GLOBE LIFE INC. - FORM 8-K - EX-99.1 - Q2 2020 EARNINGS RELEASE - July 22, 2020

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GLOBE LIFE INC. REPORTS
Second Quarter 2020 Results

McKinney, TX, July 22, 2020—Globe Life Inc. (NYSE: GL) reported today that for the quarter ended June 30, 2020, net income was $1.62 per diluted common share, compared with $1.67 per diluted common share for the year-ago quarter. Net operating income for the quarter was $1.65 per diluted common share, compared with $1.67 per diluted common share for the year-ago quarter.

COVID-19— The Company has transitioned the organization, employees and agents, from an in-person experience to one that is primarily virtual. While the current environment continues to present challenges, Globe Life’s operations are being conducted successfully. We continue to support our agents and serve our customers in an effective manner. The fluctuations in underwriting margins between the second quarter of 2020 and the year-ago quarter are due primarily to the impact of COVID-19.


HIGHLIGHTS:
lNet income as an ROE was 9.4% for the six months ended June 30, 2020. Net operating income as an ROE excluding net unrealized gains on fixed maturities was 13.6%.
lLife premiums increased over the year-ago quarter by 8% at the Direct to Consumer Division and 7% at the American Income Life Division.
lHealth premiums increased over the year-ago quarter by 7% at the Family Heritage Division.
lLife net sales at the Direct to Consumer Division increased over the year-ago quarter by 43%.
lHealth underwriting margin increased over the year-ago quarter by 7%.

















Note: As used in the earnings release, "Globe Life," the "Company," "we," "our," and "us" refer to Globe Life Inc., a Delaware corporation incorporated in 1979, its subsidiaries and affiliates.
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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

RESULTS OF OPERATIONS
Net operating income, a non-GAAP(1) financial measure, has been used consistently by Globe Life’s management for many years to evaluate the operating performance of the Company, and is a measure commonly used in the life insurance industry. It differs from net income primarily because it excludes certain non-operating items such as realized investment gains and losses and certain significant and unusual items included in net income. Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company’s business. Net income is the most directly comparable GAAP measure.
The following table represents Globe Life's operating summary for the three months ended June 30, 2020 and 2019:
Operating Summary
Per Share
Three Months Ended
June 30,		Three Months Ended
June 30,
20202019%
Chg.		20202019%
Chg.
Insurance underwriting income(2)
$1.56  $1.60  (3)$167,042  $178,556  (6)
Excess investment income(2)
0.57  0.58  (2)61,137  64,678  (5)
Parent company expense(0.02) (0.03) (2,516) (2,872) 
Income tax(0.40) (0.42) (5)(43,070) (47,114) (9)
Stock compensation benefit (expense), net of tax(0.05) (0.06) (5,761) (6,366) 
Net operating income 1.65  1.67  (1)176,832  186,882  (5)
Reconciling items, net of tax:
Realized gain (loss)—investments(0.04) 0.04  (3,784) 4,072  
Part D adjustments—discontinued operations—  —  —  (43) 
Legal proceedings—  (0.04) —  (4,345) 
Net income(3)
$1.62  $1.67  $173,048  $186,566  
Weighted average diluted shares outstanding 107,134  111,586  
(1)GAAP is defined as accounting principles generally accepted in the United States of America.
(2)Definitions included within this document.
(3)A GAAP-basis consolidated statement of operations is included in the appendix of this report.


Note: Tables in this earnings release may not sum due to rounding.



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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

MANAGEMENT VS. GAAP MEASURES

Shareholders' equity, excluding net unrealized gains on fixed maturities, and book value per share, excluding net unrealized gains on fixed maturities, are non-GAAP measures that are utilized by management to view the business without the effect of unrealized gains or losses which are primarily attributable to fluctuation in interest rates associated with the available-for-sale portfolio. Management views the business in this manner because the Company has the ability and generally, the intent, to hold investments to maturity and meaningful trends can more easily be identified without the fluctuations. Shareholders' equity and book value per share are the most directly comparable GAAP measures.
Six Months Ended
June 30,
20202019
Net income as an ROE(1)
9.4 %12.3 %
Net operating income as an ROE (excluding net unrealized gains on fixed maturities)
13.6 %14.6 %
June 30,
20202019
Shareholders' equity$7,848,369  $6,700,398  
Impact of adjustment to exclude net unrealized gains on fixed maturities(2,361,530) (1,533,945) 
Shareholders' equity, excluding net unrealized gains on fixed maturities$5,486,839  $5,166,453  
Book value per share$73.26  $60.22  
Impact of adjustment to exclude net unrealized gains on fixed maturities(22.05) (13.79) 
Book value per share, excluding net unrealized gains on fixed maturities$51.21  $46.43  
(1) Calculated using average shareholders' equity for the measurement period.

