||||
Life premium | $ | 755,115 | $ | 728,924 | $ | 2,269,641 | $ | 2,165,213 | |||||||||||||||
Health premium | 319,289 | 299,143 | 955,478 | 888,902 | |||||||||||||||||||
Other premium | 1 | — | 1 | 1 | |||||||||||||||||||
Total premium | 1,074,405 | 1,028,067 | 3,225,120 | 3,054,116 | |||||||||||||||||||
Net investment income | 245,625 | 238,975 | 733,101 | 713,103 | |||||||||||||||||||
Realized gains (losses) | (29,155) | 10,475 | (66,845) | 47,286 | |||||||||||||||||||
Other income | 398 | 321 | 861 | 1,004 | |||||||||||||||||||
Total revenue | 1,291,273 | 1,277,838 | 3,892,237 | 3,815,509 | |||||||||||||||||||
Benefits and expenses: | |||||||||||||||||||||||
Life policyholder benefits | 494,627 | 516,196 | 1,555,004 | 1,532,298 | |||||||||||||||||||
Health policyholder benefits | 198,415 | 187,906 | 592,488 | 564,589 | |||||||||||||||||||
Other policyholder benefits | 6,986 | 7,303 | 21,110 | 21,848 | |||||||||||||||||||
Total policyholder benefits | 700,028 | 711,405 | 2,168,602 | 2,118,735 | |||||||||||||||||||
Amortization of deferred acquisition costs | 156,129 | 151,593 | 469,718 | 452,607 | |||||||||||||||||||
Commissions, premium taxes, and non-deferred acquisition costs | 93,028 | 82,774 | 277,436 | 244,752 | |||||||||||||||||||
Other operating expense | 88,140 | 80,385 | 262,150 | 240,750 | |||||||||||||||||||
Interest expense | 23,965 | 20,886 | 65,737 | 63,833 | |||||||||||||||||||
Total benefits and expenses | 1,061,290 | 1,047,043 | 3,243,643 | 3,120,677 | |||||||||||||||||||
Income before income taxes | 229,983 | 230,795 | 648,594 | 694,832 | |||||||||||||||||||
Income tax benefit (expense) | (43,204) | (41,924) | (120,450) | (127,826) | |||||||||||||||||||
Net income | $ | 186,779 | $ | 188,871 | $ | 528,144 | $ | 567,006 | |||||||||||||||
Basic net income per common share | $ | 1.92 | $ | 1.86 | $ | 5.38 | $ | 5.53 | |||||||||||||||
Diluted net income per common share | $ | 1.90 | $ | 1.84 | $ | 5.33 | $ | 5.46 |
See accompanying Notes to Condensed Consolidated Financial Statements.
2
GL Q3 2022 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, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Net income | $ | 186,779 | $ | 188,871 | $ | 528,144 | $ | 567,006 | |||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||
Investments: | |||||||||||||||||||||||
Unrealized gains (losses) on fixed maturities: | |||||||||||||||||||||||
Unrealized holding gains (losses) arising during period | (1,368,910) | (95,906) | (5,704,042) | (453,917) | |||||||||||||||||||
Other reclassification adjustments included in net income | 12,142 | (14,599) | 30,371 | (31,096) | |||||||||||||||||||
Foreign exchange adjustment on fixed maturities recorded at fair value | 2,856 | (519) | 4,975 | 4,141 | |||||||||||||||||||
Total unrealized investment gains (losses) | (1,353,912) | (111,024) | (5,668,696) | (480,872) | |||||||||||||||||||
Less applicable tax (expense) benefit | 284,319 | 23,317 | 1,190,428 | 100,984 | |||||||||||||||||||
Unrealized gains (losses) on investments, net of tax | (1,069,593) | (87,707) | (4,478,268) | (379,888) | |||||||||||||||||||
Deferred acquisition costs: | |||||||||||||||||||||||
Unrealized gains (losses) attributable to deferred acquisition costs | 4,699 | 432 | 11,154 | 1,199 | |||||||||||||||||||
Less applicable tax (expense) benefit | (988) | (91) | (2,343) | (252) | |||||||||||||||||||
Unrealized gains (losses) attributable to deferred acquisition costs, net of tax | 3,711 | 341 | 8,811 | 947 | |||||||||||||||||||
Foreign exchange translation: | |||||||||||||||||||||||
Foreign exchange translation adjustments, other than securities | (21,379) | (6,839) | (35,220) | (1,276) | |||||||||||||||||||
Less applicable tax (expense) benefit | 4,488 | 1,437 | 7,395 | 269 | |||||||||||||||||||
Foreign exchange translation adjustments, other than securities, net of tax | (16,891) | (5,402) | (27,825) | (1,007) | |||||||||||||||||||
Pension: | |||||||||||||||||||||||
Pension adjustments | 3,438 | 5,198 | 10,316 | 15,598 | |||||||||||||||||||
Less applicable tax (expense) benefit | (721) | (1,090) | (2,166) | (3,275) | |||||||||||||||||||
Pension adjustments, net of tax | 2,717 | 4,108 | 8,150 | 12,323 | |||||||||||||||||||
Other comprehensive income (loss) | (1,080,056) | (88,660) | (4,489,132) | (367,625) | |||||||||||||||||||
Comprehensive income (loss) | $ | (893,277) | $ | 100,211 | $ | (3,960,988) | $ | 199,381 |
See accompanying Notes to Condensed Consolidated Financial Statements.
3
GL Q3 2022 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 December 31, 2021 | $ | — | $ | 109,218 | $ | 520,564 | $ | 2,677,583 | $ | 6,182,100 | $ | (846,659) | $ | 8,642,806 | |||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (1,808,088) | 164,361 | — | (1,643,727) | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.2075 per share) | — | — | — | — | (20,543) | — | (20,543) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (119,482) | (119,482) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 2,504 | — | (345) | 6,876 | 9,035 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (9,964) | 35,895 | 25,931 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2022 | — | 109,218 | 523,068 | 869,495 | 6,315,609 | (923,370) | 6,894,020 | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (1,600,988) | 177,004 | — | (1,423,984) | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.2075 per share) | — | — | — | — | (20,238) | — | (20,238) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (143,939) | (143,939) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 8,448 | — | — | — | 8,448 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (2,419) | 11,222 | 8,803 | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2022 | — | 109,218 | 531,516 | (731,493) | 6,469,956 | (1,056,087) | 5,323,110 | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (1,080,056) | 186,779 | — | (893,277) | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.2075 per share) | — | — | — | — | (20,126) | — | (20,126) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (72,031) | (72,031) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 9,120 | — | — | — | 9,120 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (3,240) | 18,042 | 14,802 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2022 | $ | — | $ | 109,218 | $ | 540,636 | $ | (1,811,549) | $ | 6,633,369 | $ | (1,110,076) | $ | 4,361,598 |
See accompanying Notes to Condensed Consolidated Financial Statements.
4
GL Q3 2022 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 December 31, 2020 | $ | — | $ | 113,218 | $ | 527,435 | $ | 3,029,244 | $ | 5,874,109 | $ | (772,914) | $ | 8,771,092 | |||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (1,004,729) | 178,517 | — | (826,212) | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.1975 per share) | — | — | — | — | (20,435) | — | (20,435) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (132,720) | (132,720) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | (11,422) | — | 1,168 | 18,142 | 7,888 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (12,807) | 45,531 | 32,724 | ||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | — | 113,218 | 516,013 | 2,024,515 | 6,020,552 | (841,961) | 7,832,337 | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | 725,764 | 199,618 | — | 925,382 | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.1975 per share) | — | — | — | — | (20,171) | — | (20,171) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (162,864) | (162,864) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 8,634 | — | — | — | 8,634 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (14,033) | 47,637 | 33,604 | ||||||||||||||||||||||||||||||||||
Balance at June 30, 2021 | — | 113,218 | 524,647 | 2,750,279 | 6,185,966 | (957,188) | 8,616,922 | ||||||||||||||||||||||||||||||||||
Comprehensive income (loss) | — | — | — | (88,660) | 188,871 | — | 100,211 | ||||||||||||||||||||||||||||||||||
Common dividends declared ($0.1975 per share) | — | — | — | — | (19,981) | — | (19,981) | ||||||||||||||||||||||||||||||||||
Acquisition of treasury stock | — | — | — | — | — | (97,796) | (97,796) | ||||||||||||||||||||||||||||||||||
Stock-based compensation | — | — | 9,036 | — | (1,260) | — | 7,776 | ||||||||||||||||||||||||||||||||||
Exercise of stock options | — | — | — | — | (335) | 1,354 | 1,019 | ||||||||||||||||||||||||||||||||||
Balance at September 30, 2021 | $ | — | $ | 113,218 | $ | 533,683 | $ | 2,661,619 | $ | 6,353,261 | $ | (1,053,630) | $ | 8,608,151 |
.
