Hello, and welcome to the Globe Life Fourth Quarter 2022 Earnings Call. My name is George, and I will be your coordinator for today's event. Please note, this conference is being recorded, and your lines will be in a listen-only mode for the duration of the call. However, you will have the opportunity to ask questions at the end of the call. I would now like to hand the call over to your host today, Mr. Stephen Mota, Investor Relations Director. Please go ahead, sir.

Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and Matt Darden, our Co-Chief Executive Officers; Tom Kalmbach, 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, 2021 10-K, and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for a discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to Frank.

Thank you, Stephen, and good morning, everyone. Before getting started, I want to let you know that due to the ice storms in the DFW area, we are doing this call from multiple locations. So, if there are any issues with connections, please bear with us. Then, Matt and I would like to quickly take this opportunity to thank Gary Coleman and Larry Hutchison once again and acknowledge their accomplishments as Globe Life's co-CEOs over the last 10 years, including 2022, another good year for Globe Life. Now to the results of the quarter. In the fourth quarter, net income was $212 million, or $2.14 per share compared to $178 million or $1.76 per share a year ago. Net operating income for the quarter was $221 million or $2.24 per share, an increase of 32% from a year ago. On a GAAP reported basis, return on equity was 12.3%, and book value per share was $49.65. Excluding unrealized losses on fixed maturities, return on equity for the full year was 13.4%, and book value per share as of December 31 was $64.01, up 9% from a year ago. It is encouraging that our return on equity, excluding unrealized gains and losses for the fourth quarter, was 14.3%, reflecting the lessening impact of excess life claims on our operations. In the life insurance operations, premium revenue for the fourth quarter increased 3% from the year-ago quarter to $754 million. For the full year 2022, premium income grew 4%. Growth in premium income was challenged due to the lower sales growth we've seen this year, primarily in our direct-to-consumer channel in addition to the impact of foreign exchange rates on our Canadian premiums at American Income. In 2023, we expect life premium to grow around 4%. Life underwriting margin was $212 million, up 45% from a year ago. The increase in margin is due primarily to improved claim experience. With respect to anticipated underwriting income, as we've talked about on prior calls, underwriting margin will be calculated differently under the new LDTI accounting rules and is expected to be substantially higher due to the changes required by the new accounting standards. Tom will discuss the expected impact of LDTI in his comments. In health insurance, premium grew 4% to $324 million, and health underwriting margin was up 1% to $82 million. For the full year 2022, premium grew 6%. In 2023, we expect health premium revenue to grow around 3%, lower than 2022 due to lower premium growth in our United American and General Agency operations. Administrative expenses were $78 million for the quarter, up 12% from a year ago. As a percentage of premium, administrative expenses were 7.2% compared to 6.7% a year ago. For the year, administrative expenses were 7% of premium compared to 6.6% a year ago. In 2023, we expect administrative expenses to be up approximately 3%, and be around 6.9% of premium due primarily to higher IT and information security costs. Higher labor costs are expected to be offset by a decline in pension-related employee benefit costs. I will now turn the call over to Matt for his comments on the fourth quarter marketing operations.