INSURANCE OPERATIONS—comparing Q2 2020 with Q2 2019:

Life insurance accounted for 71% of the Company’s insurance underwriting margin for the quarter and 70% of total premium revenue.

Health insurance accounted for 28% of the Company's insurance underwriting margin for the quarter and 30% of total premium revenue.

Net sales of life insurance increased 2%, while net health sales declined 23%.


The following table summarizes Globe Life's premium revenue by product type for the three months ended June 30, 2020 and 2019:

Insurance Premium Revenue
Quarter Ended
June 30, 2020June 30, 2019%
Chg.
Life insurance$670,822  $631,201  6
Health insurance282,877  266,282  6
Annuity3  1  
Total$953,702  $897,484  6

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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

INSURANCE UNDERWRITING INCOME
Insurance underwriting margin is management’s measure of profitability of the Company's life, health, and annuity segments’ underwriting performance, and consists of premiums less policy obligations, commissions and other acquisition expenses. Insurance underwriting income is the sum of the insurance underwriting margins of the life, health, and annuity segments, plus other income, less insurance administrative expenses. It excludes the investment segment, Parent Company expense, stock compensation expense and income taxes. Management believes this information helps provide a better understanding of the business and a more meaningful analysis of underwriting results by distribution channel. Insurance underwriting income, a non-GAAP measure, is a component of net operating income, which is reconciled to net income in the Results of Operations section above.
The following table summarizes Globe Life's insurance underwriting income by segment for the three months ended June 30, 2020 and 2019:
Insurance Underwriting Income
Quarter Ended
June 30, 2020% of
Premium		June 30, 2019% of
Premium		%
Chg.
Insurance underwriting margins:
Life$161,699  24$175,050  28(8)
Health64,240  2360,159  237
Annuity2,265  2,365  
228,204  237,574  (4)
Other income404  398  
Administrative expenses(61,566) (59,416) 4
Insurance underwriting income$167,042  $178,556  (6)
Per share$1.56  $1.60  (3)

Administrative expenses were $62 million, up 3.6% from the year-ago quarter. The ratio of administrative expenses to premium was 6.5%, compared with 6.6% for the year-ago quarter.

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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

LIFE INSURANCE RESULTS BY DISTRIBUTION CHANNEL

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.

Total premium, underwriting margins, first-year collected premium and net sales by all distribution channels are shown at https://investors.globelifeinsurance.com at "Financial Reports and Other Financial Information."
Life Underwriting Margin
Quarter Ended
June 30,
20202019
Amount% of PremiumAmount% of Premium% Chg.
American Income $93,454  30  $97,006  34  (4)
Direct to Consumer 28,148  12  39,042  18  (28)
Liberty National 18,873  26  18,136  25  4
Other 21,224  40  20,866  39  2
Total$161,699  24  $175,050  28  (8)

Life Premium
Quarter Ended
June 30,
20202019%
Chg.
American Income $308,675  $288,334  7
Direct to Consumer 235,201  217,278  8
Liberty National 73,326  71,478  3
Other 53,620  54,111  (1)
Total$670,822  $631,201  6

Life Net Sales(1)
Quarter Ended
June 30,
20202019%
Chg.
American Income $51,414  $61,048  (16)
Direct to Consumer 49,396  34,456  43
Liberty National 10,709  13,428  (20)
Other 2,610  3,207  (19)
Total$114,129  $112,139  2
(1)Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty days after issue, except in the case of Direct to Consumer where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. Management considers net sales to be a better indicator of the rate of premium growth than annualized premium issued.

