Globe Life Inc. Price & Performance (GL)

Thank you. Good morning, everyone. Joining the call today Frank Subota and Matt Darden, our co Chief Executive Officers. Tom Kombach, our Chief Financial Officer Mike Majors, our chief strategy officer and Brian Mitchell, our general counsel. Some of our comments or answers to your questions may contain forward looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release and twenty twenty four ten ks on file with the SEC. Some of our comments may also contain non GAAP measures, Please see our earnings release and website for discussion of these terms reconciliations to GAAP measures. I will now turn the call over to Frank. Thank you, Stephen, and good morning, everyone. In the first quarter, net income was $255,000,000 or $3.1 per share compared to $254,000,000 or $2.67 per share a year ago. Net operating income for the quarter was $259,000,000 or $3.07 per share an increase of 10% from a year ago and slightly higher than our internal projection. On a GAAP reported basis, return on equity through March thirty first of 'nineteen percent. And book value per share is $64.5 Excluding accumulated other comprehensive income, or AOCI, return on equity is 14.1% and book value per share as of March 31 is $87.92 up 11% from a year ago.

In our life insurance operations, premium revenue for the first quarter increased 3% from the year ago quarter to $830,000,000 Life underwriting margin was $337,000,000 up 9% from a year ago. Driven by premium growth and lower overall policy obligations. For the year, we expect life premium revenue to grow around 4%. As a percent of premium, we anticipate life underwriting margin to be between 4244%. In health insurance, premium revenue grew 8% to $370,000,000 while health underwriting margin was down 10% to $85,000,000 due primarily to higher claim costs at United American resulting from higher utilization. For the year, we expect health premium revenue to grow in the range of 7.5% to 8.5% and anticipate health underwriting margin as a percent of premium to be between 2426%. Administrative expenses were $88,000,000 for the quarter. The increase over the year ago quarter is primarily due to higher information technology, employee and legal costs. For the year, we expect administrative expenses to be approximately 7.4% of premium. I will now turn the call over to Matt for his comments on the first quarter marketing operations.

Thank you, Frank.

At American Income Life, life premiums were up 6% over the year ago quarter, to $438,000,000. And the life underwriting margin was up 5% to $196,000,000 In the first quarter of twenty twenty five, net life sales were $99,000,000 up 1% from a year ago. And as a reminder, we had a difficult comparable this quarter as American Income had a 17% increase in life sales in the year ago quarter. Average producing agent count for the first quarter was 11,510 up 3% from a year ago. The average agent count declined from the fourth quarter but I would attribute this to the tremendous agency growth produced over the last couple of years. From the fourth quarter of twenty twenty two, to the fourth quarter of twenty twenty four, average agent count grew 29%. It is typical for our agencies to see some contraction after periods of significant recruiting success. Are pleased to see productivity has increased as more agents are submitting weekly and I am confident we will see continued growth in this agency going forward. Now at Liberty National, the life premiums grew 6% over the year ago quarter to $96,000,000 life underwriting margin, was up 3% to $32,000,000.

Net life sales increased 4% to $22,000,000 while net health sales were $7,000,000 down 5% from the year ago quarter. The average producing agent count for the first quarter was 3,688. And this is up 8% from a year ago. I continue to be excited by the agent count growth at Liberty National which is primarily driven by recruiting activity and growth in agency middle management. Is a good leading indicator continued sales growth at this division. At Family Heritage, health premiums increased 9% over the year ago quarter to $112,000,000, and health underwriting margin increased 10% to $39,000,000. Net health sales were up 7% to $27,000,000 and this is due primarily to an increase in agent count.

The average producing agent count for the first quarter was fourteen seventeen. Up 9% from a year ago. And this is three consecutive quarters of strong agent count growth for this division and is driven by this agency's focus on recruiting middle management development. In our direct to consumer division, the life premiums were down 1% over the year ago quarter to $246,000,000 while life underwriting margin increased 10% to $64,000,000. Net life sales were $25,000,000 down 12% from the year ago quarter. And as we have previously mentioned, the continued decline in sales is primarily due to lower customer inquiries as we have reduced marketing spend on certain campaigns that did not meet our profit objectives. As a result of higher distribution cost. Our focus in this area is having a positive impact on our overall margin we will continue to focus on maximizing the underwriting margin dollars on new sales by managing the rising advertising and distribution costs associated with acquiring new business. And the value of our direct to consumer business is not only those sales, directly attributable to this channel, but the significant support that is provided to our agency business through brand impressions and sales leads.

And as we mentioned last year, we expect this division to generate over 750,000 leads during 02/2025 which will be provided to our exclusive agencies. Now on to United American General Agency. Here, the health premiums increased 13% over the year ago quarter to $160,000,000 driven by strong prior year sales growth. Health underwriting margin was $2,000,000 down approximately $10,000,000 from the year ago quarter due to higher plane costs resulting primarily from higher utilization. For the year, we anticipate mid single digit growth in underwriting margin due to strong sales and premium rate actions. And as a reminder, the majority of the premium rate increases for 2025 on individual Medicare supplement business will take effect starting in the second quarter. Net Health sales were $28,000,000 and this is up $11,000,000 from the year ago quarter.

Now I'd like to discuss projections. And based on recent trends we are seeing in our experience with our business, we expect the average producing agent count trends for the full year 2025 to be as follows. At American Income, mid single digit growth At Liberty National, high single digit growth. And at Family Heritage, low double digit growth. And we are reaffirming the life and health sales guidance we gave on the last earnings call. And as a reminder, of MetLife sales for 2025 are expected to be as follows.