Thank you, Frank. First up is American Income Life. The American Income Life life premiums were up 5% over the year-ago quarter to $381 million, and life underwriting margin was up 27% to $130 million. The higher underwriting margin is primarily due to improved claims experience and higher premium. In the fourth quarter of 2022, net life sales were $70 million, down 6% from a year-ago quarter. The decline in sales resulted from reduced agent count and agent productivity. The average producing agent count for the fourth quarter was 9,243, down 3% from the year-ago quarter and down 2% from the third quarter. The decline from the third quarter to the fourth quarter is consistent with typical seasonal trends. The decline in average agent count from a year ago is due to higher-than-expected attrition throughout 2022, as we have previously discussed. While the agent count declined from a year ago, I am encouraged as we have seen positive recruiting momentum over the latter part of the fourth quarter into the beginning of this year. We've also started to have some success with our new retention efforts. I believe the agency compensation adjustments we have made to emphasize recruiting and retention will help continue this momentum. I am optimistic regarding the long-term growth potential of this agency division. At Liberty National, life premiums were up 4% over the year-ago quarter to $82 million, and life underwriting margin was up 74% to $21 million. The increase in the underwriting margin is primarily due to improved claims experience. Net life sales increased 24% to $23 million, and net health sales were $9 million, up 14% from the year-ago quarter due mainly to increased productivity and agent count. The average producing agent count for the fourth quarter was 2,946, up 8% from the year-ago quarter and up 6% compared to the third quarter. Liberty continues to build on the momentum that's been generated over the past year and is well-positioned for future growth. At Family Heritage, health premiums increased 7% over the year-ago quarter to $94 million, and health underwriting margin increased 2% to $26 million. Net health sales were up 21% to $22 million due to increased agent count and agent productivity. The average producing agent count for the fourth quarter was 1,334, up 12% from the year-ago quarter and up 8% compared to the third quarter. As we've discussed before, there was a shift in emphasis last year to recruiting and middle management development. This has paid off nicely as we continue to see positive trends at Family Heritage. In our Direct to Consumer Division at Globe Life, life premiums were flat over the year-ago quarter to $238 million, but life underwriting margin increased from $12 million to $39 million. The increase in underwriting margin is primarily due to improved claims experience. Net life sales were $31 million, down 9% from the year-ago quarter due to declines in circulation and response rate. This sales decline is consistent with our expectations. As we have mentioned in previous calls, direct-to-consumer marketing is one facet of our business that has been impacted by the current inflationary environment. We've had to pull back somewhat on circulation and mailings as increases in postage and paper costs impede our ability to achieve satisfactory returns on our investment for specific marketing campaigns. There is an offset to this as we continue to generate more Internet activity, which has lower acquisition costs than our direct mail marketing. Today, electronics sales are approximately 70% of our business compared to 54% in 2019. I am also encouraged to see some resiliency here as the average premium per issued policy has increased each year for the last several years and was 16% higher in 2022 than in 2019. At United American General Agency, health premiums increased 5% over the year-ago quarter to $137 million and health underwriting margin increased 1% to $20 million. Net health sales were $20 million, down 25% compared to the year-ago quarter, and this decline is due primarily to the market dynamics we saw throughout 2022, including aggressive pricing by competitors on certain Medicare supplement products and a consumer movement to Medicare Advantage.

Now based on the trends that we are seeing and our experience with our business, we expect the average producing agent count trends for 2023 to be as follows: American Income Life, high single-digit growth; Liberty National, low double-digit growth; Family Heritage, high single-digit growth. Net life sales trends for the full year 2023 are expected to be as follows: American Income Life, relatively flat; Liberty National, high single-digit to low double-digit growth; Direct to Consumer, relatively flat. Net health sales trends for 2023 are expected to be as follows: Liberty National, a high single-digit to the low double-digit increase; Family Heritage, a high single-digit increase; United American General Agency, low single-digit growth. I will now turn the call back to Matt.

