Globe Life Inc. (GL) Q2 2026 Earnings Call Transcript

Hello, and welcome to Globe Life, Inc. Second Quarter Earnings Release Conference Call. My name is Jim, and I'll be your coordinator for today's event. Please note today's conference is being recorded, and during our presentation, all participants will remain in a muted or listen-only mode to prevent any background noise. After today's prepared remarks, we will conduct a question and answer session, and instructions on how to participate will be shared at that time. It is now my pleasure to hand over to your host, Stephen Mota, Vice President of Investor Relations, to begin today's conference. Thank you.

Thank you. Good morning, everyone. Joining the call today are Frank Sabota 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 that are provided for general guidance purposes only. Accordingly, please refer to our earnings release, 2025-10-K, and the 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 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. In the second quarter, net income was $288 million, or $3.65 per share, an increase of 20% over the $3.05 per share a year ago. Net operating income for the quarter was $285 million, or $3.61 per share, an increase of 10% over the $3.27 per share a year ago. We are pleased to see continued strong results in our operations. As we have said many times over the years, our business model is resilient and able to generate earnings growth regardless of the economic environment, as clearly demonstrated by Globe Life having produced double-digit net operating income per share growth in eight of the last nine quarters. On a GAAP reported basis, return on equity through June 30th is 18.4 percent and book value per share is $78.18. Excluding accumulated other comprehensive income, or AOCI, return on equity is 14.3%, and book value per share as of June 30th is $100.04, up 11% from a year ago. Now in our insurance operations, total premium revenue in the second quarter grew 7% over the year-ago quarter. For the full year, we expect total premium revenue growth to be in the range of 6.5% to 7%. Life premium revenue for the second quarter increased 3% from the year-ago quarter to $861 million. Life underwriting margin was $359 million, up 6% from a year ago. For the year, we expect life premium revenue to grow between 2.5% and 3%. As a percent of premium, life underwriting margin was 42%, up from 41% in the year-ago quarter. While we anticipate life underwriting margin to be between 43 and 45% for the full year 2026, we do expect it to be over 50% in the third quarter due to the anticipated impact of assumption updates, and between 41 to 42% for the fourth quarter. Tom will discuss this more in his comments. In health insurance, premium revenue grew 16% to $437 million, and health underwriting margin was up 1% to $99 million. For the year, we expect health premium revenue to grow in the range of 14% to 16%. This is due to premium rate increases on our Medicare supplement business, as well as strong sales in both our United American and Family Heritage Divisions. As a percent of premium, health underwriting margin was approximately 23% in the second quarter, down from 26% in the year-ago quarter. For the full year, we anticipate health underwriting margins to be between 23% and 27%. Administrative expenses were $91 million for the quarter, an increase of approximately 6% over the second quarter of 2025. As a percent of premium, administrative expenses were 7%. For the full year, we expect administrative expenses to be approximately 7.3% of premium, consistent with 2025. As we mentioned last quarter, over the long term, we anticipate that expanded implementation of AI applications across the company will help lower this ratio. we believe global life 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 the number of plans reviewed and paid of course these ai driven improvements will not be limited to administrative expenses we also expect enterprise-wide benefits including including those that will drive sales growth by helping our distribution operate more efficiently and effectively and those that improve