American Income, high single digit growth Liberty National, low double digit growth [indiscernible] low to mid single digit growth. And for health sales, we expect Liberty National Family Heritage and the United American General Agency to all have low double digit growth. Before I turn the call back over to Frank for Investment Operations, I want to note that with respect to the inquiries made by the SEC and the DOJ discussed on previous calls, have been no material developments to disclose at this time. To the extent there is further information to share on any of these items, we will update you accordingly. I'll now turn the call back to Frank. Thanks, Matt.

Now turning to the investment operations. Excess investment income which we define as net investment income less only required interest, was $36,000,000 down approximately $8,000,000 from the year ago quarter. Net investment income was $281,000,000 down 1% from the year ago quarter as compared to a 1.3% growth in invested assets. Required interest is up a little more than 2% over the year ago quarter, consistent with growth in average policy liabilities. The growth in average invested assets and average policy liabilities are lower than normal. Due to the impact of the annuity reinsurance transaction in the fourth quarter. Which involves approximately $460,000,000 of annuity reserves being transferred to a third party along with supporting assets. Net investment income was also negatively impacted by lower short term interest rates. For the full year 2025, we expect net investment income to be fairly flat and required interest to grow around 2.5%. Resulting in excess investment income to be down 7% to 15% for the year. With regard to investment yield, in the first quarter, we invested $245,000,000 in investment grade fixed maturities. Primarily in the industrial and financial sectors. These investments were at an average yield of 6.4% at an average rating of A minus and an average life of forty three years.

We also invested approximately $51,000,000 in commercial mortgage loans and limited partnerships with debt like characteristics and an average expected cash return of approximately 8.5%. None of our direct investments in commercial mortgage loans involved office properties. These non fixed maturity investments are expected to produce additional cash over our fixed maturity investments while still being in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the first quarter yield was 5.25% up one basis point from the first quarter of twenty twenty four. As of March 31, the portfolio yield was 5.26%. Including the investment income from our commercial mortgage loans and limited partnerships, the first quarter earned yield was 5.4%. Now regarding the investment portfolio. Invested assets are $21,400,000,000 including $19,000,000,000 of fixed maturities at amortized cost. Of the fixed maturities, dollars 18,500,000,000.0 are investment grade with an average rating of A-. Overall, the total fixed maturity portfolio is rated A minus same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of approximately $1,500,000,000 due to the current market rates being higher than the book yield on our holdings. As we have historically noted, we are not concerned by the unrealized loss position [indiscernible] it is mostly interest rate driven and currently relates to a relates entirely to bonds with maturities that extend beyond ten years.

We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprise 45% of the fixed maturity portfolio. Compared to 47% from the year ago quarter. This percentage is at its lowest level since 02/2007. As we have discussed on prior calls, believe the BBB securities we acquired generally provide the best risk adjusted capital adjusted returns due in part to our ability to hold securities to maturity regardless of fluctuations in interest rate or equity markets. While the percentage of our invested assets comprised of BBB bonds might be a little higher than some of our peers, remember that we have little or no exposure to other higher risk assets. Such as derivatives, equities, residential mortgages, CLOs, and other asset backed securities. Below investment grade bonds remain at historical lows at $5.00 $6,000,000 compared to $542,000,000 a year ago. The percentage of below investment grade bonds to total fixed maturities is just 2.7%. Our below investment grade bonds as a percent of equity excluding AOCI, are at their lowest level in over thirty years. While there are clearly uncertainties as to where The US economy is headed in the upcoming we are well positioned to withstand a significant economic downturn.

Due to the long duration of our fixed policy liabilities, we invest in long dated assets.

As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. In addition, we have very strong underwriting profits and long dated liabilities, so we will not be forced to sell any of our bonds in order to pay claims. With respect to our anticipated investment acquisitions for the year, at the midpoint of our full year guidance, we assume investment of approximately 600,000,000 to $700,000,000 in fixed maturities at an average yield of 6% to 6.2%. And approximately $300,000,000 to $500,000,000 commercial mortgage loans and limited partnership investments with debt like characteristics. At an average expected cash return of 7% to 9%. Now I will turn the call over to Tom for his comments on capital and liquidity.

I spent a few minutes discussing our available liquidity, share repurchase program, and capital position.

The parent began the year ended the quarter liquid assets of approximately $90,000,000.

We anticipate concluding the year liquid assets at the higher end of our targeted range of $50,000,000 to $60,000,000.

During the first quarter, the company repurchased approximately 1,500,000.0 shares of Globe Life common stock for a total cost approximately $177,000,000 at an average share price of $121.7 Thus, including shareholder dividend payments of $20,000,000 for the quarter, the company returned approximately $197,000,000 to shareholders during the first quarter of twenty twenty five.

The parent's liquid asset at the end of the quarter along with the excess cash flows expected to be generated over the last three quarters of the year, will provide the parent with 375 to $725,000,000 to meet the Six hundred Sorry. Six hundred and 75 to $725,000,000 meet the needs of the parent or that or that can be returned to shareholders in the form of dividends or share repurchases. In April, we used approximately $47,000,000 to repurchase Globe Life common stock and for the remainder of 2025 we anticipate using approximately $65,000,000 for shareholder dividends The total amount of excess cash flows in 2025 is higher than in 2024 primarily because of higher statutory earnings in 2024 than in 2023 due to the inclusion an extraordinary dividend of approximately a hundred and $90,000,000 approved late in 2024. The parent company's excess cash flow as we define it primarily results from the dividends received by the parent from its subsidiaries, less interest paid on debt, is available to return to its shareholders in the form of dividends and through share repurchases. Will continue to use our cash as efficiently as possible. We still believe that share repurchases provide the best return or yield to our shareholders, over other available alternatives.

Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flows after the payment of shareholder dividends However, we also intend to reduce outstanding commercial paper balances over the course of the year to be more in line with historical levels. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to new to issue new insurance policies, implement new technologies, and enhance operational capabilities, and modernize existing information technology as well as to acquire new long duration assets to fund their future cash needs. Remaining amount is sufficient to support our targeted capital levels at our insurance operations and maintain the share repurchase program in 2025. In our earnings guidance, we anticipate between $600,000,000 to $650,000,000 of share repurchases will occur over the over the full year. Our goal is to maintain capital at levels necessary to support our current ratings. Globe Life targets a consolidated company action level RBC ratio. In the range of 300% to 320%. As of year end twenty twenty four, our consolidated RBC ratio was 316% which provides approximately a hundred million dollars of capital in excess of that needed to meet our minimum target capital of 300%.

As we do every quarter, we have performed stress tests in our investment portfolio under multiple economic scenarios anticipating various levels of downgrades and defaults. If the estimated losses under our stress scenario stress tests were to occur before year end, we have concluded that we have sufficient capital to meet our target RBC ratios [indiscernible] current excess capital at our subsidiaries and capital resources of the parent, while maintaining our share repurchases as planned. For 02/2025, we intend to maintain our consolidated RBC within the targeted range of 300% to 320%. In addition, as mentioned on previous calls, we continually evaluate the opportunity to manage capital under an economic framework available in Bermuda We expect to conclude this work in 2025 and intend to provide an update on the strategic decisions made on the next call. Now with regards to policy obligations for the current quarter. As we discussed on prior calls, we have included within the supplemental financial information available on our website an exhibit that details the remeasurement gain or loss by distribution channel. For the quarter, life remeasurement gain was $8,500,000 This was favorable to management's estimates and resulted in lower life policy obligations than anticipated.

Health remeasurement gain was about 400,000 up. $400,000. In other life distribution, during the quarter, we completed the recapture of a reinsurance agreement that involved a small block of business associated with our military life business. This resulted in a one time favorable impact to life margins. Of approximately $14,000,000 There have been no changes to our long term assumptions this quarter, as we will update life and health assumptions in the third quarter of twenty twenty five. Due to the continued favorable mortality we are experiencing, anticipate a favorable margin impact in the third quarter for life assumption updates as recent mortality and lapse experience are incorporated into these new assumptions. At this time, our guidance anticipates a remeasurement gain in the third quarter related to life assumption updates the range of $60,000,000 $100,000,000 similar to third quarter's life remeasurement gain. Last year. As Frank mentioned, we anticipated life margins as a percent of premium to be in the range of 42% to 44% for the full year. However, for the first half of the year, we expect life margins as a percent of premium to be in the range of 40 to forty one percent and forty three to 46% in the second half of the year.

Given the anticipated favorable impact from third quarter life assumption update. The Health segment, we anticipate health obligations will continue to be elevated given recent claim trends outpacing premium rate increases. On individual and group Medicare supplement business. This appears to be largely impacted by an increase in a select set of procedures taking place in doctor's offices In addition, although a portion of the premium rate increases for '25 were effective late in the first quarter, The majority are effective in April. We will reflect in addition, we will reflect recent claim trends in our 2025 premium rate filings will be effective in 2026. So finally, with respect to earnings guidance, in 2025, For the full year 2025, we reaffirm our previous guidance and estimate net operating earnings per diluted share will be in the range of $13.45 to $14.05 representing 11% growth at the midpoint of our range. Those are my comments. Will now turn the call back to Matt.

Thanks, Tom. Those are our comments, and we will now open up the call for questions.

Thank you. Thank you. If you'd like to ask a question or make a contribution on today's call, please press 1 on your telephone keypad. To withdraw your question, please press 2. You will be advised when to ask your question. We will take our first question from Jake Matson BMO Capital Markets. Your line is open. Please go ahead.

Hi. Good morning. Just a question on the outlook for for health.

Margins.

How much of of a lag is usually between kind of the the rate actions you've taken and when you usually see the the benefit flowing to your results. I think you mentioned some of the rate increases took effect on April 1. So should we see significant step up in margin starting in second quarter? Is there a bit of a timing impact that we should be thinking about Yeah. Yeah. No. Almost all the rate increases will be effective or in place in in the beginning of the second quarter. So we'll see the full benefit of those rate increases. We'd expect margins for UAGA to be in the in the 5% to 7% range. So know, about 6% overall for the year.

Got it. Okay. And then I mean, in in the health business, you you record a a small regiment gain even though, I guess, reported margins for the segment were were a little bit weaker on a a year over year. Basis. So I'm just curious what was driving like that that outcome in the quarter?

There's just in the current GAAP accounting framework under LDTI, there is just a little bit of volatility that's related to the the the way that operates for Medicare supplement business where rate increases are an aggregate rate increase for the entire block. And so there's some cohorts of business where that rate increase is not enough, and there's some cohorts of business where that rate increase is more than sufficient. So it creates a little bit of volatility on a quarter to quarter basis.