Thanks, Frank. We'll now turn to the investment operations. Excess investment income, which for 2022, we defined as net investment income, less required interest on net policy liabilities and debt, was $63 million, up 7% from the year-ago quarter. On a per share basis, reflecting the impact of our share repurchase program, excess investment income was up 10%. Net investment income was $254 million, up 6% from the year-ago quarter. On a per share basis, net investment income was up 90%. With the adoption of LDTI in 2023, we will begin viewing excess investment income as net investment income less only required interest. For the full year 2023, we expect net investment income to grow approximately 5% as a result of the favorable rate environment. With respect to required interest, it will be substantially higher than reported in 2022 as a result of changes related to the adoption of LDTI. As mentioned previously, Tom will further discuss LDTI in his comments. Now regarding investment yield. In the fourth quarter, we invested $239 million in investment-grade fixed maturities, primarily in the financial, municipal and industrial sectors. We invested at an average yield of 6.10%, an average rating of A, and an average life of 21 years. We also invested $104 million in commercial mortgage loans and limited partnerships that have debt-like characteristics. These investments are expected to produce additional yield and are in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the fourth quarter yield was 5.18%, up 1 basis point from the fourth quarter of 2021 and up 1 basis point from the third quarter. As of December 31, the portfolio yield was 5.19%. Now regarding the investment portfolio. Invested assets are $20 billion, including $18.3 billion of fixed maturities at amortized cost. Of the fixed maturities, $17.8 billion are investment grade with an average rating of A-minus. Overall, the total portfolio is rated A-minus, same as a year ago. Our investment portfolio has a net unrealized loss position of approximately $1.8 billion due to the high current market rates on our holdings compared to book yields. We are not concerned by the unrealized loss position and it is mostly interest rate driven. We have the intent and, more importantly, the ability to hold our investments to maturity. Bonds rated BBB are 51% of the fixed maturity portfolio, down from 54% from a year ago. While this ratio is in line with the overall bond market, it is relatively high compared to our peers. However, we have little or no exposure to higher-risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities. We believe that the BBB securities that we acquire provide the best risk-adjusted, capital-adjusted returns due in large part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. Low investment grade bonds are $542 million compared to $702 million a year ago. The percentage of below investment-grade bonds to fixed maturities is 3%. This is as low as this ratio has been for more than 20 years. In addition, below investment-grade bonds plus bonds rated BBB are 54% of fixed maturities, the lowest ratio it has been in eight years. Overall, we are comfortable with the quality of our portfolio because we primarily invest long. A key criterion utilized in our investment process is that an issuer must have the ability to survive multiple cycles. During 2022, we executed some repositioning of the fixed maturity portfolio to improve yield and quality. Over the course of last year, we sold approximately $359 million of fixed maturities with an average rating of BBB and reinvested the proceeds in higher-yielding securities with an average rating of A-plus. Overall, we believe we are well positioned not only to withstand a market downturn but also to be opportunistic and purchase higher-yielding securities in such a scenario. I would also mention that we have no direct investments in Ukraine or Russia and do not expect any material impact to our investments in multinational companies that have exposure to these countries. At the midpoint of our guidance for the full year 2023, we expect to invest approximately $940 million in fixed maturities at an average yield of 5.5% and approximately $310 million in commercial mortgage loans and limited partnership investments with debt-like characteristics at an average cash yield of 7% to 8%. As we've said before, we are pleased to see higher interest rates as this has a positive impact on operating income by driving up net investment income with no impact on our future policy benefits, since they are not interest sensitive. Now, I will turn the call over to Tom for his comments on capital, liquidity, and LDTI.