our underwriting and other sales support process i will now turn the call over to matt for his comments on the second quarter marketing operations thank you frank 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 ago quarter to $466 million, and the life underwriting margin was up 4% to $214 million. Net life sales were $95 million, down 2% from a year ago, due primarily to a decline in the agent count. The average producing agent count for the second quarter was 11,391, down 7% from a year ago, but this is up 3% since the end of the first quarter. As a reminder, compensation adjustments designed to improve agent recruiting and new agent retention were implemented at the beginning of the second quarter. As we indicated on the previous earnings call, these compensation changes are expected to have a positive impact on agent count in the second half of this year i am pleased to see early signs of improvement with this sequential growth in agent count during the second quarter as i've said many times agent count growth is a precursor to sales growth during the second half of the year we expect to see mid single digit growth in both agent count and life sales at american income at liberty national the life premiums were up 3% over the year ago quarter to $101 million, and the life underwriting margin was up 10% to $37 million. Net life sales were $26 million, up 6% from the year ago quarter, due primarily to age and count growth. Net health sales were $7 million, down 15% from the year ago quarter, as more emphasis has been placed on life business in recent periods. We are currently implementing changes to the sales presentation to place additional emphasis on health sales. The average producing agent count for the second quarter was 4,194, up 8% from a year ago. And I'm excited about the strong life sales and agent count growth we are seeing, and I'm confident that this momentum will carry forward. At Family Heritage, Here, the health premiums increased 9% of the year-ago quarter to $126 million, and the health underwriting margin increased 10% to $45 million. Net health sales were up 4% to $31 million, driven by an increased agent count. The average producing agent count for the second quarter was 1,608, up 7% from a year The ongoing emphasis on developing agency middle management has really solidified this division's performance. I believe Family Heritage is well-positioned for sustainable growth going forward. Now, in our direct-to-consumer division at Globe Life, the life premiums were down approximately 1% over the year-ago quarter to $244 million, while life underwriting margin increased 10% to $76 million. dollars net life sales were 27 million dollars down 15 from the year ago quarter now DTC is in a transition period due to a shift in the way consumers search online for goods and services including life insurance the increased utilization of AI by consumers has resulted in a reduction in paid search volume from internet marketing we have initiatives underway to adapt to this change and position digital content to be visible to and easily interpreted by AI assistants. This shift is similar in many ways to the initial move to digital marketing away from direct mail many years ago when consumers began to utilize the internet. And I'm confident that DTC will successfully make this transition as we continue to meet the consumer where they want to be met. In addition, as we have discussed before, the value of this division extends well beyond DTC sales due to the support it provides to our agencies. And we still anticipate that we will meet agency demands by generating in excess of 1 million leads this year. We have seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also led to margin improvement. and we will continue to optimize margin as we navigate changes in online advertising. Now on to United American. Here, the health premiums increased 29% over the year ago quarter to $211 million, and the health underwriting margin was $11 million, down $1 million from the year ago quarter. Net health sales were $28 million, a 10% increase over the year ago quarter. Sales continue to be very strong in the Medicare supplement business and due primarily to tailwinds from the high volume of people turning 65, movement of Medicare beneficiaries from Medicare Advantage to Medicare supplement, and the rate increases implemented during the second quarter. Once again, I would note that we do not market Medicare Advantage plans. As a reminder, the UA General Agency includes both individual and group business. The decline in health margin as a percent of premium from the year-ago quarter at UA was primarily driven by the group business. As you may recall, we announced the acquisition of Every Health a few years ago. Every is included in the United American Division as they market group health insurance through brokers. while every is immaterial to our overall financial results they haven't generated enough recent sales activity to have an impact on ua health margin trends for the full year 2026 we expect every sales to be approximately 50 million dollars as a startup they don't yet have the scale to meet our target margins but we anticipate as they continue to grow sales and thus premium they will ultimately contribute to ua health margins as they achieve scale and generate a credible block of business excluding the impact of every the ua health margin as a percent of premium would have been approximately nine percent in the second quarter now i'd like to move on to projections and based on what we've seen for the first half of 2026 as i mentioned earlier we expect to see mid-single-digit growth at AIL during the second half of the year for both average producing agent count and life sales. For Liberty National and Family Heritage, we expect the average producing agent count growth to be low double digits for the full year 2026. Net life sales at Liberty National and direct-to-consumer for the full year 2026 are expected to be as follows. Liberty national low double digit growth direct to consumer a single digit decline net health sales for the full year 2026 are expected to be as follows liberty national slightly down family heritage low double digit growth and united american 30 to 35 growth i'll now turn the call back to frank Thanks, Matt.

We will now turn to the investment operations. Excess investment income, which we define as net investment income less only required interest, was $38 million, up 10% from the year ago quarter. Net investment income was $294 million, up 4%, 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. For the full year, we expect both net investment income and required interest to grow around 4 percent, resulting in excess investment income growth of approximately 7 percent. Now regarding our investment yield. In the second quarter, we invested $399 million in fixed maturities, primarily in the industrial and utility sectors. These investments were an average yield of 6.27 percent an average rating of a and an average life of 36 years we also invested approximately 91 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 yields over our fixed maturity investments while still being in line with our overall conservative investment philosophy. In the second quarter, the earned yield on our total long-term invested assets, which include our fixed maturity, commercial mortgage loan, and other long-term non-fixed maturity investments was 5.51%. For the full year, we expect the average yield earned on our total long-term investments will be approximately 5.5%. For the fixed maturity portfolio, we anticipate the earned yield for 2026 will be around 5.31%. While we do own some floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Now regarding the investment portfolio. Invested assets are $22.1 billion, including $19.3 billion of fixed maturities at amortized costs. Of the fixed maturities, $18.8 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-minus, 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 $1.4 billion due to current market rates being higher than the book yields on our holdings. As we have historically noted, we are not concerned by the unrealized loss position as it 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 triple b comprise 41 of the fixed maturity portfolio compared to 44 from the year ago quarter this percentage is at its lowest level since 2003 as we have discussed on prior calls the triple b 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 fluctuation in interest rates or equity markets. That said, our allocation of BBB-rated bonds has declined 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 a BBB bond might still be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets. The low investment grade bonds remain near historical lows at $516 million, compared to $503 million a year ago. The percentage of the low investment grade bonds with 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. 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 $550 to $600 million in fixed maturities at an average yield between 6% 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 $700 to $800 million across all asset classes at an average yield of 6.3 to 6.5%. Now, I will turn the caller to Tom for his comments on capital and liquidity.