Yeah. I would just add that if you look at United American, they had a slight negative remeasurement gain. Whereas with respect to Liberty, American Income, and Family Heritage, they all had you know, small remeasurement gains. And the the net of those was about the 400,000,000 or 400 yeah. A thousand dollars that, that Tom had mentioned.

We will take our next question from Jimmy Bhullar, JPMorgan. Your line is open. Please go ahead.

Hi. I had a question first on your EPS guidance for the year. And you grew sort of in line with your guidance this quarter, but the third is obviously very tough comp. So just wondering what gives you the confidence that you can achieve maybe the middle middle end of the range, or should we assume given the results this quarter that you're much more comfortable with the lower end but decided not to change the range as a result of that.

Jimmy, we're very comfortable with the range. You know, I think, you know, one of the things we've been wanting to see is actually the continued trends of favorable mortality, would lead to a life mortality assumption update. And we've seen you know, really good mortality results, you know, in the third quarter and the fourth quarter and now in the in the first quarter, which gives us a bit more confidence in in as we reflect that experience in our assumption updates. We'll see some favorable remeasurement gains due to those updates.

Yeah.

Then I I would just say, you know, in addition to that, Jimmy, that I mean, we are we are reflecting some of the negative you know, utilization trends that we're seeing from the UAGI side. So we are expecting that to be a little lower you know, over the course of the year, and you kinda see the range of underwriting margin percentage coming down on that a little bit And that's being offset, the negatives of that are being offset you know, with some of the positive views that we have with respect to underwriting margins. Maybe I'll let Matt talk just a little bit about, I think, some of the views on sales and why there's some confidence there. Sure. And Jimmy, just to to your point, I was gonna also mention that you know, the third quarter the remeasurement gain would be probably in the range of magnitude of what we had last year. So that also kind of gives us some confidence as Tom had mentioned, our positive mortality experience over the last three quarters that were seeing. So that that's really why we're reaffirming our guidance. Back to the midpoint, not at the lower end of the range.

And on on the sales side, we're seeing good know, positive trends there. We normally don't discuss, you know, kind of current but we're a month through the second quarter here. And so we've got, we're seeing is very strong recruiting and agent count growth as well as sales are in line with our expectations. And so reaffirming our sales guidance for the year, based on what we saw in q one along with our expectations and then, what we're seeing here early the month of April in in q two. But, you know, our our average agent count just in the month of April is up 3% over where we were ending March, and it's also higher than where we ended at the end of last year. So not uncommon for us to see a little bit of seasonality at the beginning of the year. And that's what we saw, a little bit of weakness, frankly, in January. And know, the and then that ramped up toward the latter half of q one, and that's continuing that trend's continuing on here through the month of April.

Yeah. And and, Jimmy, one last thing I'll add on to that. I think with some of the you know, the better trends that we anticipate for sales for the remainder of the year, Some of the they call it the, you know, the Dragon Life premium growth that we you know, around 3% here for the first quarter, a little lower know, than than we would like to see. But we see that really, the effects of some of the new sales. And as I we think we anticipate lapses at least, you know, stabilizing here over the course of the year. And so as we kinda get to the latter half of the year, still able to yeah. I see think seeing that premium growth pick up a little bit in the second half of the year you know, being more in that four and a half to 5% range and and getting that premium life premium growth for the full year to be close to that 4%.

Okay. And then on your life business, if we look at the nondeferred deferrable commissions and policy acquisition expense, for the Life division. It's been running up over the past couple of years, and it was higher in one q than it's been in the previous several quarters. So wondering how much of that is economic in terms of you having to spend more money to originate sales versus maybe the result of LDTI or accounting related items?

You know, a lot of that, Jimmy, is really just due to some of the higher investments that we've been making in information technology. And as those systems come on, the depreciation from those as well as you know, the software from the service and what we're paying you know, for that and and the data and analytics being allocated to the investor, to the acquisition side None of that's deferrable. So know, we're just seeing a little bit of that tick up just because, of some of that higher largely because of some of that higher technology spend.

Okay. And just just the last one on your health margins. It seems like for the MedSup product, for you guys and many of the other companies, usage has gone up, so you guys have been raising prices. It's sort of a constant catch up where usage continues and claims continue to go and you're having to catch up to that, do you feel that with the high prices earning in 2Q and beyond, did margins are going to be at normal levels? Or is it more you're probably going to need to raise price more, as you get into 2026 season given, just claims usage and inflation.

Think Jimmy, I think we need to see exactly what happens, but I think one of the things that gives me confidence is, you know, I think this is a very manageable issue when we see short term increases in in health trends. Is that we can in fact manage that through rate increases. It may take us a year or two to effectively get those caught up. So it may be a little bit longer than a year. We've been very successful in the past getting those rate increases approved by regulators. And, so I'd expect, you know, improvement in 2026 and we continue to see trend, we but be a little we always have a little bit of a timing delay. So we may actually see a little bit of delay in actually getting back to kinda normal margins. But I think the other thing to think about is you know, this is largely around Medicare Supplement business. Right? And so for our other health lines, not seeing the same the same level of claim costs. Medicare Supplement really, from an under a total underwriting margin perspective is really in that three to 4% range of total total underwriting margin.

So it's a fairly small set of just the the core underwriting margins that we see from the business.

Okay. Thank you.