Thanks, Frank. So, in the fourth quarter, the company purchased 490,000 shares of Global Life Inc. common stock for a total cost of $56 million at an average share price of $115.1, and ended the fourth quarter with liquid assets of approximately $91 million. For the full year, we spent approximately $335 million to purchase 3.3 million shares at an average price of $100.90. The total amount spent on repurchases included $55 million of parent company liquidity. In addition to the liquid assets of the parent, the parent company will generate additional excess cash flows during 2023. The company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on debt. We anticipate the parent company's excess cash flow for the full year will be approximately $410 million to $450 million and is available to return to its shareholders in the form of dividends and through share repurchases. This amount is higher than 2022, primarily due to lower COVID life losses incurred in '22, which will result in higher statutory income in '22 as compared to 2021, thus providing higher dividends to the parent in 2023 that were received in 2022. As previously noted, we had approximately $91 million of liquid assets as compared to the $50 million or $60 million of liquid assets we have historically targeted. With the $91 million of liquid assets plus $410 million to $450 million of excess cash flows expected to be generated in 2023, we anticipate having $500 million to $540 million of assets available to the parent in 2023, of which we anticipate distributing approximately $80 million to $85 million to our shareholders in the form of dividend payments. As noted on previous calls, we will 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 parent's excess cash flow after the payment of shareholder dividends. 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 issue new insurance policies, expand and modernization of our information technology and other operational capabilities, as well as to acquire new long-duration assets to fund their future cash needs. The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program for 2023. In our earnings guidance, we anticipate between $360 million and $400 million of share repurchases will occur during the year. Now with regard to capital levels at our insurance subsidiaries. Our goal is to maintain our capital levels necessary to support current ratings. Global Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. For 2022, since our statutory financial statements are not yet finalized, our consolidated RBC ratio is not yet known. However, we anticipate the final 2022 RBC ratio will be near the midpoint of this range without any additional capital contributions. As noted on the previous call, the new NAIC factors became effective in 2022 related to mortality risk, also known as C2. Given the consistent generation of strong statutory gains from insurance operations and given our product portfolio, these new factors will simply result in even stronger capital adequacy at our target RBC ratios. Now I'd like to provide you a few comments related to the impact of excess policy obligations on fourth quarter results. Overall, fourth quarter excess policy obligations were in line with our expectations. In the fourth quarter, the company incurred approximately $5 million of COVID life claims related to approximately 31,000 U.S. COVID deaths occurring in the quarter as reported by the CDC and was in line with expectations. We also incurred excess deaths as compared to those expected based on pre-pandemic levels from non-COVID causes, including deaths due to lung disorders, heart and circulatory issues, and neurological disorders. We believe the higher level of mortality we have seen is due in large part to the effects of the pandemic. So, as the number of COVID deaths has moderated, so has the number of deaths from other causes. In the fourth quarter, the impact of excess non-COVID policy obligations was generally in line with our expectations at about $6 million. For the full year, the company incurred approximately $49 million of COVID life policy obligations related to approximately 243,000 U.S. COVID deaths, an average of $2 million per 10,000 U.S. deaths. In addition, we estimate non-COVID claims resulted in approximately $69 million of higher policy obligations for the full year. The $118 million combined impact of COVID and higher non-COVID policy obligations was around 4% of total life premium in 2022, down from approximately 6% in 2021. Based on the data we currently have available, we estimate incurring approximately $45 million of total excess life policy obligations from both COVID and non-COVID claims in 2023. We estimate that the total reported U.S. deaths from COVID will be approximately 105,000 at the midpoint of our guidance. Finally, with respect to earnings guidance for 2023. As noted on prior calls, the new accounting standard related to long-duration contracts is effective January 1, 2023. From this point forward, we report 2023 results and guidance under the new accounting requirements. I will do my best to bridge the gap as there are many changes with these new requirements. So, we are projecting net operating income per share will be in the range of $10.20 to $10.50 per diluted common share for the year ending December 31, 2023. The $10.35 midpoint of our guidance is lower than what we had indicated last quarter when including the impact of LDTI adoption. The reduction is primarily due to a reduction in the expected impact from the adoption of LDTI as we get more information and have refined our assumptions and estimates impacting both 2022 and 2023. In addition to the lower LDTI impact, we anticipate slightly lower premiums, higher customer lead and agency expenses, as well as higher financing costs, which are reflective of higher short-term yields than previously anticipated. We estimate the after-tax impact of implementing the new accounting standard results in an increase in 2023 net operating income in the range of $105 million to $115 million. We are still in the process of determining the full 2022 results under the new standard. Once finalized, it could affect the 2022-2023 estimated results. Going forward, fluctuations in experience and changes in assumptions will result in changes in both future policy obligations and the amortization of DAC as a percent of premium. The largest driver of the increase is lower amortization of deferred acquisition costs, or DAC, than under the prior accounting standard due to the changes in the treatment of renewal commissions, the elimination of interest on DAC balances, the updating of certain assumptions, and the methods of amortizing DAC. Due to the treatment of deferred renewal commissions on amortization in our captive agency channels, we do expect that acquisition costs as a percent of premium will increase slightly over the next few years. In addition to the changes affecting the amortization of DAC, the new accounting standard changes how policy obligations are determined under the new standard. Life policyholder benefits reported in 2021 and 2022 will be required to be restated to reflect the new requirements and will include the impact of unlocking and updating prior assumptions. For 2023, absent any assumption changes, we expect the following impacts: Life obligations as a percent of premium will be in the range of 40.5% to 42.5%. This is consistent with the average life policy obligation ratio over the last five years. Health obligations as a percent of health premium will be in the range of 50% to 52%. This is about 3% to 4.5% lower than the average health policy obligation percentage over the last five years. For the life and health lines combined, commissions, amortization, and non-deferred acquisition costs as a percent of premium will be in the range of 20% to 21.5%, approximately 8% to 9.5% lower than the recent five-year averages. The resulting life underwriting margin as a percent of premium is expected to be in the range of 37% to 38%, and health underwriting margins as a percent of premium in the range of 28% to 29%. So, offsetting the increases in underwriting income will be a reduction to excess investment income due to the elimination of interest accruals on DAC balances that historically have reduced net required interest. In 2022, the interest on DAC balances was approximately $260 million. In 2023, this will be zero under the new standards as compared to between $275 million and $285 million of interest accruals on DAC under historical GAAP that we would have anticipated. In addition, required interest will change due to the changes in reserve balances at transition and restated balances in 2021 and 2022 under the new requirements. We anticipate that required interest in 2023 will be in the range of $910 million to $920 million. With respect to changes in AOCI, we noted in the past few quarters that under the new accounting standard, there is a requirement to remeasure the company's future policy benefits each quarter, utilizing a discount rate that reflects the upper medium grade fixed income instrument yield and affects the changes with the effects of the change to be recognized in AOCI, a component of shareholders' equity. The upper medium grade fixed income yields generally consist of single A-rated fixed income instruments at a relative mid-range reflective of the currency and tenor of the insurance liability cash flows. As of year-end 2022, had the new accounting standard been in place, we anticipate the after-tax impact on AOCI would have decreased reported equity in the range of $1.3 billion to $1.4 billion. While the GAAP accounting changes will be significant, it's very important to keep in mind that the changes impact the timing of when future profits will be recognized, and that none of the changes will impact our premium rates, the amount of premium we collect, or the amount of claims we ultimately pay. Furthermore, it has no impact on the statutory earnings, statutory capital we're required to maintain for regulatory purposes or the parent company's excess cash flows, nor will it cause us to make any changes in the products we offer. Those are my comments. I'll now turn it over to Matt.