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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

HEALTH INSURANCE RESULTS BY DISTRIBUTION CHANNEL

Health Underwriting Margin
Quarter Ended
June 30,
20202019
Amount% of PremiumAmount% of Premium% Chg.
United American $15,282  14  $14,390  14  6
Family Heritage 18,857  24  17,901  25  5
Liberty National 12,524  26  11,837  25  6
American Income 14,775  58  13,040  53  13
Direct to Consumer2,802  15  2,991  16  (6)
Total$64,240  23  $60,159  23  7

Health Premium
Quarter Ended
June 30,
20202019%
Chg.
United American $112,885  $102,254  10
Family Heritage 77,987  73,037  7
Liberty National 47,391  47,292  —
American Income 25,554  24,450  5
Direct to Consumer 19,060  19,249  (1)
Total$282,877  $266,282  6

Health Net Sales(1)
Quarter Ended
June 30,
20202019%
Chg.
United American $12,001  $16,587  (28)
Family Heritage 13,564  16,898  (20)
Liberty National 4,089  5,864  (30)
American Income 3,688  4,299  (14)
Direct to Consumer 522  582  (10)
Total$33,864  $44,230  (23)
(1)Net sales is annualized premium issued (gross premium that would be received during the policies' first year in force and assuming that none of the policies lapsed or terminated), net of cancellations in the first thirty days after issue, except in the case of Direct to Consumer where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. Management considers net sales to be a better indicator of the rate of premium growth than annualized premium issued.
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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

PRODUCING EXCLUSIVE AGENT COUNT RESULTS BY DISTRIBUTION CHANNEL
Quarterly Average
Producing Agent Count(1)
End of Quarter
Agent Count
Quarter EndedQuarter Ended
June 30,March 31,June 30,March 31,
20202019% Chg.202020202019% Chg.2020
American Income8,393  7,364  14  7,630  8,597  7,477  15  8,044  
Liberty National 2,395  2,290  5  2,648  2,379  2,390  —  2,688  
Family Heritage 1,248  1,081  15  1,227  1,224  1,089  12  1,290  

(1) The quarterly average producing agent count is based on the actual count at the end of each week during the period.


INVESTMENTS

Management uses excess investment income as the measure to evaluate the performance of the investment segment. It is defined as net investment income less both the required interest attributable to net policy liabilities and the interest on debt. We also view excess investment income per diluted common share as an important and useful measure to evaluate performance of the investment segment, since it takes into consideration our stock repurchase program.

The following table summarizes Globe Life's investment income, excess investment income, and excess investment income per diluted common share.
Excess Investment Income
Quarter Ended
June 30,
20202019%
Chg.
Net investment income$231,568  $227,425  2
Required interest:
Interest on net policy liabilities(1)
(147,618) (141,315) 4
Interest on debt(22,813) (21,432) 6
Total required interest(170,431) (162,747) 5
Excess investment income$61,137  $64,678  (5)
Per share$0.57  $0.58  (2)
(1)Interest on net policy liabilities is a component of total policyholder benefits, a GAAP measure.

Net investment income increased 2%, while average invested assets increased 6%. Required interest on net policy liabilities increased 4%, in line with the increase in average net policy liabilities. The weighted average discount rate for the net policy liabilities was 5.7% and was in line with the year-ago quarter.

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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

The composition of the investment portfolio at book value at June 30, 2020 is as follows:
Investment Portfolio
As of
June 30, 2020
Amount% of Total
Fixed maturities at fair value(1)
$19,661,182  93 %
Policy loans579,541  3  
Other long-term investments(2)
432,325  2  
Short-term investments531,651  2  
Total$21,204,699  100 %
(1) On January 1, 2020, the Company prospectively adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. For available-for-sale fixed maturities, the standard removed the loss impairment methodology of a direct write-down of the amortized cost and replaced it with allowances for credit losses. As of June 30, 2020, fixed maturities at amortized cost were $16.7 billion less $33 million for allowance for credit losses.
(2) Includes $264 million of investments accounted for under the fair value option which have a cost of $274 million as of June 30, 2020.