First, I'll spend a few minutes discussing our share repurchase program, available liquidity, and capital position. During the quarter, the company repurchased approximately 1.1 million shares of Globe Life, Inc. common stock for a total cost of $175 million at an average share price of $154.28. cents including shareholder dividend payments of 25 million dollars the company returned approximately 200 million dollars to shareholders during the second quarter of 2026. at the end of the second quarter the company amended its term loan increasing the principal balance from 250 million dollars to 450 million dollars an increase of 200 million dollars and extended the maturity date to June 2029. Additionally, the company's credit facility was amended at the end of the second quarter to extend its maturity date to June 2031. The term loan and the credit facility provide additional sources of parent liquidity. We intend to use the excess proceeds from the term loan for general corporate purposes, including reducing commercial pay-for-balances, increasing share repurchases, and other parent needs. The parent ended the quarter with liquid assets of approximately $110 million. We anticipate ending the year with liquid assets in the top end of our target range of $50 million to $60 million. The parent will also generate excess cash flows over the remainder of 2026. the parent company's excess cash flow as we define it primarily is results primarily from dividends received by the parent from its subsidiaries less the interest paid on debt and is available to return to its shareholders in the form of dividends and through share repurchases utilizing a portion of the parent's liquid assets at the end of the quarter the excess proceeds from our increased term loan and excess cash flow expect to be generated for the second half of year we anticipate the parent will return to shareholders over the remainder of the year approximately 250 million dollars to 270 million dollars in the form of dividends and share repurchases after meeting the anticipated needs of the parent we continue to invest in our growth through making investments in new business technology and and the 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 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 parents' excess cash flow after the payment of shareholder dividends for the full year we anticipate distributing approximately 95 million to our shareholders in the form of dividend payments in addition we anticipate share repurchases will be in the range of 670 million dollars to 700 million dollars this reflects 100 million dollar increase at the midpoint of our range from what we indicated on our last call given the additional term loan proceeds as a reminder our current excess cash flow estimates for 2026 do not anticipate any additional cash flows to the parent resulting from the establishment of the new bermuda entity in 2025. now with regards to capital levels at our insurance subsidiaries our goal is to maintain capital within our insurance operations at levels necessary to support our current ratings global life targets a consolidated company action level rbc ratio in the range of 300% to 320%. Although this target range is lower than many of our peers, it is appropriate given the stable premium revenue from the 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 the end of 2025, our consolidated RBC ratio for US subsidiaries was 316%, which provides approximately 95 million of excess capital above what is needed to be our minimum capital target level of 300%. For 2026, we intend to maintain our consolidated RBC within targeted range of 300% to 320%. Now I would like to update you on the progress we're making with our Bermuda subsidiary. We are pleased with our progress so far as our lead regulator in Nebraska approved Recipital Jurisdiction in the second quarter for Globe Life Reef, the company's Bermuda Reinsurance affiliate. Given this approval, we are now in the process of seeking Recipital Jurisdiction approval from Indiana, American Incomes, State of Domicile, and we'll provide you with an update on our next call. In addition, consistent with our business plan, we expect to complete a new reinsurance session in the third quarter which will re-insure a portion of new business and enforce policies issued by our subsidiaries to global library now with regards to our policy obligations for the current quarter for the second quarter life policy obligations as a percent of premium improved from 36.7 percent in the year ago quarter to 34.3 percent favorable to management estimates and consistent with the continued favorable trends in mortality health obligations as a percent of premium, or 56.8%, compared with 53.3% from the year ago quarter.

This was higher than our estimates.

The higher health obligation ratio was driven by a number of factors, including Medicare supplement claims related to prior periods, including an industry-wide correction that CMS made to physician reimbursement rates, higher loss ratios at every due to an adverse fluctuation in high severity claims, and an adverse fluctuation in the quarter related of cancer claims at Liberty National Division. We expect the claims experience to moderate during the remainder of the year. As a reminder, we intend to update our life and health assumptions annually in the third quarter, and thus, we have made no changes to our long-term assumptions this quarter. Now, with respect to our 2026 guidance, for the full year of 2026, we estimate net operating earnings per diluted share will be in the range of $15.55 to $15.95, representing 8.5% earnings per share growth at the midpoint of the range. This increase from our prior guidance is primarily due to improved life underwriting margins and excess investment income offset by higher financing costs and the reduced impact of share repurchases due to the higher share price. The guidance range reflects potential remeasurement gains from the third quarter life and health assumption updates in the range of $110 million to $130 million, with the life assumption update in the range of $90 million to $100 million, and the health assumption update in the range of $20 million to $30 million. The midpoint of the range is higher than last quarter's call due to continued refinements and estimates with the increase primarily related to the health assumption update, which was previously anticipated to be relatively small. Given the estimated benefit from assumption updates in the third quarter, we anticipate third quarter life underwriting margin as a percent of premium will be the range of 52% to 53%, and the third quarter health underwriting margin as a percent of premium will be in the range of 29% to 32%. We anticipate recent favorable trends will continue through 2026 for the full year, normalized life underwriting margin as a percent of premium, which excludes the impact of the third quarter assumption update between 41% and 42% at the midpoint of our guidance. As Frank previously noted, we expect health premium to grow in the range of 14% to 16% for the full year. As mentioned on the previous call, this health premium growth is benefiting not only from strong growth in Medicare supplement sales in 2025 and anticipated in 2026, but also from approximately $65 million additional premium from approved rate increases on individual Medicare supplement policies that will be received throughout 2026 primarily in the last three quarters of the year in our full year guidance we anticipate united americans premium growth to be in range in the range of 25 to 35 percent and the health margin as a percent of premium to be approximately seven percent for the second half of the year as matt previously discussed united americans health margin includes our group health business including every when excluding every united americans health margin as a percent of premium for the second half of the year would be in the range of 8% to 9%. Finally, I do want to point out that the midpoint of our guidance, normalized EPS growth, which removes the impact of assumption updates to both 2025 and 2026, is estimated to be between 9% and 10%.