Thank you, Tom. Those are our comments. We will now open the call up for questions.

Thank you very much, sir. Our first question is coming from Jimmy Bhullar from J.P. Morgan. Please go ahead, sir.

Hey, good morning. So, I had a question first on direct response sales. They've been weak for the last several quarters. Wondering how much of it is a reduction on your part on mailings and circulations versus just weak consumer demand with higher inflation?

Yes. It's really on the distribution side. As we've talked about in the past, scaling back our mailings and other print media that's associated with the higher costs these days of the postage in paper. What we're seeing on the consumer side, as I mentioned in my comments, is actually the sale amount on a per policy basis, the premium amount for each sale is actually going up slightly. So that would indicate to me that it's really more of a reduction in that cost in the number of things that we're distributing, because we are really going to make sure that each one of those mailings and all of our campaigns are profitable. And that's what the benefit is of switching more of our distribution over time to more of the electronic media side versus the sales side. But I do want to remind everyone that all of these channels work together and that the mail does support and drive activity to our other channels such as the call center, as well as just online.

Okay. And then, maybe with the economy and inflation overall, there had been concerns about policy retention. And it seems like lapses are now close to historical levels, but do you expect that they'll go up above where they were pre-pandemic?

Yes, Jimmy, I think with respect to last level, I mean, you're right, the fourth quarter did really trend favorably versus the third quarter, while they're still higher than 2021. We're actually back to in the fourth quarter around the lapses, the persistency levels pretty much where they were in the fourth quarter of 2019. So, looking forward, I think for the most part, we do think they'll trend back here to pre-pandemic levels during 2023. Probably Direct to Consumer would probably see those maybe sticking around at slightly higher lapse rates than what we've had pre-pandemic, but not that significantly. And Liberty for the most part has first-year lasted back to pre-pandemic levels as well.