Fixed maturities at amortized cost, net of allowance for credit losses by asset class as of June 30, 2020 are as follows:
Fixed Maturity Portfolio by Sector
As of
June 30, 2020
Investment GradeBelow Investment GradeTotal Amortized Cost, net
Corporate bonds(1)
$13,748,727  $700,713  $14,449,440  
Municipals1,617,951  —  1,617,951  
Government, agencies and GSE's411,100  —  411,100  
Collateralized debt obligations—  57,031  57,031  
Other asset-backed securities115,559  14,100  129,659  
Total$15,893,337  $771,844  $16,665,181  
(1) Please see our website for information regarding our energy portfolio.

Below are fixed maturities available for sale by amortized cost, allowance for credit losses, and fair value at June 30, 2020 and the corresponding amounts of net unrealized gains recognized in accumulated other comprehensive income (loss).

Amortized
Cost		Allowance for Credit LossesNet Unrealized GainsFair
Value
June 30, 2020$16,697,900  $(32,719) $2,996,001  $19,661,182


At amortized cost, net of allowance for credit losses, 95% of fixed maturities (96% at fair value) were rated “investment grade.” The fixed maturity portfolio earned an annual taxable equivalent effective yield of 5.38% during the second quarter of 2020, compared with 5.50% in the year-ago quarter.

Globe Life is not a party to any credit default swaps and does not participate in securities lending.


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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

Comparable information for acquisitions of fixed maturity investments is as follows:
Fixed Maturity Acquisitions
Quarter Ended
June 30,
20202019
Amount$351,034  $252,742  
Average annual effective yield4.4 %5.0 %
Average ratingA-A-
Average life (in years) to:
Next call16.1  23.7  
Maturity22.8  29.2  

SHARE REPURCHASE:

In the first quarter, the Company announced a temporary postponement of its share repurchase program while it evaluated the expected impact of COVID-19 on the Company’s operations and financial results. Accordingly, the Company did not repurchase shares of Globe Life during the second quarter. The Company anticipates that it will resume its share repurchase program in the second half of the year.

LIQUIDITY/CAPITAL:

Globe Life's operations consist primarily of writing basic protection life and supplemental health insurance policies which generate strong and stable cash flows. These cash flows are not impacted by volatile equity markets. Liquidity at the Parent Company is sufficient to meet additional capital needs, if any, of the insurance companies.

EARNINGS GUIDANCE FOR THE YEAR ENDING DECEMBER 31, 2020:

Globe Life projects that net operating income per share will be in the range of $6.80 to $7.04 for the year ending December 31, 2020.

NON-GAAP MEASURES:

In this news release, Globe Life includes non-GAAP measures to enhance investors' understanding of management's view of the business. The non-GAAP measures are not a substitute for GAAP, but rather a supplement to increase transparency by providing broader perspective. Globe Life's definitions of non-GAAP measures may differ from other companies' definitions. More detailed financial information, including various GAAP and non-GAAP measurements, is located at https://investors.globelifeinsurance.com on the Investors page under “Financial Reports and Other Financial Information."


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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

CAUTION REGARDING FORWARD-LOOKING STATEMENTS:

This press release may contain forward-looking statements within the meaning of the federal securities laws, including statements related to the expected impact of the COVID-19 outbreak on our business operations, financial results and financial condition. These prospective statements reflect management’s current expectations, but are not guarantees of future performance. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, which may be national in scope, related to the insurance industry generally, or applicable to the Company specifically. Such events or developments could include, but are not necessarily limited to: 1) Economic and other conditions, including the COVID-19 pandemic and its impact on the U.S. economy, leading to unexpected changes in lapse rates and/or sales of our policies, as well as levels of mortality, morbidity, and utilization of health care services that differ from Globe Life's assumptions; 2) Regulatory developments, including changes in accounting standards or governmental regulations (particularly those impacting taxes and changes to the Federal Medicare program that would affect Medicare Supplement); 3) Market trends in the senior-aged health care industry that provide alternatives to traditional Medicare (such as Health Maintenance Organizations and other managed care or private plans) and that could affect the sales of traditional Medicare Supplement insurance; 4) Interest rate changes that affect product sales and/or investment portfolio yield; 5) General economic, industry sector or individual debt issuers’ financial conditions (including developments and volatility arising from the COVID-19 pandemic, particularly in certain industries that may comprise part of our investment portfolio) that may affect the current market value of securities we own, or that may impair an issuer’s ability to make principal and/or interest payments due on those securities; 6) Changes in pricing competition; 7) Litigation results; 8) Levels of administrative and operational efficiencies that differ from our assumptions (including any reduction in efficiencies resulting from increased costs arising from operating during the COVID-19 pandemic); 9) The ability to obtain timely and appropriate premium rate increases for health insurance policies from our regulators; 10) The customer response to new products and marketing initiatives; 11) Reported amounts in the consolidated financial statements which are based on management estimates and judgments which may differ from the actual amounts ultimately realized; 12) Compromise by a malicious actor or other event that causes a loss of secure data from, or inaccessibility to, our computer and other information technology systems; 13) The severity, magnitude and impact of the COVID-19 pandemic, including effects of the pandemic and the effects of the U.S. government’s and other businesses’ response to the pandemic, on our operations and personnel, and on commercial activity and demand for our products; and 14) Globe Life’s ability to access the commercial paper and debt markets, particularly if such markets become unpredictable or unstable for a certain period as a result of the COVID-19 pandemic.

