Globe Life Inc. Q1 FY2026 Earnings Call

and welcome to Globe Life, Inc. First Quarter Earnings Release Call. My name is Morgan, and I will be your coordinator for today's event. Please note, this call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. I will now hand you over to your host, Stephen Moda, Vice President of Investor Relations, to begin today's conference. Thank you.

Thank you. Good morning, everyone. Joining the call today are Frank Stavoda and Matt Darden, our Co-Chief Executive Officers, Tom Kambach, 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 if provided for general guidance purposes only. Accordingly, please refer to our earnings release in 2025 10-K on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website discussion of these terms and reconciliations to GAAP measures. I will now turn the call over to the break.

Thank you, Stephen, and good morning, everyone. In the first quarter, net income was $271 million, or $3.39 per share, compared to $255 million, or $3.01 per share, a year ago. Net operating income for the quarter was $274 million, or $3.43 per share, an increase of 12% over the $3.07 per share from a year ago. We are very pleased with the results of our operations this quarter. Despite the challenges faced by working-class Americans in the current economic environment, Globe Life has now produced double-digit growth in net operating income per share in seven of the last eight quarters. And the one quarter that didn't have double-digit growth was close at eight percent. On a GAAP reported basis, return on equity through March 31st is 17.9 percent and book value per share is 77.03 excluding accumulated other comprehensive income or AOCI return on equity is 14 percent and the book value per share as of march 31st is 98.56 up 12 percent from a year ago now in our insurance operations total premium revenue in the first quarter grew 6% over the year-ago quarter. For the full year, we expect total premium revenue to grow approximately 7%. Life premium revenue for the first quarter increased 3% from the year-ago quarter to $853 million. Life underwriting margin was $349 million, also up 3% from a year ago. For the year, we expect life premium revenue to grow between three and three and a half percent. As a percent of premium, life underwriting margin was 41 percent, same as the year ago quarter. While we anticipate life underwriting margin to be between 42 and 45 percent for the full year 2026, we do expect it to be around 41 percent for both the second and fourth quarters and higher in the third quarter due to the anticipated remeasurement gain from assumption updates that will take place in the third quarter as tom will discuss in his comments in health insurance premium revenue grew 13 percent to 417 million dollars and health underwriting margin was up 12 percent to 95 million dollars for the year we expect health premium revenue to grow in the range of 14 to 17 percent this is due to premium rate increases in Medicare supplement business, as well as strong sales activity in both our United American and Family Heritage divisions. As a percent of premium, health underwriting margin was approximately 23% in the first quarter, same as the year ago quarter. For the full year, we anticipate health underwriting margins to be between 23% and 27%. Administrative expenses were $94 million for the quarter, an increase of approximately 8% over the first quarter of 2025. As a percent of premium, administrative expenses were 7.4%. For the year, we expect administrative expenses to be approximately 7.3% of premium. Over the long term, we anticipate that expanded implementation of AI applications across the company will help drive this ratio lower. We believe GoldLife is positively positioned to benefit from AI due to the high volume nature of our business, including the number of applications received and policies issued, calls received by our customer service representatives, and number of claims reviewed and paid. Of course, these AI-driven improvements would not be limited to administrative expenses. We expect enterprise-wide benefits, including significant benefits to our distribution and underwriting activities in particular. I will now turn the call to Matt for his comments on the first quarter marketing operations.