Thank you. I’d like to ask one more question about LDTI. While it is impacting the timing of GAAP income, it doesn't alter the fundamental economics. If the business does not grow over the next several years, it could negatively affect your results. How do you view the situation with normal growth? Is it possible for LDTI to shift from being beneficial to a detriment to your results? Do you anticipate this occurring in the next three to five years?

Yes. Jimmy, we did take a look. I think this is the same question you had asked last year or the last quarter as well... All right, last quarter. We did examine that. In reality, for the amortization to reverse, it takes about 20 to 30 years into the future before the amortization under the LDTI surpasses what we would have expected under historical GAAP. So, it's quite a long way off.

Thank you very much, sir. We'll now move to Erik Bass calling from Autonomous Research. Please go ahead.

Hi, thank you. So, it looks like recruiting has turned nicely at Liberty and Family Heritage, and you're starting to see the growth in the agent count there, but it hasn't come through American Income yet. And I realize the fourth quarter can have some noise with the holidays. I was hoping you would talk more about the trends you're seeing in both recruiting and retention and what steps you're taking to improve those at American Income in 2023.

Yes, we previously discussed some changes to the incentive structure for compensation at American Income. These adjustments were implemented late last year and will carry on into 2023. We're in the early stages, but there are signs of positive developments. It's worth noting that we significantly increased our agent count during the pandemic, rising from around 7,500 to over 10,000 agents. Consequently, our attrition rates have been somewhat higher in recent quarters than we would prefer. However, the new programs we've introduced seem to be effective, and we are seeing early signs of improvement in both retention and recruiting efforts at American Income. We maintain a positive outlook for 2023 in this regard. Importantly, we believe these factors are within our control, given that we are experiencing strong agent growth at our other two agencies, which are not affected by external factors.

Thank you. And then, I appreciate all of the color you gave on the LDTI impacts. Just a quick question. When do you expect to release an updated financial supplement with recast financials?

Yes. We would do that along with our first quarter results as our intended plan at this point.

Got it. So, I guess we shouldn't expect that in advance, so we should kind of model based off of the numbers you walked through on the call?

Exactly. Yes. When we talk again after the first quarter, we'll have quite a bit of detail around the impact on the various distribution channels and lines of business. So, that will be the time to talk more about those details.

One of the things, Erik, we have to be a little bit careful about is we can't be releasing some of the numbers on the restated '21 and '22 until it's actually audited. So, we get into a little bit of a timing, especially around the first quarter. So, as Tom said, we really tend to be able to provide more of the detail on that, as we said later on.

Thank you very much, sir. We'll now move to Mr. Ryan Krueger calling from KBW. Please go ahead, sir.

Hi, thanks. Good morning. I appreciate all the LDTI guidance. My first question is actually excluding LDTI. I think last quarter's guidance, which was excluding LDTI, had a midpoint of $9.35. If we remove the LDTI impact this quarter, it seems like the midpoint is closer to $9.20. I'm just curious if you can provide any insight on why that guidance, excluding LDTI, has decreased a bit?

Hey, Ryan, it's Tom. I would say that the midpoint, more like $9.25, so it dropped by about $0.10. And really, the main drivers there are the lower premium growth that we had previously mentioned. And then, we are seeing a little bit higher lead costs and agency expenses impacted by inflation. As travel starts increasing and as meetings start increasing, we have some additional training and recruiting costs that were incurred, we just had that pick up a bit. And then, as I mentioned also higher cost on debt given the higher cost for commercial paper, just the rates are a bit higher. And then, given the share repurchase program, there was just a slightly higher share count than what we had previously estimated in our prior guidance work.

Okay, thanks. Please continue.

I would like to add that the increase in share count was not as we had anticipated. The current higher share price compared to where we were during the last call means we are purchasing fewer shares with the same amount of money.

Good. And then, on the free cash flow guidance of $410 million to $450 million, is there some drag in that still from COVID and non-COVID excess claims that occurred in 2022? I'm trying to think about if there would be a further bounce back as we go beyond 2023 to a more normalized level?