Readers are also directed to consider other risks and uncertainties described in other documents on file with the Securities and Exchange Commission. Globe Life specifically disclaims any obligation to update or revise any forward-looking statement because of new information, future developments or otherwise.

EARNINGS RELEASE CONFERENCE CALL WEBCAST:

Globe Life will provide a live audio webcast of its second quarter 2020 earnings release conference call with financial analysts at 11:00 am (Eastern) tomorrow, July 23, 2020. Access to the live webcast and replay will be available at https://investors.globelifeinsurance.com on the Calls and Meetings page, at the Conference Calls on the Web icon. Immediately following this press release, supplemental financial reports will be available before the conference call on the Investors page menu of the Globe Life website at “Financial Reports.”

For additional information contact:Mike Majors, Executive Vice President - Administration and Investor Relations
Globe Life Inc.
3700 South Stonebridge Drive
P. O. Box 8080
McKinney, Texas 75070-8080
Phone: 972-569-3627 or email: investors@globe.life
Website: https://investors.globelifeinsurance.com

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GL Q2 2020 Earnings Release
GLOBE LIFE INC.
Earnings Release—Q2 2020
(Dollar amounts in thousands, except share and per share data)
(Unaudited)

APPENDIX

GLOBE LIFE INC.
GAAP CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Revenue:
Life premium$670,822  $631,201  $1,320,452  $1,255,490  
Health premium282,877  266,282  563,082  532,966  
Other premium3  1  3  1  
Total premium953,702  897,484  1,883,537  1,788,457  
Net investment income231,568  227,425  460,559  454,098  
Realized gains (losses)(4,790) 5,154  (30,887) 6,483  
Other income404  398  729  639  
Total revenue1,180,884  1,130,461  2,313,938  2,249,677  
Benefits and expenses:
Life policyholder benefits459,845  410,961  881,515  820,653  
Health policyholder benefits183,496  170,511  362,207  340,528  
Other policyholder benefits7,475  7,890  15,063  15,938  
Total policyholder benefits650,816  589,362  1,258,785  1,177,119  
Amortization of deferred acquisition costs146,160  138,165  289,997  273,987  
Commissions, premium taxes, and non-deferred acquisition costs76,140  73,698  155,077  147,163  
Other operating expense72,714  79,044  151,296  151,837  
Interest expense22,813  21,432  43,621  42,710  
Total benefits and expenses968,643  901,701  1,898,776  1,792,816  
Income before income taxes212,241  228,760  415,162  456,861  
Income tax benefit (expense)(39,193) (42,151) (76,574) (84,858) 
Income from continuing operations173,048  186,609  338,588  372,003  
Discontinued operations:
Income (loss) from discontinued operations, net of tax—  (43) —  (92) 
Net income$173,048  $186,566  $338,588  $371,911  
Basic net income (loss) per common share:
Continuing operations
Discontinued operations
Total basic net income per common share$1.63  $1.70  $3.17  $3.38  
Diluted net income (loss) per common share:
Continuing operations
Discontinued operations
Total diluted net income per common share$1.62  $1.67  $3.13  $3.32  

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GL Q2 2020 Earnings Release

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