See accompanying Notes to Condensed Consolidated Financial Statements.
5
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollar amounts in thousands)
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Cash provided from (used for) operating activities | $ | 1,050,387 | $ | 1,060,022 | |||||||
Cash provided from (used for) investing activities: | |||||||||||
Investments sold or matured: | |||||||||||
Fixed maturities available for sale—sold | 346,722 | 91,795 | |||||||||
Fixed maturities available for sale—matured or other redemptions | 387,787 | 249,653 | |||||||||
Other long-term investments | 55,877 | 36,060 | |||||||||
Total investments sold or matured | 790,386 | 377,508 | |||||||||
Acquisition of investments: | |||||||||||
Fixed maturities—available for sale | (1,178,751) | (687,993) | |||||||||
Other long-term investments | (186,275) | (206,609) | |||||||||
Total investments acquired | (1,365,026) | (894,602) | |||||||||
Net (increase) decrease in policy loans | (15,792) | (1,412) | |||||||||
Net (increase) decrease in short-term investments | (16,628) | 14,418 | |||||||||
Additions to properties | (19,766) | (30,730) | |||||||||
Other investing activities | — | (59,200) | |||||||||
Investments in low-income housing interests | (64,023) | (35,236) | |||||||||
Cash provided from (used for) investing activities | (690,849) | (629,254) | |||||||||
Cash provided from (used for) financing activities: | |||||||||||
Issuance of common stock | 49,536 | 67,347 | |||||||||
Cash dividends paid to shareholders | (60,441) | (60,068) | |||||||||
Repayment of debt | (150,000) | (300,000) | |||||||||
Proceeds from issuance of debt | 250,492 | 325,000 | |||||||||
Payment for debt issuance costs | (5,272) | (7,639) | |||||||||
Net borrowing (repayment) of commercial paper | (60,582) | (10,991) | |||||||||
Acquisition of treasury stock | (335,452) | (393,380) | |||||||||
Net receipts (payments) from deposit-type products | (66,078) | (48,276) | |||||||||
Cash provided from (used for) financing activities | (377,797) | (428,007) | |||||||||
Effect of foreign exchange rate changes on cash | 11,682 | (1,283) | |||||||||
Net increase (decrease) in cash | (6,577) | 1,478 | |||||||||
Cash at beginning of year | 92,163 | 94,847 | |||||||||
Cash at end of period | $ | 85,586 | $ | 96,325 |
See accompanying Notes to Condensed Consolidated Financial Statements.
6
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 1—Significant Accounting Policies
Business: (Globe Life), (the Company), refers 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, 2022, and the condensed consolidated results of operations, comprehensive income, and cash flows for the periods ended September 30, 2022 and 2021. 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 24, 2022.
Use of Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. See further documentation in the significant accounting policies or the accompanying notes.
7
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 2—New Accounting Standards
Accounting Pronouncements Yet to be Adopted
ASU No. 2018-12 / 2019-09 / 2020-11, Financial Services - Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, with clarification guidance issued in November 2019 and 2020.
ASU 2018-12 is a significant change to the accounting and disclosure of long-duration life and health insurance contracts. The guidance was issued primarily 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.
As a result of the issuance of ASU 2020-11 in November 2020, the effective date for this standard was changed to January 1, 2023. Early adoption is available; however, the Company will not early adopt the standard and has selected the modified retrospective transition method upon adoption as of the transition date (“Transition Date”) of January 1, 2021. The modified retrospective transition method requires the amended guidance be applied to contracts issued after the beginning of the earliest period presented, or the Transition Date, which will result in the restatement of the 2021 and 2022 consolidated financial statements.
In summary, the Company continues to assess the impact the adoption will have on the consolidated financial statements and has determined it will have a significant impact on the Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Shareholders’ Equity, and the Consolidated Statements of Comprehensive Income (Loss). On a quarterly basis, the Company’s future policy benefits will be remeasured utilizing an upper-medium grade fixed-income instrument yield and the effects of the change will be recognized in Accumulated Other Comprehensive Income (“AOCI”), a component of shareholders’ equity. At least annually, the Company will update its estimate of cash flows used for establishing reserves using actual historical experience and updated future cash flow assumptions, such as mortality, morbidity, and persistency. Finally, the adoption requires changes in the future treatment of our Deferred Acquisition Cost (“DAC”) asset and is expected to result in a significant reduction to DAC amortization in the near to intermediate term.
On the Transition Date, the Company expects a decrease in AOCI due to the requirement to re-measure future policy benefits using a discount rate currently lower than what is used in valuing the future policy benefits under existing guidance. The methodology for determining current discount rates consists of constructing a discount rate curve intended to be reflective of the currency and tenor of the insurance liability cash flows. Discount rates reflect upper-medium grade fixed-income instrument yields, which generally consist of single-A rated fixed income instruments. The methodology is designed to prioritize observable inputs based on market data available in the local debt markets denominated in the same currency as the policies. For the discount rates applicable to tenors for which the single-A debt market is not liquid or there is little or no observable market data, the Company will use estimation techniques consistent with the fair value guidance in ASC 820. It is important to note that the impact to AOCI is sensitive to the discount rate assumption and associated fluctuations.
On the Transition Date, using current discount rates applicable at that time, we expect the after-tax impact to AOCI to be a decrease in the range of $7.5 billion to $8.5 billion due to a $9.5 billion to $11.0 billion increase in future policy benefits. Holding all else equal but using discount rates as of September 30, 2022, the increase in future policy benefits would have been $1.2 billion to $2.0 billion. Under the new standard, the future policy benefits recorded on the Consolidated Balance Sheets are different than those used in the determination of net income. Future policy benefits recorded within the Consolidated Balance Sheets are determined using current discount rates as of the valuation date, while future policy benefits used for the determination of net income are determined using locked-in discount rates1 based on policy issue dates. On the Transition Date, two significant drivers of the increase in future policy benefits and decrease in AOCI within the Consolidated Balance Sheets are the lower level of current discount rates as compared to the locked-in discount rates used under prior guidance and the long average life of
1 Locked-in discount rates are those discount rates which are established at issue and locked-in for each year of issue for use in establishing reserves to compute net income.
8
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
the Company’s life insurance cash flows. Another driver of the large increase in future policy benefits is the required use of the same net premium ratio2 using locked-in discount rates and current discount rates.
The new guidance requires a more granular assessment of the net premium ratio. Any blocks of business that require increases in future policy benefits to minimum levels, or that have a net premium ratio greater than 100%, will require an adjustment to the opening balance of retained earnings (decrease). At the Transition Date, we expect a $15 million to $50 million, net of tax, decrease to opening retained earnings related to these items.
Under the new standard, the annual amortization of DAC in our Consolidated Statements of Operations will be significantly lower in the near and intermediate term due to: 1) the requirement to no longer defer renewal commissions until such year as the commissions are actually incurred, 2) the requirement to no longer accrue and amortize interest on our DAC balances, and 3) the modification of the method for amortizing DAC including the updating of assumptions. For business with deferrals of renewal commissions, as is the case with our captive agency channels, the expected amortization rate, as a percentage of premium, for certain blocks of business will no longer be level but will increase over the period of time during which commissions are deferred. The decrease in amortization in the near term will primarily impact our life insurance line of business. In total, we expect the impact on net income from the decrease in amortization to be in the range of $120 million to $145 million, net of tax, related to the restatement of prior periods. As time progresses, we expect this impact to diminish as the deferral of future renewal commissions increases amortization amounts.