Thank you, Frank. We had strong first quarter sales results as the total life net sales grew 6% and the total health net sales grew 58%. I'm pleased to point out that we have seen growth in net life sales in each division for the last two quarters. Given the current economic environment, these results are indicative of the resiliency of our business model. Now, I'll discuss the trends at each distribution, starting with our exclusive agencies. At American Income Life, life premiums were up 5% over the year-go quarter to $459 million. And the life underwriting margin was up 7% to $209 million. dollars net life sales were 101 million dollars up three percent from a year ago due to improved agent productivity the average producing agent count for the first quarter was 11 064 down four percent from a year ago due primarily to a decline in new agent retention short-term declines in agent count are not necessarily a problem as we can see improved sales productivity among our veteran agents when they have more time to focus on sales now that being said long-term growth is dependent on agent count growth as we discussed in the last call at the beginning of the second quarter we have implemented compensation adjustments for our middle management team that is designed to emphasize new agent recruiting and retention of new agents we expect these adjustments to have a positive impact on our overall age count during the second half of this year. Despite these short-term challenges, I am very pleased with the improvement in agent productivity we have seen over the last several quarters. Our investments in branding, lead generation, and technology are paying off. And overall, I'm very optimistic regarding the long-term prospects for American income. At Liberty National, the life premiums were up 4% over the year ago quarter to $100 million, and the life underwriting margin was up 11% to $35 million. Net life sales were $25 million, up 13% from the year ago quarter, due primarily to age account growth. net health sales were seven million dollars down three percent from the year ago quarter as more emphasis has been placed on life business the average producing agent count for the first quarter was 4031 up nine percent from a year ago i'm excited about the strong life sales and agent count growth we are seeing and confident we will continue to see growth at this agency as we move forward. At Family Heritage, the health premiums increased 10% over the year ago quarter to $123 million and the health underwriting margin increased 11% to $44 million. Net health sales were up 22% to $33 million and this is due to increases in agent count and productivity. The average producing agent count for the first quarter was 1,561, up 10% from a year We continue to see strong agent count growth at Family Heritage, and this is resulting from the continued focus on our recruiting and growing agency middle management. Now, in our direct-to-consumer division, the life premiums were down approximately 1% over the year-ago quarter to $244 million, while the life underwriting margin increased 15% to $74 million. Net life sales were $27 million, up 8% from the year-ago quarter. Now, as we've discussed before, the value of this division extends well beyond DTC sales, and due to the support it provides to our agencies, we've seen improved conversion of the direct consumer leads shared with our agencies which has also led to margin improvement this allows us to invest more heavily in advertising and other lead generation activities further increasing lead volume which in turn leads to additional sales in both our direct to consumer and agency channels we expect this division to increase leads generated for our three exclusive agencies during 2026 by approximately 5 to 10 percent. At the United American General Agency here the health premiums increased 22 percent of the year ago quarter to 194 million dollars and the health underwriting margin was five million dollars up approximately four million dollars from the year ago quarter. Net health sales were $62 million, and this is an increase of approximately $34 million over the year ago quarter. Sales were strong across the division in both the Medicare supplement and the worksite business due primarily to tailwinds from the continued movement of Medicare beneficiaries from Medicare Advantage to Medicare supplement and the further development of our group worksite business. As an additional note, I would remind everyone that we do not market Medicare Advantage plans. Now I'd like to discuss projections. And based on these recent trends and our experience with the business, we expect the average producing agent count trends for the full year of 2026 to be as follows. At American Income, low single-digit growth, And then at both Liberty National and Family Heritage, low double-digit growth. For life sales for 2026, we expect the following. At American Income, mid-single-digit growth. Liberty National, low double-digit growth. Direct-to-consumer, low single-digit growth. For health sales for 2026, we expect to be as follows. liberty national mid single digit growth family heritage low double digit growth and a united american high teens growth i'll now tell the turn the call back to frank thanks matt we'll now turn to the investment operations excess investment incomes which we define as net investment income less required interest was 37 million dollars up approximately 1 million dollars from the year ago quarter.

Net investment income was $290 million of 3%, while average invested assets grew 2%. Required interest grew 3%, slightly lower than the 4% growth in average policy liabilities over the year-ago quarter. Net investment income also increased 3% from the fourth quarter as we had higher returns from our limited partnerships. As a reminder, the income reported from these investments is based on income earned by the partnerships in the quarter and will vary from quarter to quarter for the full year we expect both net investment income and required interest to grow around four percent resulting in excess investment income growth between four and four and a half percent in the first quarter we invested 419 million dollars in fixed maturities primarily in the industrial and financial sectors. These investments were at an average yield of 6.23%, an average rating of A, and an average life of 42 years. We also invested approximately 147 million dollars in commercial mortgage loans and other long-term investments with debt-like characteristics. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments, while still being in line with our overall conservative investment philosophy. In the first quarter, the earned yield on our total long-term invested assets, which includes our fixed maturity, commercial mortgage loans, and other long-term non-fixed maturity investments, was 5.5%. For the full year, we expect the average yield earned on our long-term investments will be between 5.45% and 5.5%. For just the fixed maturity portfolio, we anticipate the earned yield for 2026 will be around 5.3%. While we do own some floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Now, Now, regarding the investment portfolio, invested assets are $22 billion, including $19.1 billion of fixed maturities and amortized costs. Of the fixed maturities, $18.6 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Of our total investment portfolio, only 1% is in senior direct lending and asset-based finance combined, and another approximately 1% is in traditional private placements. Our fixed maturity investment portfolio has a net unrealized loss position of $1.6 billion 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 and is mostly interest rate driven and currently relates entirely to bonds with maturities that extend beyond 10 years. We have the intent and more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprise 41% of the fixed maturity portfolio compared to 45% from the year ago This percentage is at its lowest level since 2003. As we have discussed on prior calls, 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 rates or equity markets. That said, our allocation of BBB-rated bonds has decreased over the past few years, as we have found better risk-adjusted, capital-adjusted value in higher-rated bonds, given the narrowing of corporate spreads. While the concentration of our BBB bonds might still be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets. Low investment-grade bonds remain near historical lows at $511 million, compared to $506 million a year ago. The percentage of below investment grade bonds to total fixed maturities is just 2.7%, consistent with year-end 2025. The total exposure to both BBB and below investment grade securities as a percent of our total equity, excluding AOCI, is at its lowest level in over 25 years and is among the lowest of our peers due to our low overall leverage. Due to the long duration of our fixed maturity liabilities, we predominantly 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. While there may be uncertainty as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn due to holding historically low percentages of invested assets in BBB and below investment grade bonds as a percentage of equity. In addition, we have very strong underwriting profits and long-dated liabilities, so we will not be forced to sell bonds in order to pay claims. With respect to our anticipated investment acquisitions for the remainder of the year, At the midpoint of our guidance, we assume investment of approximately $800 to $900 million in fixed maturities at an average yield between 5.9% and 6.1%. Including the expected investments in commercial mortgage loans and other long-term investments with debt-like characteristics, we expect to invest approximately $1.1 to $1.2 billion dollars across all asset classes at an average yield of 6.3 percent to 6.5 percent now i will turn the call over to tom for his comments on capital and liquidity thanks frank first let me spend a few minutes discussing our available liquidity sharing purchase program and capital position the parent began the year with liquid assets of approximately 80 million dollars and ended the quarter with liquid assets of approximately $85 million.