At the midpoint of our guidance, the projected three-year compound annual growth rate of normalized EPS is approximately 11%. those are my comments i will now turn the call back to that thanks tom those are our comments and we will now open up the call for questions gentlemen thank you for your remarks and to our audience joining today at this time if you would like to ask a question simply press star and one on your telephone keypad we will hear first from the line of wilma burtus at raymond james please go ahead hey good morning could you just give us a little bit more color on how you see it playing out as far as adjusting the sales and advertising environment and dcc to ai what are some of the

options um just maybe how how long you see it playing out thanks yeah there's been a lot discussed recently about just the quantity of search going down and the volume of paid search and so what's happening is is that it's really just bidding up the price for paid search and so So as we've discussed before, we're going to be disciplined on our spin and make sure that we maintain our margin and we're not just going to chase sales that don't meet our profitability targets. And so what we're seeing out there is that, you know, is the paid search has moved to AI-generated search. You're also seeing other platforms such as Instagram and Facebook coming on stronger with advertising. So as I'd mentioned in my prepared remarks, that's just something that we're navigating of just going to different avenues for advertising that is online. And that's not something unique to Globe Life or, frankly, even the life insurance industry. It's just the overall dynamics that are happening on online advertising.

Can you just talk a little bit more about the share repurchases?

Because I think the pace in the first half has been pretty high. um just talk a little bit about that and how you see that uh continuing and playing out um for the rest of the year thanks yes uh thanks Willis Tom um I did want to correct a statement that I made is we would anticipate the parent will return to shareholders over the remainder of the year approximately 350 million to 370 million dollars I think I said 250 to 270 but should be 350 to 370. um over the course of the year we do expect to have shared repurchases um in that 670 to 700 million dollar range for the full year and we would expect to pace

share repurchases pretty much um pro rata during the third quarter and the fourth quarter yeah and wilma i think the one thing you know that i would have obviously that's as tom mentioned in his comments that you know is higher um you know than what we had anticipated as of the in our last call um and we're using a portion of the proceeds from the increase in the term loan um you know to increase uh increase the amount of the buybacks over the course of the year um we really wanted to kind of lean in in the first half of the year given some of the favorable pricing in our share price that we had um wanted to you know so we were a little bit over 50 percent in the first first half of the year and this will bring us to you know we'll be just um a little bit more the first half than we will then we'll have in the second half okay thank you that definitely helped appreciate it our next question comes from ryan krueger at kbw can you um quantify the potential of the i guess at what point would you expect to company would that be more next yeah on

this next reinsurance session the real benefit of of um increasing of reinsuring some of the to reinforce businesses to balance out our ability to re-insure new business in the Bermuda So, we don't really expect any capital benefit in 26 from that transaction. And we'd expect to see some benefit in 2027, but not likely the full benefit that we've communicated on prior calls in 27 that would emerge over a longer period of time of the business plan, so the next three to five years.

And then I guess on the health side, I guess I'm a little surprised that you've increased the expectation for remeasurement gains and the assumption review given, I guess, the weaker claims experience this quarter. Can you give some more color on where that's coming from? Maybe it's a different area than you had the claims weakness.

Yeah, the assumption update on health is primarily driven by American Victim Life, Family Heritage, and Liberty National. And on the Liberty National claims, we did see some higher cancer claims this quarter, but we really see that as a fluctuation and not a continuing trend, a morbidity trend for Liberty National. So as we look at those assumptions, the predominant driver for assumption updates is improved morbidity that we've seen over the past few years.

Our next question will come from Wes Carmichael at Wells Fargo.

Hey, thank you. Good morning. So I had a question on back to the buybacks or capital management, but the stock's done better recently, maybe outside of this morning, but does that change the outlook for capital deployment looking forward to 2027? I guess, does it impact your willingness at all to look towards M&A, and are there any interesting acquisition opportunities out there?

Yeah, I would say, Wes, that, you know, I think as we think about buybacks as a strategy as a whole, it does not, the higher share price doesn't deter us from, you know, being willing to continue to buy back our shares, and we'll continue to have that, you know, being a predominant use of that excess cash flows that we have, you know, absence of better alternatives. I mean, we will look at and we'll continue to look at M&A opportunities. We are, again, very committed to growing and confident in our ability to grow our organization organically, But if we could find the right opportunity that fits in with our strategy, fits in with our marketplace and the products and has a distribution that we can grow, that's really critical for us is to be able to have, you know, having some ability to grow the business. We would definitely look at those opportunities and we continue to explore those. But in the meantime, you know, we'll continue. we feel very comfortable that the current share price is still below what we think is the intrinsic value of the organization and so is a good use of the shareholder money.

My follow-up was on American income. Just looking at lapses there, I think the first year lapses tick down sequentially, but renewal lapses maybe remain a little bit elevated relative to historical trends.

So wondering if you think maybe that's a better run rate going forward or maybe just a couple of quarters of deviation from the longer-term trends yeah we were we were really pleased to see those first year lapses that American income come come down back to kind of where they have been and you know renewal lapses are a little bit higher than they were pre-pandemic and we do kind of see that as continuing to be in that range right around that range so I think that's a good baseline thank you our next question will come from Joel Hurwitz at Dowling and Partners.

Hey, good morning. I wanted to start on the life sales trends and particularly American income. The growth has been coming in below sort of your outlook. Do you think that's cost of living pressures emerging there with your targeted consumers? Is it largely just the agent count and sort of the ramp of new agents?