Policyholder benefits, as reported in our Consolidated Statement of Operations, will be restated in 2021 and 2022 under the new guidance. It is expected to be lower in 2021 and 2022, resulting in higher net income for those respective periods than under the current guidance. Going forward, fluctuations in experience and changes in assumptions will result in changes in both future policy obligations and amortization of DAC as a percent of premium.
While the requirements of the new guidance represent a change from existing GAAP, the new guidance will not impact capital and surplus or net income under statutory accounting practices, cash flows on our policies, or the underlying economics of our business.
ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions
ASU 2022-03 adds disclosure requirements specific to equity securities subject to contractual sale restrictions. The disclosures clarify the nature of the contractual sale as well as the duration of the restriction and the circumstances that could cause a lapse in the restriction.
This standard is effective for the Company on January 1, 2024, and will be implemented on a prospective basis. Early adoption is available. The Company does not expect the standard will have a material impact on the Consolidated Financial Statements.
2 The net premium ratio is the ratio between the present value of benefits and the present value of gross premium.
9
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and 2021:
Three Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||||||||||||
Balance at July 1, 2022 | $ | (643,385) | $ | 1,682 | $ | 8,453 | $ | (98,243) | $ | (731,493) | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications, net of tax | (1,079,185) | 3,711 | (16,891) | — | (1,092,365) | ||||||||||||||||||||||||
Reclassifications, net of tax | 9,592 | — | — | 2,717 | 12,309 | ||||||||||||||||||||||||
Other comprehensive income (loss) | (1,069,593) | 3,711 | (16,891) | 2,717 | (1,080,056) | ||||||||||||||||||||||||
Balance at September 30, 2022 | $ | (1,712,978) | $ | 5,393 | $ | (8,438) | $ | (95,526) | $ | (1,811,549) |
Three Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||||||||||||
Balance at July 1, 2021 | $ | 2,883,391 | $ | (4,098) | $ | 27,697 | $ | (156,711) | $ | 2,750,279 | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications, net of tax | (76,174) | 341 | (5,402) | — | (81,235) | ||||||||||||||||||||||||
Reclassifications, net of tax | (11,533) | — | — | 4,108 | (7,425) | ||||||||||||||||||||||||
Other comprehensive income (loss) | (87,707) | 341 | (5,402) | 4,108 | (88,660) | ||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 2,795,684 | $ | (3,757) | $ | 22,295 | $ | (152,603) | $ | 2,661,619 |
Nine Months Ended September 30, 2022 | |||||||||||||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||||||||||||
Balance at January 1, 2022 | $ | 2,765,290 | $ | (3,418) | $ | 19,387 | $ | (103,676) | $ | 2,677,583 | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications, net of tax | (4,502,261) | 8,811 | (27,825) | — | (4,521,275) | ||||||||||||||||||||||||
Reclassifications, net of tax | 23,993 | — | — | 8,150 | 32,143 | ||||||||||||||||||||||||
Other comprehensive income (loss) | (4,478,268) | 8,811 | (27,825) | 8,150 | (4,489,132) | ||||||||||||||||||||||||
Balance at September 30, 2022 | $ | (1,712,978) | $ | 5,393 | $ | (8,438) | $ | (95,526) | $ | (1,811,549) |
Nine Months Ended September 30, 2021 | |||||||||||||||||||||||||||||
Available for Sale Assets | Deferred Acquisition Costs | Foreign Exchange | Pension Adjustments | Total | |||||||||||||||||||||||||
Balance at January 1, 2021 | $ | 3,175,572 | $ | (4,704) | $ | 23,302 | $ | (164,926) | $ | 3,029,244 | |||||||||||||||||||
Other comprehensive income (loss) before reclassifications, net of tax | (355,322) | 947 | (1,007) | — | (355,382) | ||||||||||||||||||||||||
Reclassifications, net of tax | (24,566) | — | — | 12,323 | (12,243) | ||||||||||||||||||||||||
Other comprehensive income (loss) | (379,888) | 947 | (1,007) | 12,323 | (367,625) | ||||||||||||||||||||||||
Balance at September 30, 2021 | $ | 2,795,684 | $ | (3,757) | $ | 22,295 | $ | (152,603) | $ | 2,661,619 |
10
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and 2021.
Three Months Ended September 30, | Nine Months Ended September 30, | Affected line items in the Statement of Operations | ||||||||||||||||||||||||||||||
Component Line Item | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
Unrealized investment (gains) losses on available for sale assets: | ||||||||||||||||||||||||||||||||
Realized (gains) losses | $ | 12,256 | $ | (16,269) | $ | 29,741 | $ | (35,925) | Realized (gains) losses | |||||||||||||||||||||||
Amortization of (discount) premium | (114) | 1,670 | 630 | 4,829 | Net investment income | |||||||||||||||||||||||||||
Total before tax | 12,142 | (14,599) | 30,371 | (31,096) | ||||||||||||||||||||||||||||
Tax | (2,550) | 3,066 | (6,378) | 6,530 | Income taxes | |||||||||||||||||||||||||||
Total after-tax | 9,592 | (11,533) | 23,993 | (24,566) | ||||||||||||||||||||||||||||
Pension adjustments: | ||||||||||||||||||||||||||||||||
Amortization of prior service cost | 158 | 158 | 474 | 474 | Other operating expense | |||||||||||||||||||||||||||
Amortization of actuarial (gain) loss | 3,280 | 5,040 | 9,842 | 15,124 | Other operating expense | |||||||||||||||||||||||||||
Total before tax | 3,438 | 5,198 | 10,316 | 15,598 | ||||||||||||||||||||||||||||
Tax | (721) | (1,090) | (2,166) | (3,275) | Income taxes | |||||||||||||||||||||||||||
Total after-tax | 2,717 | 4,108 | 8,150 | 12,323 | ||||||||||||||||||||||||||||
Total reclassification (after-tax) | $ | 12,309 | $ | (7,425) | $ | 32,143 | $ | (12,243) |
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, 2022 and December 31, 2021, 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 "Corporates, by sector."
At September 30, 2022 | |||||||||||||||||||||||||||||||||||
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 | $ | 389,357 | $ | — | $ | 2 | $ | (36,510) | $ | 352,849 | 2 | ||||||||||||||||||||||||
States, municipalities, and political subdivisions | 2,739,017 | — | 24,724 | (598,476) | 2,165,265 | 14 | |||||||||||||||||||||||||||||
Foreign governments | 50,144 | — | 42 | (10,277) | 39,909 | — | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 4,818,454 | — | 49,913 | (552,378) | 4,315,989 | 27 | |||||||||||||||||||||||||||||
Utilities | 1,906,747 | — | 30,252 | (144,762) | 1,792,237 | 11 | |||||||||||||||||||||||||||||
Energy | 1,466,551 | — | 14,281 | (135,922) | 1,344,910 | 8 | |||||||||||||||||||||||||||||
Other corporate sectors | 6,677,566 | — | 49,208 | (866,795) | 5,859,979 | 37 | |||||||||||||||||||||||||||||
Total corporates | 14,869,318 | — | 143,654 | (1,699,857) | 13,313,115 | 83 | |||||||||||||||||||||||||||||
Collateralized debt obligations | 36,721 | — | 13,874 | — | 50,595 | — | |||||||||||||||||||||||||||||
Other asset-backed securities | 88,914 | — | 5 | (5,512) | 83,407 | 1 | |||||||||||||||||||||||||||||
Total fixed maturities | $ | 18,173,471 | $ | — | $ | 182,301 | $ | (2,350,632) | $ | 16,005,140 | 100 |
(1)Amount reported in the balance sheet.
(2)At fair value.