We anticipate ending the year with liquid assets within our target range of $50 million to $60 million. During the quarter, the company purchased approximately 1.4 million shares of Globe Life Inc. common stock for a total cost of approximately $205 million at an average share price of $141.24. We accelerated a portion of our 2026 anticipated share repurchases given favorable market conditions in the first quarter. Including shareholder dividend payments of approximately $20 million, the company returned approximately $225 million to shareholders during the first quarter of 2026. In addition to liquid assets held by the parent, the parent will generate excess cash flows during 2026. The parent'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 and is available to return to shareholders in the return in the form of dividends or through share repurchases. We continue to invest in our growth through making investments in new business, technology, and insurance operations. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made these substantial investments and acquired new long duration assets to fund their future cash needs. We will continue to use our cash as efficiently as possible. We believe that share repurchases provide the best return or yield to our shareholders over other available options. Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flow after the payment of shareholder dividends. In our guidance, we anticipate distributing approximately $90 million to our shareholders in the form of dividend payments over the course of the year, which reflects the recently announced 22% increase in the annual dividend rate per share. In addition, we have increased the range for anticipated share repurchases to $560 million to $610 million for the full year. As a reminder, our excess cash flow estimates for 2026 do not anticipate any additional cash flows to the parent resulting from the establishment of our new bermuda entity in 2025 as discussed in our last call we anticipate filing for reciprocal jurisdiction in the second quarter and we'll provide an update on our next call with regards to the capital levels that our insurance subsidiaries our goal is to maintain capital within our insurance operation at levels necessary to support our current ratings global life targets a consolidated company action level RBC ratio in the range of 300 percent to 320 percent. Although this target range is lower than many of our peers, it is appropriate given the stable premium revenue from a large number of enforced policies, the nature of our protection products with benefits that are not sensitive to interest rates or equity markets, our conservative investment portfolio, and strong consistent underwriting margins which result in consistent statutory earnings at our insurance companies. As of year-end 2025, our consolidated RBC ratios of our U.S. subsidiaries was 316%, which provides approximately $95 million of excess capital above what is needed to meet our minimum target capital level of 300%. For 2026, we intend to maintain our consolidated RBC within the targeted range of 300% to 320%. Now with regards to policy obligations for the current quarter. For the first quarter, life policy obligations as a percent of premium declined from 36.3% in the year-ago quarter to 35.4%, slightly favorable to management estimates, and is consistent with the continued favorable trends in mortality. Health policy obligations as a percent of premium were 56.3% compared to 55.6% from the year-ago quarter. This was consistent with management estimates for the quarter reflecting first quarter claim seasonality at United American. As a reminder, we intend to update our life and health assumptions annually in the third quarter, and thus there have been no changes to our long-term assumptions this quarter. Finally, with respect to our 2026 guidance, for the full year of 2026, we estimate net operating earnings per deluded share will be in the range of $15.40 to $15.90, represent 8% earnings growth per share at the midpoint of the range. The increase in our prior guidance is primarily due to the impact and timing of anticipated repurchases for the share, refined estimates of potential positive impacts of third quarter life assumption updates, and increased estimates of full-year investment income. The guidance range reflects the estimated before-tax benefit from anticipated assumption updates of $70 million to $110 million expected in the third quarter. This range is higher and narrower than last Board's call due to continued refinement to estimates. Given the estimated benefit from assumption updates in the third quarter, we anticipate the third quarter life margin as a percent of premium will be in the range of 49 percent to 54 percent we anticipate recent favorable mortality trends will continue through 2026 with full year normalized life underrated margin as a percent of premium which excludes the impact of the third quarter assumption update of approximately 41 at the midpoint of our guidance as previously mentioned we expect health premium to grow in range of 14% to 17% for the full year. This health premium growth is benefiting not only from from strong growth in Medicare supplement sales in 2025 and anticipated in 2026, but also from approximately 65 million dollars of additional premium from approved rate increases on individual Medicare supplement policies that will be received in 2026, primarily in the last three quarters of the year. Our full-year guidance, we anticipate the United of America's health margin as a percentage of premium to be in the range of 8 to 9 percent. However, we anticipate the average underwriting margin as a percent of premium to be approximately 10 percent over the last three quarters of the year as the impacts of premium rate increases are realized. Finally, I do want to point out that at the midpoint of our guidance, normalized EPS growth, which removes the impact of assumption updates in both 25 and 26 is approximately 11 percent at the midpoint of our guidance the projected three-year compound annual growth rate of normalized eps is 11.5 those are my comments i return the call back to matt thank you tom now those are our comments and we will now open up the call for questions thank you we will now begin the question and answer session if you would like to ask a question press star then the number one on your telephone keypad to raise your hand and join the queue if you would like to withdraw your question simply

press star one again your first question comes from jack mattin with bmo capital markets your line is open hi good morning um i said one on lapse rate trends um which was ticked higher i think especially for for first year lapses of american income i guess can you talk about what you're seeing in terms of consumer behavior is this more kind of macro driven affordability issues or or anything related to distribution um and any thoughts on your outlook for lapse rate trends from here yeah thanks for the question yep we do expect lapse rates to remain elevated during 26 versus the pre-pandemic and we've seen that over the over the past few years as well and um i think the

experience we expect is going to be more consistent with last year, given the economic stress that is on our policyholders from the current economic environment and overall price inflation. With regards to AIL, first quarter laps right there, they definitely were high relative to recent experience. We consider this more of a fluctuation at this point, and we'll continue to monitor it, But no, no, really, really just considered a fluctuation.