We will take our next question from Alice Greenspan Wells Fargo. Your line is open. Please go ahead. Hi. Thanks. Good morning. My first question, I guess, is on some of the capital stuff. So you guys, know, the Q1 buyback, right, was I guess, bit elevated relative to what the annual guide would imply on a quarterly basis. But I know you guys also said, right, there's some gonna pay down some commercial paper. So how do we think about, I guess, capital return over the back three quarters? Are you thinking it's just even relative to hitting the guide? Or would you potentially, depending upon your stock price, you know, look to to front run some of the buyback to earlier, you know, q two, q three, etcetera?

Generally, we think, to normally ratable throughout the the year. But we will take advantage of kind of market opportunities. So I could see us buying a little bit more the first half of the year relative to the second half of the year.

Thanks. And then my follow-up on, you guys were talking about, I guess, Bermuda, which you were also talking about a bit quarter. Just any updates there relative to what's going on this quarter? And I know you guys have been talking about that more being, you know, something that's you know, beneficial in, you know, '26 and into 2027.

Yeah. We're still working through it. So we'll we'll plan to update you on the next call.

Okay.

Thank you.

We will take our next question from Andrew Kligerman, PD Securities. Your line is open. Please go ahead.

Hey. Good morning, everyone. Or actually, good afternoon. So going back to the health margins, you had been guiding to 24 to 20 you're you're guiding now to 24 to 26 versus 25 to 27.

And I'm thinking know, you kinda gave a time frame where you start to see improvement in 26. But you really don't get to where you need to be or or would like to normally be until 27, if I understand it correctly. Could you give us a sense of what historically have been normal margins And maybe work through the time line, when you're actually gonna get the price increases. Is it it's gonna be gradual? Know, maybe just walk through the timeline a little more granularly. Where a normal historic ratio has been.

Yeah. Andrew, I'll I'll start on that and then let Tom or or Matt add. But, you know, you do look at kind of the you know, post LDTI you know, the margins on that business on the UAGA side. Have been a little bit on the satellite that that 10, 11%. And I think from an overall health somewhere, you know, more in the in the upper [indiscernible] You know, overall as a as a margin percent of of premium income. I think with respect to you know, UAGA and and their and the MIPS up specifically. We would be looking into you know, taking getting the cost of the higher utilization that we're seeing here in the last couple of quarters of '24 and at least here early in 'twenty five and working those into our third quarter premium, you know, rate adjustments that we'd be filing that would be effective in 02/1926. Depending upon where the utilization trends kind of take how those emerge over the remainder of the year. We'll really kind of inform whether or not you know, can we really capture all of the increase that we need in the third quarter rate filings or not?

Or is there some of that that will be that we're chasing a little bit into 2020, the 2027 as well. You know, we do anticipate getting the the full margins for the UAGA to be you know, closer to that, you know, five to 7% range. So second half of the year, you know, being a little bit north of that because you know, the the at least the utilization that we're seeing here in the first quarter clearly outran the impacts of the premium increases that we had had put into place. We do think with the with the premium, you know, the the majority of our premium increases coming into play, here in the second quarter. That will help over the course of over the remainder of the year.

That was very helpful. Maybe shifting over to the life insurance premium. You've been guiding to that and you mentioned it on this call. You've been guiding to four and a half, 5%. Now you're looking at 4% for the year. Could you give a little more color on lapsation, why you may be seeing a little higher, more elevated lapsation, and, you know, how how does things about that going forward.

Yeah. I think, from a lapse perspective, at American Income, we are seeing a little bit higher lapses in the in the first year and and you know, question for us is whether that's fluctuations or trend and is know, virtual sales kinda just driving up more normal higher lapse level in the first year. But I would say that renewal rates for AIL have been fairly consistent over the past four quarters.

So those seem to have stabilized. I think DTC lapse rates you know, are consistent with prior quarters and maybe slightly improved in in the first year, which is a good sign. And renewal lapse rates are are fairly consistent with historical levels as well. So that those seem to be all going very well. I think it's kind of a a testament to the resiliency of our customers even in in times of of economic stress. Our lapse rates move just just a little bit, plus and minus depending upon what the economic environment is.

And then, for Liberty, you know, that's first overall have been relatively stable as well. So I think we're feeling okay about lapses. We'll certainly keep an eye on it. And then I do think that you know, sales that emerge over the course of the second half of the year will actually add to add to premium growth above above first quarter sales growth. And so that's kinda where we're we're looking at that 4% around 4% premium growth, life premium growth for the year.

Yeah. Yeah. Andrew, the one thing I'll I'll add to that is that, you know, we did start seeing some of the lapses, especially in the first year [indiscernible] maybe a little bit on DTC tick up toward the latter half of last year. Obviously that you know, just kind of look at it period over period as those increases in last rates year over year take effect that has that drag on premium growth on the same year over year period. As we kind of look out over the latter half of the year we can see some of the stabilizing even though they're maybe running a little bit higher than long term averages. Just because of some of the economic uncertainty. But, you know, as we look back at other periods of some economic stress, where the rates that we're seeing even at at you know, especially at American Income on their first year are not out of line at all. And but as we think look at the comparables then, in the latter half of the year, you know, we see that was really being stabilizing. And so that'll help with the, you know, the period over period premium growth as well.

Yeah.

Maybe just one other yeah. Maybe just one other comment is, you know, we don't see dramatic changes in lapsed rates, even in periods of economic stress. They're relatively narrow changes and kind of as as we've looked at this for AIL and DTC under where there's been more economic stress the lapse rates in renewal years have have moved you know, less than 1% to a little bit over 1% depending upon the policy duration. So, again, I think really a testament of the resiliency of of our in force book business.