11
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
At December 31, 2021 | |||||||||||||||||||||||||||||||||||
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 | $ | 383,083 | $ | — | $ | 64,513 | $ | (164) | $ | 447,432 | 2 | ||||||||||||||||||||||||
States, municipalities, and political subdivisions | 2,252,997 | — | 239,135 | (2,907) | 2,489,225 | 12 | |||||||||||||||||||||||||||||
Foreign governments | 59,861 | — | 900 | (5,132) | 55,629 | — | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 4,569,160 | (387) | 907,741 | (9,349) | 5,467,165 | 26 | |||||||||||||||||||||||||||||
Utilities | 1,931,391 | — | 490,119 | (1,012) | 2,420,498 | 11 | |||||||||||||||||||||||||||||
Energy | 1,587,892 | — | 346,780 | (1,683) | 1,932,989 | 9 | |||||||||||||||||||||||||||||
Other corporate sectors | 6,879,459 | — | 1,454,464 | (13,362) | 8,320,561 | 39 | |||||||||||||||||||||||||||||
Total corporates | 14,967,902 | (387) | 3,199,104 | (25,406) | 18,141,213 | 85 | |||||||||||||||||||||||||||||
Collateralized debt obligations | 36,468 | — | 27,037 | — | 63,505 | — | |||||||||||||||||||||||||||||
Other asset-backed securities | 104,998 | — | 3,715 | (430) | 108,283 | 1 | |||||||||||||||||||||||||||||
Total fixed maturities | $ | 17,805,309 | $ | (387) | $ | 3,534,404 | $ | (34,039) | $ | 21,305,287 | 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, 2022, is shown below on an amortized cost basis, net of allowance for credit losses, and on a fair value basis. Actual disposition dates could differ from contractual maturities due to call or prepayment provisions.
At September 30, 2022 | |||||||||||
Amortized Cost, net | Fair Value | ||||||||||
Fixed maturities available for sale: | |||||||||||
Due in one year or less | $ | 162,473 | $ | 163,087 | |||||||
Due after one year through five years | 1,020,894 | 1,021,499 | |||||||||
Due after five years through ten years | 1,716,490 | 1,695,969 | |||||||||
Due after ten years through twenty years | 7,477,686 | 6,932,181 | |||||||||
Due after twenty years | 7,670,293 | 6,058,402 | |||||||||
Mortgage-backed and asset-backed securities | 125,635 | 134,002 | |||||||||
$ | 18,173,471 | $ | 16,005,140 |
12
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and 2021 is summarized as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||||||||||||||||||||||||||||
Fixed maturities available for sale | $ | 227,673 | $ | 223,287 | 2 | $ | 679,710 | $ | 668,284 | 2 | |||||||||||||||||||||||||
Policy loans | 11,716 | 11,376 | 3 | 34,724 | 33,968 | 2 | |||||||||||||||||||||||||||||
Other long-term investments(1) | 10,933 | 9,390 | 16 | 34,349 | 26,432 | 30 | |||||||||||||||||||||||||||||
Short-term investments | 969 | 10 | 1,093 | 20 | |||||||||||||||||||||||||||||||
251,291 | 244,063 | 3 | 749,876 | 728,704 | 3 | ||||||||||||||||||||||||||||||
Less investment expense | (5,666) | (5,088) | 11 | (16,775) | (15,601) | 8 | |||||||||||||||||||||||||||||
Net investment income | $ | 245,625 | $ | 238,975 | 3 | $ | 733,101 | $ | 713,103 | 3 |
(1)For the three months ended September 30, 2022 and 2021, the investment funds, accounted for under the fair value option method, recorded $8.4 million and $7.1 million of distributions, respectively, in net investment income. For the nine months ended September 30, 2022 and 2021, the investment funds, accounted for under the fair value option method, recorded $27.7 million and $19.4 million of distributions, respectively, in net investment income. Refer to Other Long-Term Investments below for further discussion on the investment funds.
Selected information about sales of fixed maturities available for sale is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Fixed maturities available for sale: | |||||||||||||||||||||||
Proceeds from sales(1) | $ | 127,695 | $ | 17,085 | $ | 346,722 | $ | 91,795 | |||||||||||||||
Gross realized gains | 165 | 304 | 938 | 1,438 | |||||||||||||||||||
Gross realized losses | (11,537) | — | (56,384) | (12,101) |
(1)There were no unsettled sales in the periods ended September 30, 2022 and 2021.
13
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Realized investment gains (losses): | |||||||||||||||||||||||
Fixed maturities available for sale: | |||||||||||||||||||||||
Sales and other(1) | $ | (12,256) | $ | 16,269 | $ | (30,128) | $ | 32,578 | |||||||||||||||
Provision for credit losses | — | — | 387 | 3,346 | |||||||||||||||||||
Fair value option—change in fair value | (11,551) | 1,585 | (15,942) | 14,013 | |||||||||||||||||||
Other investments | (5,348) | 1,935 | (21,162) | 6,663 | |||||||||||||||||||
Realized gains (losses) from investments | (29,155) | 19,789 | (66,845) | 56,600 | |||||||||||||||||||
Realized loss on redemption of debt | — | (9,314) | — | (9,314) | |||||||||||||||||||
Total realized gains (losses) | (29,155) | 10,475 | (66,845) | 47,286 | |||||||||||||||||||
Applicable tax | 6,122 | (2,200) | 14,037 | (9,930) | |||||||||||||||||||
Realized gains (losses), net of tax | $ | (23,033) | $ | 8,275 | $ | (52,808) | $ | 37,356 |
(1)During the three months ended September 30, 2022 and 2021, the Company recorded $22.1 million and $0 of exchanges of fixed maturities (noncash transactions) that resulted in $0 and $0, respectively, in realized gains (losses). During the nine months ended September 30, 2022 and 2021, the Company recorded $24.0 million and $108.3 million of exchanges of fixed maturities (noncash transactions) that resulted in $0 and $25.2 million, respectively, in realized gains (losses).
14
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and December 31, 2021:
Fair Value Measurement at September 30, 2022 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 | $ | — | $ | 352,849 | $ | — | $ | 352,849 | |||||||||||||||
States, municipalities, and political subdivisions | — | 2,165,265 | — | 2,165,265 | |||||||||||||||||||
Foreign governments | — | 39,909 | — | 39,909 | |||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | — | 4,202,350 | 113,639 | 4,315,989 | |||||||||||||||||||
Utilities | — | 1,681,228 | 111,009 | 1,792,237 | |||||||||||||||||||
Energy | — | 1,333,105 | 11,805 | 1,344,910 | |||||||||||||||||||
Other corporate sectors | — | 5,611,867 | 248,112 | 5,859,979 | |||||||||||||||||||
Total corporates | — | 12,828,550 | 484,565 | 13,313,115 | |||||||||||||||||||
Collateralized debt obligations | — | — | 50,595 | 50,595 | |||||||||||||||||||
Other asset-backed securities | — | 83,407 | — | 83,407 | |||||||||||||||||||
Total fixed maturities | $ | — | $ | 15,469,980 | $ | 535,160 | $ | 16,005,140 | |||||||||||||||
Percentage of total | — | % | 97 | % | 3 | % | 100 | % |
Fair Value Measurement at December 31, 2021 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 | $ | — | $ | 447,432 | $ | — | $ | 447,432 | |||||||||||||||
States, municipalities, and political subdivisions | — | 2,489,225 | — | 2,489,225 | |||||||||||||||||||
Foreign governments | — | 55,629 | — | 55,629 | |||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||
Financial | — | 5,303,547 | 163,618 | 5,467,165 | |||||||||||||||||||
Utilities | — | 2,266,231 | 154,267 | 2,420,498 | |||||||||||||||||||
Energy | — | 1,919,416 | 13,573 | 1,932,989 | |||||||||||||||||||
Other corporate sectors | — | 8,010,331 | 310,230 | 8,320,561 | |||||||||||||||||||
Total corporates | — | 17,499,525 | 641,688 | 18,141,213 | |||||||||||||||||||
Collateralized debt obligations | — | — | 63,505 | 63,505 | |||||||||||||||||||
Other asset-backed securities | — | 108,283 | — | 108,283 | |||||||||||||||||||
Total fixed maturities | $ | — | $ | 20,600,094 | $ | 705,193 | $ | 21,305,287 | |||||||||||||||
Percentage of total | — | % | 97 | % | 3 | % | 100 | % |
15
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 | $ | — | $ | 63,505 | $ | 641,688 | $ | 705,193 | |||||||||||||||
Included in realized gains / losses | — | — | — | — | |||||||||||||||||||
Included in other comprehensive income | — | (13,163) | (114,525) | (127,688) | |||||||||||||||||||
Acquisitions | — | — | — | — | |||||||||||||||||||
Sales | — | — | — | — | |||||||||||||||||||
Amortization | — | 3,382 | 6 | 3,388 | |||||||||||||||||||
Other(1) | — | (3,129) | (42,604) | (45,733) | |||||||||||||||||||
Transfers into Level 3(2) | — | — | — | — | |||||||||||||||||||
Transfers out of Level 3(2) | — | — | — | — | |||||||||||||||||||
Balance at September 30, 2022 | $ | — | $ | 50,595 | $ | 484,565 | $ | 535,160 | |||||||||||||||
Percent of total fixed maturities | — | % | — | % | 3 | % | 3 | % |
(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, 2021 | $ | 12,870 | $ | 71,598 | $ | 714,505 | $ | 798,973 | |||||||||||||||
Included in realized gains / losses | (82) | (6,787) | 2,733 | (4,136) | |||||||||||||||||||
Included in other comprehensive income | 63 | 12,482 | (15,346) | (2,801) | |||||||||||||||||||
Acquisitions | — | — | 25,000 | 25,000 | |||||||||||||||||||
Sales | (12,851) | (13,213) | — | (26,064) | |||||||||||||||||||
Amortization | — | 3,388 | 8 | 3,396 | |||||||||||||||||||
Other(1) | — | (4,307) | (72,730) | (77,037) | |||||||||||||||||||
Transfers into Level 3(2) | — | — | — | — | |||||||||||||||||||
Transfers out of Level 3(2) | — | — | — | — | |||||||||||||||||||
Balance at September 30, 2021 | $ | — | $ | 63,161 | $ | 654,170 | $ | 717,331 | |||||||||||||||
Percent of total fixed maturities | — | % | — | % | 3 | % | 3 | % |
(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.