Yeah, no, I don't think it's um economy driven i do think it is um agent count driven and you know we've mentioned before you know the agent count um has not been where we wanted it to be from a growth perspective over the last few quarters but we are seeing that turn around here in q2 and we anticipate that q3 and Q4, as I said in my comments, to be in that mid-single-digit growth rate. But what we see from an overall productivity perspective on a per-sale basis, the premium on a per-sale basis at American income continues to tick up over the last several quarters. And to me, that's an indicator of consumer health, as consumers are willing to spend a little bit more for a little bit more coverage. And what we see in the field and hear from the field is that, you know, we're not having to present more conversion rates are going down from just an overall consumer presentation to sales perspective. So, really, I do think it's an agent count story, and I'm pleased to see that, you know, we've got sequential growth from Q1 to Q2, and we anticipate that coming around further. It's just, it's interesting, you know, some of the work that we've done, as you go back and look over the last 20 and 25 years, is the agent count and sales count is very much momentum driven. So we're going to get fluctuations on a per quarter basis, and it's not uncommon that we'll have two or three quarters of fairly stagnant or maybe even slight declines in our agent count. But then that's usually followed by several quarters, three, four, or five, a very strong sales growth and agent count growth. And so that's why we really encourage folks to look at it more on an annual basis. It's pretty rare over the last 25 years. It's only happened one or two times that overall from an annual basis, our agent count is down. but we definitely get more fluctuations on a per quarter basis when you just look at it on a very short term.

Got it. That's helpful. And then for my second one, just on the United American margin, so it sounds like every was like a four point drag in the quarter. How much of a drag has that business been in the past quarters? And then I guess what's the expectation in the near term? I think you guys said X every, the margin is expected to be eight to nine percent in the back cap? Should we expect that business to have a four-point drag-ish drag going forward, though?

No, I don't think on a go-forward basis. It was just kind of a high claims quarter. It was really concentrated in a handful of claims. What's interesting to know with Every is that you've just had a pretty significant increase in the sales and the premium starting to come through. in 2026 and so from a prior period uh perspective it the the margin side has not had much of an impact it just did in this quarter because unfortunately with a significant ramp up in um premium you know the the premium comes in throughout the plan year but the claims don't come in uh evenly every quarter yeah and joel i think for the first half of the year you know the total underwriting losses in that is around 10 million dollars and about seven of that was in

the second quarter and we only anticipate you know three or four million dollars in the second half of the year so we don't anticipate the drag you know for the full year um you know might be about two percent uh on the underwriting uh underwriting margin percentage you know i think um you know i think something to note is that you know even despite some of the you know drags we had, as Tom mentioned, we had some adjustments to some prior periods, some claims in the second quarter related to some of the prior periods, as well as end of every, and even with that, you know, for the full year, we still see the underwriting dollars for United America increasing 24% year over year.

So it's still going to be a very good year. Got it.

Our next question will come from Randy Benner at Texas Capital. Please go ahead. Your line is open.

Hey, thanks. I have a couple of follow-ups. I guess the first is on you're adapting to AI search and direct-to-consumer. Are you planning to use performance marketing intermediaries or are you looking – maybe you can remind us if that's something you utilize, but as far as reaching social media and AI search better, is it – can you just dig into a little bit more kind of tactically what you're doing and if you're kind of expanding, your um tool set there as part of what you're contemplating yeah the the amount of advertising that we spend online is we're usually working directly with the platforms themselves um for optimization historically google obviously has been one of those big partners but we do

operate on the other platforms facebook etc and so as i'd mentioned what what we're seeing is is just I'll call it traditional page search is changing a little bit just the volume of paid searches down so the basic economics the cost is up but you are seeing Google and others move into AI generated ads and those type of things and so we're working alongside with those programs as those new advertising methods of getting in front of consumers you know are happening So, we'll continue to work with the platform, but from our volume perspective, we really do most of that internally working directly with the various platforms.

Okay, that's helpful. And then a follow-up on just the agent initiatives on the life side, mostly at American Income. Can you share a little bit more just about maybe like the dynamic with the Salesforce there, the comp? I'm not sure what you're able to share about the comp changes, but just maybe a little bit more detail on how that's changed. Is it in line with when you've made these adjustments in the past, as was alluded to in one of the prior answers you had? And just trying to understand kind of the dynamic on the ground there with the sales force and how they're, you know, viewing some of these compensation changes.

Sure. So, simplistically, the way to think about overall agent compensation is there's a base level of commission paid on sales, and then there's also incentive compensation. And the incentive compensation is something that we regularly adjust. We typically adjust that at least once a year. And we're really designing that to move certain KPIs that we're managing. And those transition between years, depending on what we're seeing in the field, of incentivizing maybe more sales growth or maybe incentivizing more recruiting and retention and training of new agents. And so we're always trying to make that delicate balance because at the manager level, they're splitting their time between direct sales and focusing on sales to shifting their time to focusing on recruiting and training and onboarding new agents. And so it's always a balance there. And so the change that we implemented at the beginning of Q2 from that incentive compensation perspective was really focused a little bit more on agent onboarding and retention of those new agents in their first year. And so we're seeing that come to fruition as our middle management's out there spending a little bit more time recruiting and training agents. And so it's as expected, and I just pointed to our long history of American income has been our division that has had the essentially same model for decades. So when I talk about the last 25 years, it's a very consistent business model. And so these short-term fluctuations are not unexpected. And the other thing I like is that we have three different agencies that all recruit and train and onboard agents in a very similar manner. And you can see that it's not an environment issue, so to speak, because we've got strong agent count growth in liberty and family heritage, you know, with seven and eight percent. And so that's why we're confident that American income will change here a little bit in the last half of this year, which bodes very well for where we want to set that agency up for growth in 2027.