I think as we indicated before, is that we do have impacts from macro economic environments. The resiliency of the business, though, is that I would say what we're seeing now is consistent with historical norms and other economic cycles. So we'll get a little bit of fluctuations situations based on what's going on in the economy. But overall, you know, fairly resilient as that moderates between a fairly narrow band of our experience.

Yeah, and Jack, the other thing I was just going to add is I think when you kind of look at some of the trends at Liberty and even DTC a little bit, you know, some of that is just a mix of business. So we do know that the work side as L&L is continuing to grow that worksite, that worksite business, as it's growing, you know, some of the lapse rates in the early issue years are always higher than the later issue years. And so as that, you know, as you continue to grow the sales there, then you, those renewal lapse rates just tend to drift up a little bit. So we do think that we're, you know, seeing that a little bit, and then we talked a little bit just some of the last rates at DTC on the on the internet business are just historically higher than uh than what they are so as that becomes a greater proportion of our total sales uh that probably uh moves that up a little bit but but it is interesting you know I think when you look at some of the you know economic forces um you know the renewal rates at DTC are continuing to be right in line with pre-pandemic experience and so you know we're not seeing it you know consistently across the board of all the agencies so I tell Tobus while the economy has some impact surely you know there's some other

factors that are going on with the business that's being written today helpful thanks and let me just follow up on some of the AI benefits that you reference in your prepared remarks I mean anybody you can maybe unpack or quantify some of those benefits you expect over time whether it's on the the expense ratio or for productivity i guess to what extent are you kind of seeing those already i think you talked about higher productivity in american income kind of playing along with each account trends there um yeah just want to talk about um how you're seeing that play out so far sure on the administrative side you know what we anticipate is over time is uh those things get

implemented, that we should be able to moderate our expense growth commensurate with our premium earnings growth. And so we would expect a little bit of margin expansion, you know, over time as those things get implemented, as we're able to grow our revenue faster than our expenses. And so as we implement those right now, we've got a variety of different, in addition to what we've deployed pilots going on. So we're very optimistic on the future, as Frank had mentioned in his prepared remarks of where we're headed. On the sales side, we do anticipate that there will be a benefit. And it kind of shows up in a variety of different areas. We've talked about in the past our investments in technology, and we have seen improvements in that. So we know that to the extent that we can deploy technology that improves our agent experience, and that can be in multiple facets from the fact of the extent that we can onboard and train agents quicker and more effectively and get them producing and more effective sooner. We know our agent productivity will go up, but we also know our agent retention will go up as well and so anything that we can do there to deploy technology that helps on that agent recruiting and onboarding as well as just overall efficiency will have longer term gains and you know we anticipate that to be a tailwind as we think about what our overall sales growth is going to be in the future so that those are embedded for 26 in our projections, and I anticipate that 27 will continue to benefit from those technologies as we get those rolled out.

Yeah, I would just add from an admin expense perspective, we're really looking at the margin improvement, bringing that 7.3% of admin expenses as percent of premium down closer to 7% over the next few years. And so that's kind of really how we're talking about some of those improvements be reflected in admin expenses thank you your next question comes from wilma burtis with raymond james your line is open hey good morning um could you provide some clarity on what's driving the higher buybacks for 26 just maybe a little bit more color there is it related to higher capital generation another source maybe just get into a little bit more detail thanks yeah well the um you know we were able to finalize our our 2025 statutory earnings and as we looked at excess cash flows it still was in the range that that i provided on the last call you know 600 to 700

million but it was just a little bit higher and that allowed us to um the opportunity to to have some additional share repurchases yeah and then will i just add as far as the kind of the timing was concerned you know we really did take a look at um uh you know the opportunities that kind of presented itself during the first quarter and there was a period of time was where the shares had dropped below 140 dollars 140 dollars per share and really saw that as a good opportunity um you know for us and the shareholders and so we did take that opportunity to accelerate do a little bit more in the first quarter than what we had anticipated originally you know in that quarter thank you and then it seems like the life sales agent count and even