16
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 | $ | — | $ | (13,163) | $ | (114,525) | $ | (127,688) | |||||||||||||||
At September 30, 2021 | 63 | 12,482 | (15,346) | (2,801) |
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, 2022 | 1,886 | 122 | 2,008 | ||||||||||||||
As of December 31, 2021 | 138 | 42 | 180 |
Globe Life's entire fixed maturity portfolio consisted of 2,275 issues by 957 different issuers at September 30, 2022 and 2,060 issues by 843 different issuers at December 31, 2021. The weighted-average quality rating of all unrealized loss positions at amortized cost was A- as of September 30, 2022 and December 31, 2021.
17
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and December 31, 2021.
Analysis of Gross Unrealized Investment Losses
At September 30, 2022 | |||||||||||||||||||||||||||||||||||
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 | $ | 349,350 | $ | (35,764) | $ | 3,416 | $ | (746) | $ | 352,766 | $ | (36,510) | |||||||||||||||||||||||
States, municipalities and political subdivisions | 1,728,650 | (562,887) | 52,359 | (35,589) | 1,781,009 | (598,476) | |||||||||||||||||||||||||||||
Foreign governments | 5,754 | (142) | 23,983 | (10,135) | 29,737 | (10,277) | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 2,895,779 | (490,451) | 75,439 | (27,653) | 2,971,218 | (518,104) | |||||||||||||||||||||||||||||
Utilities | 1,114,356 | (135,376) | 20,829 | (6,416) | 1,135,185 | (141,792) | |||||||||||||||||||||||||||||
Energy | 958,397 | (125,270) | — | — | 958,397 | (125,270) | |||||||||||||||||||||||||||||
Other corporate sectors | 4,378,481 | (799,054) | 80,275 | (37,894) | 4,458,756 | (836,948) | |||||||||||||||||||||||||||||
Total corporates | 9,347,013 | (1,550,151) | 176,543 | (71,963) | 9,523,556 | (1,622,114) | |||||||||||||||||||||||||||||
Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other asset-backed securities | 61,532 | (4,177) | 9,712 | (711) | 71,244 | (4,888) | |||||||||||||||||||||||||||||
Total investment grade securities | 11,492,299 | (2,153,121) | 266,013 | (119,144) | 11,758,312 | (2,272,265) | |||||||||||||||||||||||||||||
Below investment grade securities: | |||||||||||||||||||||||||||||||||||
States, municipalities and political subdivisions | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 127,557 | (18,081) | 39,446 | (16,193) | 167,003 | (34,274) | |||||||||||||||||||||||||||||
Utilities | 27,925 | (2,970) | — | — | 27,925 | (2,970) | |||||||||||||||||||||||||||||
Energy | 14,220 | (2,453) | 19,868 | (8,199) | 34,088 | (10,652) | |||||||||||||||||||||||||||||
Other corporate sectors | 167,639 | (25,403) | 6,861 | (4,444) | 174,500 | (29,847) | |||||||||||||||||||||||||||||
Total corporates | 337,341 | (48,907) | 66,175 | (28,836) | 403,516 | (77,743) | |||||||||||||||||||||||||||||
Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other asset-backed securities | — | — | 12,083 | (624) | 12,083 | (624) | |||||||||||||||||||||||||||||
Total below investment grade securities | 337,341 | (48,907) | 78,258 | (29,460) | 415,599 | (78,367) | |||||||||||||||||||||||||||||
Total fixed maturities | $ | 11,829,640 | $ | (2,202,028) | $ | 344,271 | $ | (148,604) | $ | 12,173,911 | $ | (2,350,632) |
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. The Company considers many factors when determining whether an allowance for a credit loss should be recorded. While the Company holds securities that may be in an unrealized loss position from time to time, Globe Life does not generally intend to sell and it is likely that management will not be required to sell the fixed maturities prior to their anticipated recovery or maturity due to the strong cash flows generated by its insurance operations.
18
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Analysis of Gross Unrealized Investment Losses
At December 31, 2021 | |||||||||||||||||||||||||||||||||||
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 | $ | 118 | $ | (1) | $ | 3,867 | $ | (163) | $ | 3,985 | $ | (164) | |||||||||||||||||||||||
States, municipalities and political subdivisions | 141,310 | (2,824) | 2,436 | (83) | 143,746 | (2,907) | |||||||||||||||||||||||||||||
Foreign governments | 12,567 | (561) | 23,144 | (4,571) | 35,711 | (5,132) | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 133,654 | (1,507) | 52,864 | (1,932) | 186,518 | (3,439) | |||||||||||||||||||||||||||||
Utilities | 25,447 | (692) | 2,372 | (320) | 27,819 | (1,012) | |||||||||||||||||||||||||||||
Energy | 6,519 | (238) | — | — | 6,519 | (238) | |||||||||||||||||||||||||||||
Other corporate sectors | 115,444 | (3,566) | 40,249 | (3,670) | 155,693 | (7,236) | |||||||||||||||||||||||||||||
Total corporates | 281,064 | (6,003) | 95,485 | (5,922) | 376,549 | (11,925) | |||||||||||||||||||||||||||||
Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other asset-backed securities | 10,489 | (16) | 1 | — | 10,490 | (16) | |||||||||||||||||||||||||||||
Total investment grade securities | 445,548 | (9,405) | 124,933 | (10,739) | 570,481 | (20,144) | |||||||||||||||||||||||||||||
Below investment grade securities: | |||||||||||||||||||||||||||||||||||
States, municipalities and political subdivisions | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Corporates, by sector: | |||||||||||||||||||||||||||||||||||
Financial | 15,695 | (272) | 56,897 | (5,638) | 72,592 | (5,910) | |||||||||||||||||||||||||||||
Utilities | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Energy | — | — | 26,639 | (1,445) | 26,639 | (1,445) | |||||||||||||||||||||||||||||
Other corporate sectors | 700 | (11) | 26,581 | (6,115) | 27,281 | (6,126) | |||||||||||||||||||||||||||||
Total corporates | 16,395 | (283) | 110,117 | (13,198) | 126,512 | (13,481) | |||||||||||||||||||||||||||||
Collateralized debt obligations | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Other asset-backed securities | — | — | 13,043 | (414) | 13,043 | (414) | |||||||||||||||||||||||||||||
Total below investment grade securities | 16,395 | (283) | 123,160 | (13,612) | 139,555 | (13,895) | |||||||||||||||||||||||||||||
Total fixed maturities | $ | 461,943 | $ | (9,688) | $ | 248,093 | $ | (24,351) | $ | 710,036 | $ | (34,039) |
19
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Allowance for credit losses beginning balance | $ | — | $ | — | $ | 387 | $ | 3,346 | ||||||||||||||||||
Additions to allowance for which credit losses were not previously recorded | — | — | — | — | ||||||||||||||||||||||
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 | — | — | (387) | (3,346) | ||||||||||||||||||||||
Allowance for credit losses ending balance | $ | — | $ | — | $ | — | $ | — |
As of September 30, 2022 and December 31, 2021, 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, 2022 | December 31, 2021 | ||||||||||
Investment funds | $ | 748,219 | $ | 640,263 | |||||||
Commercial mortgage loan participations | 140,069 | 141,843 | |||||||||
Other | 19,102 | 11,819 | |||||||||
Total | $ | 907,390 | $ | 793,925 |
The following table presents additional information about the Company's investment funds as of September 30, 2022 and December 31, 2021 at fair value:
Fair Value | Unfunded Commitments | |||||||||||||||||||||||||
Investment Category | September 30, 2022 | December 31, 2021 | September 30, 2022 | Redemption Term/Notice | ||||||||||||||||||||||
Commercial mortgage loans | $ | 425,189 | $ | 423,776 | $ | 354,361 | Fully redeemable and non-redeemable with varying terms. | |||||||||||||||||||
Opportunistic credit | 159,972 | 178,215 | — | Initial 2 year lock on each new investment/semi-annual withdrawals thereafter/full redemption within 36 month period. | ||||||||||||||||||||||
Infrastructure | 149,532 | 22,664 | 30,338 | Fully redeemable and non-redeemable with varying terms. | ||||||||||||||||||||||
Other | 13,526 | 15,608 | 127,500 | |||||||||||||||||||||||
Total investment funds | $ | 748,219 | $ | 640,263 | $ | 512,199 |
The Company had $165 million of capital called during the year from existing investment funds. Our unfunded commitments were $512 million as of September 30, 2022.