Randy, I would just add that, you know, on a longer term basis, you know, that we're really working on you know how do we think about you know some of the ai opportunities within that sales process and you know what can we do to improve sales training for our agents um you know we're in the process of implementing you know training bots to give our agents i'm going to say you know various personas that they might encounter uh as they're working with potential customers and really enabling them to work on their skill sets before they're doing sales live so we're in the process of doing that and then we're also really taking a look at what are we thinking about that whole sales of productivity working you know how do we how do we improve that overall agent experience and which should help with retention and ultimately sales eliminate frictions in the sales process whether it be from just a lead generation to you know the time involved in getting in front of a customer and then ultimately you know helping them to get a sale and improving on that sales process all around. So there's a lot of things that we've got in place that we're really working on that we're really excited about, I think, especially at American Income, given the size of that agency and the fact that they're, you know, so virtual and so, you know, using a lot of technology in their processes today, you know, it won't be in the next quarter or two, but I think over time, we'll start to really see that come to fruition.

All right, great. those answers are helpful. Thanks. Again, ladies and gentlemen, that is Star and One.

We'll hear next from Pablo Stingzon at J.P. Morgan.

Hi, good morning. I was hoping you could impact your comments on higher severity. Is there something different about the products there, or was it comment more about the unique nature of the claims that showed up this quarter? And it also doesn't sound like that you're having to put through any repricing or re-underwriting actions, but I just want to confirm that. Thanks.

Yeah, it is a different product than what's sold by the other agency. It's a health plan. I will say, you know, in 2025, we just had a handful of groups and the sales in 26 have been good. There is, on an annual basis, an opportunity, obviously, to reprice groups and so what we did with our 25 groups we had good price increases through there for just making sure we've got the right amount from an experience perspective overall we think long term this business is really going to be you know a 83 to 85 percent loss ratio you know kind of business but you in the early stages as i mentioned it's a startup we've got to get scale first to be able to get the credibility of experience from an overall perspective.

Yeah, and then we do have, you know, reinsurance coverages to protect ourselves from, you know, any of the real severe, you know, claims that might otherwise be incurred, just to manage our risk on that line.

Got it. And then my second question on cancer claims at LNL. I think you might have an even bigger cancer book at Family Heritage. And, you know, I was wondering if, you know, you saw anything there or, you know, the fact that nothing showed up in Family Heritage just gives you more confidence that what happened at LML was more of an aberration.

I think that's exactly right, Pablo, is we have not seen that at Family Heritage. We've seen very consistent and favorable underwriting results at Family Heritage. And, you know, the products are a little bit different, but, and we do see a little bit more fluctuations at Liberty from time to time. And that's really why we think it's really just a fluctuation at this point for the quarter.

Our next question today will come from Sunid Kamath at Jefferies.

Great, thanks. Just on the assumption update that you're guiding to for the third quarter, post that change, I guess, should we be thinking about that as really a one-time sort of benefit? Or do you think you're still going to have these ongoing quarterly remeasurement gains? I guess I'm trying to get a sense of is this assumption update going to true up everything and we're kind of back to normal or will we still have these ongoing remeasurement benefits?

Yeah, so from a mortality, primarily on the life side, the way that I think about this is that we look at mortality results over a long period of time to inform our long-term assumptions. And so we've been seeing very good mortality experience recently. So I would not expect our assumptions to be adjusted all the way down to our current experience that we're seeing so i would expect some remeasurement gains um uh continue to come through and we'll always we'll always see remeasurement gains and losses there it's a it's um every quarter because things won't exactly emerge as we intend to but i do think that there will be some continued um favorable remeasurement gains as we even post assumption update and that's what you know i think it's as time goes on as tom said that you know the uh our current experience is is clearly uh emerging better than those long-term assumptions and and to the extent that that continues um which

right now we're not seeing anything in our numbers and say that it won't but then we'll continue to evaluate that in future periods and and if we're continuing to see positive uh you know experience from the longer term assumptions, then, you know, in the future, it would be possible that we might have some, you know, future assumption updates again in the future. You know, as you have those assumption updates, remember that it does kind of lock in then a lower policy obligation percentage for that book of business, you know, going forward. So the, you know, it ends up you needing less of that premium to fund those future claims.

And so it does impact and benefit the margins on on a going forward basis yeah one thing i'd look at or um additionally emphasize is that we have indicated uh normalized life underwriting margins in that 41 to 42 range and that to me is kind of a starting point for how experience will emerge uh in the coming years so that's really the all-in underwriting margin we will see a little bit of amortization increase um uh in the future as well just as we've seen that trend over the past few years due to continued uh capitalization and amortization of renewal commissions primarily at ail okay that's helpful thanks and then i guess

just on bermuda uh just based on my conversations with you know some investors i think some were hoping that maybe there would be an acceleration in the timing relative to this sort of three to five year range that you've given it doesn't sound like that's going to happen but maybe could you just walk us through how you see the next kind of couple years developing like what are the things that we need to one of the things that need to happen in order to get you to a position where you can regularly take cash out of Bermuda thanks yeah so the next step is getting Indiana approval for reciprocal jurisdiction and so we've been in active discussions with them and those discussions have been been going well once we get Indiana reciprocal

jurisdiction to the extent that we want to have dividends come out of the Bermuda subsidiary, the Bermuda Monetary Authority would need to approve those distributions to the parent. We would expect that we seek some subsidiary dividends to the parent in 2027. However, not at the magnitude of kind of where we think our long-term run rate is, but we are looking to have dividend distributions each year. So a consistent set of dividend distributions each year from the entity. And I think as we put more new business in, we continue to create some capacity to actually provide dividend distributions from that entity.