premium growth are coming in a little bit lower than your prior expectations could you just give us a little bit more color was driving that whether it's macro just something in that kind of stair set process just a little bit of color would help thanks sure um i'd say we need to break it down between the components of our our distribution you know liberty is growing both the agent count and the sales growth and consistent with earlier expectations and we're really pleased of the trend that we're seeing there from an american income perspective i've mentioned this before but our um when we talk about our incentive compensation at the agent level we're always trying to strike a balance between incentivizing and rewarding for recruiting and onboarding and training of new agents versus sales and so what we're seeing is is that we're um the the compensation structure is driving a little bit more sales and the sales productivity and so that's why we have some sales growth but it's the agent cap growth is behind a little bit of where we have originally anticipated. We do as I mentioned in my prepared remarks believe that some of the changes that we've made that will be implemented that are implemented here at the beginning of the second quarter you know those those don't turn around things immediately the day you put them in takes a little bit of time for that to get into the agency operations and change behavior. Because when we talk about recruiting new agents, there's a timeline and a pipeline associated with that. So we anticipate over the second half of the year, we'll start getting that agent count growth we're looking for. And then if I talk about the life sales at our direct-to-consumer channel, What's going on there is just we looked at what happened in Q1. We're pleased with the continued sales growth that started the last half of last year. But we just looked at really our comparables of how strong the growth was in Q3 and then into Q4 for 2025. And so we just tempered, I'll say slightly, our sales projections there. Overall, we're still very pleased with the sales growth that we're getting at our direct-to-consumer channel. And so the nice thing about having the three different agencies, particularly if you look at recruiting, is we go to market very similarly on agent recruiting between the three agencies. And so when I see growth at two of our agencies and strong growth, I know that it's really not a macroeconomic environment. concern or issue it's much more specific to the particular agency growth aspects that we have there and so that's why i feel very confident about the overall environment provides a good environment for us to continue to grow our agent count across the agency so a little bit of tweaks in our compensation system we think will play out well because the overall macroeconomic environment

we believe will still be strong for growth going forward thank you your next question comes from wes carmichael with wells fargo your line is open hey thanks good morning um i had a question on united american i think the guidance there i think your guide for health sales was in the high teens, but you had, I think, 122% growth in the first quarter. Are you thinking that sales growth might be a little bit negative over strong growth last year? How are you thinking about the remaining quarters of 2026?

Yeah, you may recall that on the last call, we had guided to kind of flat sales, just considering the significant growth that we had in 2025 and so um really the dynamics that are going on there looked at our strong growth in sales here in the first quarter of 26 and that as a reminder is at elevated premium levels because our price increases went in for new sales um in the first quarter even though a lot of the enforced premium increases you know come in primarily in the second quarter and so So we really wanted to see how the market played out. And so very pleased with that. So we upped our guidance related to our overall year for 2026 sales. But we are cognizant that when you start looking at our fourth quarter in particular sales for the general agency division, we nearly, well, we over, we doubled our sales last year. And so really the sales growth above that is just cognizant that we've got a real high level to continue to grow. And it'll be interesting to see, you know, if the continued tailwinds that we're seeing right now of the Medicare Advantage market and the benefit that we're getting from Medicare supplement sales, how that plays out for the rest of the year. So it's really not, in our view, a softening over the remainder of the year, just recognizing the high hurdle to overcome to continue to grow on top of that significant growth we had last year.

Yeah, I would just say Q2 and Q3 are probably still slight improvements over last year, but Q4, as Matt said, is what's just a little bit right now we anticipate not quite at that same level.

All right, that's very helpful. And then my follow-up on Bermuda, I know in the prepared remarks you mentioned that you're working to file reciprocal jurisdiction in the second quarter, but I just want to see, have there been any other developments around that initiative since the last earnings call, either with regulators or expectations around cash flow or near-term reinsurance sessions?

There really no other developments. We're working through getting our financial statements, the audits complete on those, and so um really no changes to kind of our thoughts around the business plan and and um and our expected capital generation and i think on the next call we should have a more significant update based on the activity plan for here in the second quarter okay thank you your next question comes from Andrew Kligerman with TD Cowan.

Your line is open.

Hey, good morning, gentlemen. My first question is around the assumption updates. Just fantastic to see that come through. You talked about an estimate of 49 to 54 percent life margin third quarter versus the full year at 41. So, I'm wondering, you know, is this the gift that's going to keep on giving? What should we be thinking about assumption update potentials in 2027, 28, 29? Just, I know, it sounds like things have gone really well in terms of your assumptions and we'd like to know how you're thinking longer term about it.

I think, Andrew, first of all, we take a really disciplined approach as far as um how we update assumptions and um want to actually see the results emerge before we actually make some of those changes to our long-term assumptions so um i think this year is you know we are seeing some continued mortality trends that that multiple quarters of favorable mortality trends that are informing our assumption update this this year i think we continue to see those, you know, current mortality at these current levels, I think there's always the opportunity or the potential for additional assumption updates as we move forward. So no real quantification of those at this point, but I think there is potential for those.

I think the other thing that is important, past just the third quarter assumption updates and the benefits that we're getting there, which most likely will moderate over time, but that means that we're setting our new long-term assumption at a higher margin, right? So we should have earnings on the book of business overall at a little bit higher level on a go-forward basis because it's just indicative that we don't need as much reserves as we originally thought on that book of business. So that's how I kind of think about it is just the So long-term stability and the growth of that underwriting margin, you know, those are kind of indicators that we're resetting to a new higher level since they're positives in the last several Q3s as we've looked at the last several years.

And I think you can really see that, Matt, in looking at normalized underwriting margins over the past few years by removing the impact of the assumption updates. you can really see the trend and the overall improvement in underwriting margins.