Yes. Last year, we reported a total of approximately $118 million from both COVID and non-COVID sources in 2022. For this year, we anticipate around $45 million. The difference between these two figures is expected to contribute to increased statutory earnings in 2023, which should ultimately result in higher dividends to the parent in 2024.

Okay. So, the difference between those two and then tax affected would be basically additive to free cash flow in '24?

Exactly, yes.

Thank you very much, sir. We'll now move to John Barnidge calling from Piper Sandler. Please go ahead, sir.

Thank you very much. My question is around Direct to Consumer and the mailings. Seems like increased postage and paper cost is more of a secular trend. Are there areas that can be developed beyond just mailings that can be incorporated into the Direct to Consumer marketing efforts?

Yes, as I mentioned, we are really focused on expanding our Internet and electronic media inquiries, which leads to more applications and sales. This has been a significant offset, as I've noted in my previous comments. We've continued to grow, and this aspect of the business has become much more important than it was three or four years ago. Our decline in profitability from the direct mail operation has been balanced by growth on the electronics side. Overall, these dynamics are at play. However, inflation and its impact on the market will influence our adjustments over the next few quarters based on profitability returns. We aim to maintain our profitability targets across all campaigns and remain flexible to adapt throughout the year as market conditions change.

Thank you. I have a follow-up question. I understand that the indirect mortality is part of the COVID estimate. Do you expect it to taper off over the year or remain at a constant level throughout? I'm trying to understand how far removed we are from the pandemic impacts and if that degradation occurs.

For 2023, you mean?

Yes, correct. Thank you.

For 2023, we expect slightly higher COVID deaths in the first quarter compared to the second, third, and fourth quarters. We believe this will be somewhat concentrated in the early part of the year.

Great. Thank you.

Thank you very much, sir. Next question will come from Mr. Andrew Kligerman calling from Credit Suisse. Please go ahead, sir. Your line is open.

Good morning. First question is around American Income. And completely understand kind of 2023 being kind of a digestion period of having 10,000 producers. As you go into this new incentive strategy, just different initiatives, do you think in 2024, and I know it's early for guidance, but is there a reason to believe you'll kind of get back on track to that kind of mid-single-digit producer growth, maybe mid-upper single-digit sales growth? I mean, is there any reason to believe you can't get there in '24 that maybe it will take longer?

No, that's a great question as we do believe we can get back there. As a reminder, agent count and average agent count for the quarters is a leading indicator, and it takes time to get these new agents onboarded, trained, and producing. And then, obviously, the longer they've been here, the more effective they are from a production perspective. And so, that's why you'll see in our guidance as we have growth projected on the agent count side, but the sales are lagging that a little bit and more towards flat. We do believe that we can get to middle management growth in 2023 that will drive that longer-term growth in sales side in '24. We also anticipate opening three to five offices in American Income over this next year, and that too will set us up for good growth in 2024. And I also wanted to just clarify, when we talk about compensation adjustments, there's two primary components to the compensation for agents. One is just the base commission on sales. And then, we also have incentive-based compensation that's targeted at specific behavior. And we do that throughout our history. So, when we talk about changing the compensation we're really not changing the total amount of compensation that is in our overall pricing and profitability targets, but really, we're targeting two specific activities and behaviors that we're trying to influence. So, I just wanted to clarify that overall, our compensation and acquisition costs are going to be consistent with what we've experienced in the past.

Super helpful. Moving to the health lines, specifically United American, which has seen a 25% decline in sales. This appears to be a result of challenges in MedSup, along with Medicare Advantage gaining market share. We observe a number of companies, including online players that are subsidiaries of the insurers we track. Many of these companies seem to be reducing their involvement in online Medicare Advantage products. Therefore, as I analyze United American's performance in the agency channel, I'm considering where the competition is arising from. It seems like competitors are becoming more disciplined in their approach.

Throughout 2022, we observed that some competitors were adopting more aggressive pricing strategies. Our priority is to uphold our profitability targets and underwriting margins in this sector without chasing sales aggressively. Additionally, we are noticing a shift towards Medicare Advantage plans. We've been involved in this industry since its inception and have observed similar market trends over the years. We expect that some of these dynamics will stabilize as we progress. Mike, do you have anything to add? You've been overseeing this area for a considerable time.