And then just and that was very helpful. One last quick one. I saw a line item for legal proceedings $4,800,000. Maybe this is not an answerable question, but could that be an indication that maybe you're coming towards the tail end of the back and forth with the regulators? Is this an indication that we more of these type expenses? I I don't know. I I I was just kinda throwing it out there to see if there's there's some kind of read through on that number, which which I hadn't seen before.

Yeah. I don't know if there's anything to read through that. Andrew, I think from time to time, we're subject to [indiscernible] And it's common in the industry, the insurance industry. So, you know, the uptick in litigation claims expenses over the past several quarters really been stemming from claims made by recent short sellers. So some of that, you know, hopefully subsides And and this quarter of legal proceedings includes estimate for settlements, related to an outstanding litigation, not related to the DOJ SEC matters, as well as certain other legal expenses as well. So there is a number of items that can come through there. But they're usually you know, not related to the normal operations of the business. And not indicative of of past performance or future price of the insurance operations, and that's why we put them below the line.

Thanks very much. [indiscernible] We will take our next question from Wilma Berdin, Raymond James. Your line is open. Please go ahead. Hey. Good Does the higher life margin in the second half of twenty twenty five imply a more favorable run rate in 2026 and beyond? Or how should we think about that?

Thanks.

Yeah. I think after you end up making the assumption changes, I think from a policy obligations perspective, you would expect it to be a little bit higher run rate going forward, then keep in mind that, you know, we are continuing to still see over the next you know, couple of couple of years to at least probably into '26. You know, some of the increases in in amortization expense just because of the transition you know, to LDTI that we talked about in the prior calls as well as the renewal commissions. So there's probably a little bit of a tick up in the amortization that we're still gonna to see over the next couple of years. So I think looking forward, you know, it's it's you know, you know, probably somewhat of it. Probably in the range. And it's yeah.

Yeah.

So probably Similar range to what we what we've seen in the first half of of [indiscernible] Yeah. Yeah.

Okay.

And then life sales were below full year 25 guys in the first quarter. But you maintained the full year outlook. Could you just talk about some of the dynamics in the quarter and what your seeing over the balance of the year? Thanks.

Sure.

Really, January was softer than we anticipated. And as we've talked before, a little bit of recruiting and sales on the agency side is kind of a momentum game as they would say. And so with the, the holidays, both Christmas and New Year's fall in the middle of two weeks running, kinda really started all of our agencies off to a little bit of slow start in January. That ticked up through the the remainder of the quarter. And so, as I mentioned to an answer of an earlier question, know, we we also looked at what was going on in April and and April sales are consistent with our expectations as well as our agent count growth. In April as compared to March or as as compared to the prior year end, is is higher you know, it's about a 3% higher just in the month of April, our agent count across all three agencies. And so that that trend that we were seeing in the last half of q one is continuing now here in the first part of q two. Now I'll I'll have the caveat of one quarter I mean, one month does not a quarter make, but know, the the trends continue to to be positive.

And so gave us the confidence to reaffirm our sales guidance for the year. For, all of our various distributions because we're really not seeing anything significantly different than what our expectations were.

K. Thank you.

We will take our next question from John Barnidge, Piper Sandler. Your line is open. Please go ahead.

Thank you for the opportunity. You talked about intention to have an opportunity to reduce commercial paper.

This year. Where do you intend to get it to?

Thank you.

Yes.

The commercial paper balances typically historically have been in [indiscernible] $300,000,000 range. And so kind of looking to bring it down from where we are today, right around $4.10, closer to that that 303 hundred and $25,000,000 range.

Yeah. And, John, if you kinda look back at at a few years back, 02/2223, we were probably running oh, about 3% of our total total capitalization, you know, including the short term debt, you know, it's about 3% You know, last year, it got you know, we ran that up a little bit more, and it's closer to 4%. So probably looking at bringing it back closer to that level. That 3% level. And, John, we're looking at a debt to capital ratio at the end of the year right around 25%, which is kind of in the midpoint of of kind of our operating range for our normal operating range for debt debt to capital ratios.

Thank you for that. That's helpful. My follow-up question is the increase in health usage more frequency or severity driven? Was reading about some human bandage fraud.

Article recently.

So curious about that. Thanks. That's that's a it's a great question, John. It it is utilization is the big driver.

But one of the causes of utilization increase is related to claims related to bandages, these special specialty bandages. Which does have a higher claim cost to it. So it's adding a little bit to the average claim cost as well. That's something that, you know, we are taking action on to mitigate the impact of of of any fraud that's apparent in that from from those those billings. So we we're taking actions there to help manage those costs.

Yeah. Think one of the challenges on that, John, is that given some of those new procedures and I think the article that was out there kind of talked about that is that they tend to be higher cost until they really get you know, work through and then they become kind of a it's more of a the standard Medicare reimbursement rates, and then that would you know, tend to bring the rates down. Over time. But at least that is that is at least one of the drivers that we're seeing a few other procedures that are being done in the off you know, in the doctor's office that are also you know, giving rise at least to, you know, some of my higher costs.

Yeah. I was gonna say I think that's some of the things that give us confidence that we can manage through this like we've done for the decades that we've been writing this business is that it a lot of our trend is associated with a a few specific procedures in the office. And so as we work through that, as Frank mentioned, the adjustments that most likely will happen on the allowables as these new procedures get in. To the CMS allowables. Then, you know, going forward, coupled with continued rate action, I think we'll be able to manage through that. It just might take us one more cycle.