That's right. The, you know, the one thing, Andrew, I was just going to, on your Q3, you know, comments, and as Tom noted, you know, the range on that is in that 49 to 54 percent, and so if you kind of take that assumption update of 70 to 110 that Tom had in his comments, you know, so you have in that one quarter an 8 to 13 percent kind of bump, if you will, in that underwriting margin in that quarter which off of the 41 percent kind of normalized uh margin that we're you know that we're really expecting over the rest of you know in in each of the quarters um yeah and i i just you know if we continue to see the current um you know mortality

levels that we're seeing today as we continue to see that come in you know over time um you know that'll work its way into those longer term assumptions that was that was very helpful thank you for that and and my follow-up is around the health uh underwriting margin 23 in the first quarter and then you you guided to 23 to 27 which is kind of wide um agents wise could you kind of walk us through the next few quarters you know would it be more likely closer to 23 in the second and then we we could see a significant bump in the in the

last two quarters how do you think about the cadence no i think i think andrew that actually in the in the you know remaining three quarters there you would expect that full health margin to be north of 25 or at least we have anticipated being north of 25 and in fact you're probably a little bit lower out of those three in the fourth quarter just because uh that's again a little bit you know higher uh seasonality so you have a little bit higher claims in that fourth quarter so that's probably uh you know more closer to that 25 range but then over the so that kind of brings up where we were at around 23 up to again the midpoint of that range that we give is you

is around 25 and um and so i think you'll see uh we expect to see you know pretty good uh margins over the next three quarters excellent thank you so much your next question comes from pablo sington with jp morgan your line is open um hi good morning uh first question is with insured moving in larger volumes from med advantage and medsup is there a greater risk of anti-selection from your end i i know most cases you can underwrite but i was just wondering if higher sales might have contributed to some of the margin compression you've experienced in the health business yeah um i don't think it's it's um a function of annex election that's

impacting the margins of the first quarter i think it really is some seasonality of claims in the first quarter as well as the fact that the rate increases that we filed last year will largely come into effect in the second, third, and fourth quarter. As I mentioned, on our last call, the premium increases that we filed for was 80 to 90 million on a 12-month run rate, and we expect about 65 million to be received over the course of 2026, and then the remainder being received in 2027. And so we didn't receive very much of that in the first quarter. we'd expect to be on average about $20 million of additional premium in each of the next three quarters, which will help improve overall margins.

But I don't think it's anti-selection at this point.

So I don't think that's one of the drivers.

Well, yeah, there was higher utilization across the entire industry for Medicare supplement over the last couple of years. So what do you mean to us?

And we have been, you know, seeing medical trends really stabilize and be relatively flat over the last couple quarters so that's that's actually bodes well as well got it that makes sense and then for my second question so mortality has been a net contributor to your assumption updates and your quarterly measurement gains i was wondering if you could speak about the lapse component of your remeasurement gains as well as the morbidity side on for the health business have those factors been generally positive or negative so clearly but that's been good but i was just curious about how those other assumptions have been playing out for you Yeah.

On the life re-measurement gains, it's largely mortality claims that are driving other re-measurement I think it's about kind of in our work, we look at kind of how much is mortality and how much is all other. And it's about 70% mortality and 30% all other things from a re-measurement gain on a quarterly basis. And on the health side, I think a lot of that's being driven by kind of what the future rate increases are doing to result in remeasurement gains. So it's more on the impacts to future premiums than it is on claims, although claims are positive as well, overall, providing some health remeasurement gains.

Got it.

Thank you.

Next question comes from Randy Benner with Texas Capital. Your line is open.

Hey, thanks for taking the question. It's a follow-up to Andrew Kliegerman's discussion with you on the, I think he kind of answered more of the quantitative changes with the mortality assumptions, but I was wondering if you could share kind of more like qualitative assessment of it, like lifestyle behavior.

It's just a, it's a, it's a significant again shift it's obviously very positive but is there is there something changing with the the cohort of insureds that's you know kind of worth noting and this change in the numbers to the cohort changing I think it is just continued trends and we see continued favorable mortality and part of circulatory deaths we see continued trends and favorable cancer deaths non lung cancer deaths which are really favorable and then the other thing that's maybe happening on a macro basis is the non-medical deaths are actually really seem to be improving and that would include suicide and homicide and drug and alcohol abuse so i think that's probably one area where we're seeing a little bit more improvement from a societal purpose that actually you know impact the overall mortality.

Yeah, I was going to note that on the non-medical side because, you know, in the late teens and then especially in the early days of COVID, we had really seen a spike a lot in the opioid and just some of the other suicides and that type of a thing. And so we really did see a large increase there. You know, it's probably been, you know, seven, eight years ago now and had that for a few years and that's been really good to see that uh temper uh here the last couple of years and we've seen really so even though the non-medical accounts for only about 20 of our claims um we're seeing some really significant um changes in that and i think that does have some impact um as tom mentioned or a result of some of the societal impacts and and um and that type of thing and maybe some of the battles against uh the opioid uh crisis and that type of thing has maybe uh you know been a been a benefit there as well that's great color um and then one more if i

could it's a follow-up to the discussion on the american income asian count i i guess i i heard about the initiatives and and i think it's an it was going to describe more as a of an issue of getting agents in the door, but is the retention of folks there changing at all kind of after year one? Are you kind of keeping the same percentage or has that changed as well?