20
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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, 2022 and December 31, 2021 are as follows:
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
Carrying Value | % of Total | Carrying Value | % of Total | ||||||||||||||||||||
Property type: | |||||||||||||||||||||||
Mixed use | $ | 62,239 | 45 | $ | 57,996 | 41 | |||||||||||||||||
Hospitality | 20,767 | 15 | 23,186 | 16 | |||||||||||||||||||
Retail | 19,423 | 14 | 19,811 | 14 | |||||||||||||||||||
Industrial | 17,308 | 12 | 17,900 | 13 | |||||||||||||||||||
Multi-family | 14,386 | 10 | 14,872 | 11 | |||||||||||||||||||
Office | 8,106 | 6 | 8,905 | 6 | |||||||||||||||||||
Total recorded investment | 142,229 | 102 | 142,670 | 101 | |||||||||||||||||||
Less allowance for credit losses | (2,160) | (2) | (827) | (1) | |||||||||||||||||||
Carrying value, net of allowance for credit losses | $ | 140,069 | 100 | $ | 141,843 | 100 |
September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
Carrying Value | % of Total | Carrying Value | % of Total | ||||||||||||||||||||
Geographic location: | |||||||||||||||||||||||
California | $ | 68,698 | 49 | $ | 67,659 | 48 | |||||||||||||||||
New York | 19,452 | 14 | 18,373 | 13 | |||||||||||||||||||
Pennsylvania | 11,673 | 8 | 11,673 | 8 | |||||||||||||||||||
Indiana | 9,717 | 7 | 9,717 | 7 | |||||||||||||||||||
Florida | 8,279 | 6 | 8,213 | 6 | |||||||||||||||||||
Texas | 6,136 | 5 | 5,898 | 4 | |||||||||||||||||||
Other | 18,274 | 13 | 21,137 | 15 | |||||||||||||||||||
Total recorded investment | 142,229 | 102 | 142,670 | 101 | |||||||||||||||||||
Less allowance for credit losses | (2,160) | (2) | (827) | (1) | |||||||||||||||||||
Carrying value, net of allowance for credit losses | $ | 140,069 | 100 | $ | 141,843 | 100 |
21
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
The following tables are reflective of Management's internal risk ratings of the loan portfolio. Loans are rated low, moderate, and high. The risk categories consider many different factors such as quality of asset, borrower status, as well as macroeconomic factors including COVID-19. These loans, originated in 2017 to 2022, are transitional or under construction and may not yet be income producing. Certain ratios, such as loan to value and debt service coverage ratios, may not be evaluated as the value of the underlying transitional property significantly fluctuates based on completion of the project.
Net Book Value of Commercial Mortgage Loans Receivable by Year of Origination | ||||||||||||||||||||||||||||||||||||||||||||||||||
As of September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Risk Rating: | Number of Loans | 2022 | 2021 | 2020 | 2019 | 2018 | 2017 | Total | ||||||||||||||||||||||||||||||||||||||||||
Low | 14 | $ | 3,000 | $ | — | $ | 27,181 | $ | 12,337 | $ | 35,462 | $ | 36,188 | $ | 114,168 | |||||||||||||||||||||||||||||||||||
Moderate | 5 | — | — | 1,195 | 15,722 | — | — | 16,917 | ||||||||||||||||||||||||||||||||||||||||||
High | 2 | — | — | — | 4,110 | 7,034 | — | 11,144 | ||||||||||||||||||||||||||||||||||||||||||
Total commercial mortgage loans | 21 | $ | 3,000 | $ | — | $ | 28,376 | $ | 32,169 | $ | 42,496 | $ | 36,188 | 142,229 | ||||||||||||||||||||||||||||||||||||
Less allowance for credit losses on the investment pool | (1,151) | |||||||||||||||||||||||||||||||||||||||||||||||||
Less allowance for credit losses on individual loans | (1,009) | |||||||||||||||||||||||||||||||||||||||||||||||||
Carrying value, net of valuation allowance | $ | 140,069 |
Net Book Value of Commercial Mortgage Loans Receivable by Year of Origination | ||||||||||||||||||||||||||||||||||||||||||||
As of December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||
Risk Rating: | Number of Loans | 2021 | 2020 | 2019 | 2018 | 2017 | Total | |||||||||||||||||||||||||||||||||||||
Low | 14 | $ | — | $ | 23,636 | $ | 11,925 | $ | 41,209 | $ | 35,729 | $ | 112,499 | |||||||||||||||||||||||||||||||
Moderate | 6 | — | 1,400 | 17,173 | — | — | 18,573 | |||||||||||||||||||||||||||||||||||||
High | 2 | — | — | 4,593 | 7,005 | — | 11,598 | |||||||||||||||||||||||||||||||||||||
Total commercial mortgage loans | 22 | $ | — | $ | 25,036 | $ | 33,691 | $ | 48,214 | $ | 35,729 | 142,670 | ||||||||||||||||||||||||||||||||
Less allowance for credit losses on the investment pool | (827) | |||||||||||||||||||||||||||||||||||||||||||
Less allowance for credit losses on individual loans | — | |||||||||||||||||||||||||||||||||||||||||||
Carrying value, net of valuation allowance | $ | 141,843 |
As of September 30, 2022, the Company evaluated the commercial mortgage loan portfolio on a pool basis to determine the allowance for credit losses. At the end of the period, the Company had 21 loans in the portfolio. For the nine months ended September 30, 2022, the allowance for credit losses increased $1.3 million. The provision for credit losses is included in "Realized gains (losses)" in the Condensed Consolidated Statements of Operations.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
Allowance for credit losses beginning balance | $ | 1,109 | $ | 1,639 | $ | 827 | $ | 3,505 | ||||||||||||||||||
Provision (reversal) for credit losses | 1,051 | (455) | 1,333 | (2,321) | ||||||||||||||||||||||
Allowance for credit losses ending balance | $ | 2,160 | $ | 1,184 | $ | 2,160 | $ | 1,184 |
As of September 30, 2022 and December 31, 2021, the Company had one commercial mortgage loan in non-accrual status, which went into foreclosure during the year. The outstanding principal balance of this loan was $4.1 million as of September 30, 2022 and December 31, 2021. Among the remaining commercial mortgage loans, none were delinquent as of September 30, 2022 and December 31, 2021. The Company's unfunded commitment balance to commercial loan borrowers was $21 million as of September 30, 2022.