Yes. While some may have reduced their participation, overall, we are noticing an increase in enrollment in Medicare Advantage plans. In this market, there are both large and small carriers, and the barriers to entry are low since it's not a capital-intensive industry. I can't specify which companies are pulling back, but there is a general trend towards both group and individual Medicare Advantage plans. The current economic situation likely influences this, as people seem more inclined to forgo the benefits of Medicare supplement plans that don't have provider network or referral requirements for a more affordable managed care option. We've been in this sector since Medicare began in the 1960s, so we've observed these fluctuations over the years, making this trend not particularly unusual or surprising. Our strategy is to maintain a cautious approach to protect our margins as well as our customers, aiming to avoid excessive increases in renewal rates. We have never aimed to be the lowest-cost provider, as we believe it's fair to have the right pricing with reasonable rate hikes. It's important to note that the pricing for our new business is aligned with our renewals, so we cannot lower new business prices without negatively affecting the profitability of our existing portfolio, which involves our United American agency valued around $500 million. This situation is something we've encountered before, and it is not particularly surprising.

And just to kind of a little further clarification on this, so you're seeing the competition across agencies and online. And is there any interest in terms of kind of transitioning to more Medicare Advantage products as opposed Medicare Supplement?

I'm sorry. There was a lot of background noise. Could you repeat that?

Absolutely. So, in terms of distribution competitors, is it pretty much across agency and online? And then, with that, is Globe likely to pivot more to Med Advantage as opposed to historically being in the Med Sub area?

Certainly. We do not utilize networks for Medicare Advantage, which would represent a significant shift for us. Additionally, this is not a business segment we have previously engaged in, though we did consider it some time ago. We once participated in the Part D plan, which shares similarities, but we moved away from that. Engaging in this area is not something we wish to pursue. I believe it is particularly challenging for smaller companies to enter the Medicare Advantage and Part D markets, so this initiative would not be a sensible move for us.

Seems like a thoughtful approach as usual.

Does that answer your question, Mr. Kligerman?

Absolutely. Thank you.

Thank you very much, sir. We'll now take a question from Mr. Mark Hughes calling from Truist. Please go ahead, sir.

Yes, thank you. Excuse me, good morning. I don't know if you touched on the impact of LDTI. Is there anything about the LDTI accounting standard that impacts your growth on a go-forward basis? You, obviously, got a nice EPS benefit this year. But just the timing and the emergence of profitability, does it change over time so that there's a natural acceleration or deceleration perhaps as time goes by that will impact your kind of trend line growth rate in future years?

Yes, I'll address that. As we consider the implementation of LDTI, one important aspect is how we handle future deferrals of renewal commissions. When a part of renewal commissions is deferred, the new rules require us to change our approach. Previously, we would assess all anticipated future renewal commissions to determine an amortization rate for both initial and future capitalized expenses. Now, we must adjust the amortization rate with each new capitalization. In our AIL line of business, we do capitalize some renewal commissions. Last quarter, we mentioned that for this block, we anticipated about a 50 basis point increase in amortization. This increase is due to two factors: we have a mix of business where some has no DAC, while others do have DAC being amortized. As the block without DAC runs off, the average amortization rate increases. Additionally, as we receive new deferred renewal commissions on AIL, we expect a slight uptick in the amortization rate. Overall, we anticipate an increase in the amortization rate of approximately 20 to 30 basis points over the next few years before stabilizing, with the rate of increase diminishing as we add new business.

And Mark, the one thing I would just add to that is, I think really other than that, and other than assumption changes that might come through from time to time, I would expect once it kind of gets reset, then that the general level of growth rate should be somewhat similar.

Thank you, Mr. Hughes. We do not seem to have any additional questions at this moment. I would like to hand the call back to you, Mr. Mota, for any final comments or closing thoughts.

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

Ladies and gentlemen, that will conclude this conference. Thank you very much for your participation. You may now disconnect. Have a good day, and goodbye.