It's a little bit of both. It's a little bit of just recruiting activity and it's more of the age of retention in the first six months. And we really focus on our age of retention in the early days because we are recruiting folks that are new to the industry some are new to direct sales and so we know that the extent of people getting um onboarded trained and producing and having a sustainable income really drives that long-term agent retention so we really focus on it on the early days and so again it's not our from a corporate perspective we're doing all that activity that is our middle managers out in the field that are spending time recruiting agents training them and in the whole onboarding process and in addition to they're doing their own direct sales and so that's what i'm describing when i say we're trying to make sure that our incentive compensation system appropriately rewards between those two activities, because it is a balance. There's only a certain number of hours in a day, as they would say. And so when I talk about we're tweaking that a little bit, what I really like to see, as I'd mentioned, is we've got three quarters in a row where we've got improvements in our agent productivity, just that agent count and a little bit higher turnover in that first year than what we've historically seen. So we know we need to move the pendulum. We want the pendulum to swing back a little bit and move the incentive a little bit more on focusing on getting those agents trained and onboarded. So that's kind of the overall dynamics of what's going on with American income. But like I said, if you look at the growth and the retention at, the other two agencies that tells us that it's really specific to this particular distribution versus a more macro view.

I was going to add one more thing to our discussion around some of the mortality trends that we're seeing and that just before we leave that you know I think a question that we get fairly often, too, when we're talking to folks is, you know, do we think that the new drugs that are coming out and weight loss treatments and those type of things are, is that having an impact? And we really do think that's probably a little bit too early, especially for our insured population, just getting access to those drugs and affordability over time. I mean, And we're really optimistic that over time that that could have some really positive benefits to our mortality experience, especially, you know, some of the side effects from diabetes and those type of things, you know, if they're able to kind of delay deaths from some of those health benefits and causes. And then, you know, I kind of look at, too, and I don't think we have this empirically, but you look at the higher utilization that we've been seeing on the meds sub side. And so you have a lot of more senior folks that are going to the doctor more often. They're getting with the doctors. You know, I think people post-COVID, there's been an increase in just taking care of themselves and getting some of that. I see that in just some of those utilization numbers. And so I tend to think that maybe that has a little bit of, you know, some impact on that as well.

Okay, well, thanks for that, and thanks for the clarification on American income.

Your next question comes from Sunit Kamath with Jefferies. Your line is open.

Great, thanks. I wanted to come back to this idea of the resiliency of your customer base. You know, clearly showing up in the first quarter results, but if I just think about what's going on, you know, macro-wise with the war, a lot of those developments on things like gas prices sort of happened later in the quarter. So I guess the question is, are you seeing anything as we start traveling through 2Q that suggests that maybe there's incremental pressure? Is it too early to see the pressure from things like higher gas prices?

I think what we've seen historically during different economic cycles is there might be a little bit of pressure, particularly in that first year. What happens, what we've seen through like early 2000s, the great financial crisis, those type of cycles is we actually see a benefit a lot of times in growth in sales, growth in agent recruiting. and what we see with the in force is it's very resilient because after that policy has been in the customer's budget for a couple of years it's very resilient and our renewal persistency rates just do not move very much and I think that gets back to the affordability of our policies you know the average premium depending on the distribution for a rounding sake it's 40 to 60 a month on average and so that's just not a significant component of a consumer's wallet that they're spending on other things really that's the really not the first or the second place that we've seen that they look to to scale back just because it's it's not significant dollars on a monthly basis as well as it's been in their budget for quite some time and and the consumer also knows that it is kind of a security perspective is that in periods of uncertainty or high inflation or things like that you know my coverage for my family and the protection orientation of how we sell these products is not something that i really want to get rid of as well as i know if i cancel my policy but i want it long term i have to go back through underwriting re-qualify and the policy may be more expensive because my age is older my health may be in a different spot than i originally took it out so for from our perspective as we look at it over decades we see slight movements but we do not see significant movements from that you know resiliency perspective i would just say from what we're really hearing from the field and

and uh you know in more recent times and you know is that you know while there you know might be a little bit harder you're not really seeing a major pushback uh you know from the consumers at this point in time and and you know maybe it's an extra call we get the sales i mean the thing that helps you know is having the exclusive distribution and and you know contractors wanting to make their own money and so they're um you know maybe they have to make an extra call or two during the week in order to get a sale but they're they're continuing to work because they want to they want to have their level of income and then i would say you know matt's noted on prior of calls as well. And we've been seeing this quarter too, where that average premium just continues. We would think that if we're seeing a lot of stress within the consumer that they would choose down and they would say, well, maybe I can't afford $35 a month. I really want to have this. Let me have something for $25 a month. But we're really not seeing that. We're still continuing to see the average premium on our issues, holding steady, if not increasing just a little bit.

Okay, that's helpful. And then I wanted to circle back to AI real quick. It was helpful to get some of their thoughts on where the expense ratio could go.