22
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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 insurance subsidiaries. These letters of credit facilitate TMK Re, Ltd.’s ability to reinsure the business of Globe Life's insurance carriers. The agreement was amended on September 30, 2021 and now expires in 2026. 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. The amount outstanding at September 30, 2022 was $125 million.
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, worker misclassification, 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 Parent Company's insurance subsidiaries have substantial business, creating the potential for unpredictable material adverse judgments in any given punitive damage suit.
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, pursued 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 alleged that agent trainees and insurance agents should have been classified as employees. It asserted a national collective action under the Fair Labor Standards Act and sought compensation for minimum wage, overtime, expense reimbursement, missed meal and rest breaks, recoupment of certain commissions and improper recordkeeping. In addition, the lawsuit asserted a class action under the Pennsylvania Minimum Wage Act and Pennsylvania Wage Payment and Collection Law seeking similar relief. Plaintiffs also sought liquidated damages and attorney’s fees, and asserted an unjust enrichment claim. On September 20, 2020, American Income’s motion to compel arbitration of the plaintiffs’ individual claims was granted. Thereafter, the parties negotiated the settlement of such claims for a non-material amount, individually and in the aggregate. The case was then dismissed by the Court on May 20, 2022 pursuant to a joint stipulation filed by the parties.
23
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(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:
September 30, 2022 | December 31, 2021 | ||||||||||
Balance at beginning of period | $ | 167,832 | $ | 162,261 | |||||||
Incurred related to: | |||||||||||
Current year | 508,415 | 638,054 | |||||||||
Prior year | (14,117) | (22,477) | |||||||||
Total incurred | 494,298 | 615,577 | |||||||||
Paid related to: | |||||||||||
Current year | 359,486 | 487,096 | |||||||||
Prior year | 124,805 | 122,910 | |||||||||
Total paid | 484,291 | 610,006 | |||||||||
Balance at end of period | $ | 177,839 | $ | 167,832 |
Below is the reconciliation of the liability of "Policy claims and other benefits payable" in the Condensed Consolidated Balance Sheets.
September 30, 2022 | December 31, 2021 | ||||||||||
Policy claims and other benefits payable: | |||||||||||
Life insurance | $ | 239,900 | $ | 245,108 | |||||||
Health insurance | 177,839 | 167,832 | |||||||||
Total | $ | 417,739 | $ | 412,940 |
24
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 7—Postretirement Benefits
Globe Life has qualified noncontributory defined benefit pension plans (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 officers. The tables included herein will focus on the Pension Plans and SERP.
Pension Assets: The following table presents the assets of the Company's Pension Plans at September 30, 2022 and December 31, 2021.
Pension Assets by Component at September 30, 2022
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 | % of Total | |||||||||||||||||||||||||
Corporate bonds: | |||||||||||||||||||||||||||||
Financial | $ | — | $ | 39,536 | $ | — | $ | 39,536 | 8 | ||||||||||||||||||||
Utilities | — | 33,005 | — | 33,005 | 7 | ||||||||||||||||||||||||
Energy | — | 17,439 | — | 17,439 | 4 | ||||||||||||||||||||||||
Other corporates | — | 59,738 | — | 59,738 | 12 | ||||||||||||||||||||||||
Total corporate bonds | — | 149,718 | — | 149,718 | 31 | ||||||||||||||||||||||||
Exchange traded fund(1) | 239,191 | — | — | 239,191 | 49 | ||||||||||||||||||||||||
Other bonds | — | 201 | — | 201 | — | ||||||||||||||||||||||||
Guaranteed annuity contract(2) | — | 43,433 | — | 43,433 | 9 | ||||||||||||||||||||||||
Short-term investments | 28,311 | — | — | 28,311 | 6 | ||||||||||||||||||||||||
Other | 7,538 | — | — | 7,538 | 2 | ||||||||||||||||||||||||
$ | 275,040 | $ | 193,352 | $ | — | 468,392 | 97 | ||||||||||||||||||||||
Other long-term investments(3) | 14,237 | 3 | |||||||||||||||||||||||||||
Total pension assets | $ | 482,629 | 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 Collective Bargaining Agreement Employees Pension Plan.
(3)Included in other long-term investments is an investment fund that reports the Globe Life Inc. 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 Globe Life Inc. Pension Plan owns less than 1% of the investment fund. As of September 30, 2022, the expected term of the investment fund is approximately 2 years and the commitment of the investment is fully funded. The investment is non-redeemable.
25
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Pension Assets by Component at December 31, 2021
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 | % of Total | |||||||||||||||||||||||||
Corporate bonds: | |||||||||||||||||||||||||||||
Financial | $ | — | $ | 52,522 | $ | — | $ | 52,522 | 9 | ||||||||||||||||||||
Utilities | — | 43,663 | — | 43,663 | 7 | ||||||||||||||||||||||||
Energy | — | 22,719 | — | 22,719 | 4 | ||||||||||||||||||||||||
Other corporates | — | 88,673 | — | 88,673 | 15 | ||||||||||||||||||||||||
Total corporate bonds | — | 207,577 | — | 207,577 | 35 | ||||||||||||||||||||||||
Exchange traded fund(1) | 315,720 | — | — | 315,720 | 52 | ||||||||||||||||||||||||
Other bonds | — | 239 | — | 239 | — | ||||||||||||||||||||||||
Guaranteed annuity contract(2) | — | 34,743 | — | 34,743 | 6 | ||||||||||||||||||||||||
Short-term investments | 13,731 | — | — | 13,731 | 2 | ||||||||||||||||||||||||
Other | 10,388 | — | — | 10,388 | 2 | ||||||||||||||||||||||||
$ | 339,839 | $ | 242,559 | $ | — | 582,398 | 97 | ||||||||||||||||||||||
Other long-term investments(3) | 15,149 | 3 | |||||||||||||||||||||||||||
Total pension assets | $ | 597,547 | 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 Collective Bargaining Agreement Employees Pension Plan.
(3)Included in other long-term investments is an investment fund that reports the Globe Life Inc. 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 Globe Life Inc. Pension Plan owns approximately 1% of the investment fund. As of December 31, 2021, the expected term of the investment fund was approximately 3 years and the commitment of the investment is fully funded. The investment is non-redeemable.
SERP: The following table includes information regarding the SERP.
Nine Months Ended September 30, | |||||||||||
2022 | 2021 | ||||||||||
Premiums paid for insurance coverage | $ | 443 | $ | 2,193 | |||||||
September 30, 2022 | December 31, 2021 | ||||||||||
Total investments: | |||||||||||
Company owned life insurance | $ | 54,274 | $ | 52,791 | |||||||
Exchange traded funds | 68,643 | 87,133 | |||||||||
$ | 122,917 | $ | 139,924 |
26
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Pension Plans and SERP Liabilities: The following table presents liabilities for the defined benefit pension plans and SERP at September 30, 2022 and December 31, 2021.
September 30, 2022 | December 31, 2021 | ||||||||||
Pension Plans | $ | 517,293 | $ | 686,917 | |||||||
SERP | 92,050 | 92,017 | |||||||||
Pension benefit obligation | $ | 609,343 | $ | 778,934 |
The decline in the pension benefit obligation is primarily a result of an increase in the discount rate as well as contributions made during the year.
Net Periodic Benefit Cost: The following table presents the net periodic benefit costs for the Pension Plans and SERP by expense components for the three and nine months ended September 30, 2022 and 2021.