Yeah. As Tom mentioned, this is actually one of the areas that we're really trying to spend some time and and looking at how do we use some artificial intelligence, use our data, to really try to identify areas of potentially fraudulent claims that are coming through, working with CMS you know, to try to stem some of that, but really taking a look you know, where we might have some of that Not always can we get it done before we end up paying a claim because of our the way we're connected with CMS, but we continue to make you know, advances on on where we can reduce some of that fraud cost you know, on our on our side. But all those trends are industry trends. They're not unique to United American.

Thank you.

We will take our next question from Tom Gallagher, Evercore Your line is open. Please go ahead.

Good afternoon. The my first question is just in your guidance for 25% on health margins, are you assuming that this claims frequency issue stabilizes at current level, gets better, gets worse.

What what is what is the trend assumption you're using? I sounds like you got your arms around the rate increase earning. But what what about the, on the claim side? What are you assuming?

Yeah. Yeah. We're assuming that it stays elevated, at least through the second quarter. And then expect it to moderate just a little bit in the second half of the year, which it tends to moderate generally as as deductibles are used up. That, we're able to that the trend would tend to moderate a little bit in the second half of the year.

So when you say remains elevated, so at a comparable level to Q1, Yes. Yep.

Gotcha.

And then But but again, just to be clear that the level of q one from an obligation doesn't reflect the premium rate increases that coming into play for the remaining three quarters of the year.

Understood.

The my my follow-up is how do we think about what all of this means for '25 statutory earnings? Because the reserve release that you the 60 to a hundred million that gap only? Or is there any statutory impact for that? Because I presume the stat earnings on the health side are gonna be consistent with GAAP, meaning they'll be weaker.

But life, I'm a little less clear on whether you will see some kind of benefit or is that a gap only in some meaning, you know, long winded way of asking, is 25 stat earnings likely to be weaker than 24?

That's a great question. The 60 to a hundred million is a gap assumption unlocking. So it's it's gap only. But when we see a favorable claims trends, a % of those that benefit comes through on the statutory side. Where on the gap side, [indiscernible] a smoothing mechanism that spreads, good claims or bad claims. Over the over the future. So we should you know, favorable mortality will impact statutory results in a favorable way as well.

Yep.

The one thing So what sorry. Go ahead.

Well, let's say that that as we think about you know, 25 statutory earnings versus 24 statutory earnings. I think I just wanted to make clear as well. Tom, I I agree with Tom that the, you know, the favorable experience that we're seeing, work its way through statutory income as well. Remember that we did have that, the the reserve revaluation adjustment in 2024. And as Tom has talked about on the last call, while we still anticipate some continuing benefits from that and benefits from that in 2025, We don't anticipate seeing them at the same level that we had them in 2024. So there will be a little less statutory income generated from that reserve valuation adjustment probably to the tune of, you know, roughly seventy five million dollars or so.

Right. Thank you.

We will take our next question from Ryan Fruger KBW. Your line is open. Please go ahead.

Hey. Thanks. Good morning. I had a related follow-up I think you gave the free cash flow for the the rest of the year. I was trying to back into, I think, the first quarter, but figured I would just ask you just have the full year free cash flow expectation for this year, Yes.

Excess cash flow is expected to be $7.85 to $835,000,000 for the full year. Unchanged from from where I [indiscernible] And then I guess just kinda coming back to what you were just talking about so that for when thinking about the moving pieces next next year, are the you'll get you won't have the reinsurance benefit and then you'll have less of the valuation manual benefit. Are those the two key moving pieces we should think about?

Yes. The the the reinsurance benefit, we won't have, and then a less of an impact on the valuation manual changes, but also a favorable impact to just growth of the business. And and the mortality trends that we're seeing. You know, kinda in my Okay. In my in my estimation run rate, for excess cash flows would be in the 500 to 600 range kinda going forward. So I'm thinking more midpoint of that range.

Okay. Perfect. Thank you. Yep.

We will take our next question from Wes Carmichael Autonomous Research. Your line is open. Please go ahead.

Hey, thank you. Good afternoon. On the remeasurement gains and assuming $200,006,000 with the 3Q review, are those pretty much baked in your view? Or could there be some deviation in I I guess it's not that small of a range at $40,000,000 So maybe what might drive that higher or lower in the next couple of quarters? And really, what is that the determinant of where you come in in your EPS guide, do you think?

It's definitely included in our guidance range, right? So that is you know, part of what's what's incorporated in there. On the pluses and minuses, it it really is it's a very detailed process to go through, setting the assumptions. And so you know, which assumptions are very what am gonna say, detailed, with regards to issue years, issue ages, attained ages, genders. So a lot of pluses and minuses that go across. And so until we actually put those into our evaluation systems, that will kinda determine exactly that result will be. So you know, so I think until we do that, that's why we have a bit of a a wider range as far as where we think that will be. So it's really kind of the implementation of changes and the final determination and judgment around what changes are made.

Yeah. The one thing I would just add to that is that, I mean, that's you know, kind of what we're seeing here through the first quarter is Tom kind of mentioned before we really like to see again, how does how does mortality end lapses really prove out in second quarter? Because that'll have some influence on it. It's not final determination on it, but but, you know, it's it's the ability to kind of, test those final assumptions and and where they kinda land. So just and because the reserves are as big as they are, minor changes to some of those you know, the assumptions. You know, can move that number around the new a little bit. So while there's some you know, pretty good confidence within that range, it it definitely can move a little bit of what we see here in the second quarter and and how that kind of influences you know, those final decisions.