But are you seeing any additional threats emerge in terms of your target customer base or your distribution channels where new entrants are coming in that may have a different distribution strategy to sort of attack your target market yeah i think what's important there is you know a vast majority of our growth and sales are coming through exclusive agency channels we don't see or experience a lot of competition in those channels at the at the time of sale our agents are out generating their own activity referrals working leads those type of things and so it's not sold to consumers that are actively looking for a supplemental health policy today or you know basic protection life products today the direct to consumer channel is more subject to competition because that is going after consumers that are actively looking and shopping and things like that and so we do recognize there's a little bit more challenges as ai comes into play from entrance and frankly that's a an easier market to get into from a new entrance perspective the barrier to entry the cost of entry is a lot less than um agency sold uh you know business and so that's why I mentioned earlier, we think AI is going to be a benefit to our agency's sole business. It's not subject to a lot of competition. It's harder for new entrants to get into that market. And the beauty about our marketplace is that a significant number of people in our targeted demographic is not, in the income demographic, is not saturated. So when we sell more, we are not having to take market share from somebody else. Over 50% of that population does not have life insurance, and then it's even more significant when you talk about underinsured or they just get a little bit through work that doesn't travel with them because it's a group policy. And so we're very optimistic of where that goes, and we are focused on more direct competition in our direct-to-consumer channel. that's why you'll hear us over time we think that's more of a low single digit growth because there is going to be a certain subset of the population we believe that smaller that is more active and looking um than the majority of our agents sold business okay that's helpful thanks our next question comes from mark hughes with truest your line is open yeah thank you just a quick one for me um you talked about the investment and lead generation can you talk about the kind of the trajectory of spending there whether there are any new technologies or new approaches you're using and does ai have any meaning for lead generation yes um and so a lot of our lead generation is coming through our direct consumer advertising and so the benefit that we've had over the last year or two has been capitalizing on that investment spend and not just converting that advertising spend into sales of just the direct consumer channel. But a lot of the leads and inquiries that we're getting, we're moving that to an agency channel that has a higher conversion rate. So we have significant growth in just the total volume of leads, which would be equating to the spend in that area last year. And as I mentioned in my prepared remarks, you know, we're probably going to be another 5% or 10% growth in the number of leads. The dynamic going on there is over the last several years, until 2025, you heard me talk about we continue to scale back our advertising spend because the costs were going up and the lead conversion was going down. Well, now that our overall aggregate conversion ratio is going up, when I look across both our direct-to-consumer and agency channel, that gives us more money to spend on generating more leads. So we're increasing our advertising spend to generate more leads, and that'll be something that continues to grow in itself. So to the extent that we have this better conversion, We have more leads being utilized by our agencies. I anticipate throughout 26 and then into 27, if that trend continues, to continue to spend more on advertising that benefits both sides of the equation, meaning both our direct-to-consumer and agency channels. So as far as AI goes within that. Oh, I was going to say, I think you had a comment about AI. is that on the consumer channel, as you might imagine, the way consumers may be looking for life insurance or responding to ads, I believe that a lot of these AI platforms are going to convert into some sort of advertising revenue model. And we will be there as part of that. And, you know, I think that's where our deep experience in advertising in these online channels will come into play. And frankly, the volume of dollars that we spend is very significant with some of the big platforms. We participate in their beta programs. And, you know, we're there with a seat at the table, so to speak, with these advertising platforms as they look to convert and monetize you know some of this um ai technology and it's much like what we saw in some of the early days with you know facebook and some of the others as they convert into advertising um platforms thank you very much your next question comes from ryan krueger with kbw your line is open uh thanks just a quick one on the life margin and maybe this is there's some rounding here but i

you said you expected 41 percent in the fourth quarter i would have thought there would be some improvement given the lower net premium ratio after you factor in the remeasurement um from the assumption review in the third quarter um so just curious how you're thinking about the benefit on a go forward basis from the the assumption review yeah right i think you know fourth quarter is one of those quarters that also has a little bit seasonality in it so that offsets some of the benefit that you get from a lower net premium ratio and then also you know the net premium ratio changes um are relatively small i mean there's small incremental changes that happen um each time we make an assumption update but i think for the fourth quarter it's probably

more of a seasonality thing okay maybe just one follow-up on that like is is would you expect do you think 41 roughly is is the right margin at this point you know stripping out Assumption review impacts, or could there be some upside, you know, as we go out further?

I do. I think that's a pretty good normalized underwriting margin. We've seen, you know, mortality come down, so obligation ratios come down. You know, we've talked about amortization coming up a little bit, but it's really kind of aligning around that 41%.

And I think, Ryan, you've got to think of it as around that. So if it's 40, you know, it could be, you know, if it's 41.1, 41.2, we're still thinking of that as being around 41%, same as, you know, 40.8 or something like that. So, you know, it's going to move by a few tenths of a point, but it's going to be pretty close to, you know, around that. So you do have some of the impact of the amortization that's coming into play as well, you know, and just as that can that continue to grow just a little bit each quarter, just as the new renewal prem new renewal commissions that american income um you know come into amortization so you'll see some benefits on the policy obligation percentage a little bit more than that that gets that gets offset a little bit by that higher amortization understood thank you your next question is a follow-up from wilma burtis with raymond james your line is open hey good morning thanks for taking my follow-up um just wanted to confirm

I know you mentioned earlier that the cash flow generation was a little bit towards the higher end of the range so if you can just give us a little bit more clarity on where the cash flow generation ended up just remind us of the range and then if there was anything in particular that drove it towards the higher end thank you yeah last quarter um excess cash flow I said was going to be between 600 and 700 million dollars I think as I look at it now I probably narrow that range to 650 to 700 million and uh so that excess cash flow the other midpoint of that is right around the 675 side we've got we have the better visibility clearly on the you know the amount of dividend distributions coming out of the sub um you know from that perspective so you're down the downside clearly

is much less but and we're able to to kind of get the sense that it's yeah as tom said in that upper part of the 600s.

That concludes our Q&A session.

I will now turn the conference back over to Stephen Moda, Vice President of Investor Relations, for closing remarks.

All right. Thank you for joining us this morning. These are our comments. We'll talk to you again next quarter.

That concludes today's call. Thank you for attending. You may now disconnect and have a wonderful rest of your day.