Components of Net Periodic Benefit Cost
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Service cost | $ | 8,657 | $ | 7,919 | $ | 25,968 | $ | 23,755 | |||||||||||||||
Interest cost | 6,124 | 5,467 | 18,368 | 16,403 | |||||||||||||||||||
Expected return on assets | (8,885) | (8,083) | (26,655) | (24,249) | |||||||||||||||||||
Amortization: | |||||||||||||||||||||||
Prior service cost | 158 | 158 | 474 | 474 | |||||||||||||||||||
Actuarial (gain) loss | 3,208 | 4,984 | 9,625 | 14,953 | |||||||||||||||||||
Net periodic benefit cost | $ | 9,262 | $ | 10,445 | $ | 27,780 | $ | 31,336 |
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, | ||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
Basic weighted average shares outstanding | 97,258,349 | 101,498,408 | 98,244,271 | 102,618,327 | |||||||||||||||||||
Weighted average dilutive options outstanding | 889,175 | 882,609 | 857,964 | 1,171,159 | |||||||||||||||||||
Diluted weighted average shares outstanding | 98,147,524 | 102,381,017 | 99,102,235 | 103,789,486 | |||||||||||||||||||
Antidilutive shares | 2,602,609 | 2,601,499 | 2,351,522 | 2,349,321 |
Antidilutive shares are excluded from the calculation of diluted earnings per share.
27
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Note 9—Debt
On May 19, 2022, Globe Life completed the issuance of $400 million principal amount of 4.8% Senior notes due June 15, 2032, of which $150 million is owned by Globe Life affiliates. Total proceeds received by the Parent from the issuance, net of the underwriters’ discount, were $395 million. The proceeds were used to fund $300 million of 3.8% Senior notes, of which $150 million was owned by Globe life affiliates, that matured on September 15, 2022, as well as for the reduction of commercial paper and other general corporate purposes.
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, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
Instrument | Issue Date | Maturity Date | Coupon Rate | Par Value | Unamortized Discount & Issuance Costs | Book Value | Fair Value | Book Value | |||||||||||||||||||||||||||||||||||||||
Senior notes | 5/27/1993 | 5/15/2023 | 7.875% | $ | 165,612 | $ | (185) | $ | 165,427 | $ | 167,781 | $ | 165,216 | ||||||||||||||||||||||||||||||||||
Senior notes(2) | — | — | — | — | — | — | — | 149,752 | |||||||||||||||||||||||||||||||||||||||
Senior notes | 9/27/2018 | 9/15/2028 | 4.550% | 550,000 | (4,562) | 545,438 | 526,702 | 544,949 | |||||||||||||||||||||||||||||||||||||||
Senior notes | 8/21/2020 | 8/15/2030 | 2.150% | 400,000 | (3,891) | 396,109 | 310,560 | 395,778 | |||||||||||||||||||||||||||||||||||||||
Senior notes(1) | 5/19/2022 | 6/15/2032 | 4.800% | 250,000 | (4,616) | 245,384 | 231,700 | — | |||||||||||||||||||||||||||||||||||||||
Junior subordinated debentures | 11/17/2017 | 11/17/2057 | 5.275% | 125,000 | (1,594) | 123,406 | 124,016 | 123,396 | |||||||||||||||||||||||||||||||||||||||
Junior subordinated debentures | 6/14/2021 | 6/15/2061 | 4.250% | 325,000 | (7,790) | 317,210 | 252,545 | 317,155 | |||||||||||||||||||||||||||||||||||||||
1,815,612 | (22,638) | 1,792,974 | 1,613,304 | 1,696,246 | |||||||||||||||||||||||||||||||||||||||||||
Less current maturity of long-term debt | 165,612 | (185) | 165,427 | 167,781 | 149,752 | ||||||||||||||||||||||||||||||||||||||||||
Total long-term debt | 1,650,000 | (22,453) | 1,627,547 | 1,445,523 | 1,546,494 | ||||||||||||||||||||||||||||||||||||||||||
Current maturity of long-term debt) | 165,612 | (185) | 165,427 | 167,781 | 149,752 | ||||||||||||||||||||||||||||||||||||||||||
Commercial paper | 270,000 | (690) | 269,310 | 269,310 | 329,892 | ||||||||||||||||||||||||||||||||||||||||||
Total short-term debt | 435,612 | (875) | 434,737 | 437,091 | 479,644 | ||||||||||||||||||||||||||||||||||||||||||
Total debt | $ | 2,085,612 | $ | (23,328) | $ | 2,062,284 | $ | 1,882,614 | $ | 2,026,138 |
(1)An additional $150 million par value and book value is held by insurance subsidiaries that eliminates in consolidation.
(2)The $300 million of 3.80% Senior notes matured on September 15, 2022, of which $150 million was owned by Globe Life affiliates.
The commercial paper has the highest priority of all the debt, followed by senior notes then junior subordinated debentures. The senior notes due 2023 are noncallable, the remaining senior notes are callable under a make-whole provision, and the junior subordinated debentures are subject to an optional redemption five years from issuance. Interest on the 4.25% junior subordinated debentures is payable quarterly while all other long-term debt is payable semi-annually.
Federal Home Loan Bank (FHLB): In 2021, four of our insurance subsidiaries became members of the FHLB of Dallas. FHLB membership provides the insurance subsidiaries with access to various low-cost collateralized borrowings and funding agreements. The membership requires ownership of FHLB common stock, as well as the purchase of activity-based common stock equal to approximately 4.1% of outstanding borrowings.
28
GL Q3 2022 FORM 10-Q
Globe Life Inc.
Notes to Condensed Consolidated Financial Statements
(Dollar amounts in thousands, except per share data)
Globe Life owns $13.0 million in FHLB common stock as of September 30, 2022 and $7.9 million as of December 31, 2021. The FHLB stock is restricted for the duration of the membership and recorded at cost (par) as required by applicable guidance. The FHLB stock is included in "Other long-term investments" in the Condensed Consolidated Balance Sheets.
As of September 30, 2022, there were no outstanding borrowings with the FHLB. Borrowings with the FHLB are subject to the availability of pledged assets at Globe Life. As of September 30, 2022, Globe Life's maximum borrowing capacity under the FHLB facility was approximately $526 million, based on pledged assets with a fair value of $737 million.
Note 10—Business Segments
Globe Life is organized into four segments: life insurance, supplemental health insurance, annuities, and investments. In addition, other expenses not included in these segments are reported in "Corporate & Other."
Globe Life's reportable insurance segments are based on the insurance product lines it markets and administers: life insurance, supplemental health insurance, and annuities. These major product lines are set out as reportable segments because of the common characteristics of products within these categories, comparability of margins, and the similarity in regulatory environment and management techniques. There is also an investment segment which manages the investment portfolio, debt, and cash flow for the insurance segments and the corporate function. The Company's chief operating decision makers evaluate the overall performance of the operations of the Company in accordance with these segments.
Life insurance products marketed by Globe Life include traditional whole life and term life insurance. An immaterial amount of annuities sold as companion products are included in the life segment. Health insurance products are generally guaranteed renewable and include Medicare Supplement, critical illness, accident, and limited-benefit supplemental hospital and surgical coverage. Annuities include fixed-benefit contracts.
Globe Life markets its insurance products through a number of distribution channels, each of which sells the products of one or more of Globe Life's insurance segments. Our distribution channels consist of the following exclusive agencies: American Income Life Division (American Income), Liberty National Division (Liberty National) and Family Heritage Division (Family Heritage); an independent agency, United American Division (United American); and our Direct to Consumer Division (Direct to Consumer). The following tables present segment premium revenue by each of Globe Life's distribution channels.
Premium Income by Distribution Channel
Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Life | Health | Annuity | Total | |||||||||||||||||||||||||||||||||||||||||||||||
Distribution Channel | Amount | % of Total | Amount | % of Total | Amount | % of Total | Amount | % of Total | ||||||||||||||||||||||||||||||||||||||||||
American Income | $ | 378,306 | 50 | $ | 29,694 | 9 | $ | — | — | $ | 408,000 | 38 | ||||||||||||||||||||||||||||||||||||||
Direct to Consumer | 242,550 | 32 | 17,455 | 6 | — | — | 260,005 | 24 | ||||||||||||||||||||||||||||||||||||||||||
Liberty National | 82,072 | 11 | 45,809 | 14 | — | — | 127,881 | 12 | ||||||||||||||||||||||||||||||||||||||||||
United American | 1,949 | — | 134,200 | 42 | 1 | 100 | 136,150 | 13 | ||||||||||||||||||||||||||||||||||||||||||
Family Heritage | 1,408 | — | 92,131 | 29 | — | — | 93,539 | 9 | ||||||||||||||||||||||||||||||||||||||||||
Other |