Great. That's helpful. And I guess just a quick follow-up, but the the rate increases that you're gonna have in health and med sup, expect some elevated lapses as policyholders receive those rate increases?

We we definitely see a little bit of drop off when we do rate increases, but, general, I think they value the coverage that they have. And know, they're they're fairly persistent.

Yeah. I think it goes back to the comment that was made earlier is that what we're saying really is not unusual. You know, as far as I don't think it's limited to just United American, and so it's an industry situation. So we would anticipate that other carriers would be raising rates as well. And and then that's where maybe the Med supp or excuse me, the Medicare Advantage dynamic comes into play a little bit that you know, there's still some issues out there. We are seeing with acceptance with Medicare Advantage and and where that coverage is going and and dropping, you know, doctors in networks and things like that. So where that's been you know, perhaps a little bit of a tailwind this past year and we'll have to see where that kind of, know, it's a little bit of a wild card where that goes. But, you know, that's why we don't really anticipate that there'd be a large scale you know, drop off or or lapse if if in fact we were to if as as we put in our our rate increases.

Think the industry's seeing trend and everybody's pricing for it accordingly. So Great. Thank you.

We will take our next question from Suneet Kamath, Jefferies. Your line is open. Please go ahead.

Great. Thanks. It sounds like some of the confidence you have in terms of maintaining the guidance for sales and such is April results. But I'm just wondering, given how quickly things sort of changed, in April, You know, normally, when you see these shocks, is there a little bit of a lag between, you know, kind of the environment changing and then when it impacts your customer behavior? Or does it sort of catch up, or does it kinda show through pretty quickly there?

Yeah. Let me start with it's not it's not just April. Was the trend that we were seeing throughout q one. As I've mentioned, January was was softer than we anticipated, but looked at how February and particularly March, performed, and then we're seeing that trend continue through April. So it's really the results of multiple months, in we think about that as we look at the momentum in our agent count with recruiting and, growing our overall agents that are producing and submitting business. And so that is really a precursor or a leading indicator to ultimate, you know, sales growth. So you know, we're also seeing we as I've mentioned before, we track our, agent onboarding recruiting pipeline before they ever start producing business. And so people that are in the early stages of that pipeline before they get a license and start selling. You know, we're seeing, double digit growth in what we call our hires or people that are starting in that process. And so that bodes well for future, growth as well. And on the consumer side, we generally don't we've talked about this before, see, significant impacts based on economic factors to our customers.

I think that really gets back to our customers' value our products. They have a need for that. And, you know, more than 50% of our demographic does not have our coverage.

And the affordability of our policies where it's 30 or 50 or $60 a month still makes that affordable And what we really see is that as long as our customers have jobs or employed, that, you know, they still find value in the biz in the products that we're offering as well as the cost of what they're trying to cover from an experience perspective As those costs go up, we see them taking out more coverage. And so what I continue to be encouraged about is if I look at the trends of just the premium on a per policy basis, those trends are up in q one compared to to last year. And so people are paying a little bit more. To take out a a little bit more coverage for for their needs. So we're really not seeing, any weakness there, and I'd say that consistent. We go back to the 02/2008 through '10 timeframe, 2020, 2021. We had double digit growth in our agent count. We had double digit growth in sales across those time frames. And so you know, I think that bodes well One last comment I was gonna make in kinda circle back to I realized I didn't completely answer.

Wilma's comment, which I think will also or question, which I think will also get to part of your question as well. Is that, I failed to mention the our direct to consumer channel I'll say that is, you know, we anticipated on our annual sales guidance that that would kick in in the latter half of this year. And so q one results are not dissimilar from what our expectations were, and that's why you see we reaffirmed our overall sales guidance for our direct to consumer channel And a lot of that is based on some of the things that we've been working on for quite some time, related to, underwriting automation and some other tools and data that we're using in that organization. We've been testing that for quite some time and anticipate that coming more fully online in the latter half of the year. And that will really help with our issue rates and, really help us increase there. And so that's why our guide is, low low single digits overall for annual basis for for DTC as some of the good things that we're doing there, and it relates to some of that technology spend we've We've been talking about it for quite some time, seeing that come into fruition.

Okay. That makes sense. And then I I just have one more, and I for going over a little bit. Just just on the reviews, I mean, I know you said that there's nothing new to you know, update us on, and and I get that fine. But is your expectation still that at some point, we will get sort of a you know, all clear and and any sense of how close we are to something like that? We do anticipate, and that's what we're working through these processes of having a finalization that we can communicate. So that is definitely our goal in that area. It is hard to handicap the time, frame just, you're dealing with know, as we've mentioned before, governmental agencies that don't have a lot of transparency and where they are in process I would venture to say that there's been a little bit of, distraction in the, government system, so to speak, over the last several months. And, you know, that that may bode well from a long term perspective. Perspective for us from a a lower, regulatory burden. But in the near term, it might cause a little bit of, slowdown in in some processes.

So hard hard to handicap time, but we definitely anticipate having the opportunity to be able to report out conclusions on those matters.

Okay. Thank you.

There are no further questions on the line. So I will now hand you back to your host for closing remarks.

All right. Thank you for joining us this morning. Those are our comments, and we'll talk to you again next quarter.

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