Yeah. The one thing I would add to what Tom says, I think that's really important that we've been structuring our business plan and how we're doing the new reinsurance transactions not to be just a one-time capital relief but the ability to more efficiently manage the emergence of the profits from the block of business over time which will then continue to provide an ongoing you know and uh annual uh you know cash flows additional cash flows up to the parent i do think with respect to 20 i think we've been pretty consistent to say that it's, you know, the anticipated timeframe would be that we would have some additional dividends beginning in 2027. You know, a little bit optimistic that maybe we could get some earlier, late 2026. But again, it's all subject to regulatory approval and the timeframes that we're working on today are right in line. So if we did anything, it'd be really late in the year in any instance um but i do think that um you know the um as we think about the the amounts of of earnings we don't want to get ahead of uh still regulatory uh approval for those dividends and and we don't want to put out an expectation of of kind of getting to that maximum amount sooner than uh what we've really um you know laid out for the regulators and and getting ahead of their approval and i was going to say in the next quarter call typically discuss our estimates for 2027 and this would be of course one of those items as we think about dividends and free cash flow up to the parent um so i

anticipate we discuss that on the next call of our 2027 plans okay thanks our next question will come from tom gallagher at evercore isi hi where where do you expect the health margin to come in in 4q outside of the actuarial review it's the normalized it should come in around 20 that 24 ish percent so say it was just say 23 to 25 percent in the fourth quarter got it so 20 23 to 25 so a little a little potentially a little better than qq yeah i think yeah we would anticipate it

being better than Q2. And, you know, Q4 is always a little bit seasonally high from an overall health because you do have some, you know, the meds up does tend to have a little bit lower margins in the fourth quarter versus third quarter. So, we would anticipate, absent any of the assumption update, probably being around that 25% in the third quarter and then about that 24% in the fourth.

Gotcha. On an underlying basis. yeah okay that makes sense and then just wanted to come back to the comment you made about the direct to consumer business and what's happening so i just want to be clear as i know what's happening um so is there increased comp online competition do you think some direct sales are going away from you is that right now what you're seeing and then if you do pivot to let's say a google portal sales model what is what would the margin look like would would you have to give up

some of the economics relative to where you are currently based on how you think this pivot may happen any any sort of color on that would be appreciated yeah i wouldn't characterize it as competition from other carriers from a life insurance direct to consumer perspective, it's really the volume of paid search is down and therefore it costs more on a per click basis or to have your results appear toward the top of the page than it used to. And so we're being disciplined about, we're not going to spend past our target margins for sales in certain advertising campaigns. And that's consistent with what we've done in the past. The pivot is that there's more testing that's starting to roll out where, as an example, Google is starting to run ads and their AI search mode and some of those kind of things. So it's really an advertising dynamic with the platforms that's moving out of traditional paid search more into the AI realm. And so we'll participate in that as well. I don't anticipate we have to give up margin to be able to do that we will do it again to optimize sales and to maintain our margin so i'm pleased to see and we reported that you know our margin's been improving in our direct to consumer channel and that's what we're really trying to to optimize because um and that's the that's the nice benefit of our organization is that it's not a single source for sales of they're all direct to consumer But a lot of this advertising spin, we're sending those leads over to our agency business, which is able to convert them at a much higher rate than a passive direct-to-consumer channel. So ultimately, I think as things shake out, we can be a winner because our conversion ratio should be better than just a DTC-only conversion ratio because we look at it as an entire organization rather than just one channel.

Gotcha. Thank you for that color.

Our next question will come from Maxwell Frischer at Truist. Please go ahead.

Yeah, thank you. Good morning. I'm calling in from Mark Hughes. Just a quick one from me. Could we get your broader thoughts around the recruiting environment and then maybe current experience around agent retention? I know you mentioned the compensation adjustment implemented at the beginning of the quarter, but yeah, just your broader thoughts there would be great. Thank you.

Yeah, we see our pipeline being strong. We track that all the way through the recruiting process into what we would call hire, and that's where folks start getting into training, and then ultimately they're a producing agent when they start selling policies. And so we feel good about our pipeline and the numbers that are in there that are ultimately convert into new agents that are producing business for us. And that's, again, where I would just reflect back on Liberty National and Family Heritage. Templistically, don't go to market differently on the agent recruiting side. And you can see that we've got agent count growth there that is both on a recruiting and agent retention perspective. And so that's why I'm confident American Income will have a better second half of 2026 than we've had in the first half here.

Great.

Thank you.

And lastly, we'll hear from Andrew Kliegerman at TD Cowell.

Please go ahead.

Okay. Last but not least, thank you. um good good color on um on the prior questions i have just some very basic follow-ups um just going back to the american income you know with with recruiting down in the first half and matt i i understand your point that the good read-throughs from from liberty national and family heritage. But I just want to understand that you're confident in the second half of the year that you'll see mid-single-digit sales growth, even though recruiting is down in the first half.

Maybe just something you're seeing, what's giving you that confidence as you look to the second half of the year sure um so andrew you know like i just mentioned the the pipeline is one of the things we look at and i think also you know we're comparing um this quarter to the same quarter last year but sequentially you know we've got we've got growth in our agent account we got three percent growth and so that to me is an indicator that things are starting um to turn around the other thing i would point to is that our pipeline so our our agents that have um agreed to join the organization that are in school and in the process of getting uh licensed you know that is uh eight percent from q1 and so that's another early indicator that our pipeline is strong and And like I said, it's just kind of a momentum game. And so when we're comparing quarter over quarter, you know, we're going to get a little bit different answer than when we've got recent turnaround and improvement. And so it's all a momentum of we've got people in the pipeline. Those are getting converted into producing agents. We're starting to see that. And so that's why I was very specific on the second half of the year. We anticipate that to be that mid-single-digit growth on the agent side, just seeing the momentum of where we're at right now.

That's great. And, you know, with direct-to-consumer, you're guiding to sales down single digits. Is this one just too difficult to kind of get a feel for as we get to 2027? I mean, is there a lot of unknown there that's just going to take a lot of trial and error before you can kind of get confident that you'll be back into a growth mode?

Yeah, it's just kind of recognizing, you know, because that's an annual number, what happened in Q2. And so we have a long history of running, you know, hundreds of campaigns and testing. And as you know, we're spending money up front with the anticipation of what interest inquiries and leads and ultimately sales that generates. So as digital advertising is pivoting to the AI world, how consumers are online, and the, you know, decrease of organic traffic that I believe will be picked up by more of, you know, the AI, the AI embedded advertising. As we pivot into and test into that and optimize that, you know, I think in the short term, us along with everybody else over the next couple of quarters, that's going to be a transition period. But from a longer term perspective, I do think that we can continue to grow. Because keep in mind, overall, that's not really any discussion about the demand from a consumer perspective of the product. So the product still is out there. We just need to be able to be sure that we get in front of the consumer in the way that they're looking and behaving online. And so, you know, we'll be right there as the transition happens from an online advertising perspective. So that's kind of what gives me comfort from a long-term perspective is that it's not a consumer behavior issue from a desire of the product. It's just more of how people are interacting online these days.

Got it. Thank you for that. And just one last quick one. So as I kind of wrap up on your commentary, and I think about 20, you know, and thank you for the guidance today on 26. As I kind of think out to 2027, the health margin was, you know, a blip this quarter, and obviously in this business that happens. American income sales seem like they're on track and and then the good thing about direct consumer is that you you protect the margins and you know maybe the growth is a little bit more subdued but but hopefully you get back that that seems to me like the wild card so as I look to 27 would it be fair for me as an analyst without asking for your guidance to think that global life is is kind of tracking to historical eps growth rates like it doesn't seem like there's anything getting in the way of that is is is that that's you know like the high single digit eps to

low double digit eps does that seem like a fair observation coming out of the 2q without asking for guidance yeah yeah and i think andrew and obviously we'll give more input next quarter but i i think that's fair the one little wild card probably is you look at the assumption updates and where mortality comes in and when you look at the year over year and then operating income you know we'll have as tom said you know we're going to have um you know 90 to 100 million hours of of assumption update on the life side so depending on where mortality kind of trends and it can still trend favorably but to the extent that that you end up having a 50 million dollar adjustment i'm just throwing numbers out there right but if it's a lesser number then that'll impact some of that year over year growth rate just a little bit but that's not to say that you know especially when you think about normalized margins those normalized margins will still be you know very good i think we're optimistic is where our growth of getting some of the premium growth back up a little bit more from where we're at especially on the health side continuing i think on the health margins we would anticipate those health margins i would say right now i would anticipate them being a little bit better next year just because of some of the unique things that we've had in the second quarter as well as we'll be putting together you know new premium adjustments with respect to the meds up that will reflect some of the higher, you know, these higher costs that we've that we saw here in the first and second quarter. And so then that'll come through in the end, you know, for next year as well. So I think still think there's some some positives that would say and then investment income, we're starting to see that growing on a sequentially basis, we would, you know, look at that continuing to grow, you know, with the current yields on our new purchases of where they're at.

Yeah, and Frank, I was going to add is just, you know, there's been a lot of dialogue related to the margin percent on the health business, but you look at the margin dollars and the growth that we've had there due to all the rate increases as well as the very strong sales. And so, you know, that makes me feel very good that the underlying business is performing, you know, very strong from an earnings perspective, you know, that I think bodes very well in the future. And even DTC is that, you know, current year sales, you know, only a small amount of that drops to the bottom line in the current year you know that's earnings in the future and so our our margin is up um in the quarter for DTC so I think that bodes well um in the future and we should still have over 100 million dollars of sales in the DTC channel you know so that's still a um good volume that is something that I do think we can continue to optimize as we talked about the spend before and we want to be disciplined about growing our underwriting margin dollars ultimately at the end of the day that was super

helpful thank you and that concludes our q a session for today we thank you all for your signals and your questions i'm happy to turn it back to mr stephen moda for any additional or closing remarks all right thank you for joining us this morning those are our comments and we'll talk to you again next quarter ladies and gentlemen this does conclude today's globe Life, Inc., a conference call. We thank you all for your presentation.