Globe Life Inc Aktie

Hello, 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. [Operator Instructions]

I will now hand you 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 Svoboda and Matt Darden, our Co-Chief Executive Officers; Tom Kalmbach, our Chief Financial Officer; Mike Majors, our Chief Strategy Officer; and Brian Mitchell, our General Counsel.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release and 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 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 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 7 of the last 8 quarters and the 1 quarter that didn't have double-digit growth was close at 8%.

On a GAAP reported basis, return on equity through March 31 is 17.9%, and book value per share is $77.3. Excluding accumulated other comprehensive income, or AOCI, return on equity of 14%, and the book value per share as of March 31 is $98.56, up 12% 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 3% and 3.5%. As a percent of premium, life underwriting margin was 41%, same as the year ago quarter. While we anticipate life underwriting margin to be between 42% and 45% for the full year 2026, we do expect it to be around 41% 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% to $417 million, and health underwriting margin was up 12% to $95 million. For the year, we expect health premium revenue to grow in the range of 14% to 17%. This is due to premium rate increases in our 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 Globe 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 number of claims reviewed in pay. 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 activity in particular.

I will now turn the call over 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 2 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 ago quarter to $459 million and the life underwriting margin was up 7% to $209 million. Net life sales were $101 million, up 3% from a year ago due to improved agent productivity. The average producing agent count for the first quarter was 11,064 down 4% 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 agent 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 agent count growth. Net health sales were $7 million, down 3% from the year ago quarter as more emphasis has been placed on life business. The average producing agent count for the first quarter was 4,031, up 9% 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.

In 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 ago. We continue to see strong agent count growth at Family Heritage. 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% and 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-to-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 3 exclusive agencies during 2026 by approximately 5% to 10%.

At the United American General Agency, here, the health premiums increased 22% over the year ago quarter to $194 million, and the health underwriting margin was $5 million, up approximately $4 million 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 [indiscernible] business due primarily to tailwinds from the continued movement of Medicare beneficiaries for 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.

Our 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 United American high teens growth.

I'll now turn the call back to Frank.

Thanks, Matt. We'll now turn to the investment operations. Excess investment income, which we define as net investment income less required interest was $37 million, up approximately $1 million from the year ago quarter. Net investment income was $290 million, up 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 4%, resulting in excess investment income growth between 4% and 4.5%.

In the first quarter, we invested $419 million in fixed maturities, primarily in the industrial and financial sectors. These investments were at an average yield of 6.23% and an average rating of A and an average life of 42 years. We also invested approximately $147 million 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 nonfixed matured 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 regarding the investment portfolio, invested assets are $22 billion including $19.1 billion of fixed maturities and amortized cost. 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 [indiscernible] and another approximately 1% is in traditional private placements.

Our fixed maturity investment portfolio has a net underlying loss position of $1.6 billion due to 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 the 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 comprised 41% of the fixed maturity portfolio compared to 45% from the year ago quarter. 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 remained near historical lows at $511 million compared to $506 million a year ago. The percentage of below investment-grade bonds to total fixed maturity 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 the long-dated liabilities, so we will not be forced to sell bonds in order to pay clients.

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 million to $900 million of fixed maturities at an average yield of between 5.9% and 6.1%. Including the expected investments in commercial mortgage loans and other long-term investments with deadline characteristics, we expect to invest approximately $1.1 billion to $1.2 billion across all asset classes at an average yield of 6.3% to 6.5%.

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, share repurchase program and capital position. The parent began the year with liquid assets of approximately $80 million 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 Global 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 and the return in the form of dividends or through share repurchases. We continue to in the growth of our -- 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 acquire 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 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 a simple jurisdiction in the second quarter and we'll provide an update on our next call.

With regards to the capital levels at our insurance subsidiaries, our goal is to maintain capital within our insurance operation at levels necessary to support our current ratings. Globe Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. Although this target range is lower than many of our peers, it is appropriate given the stable premium revenue from a large number of in-force 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 claims seasonality at United American.

As a reminder, we intend to update our life and health assumptions annually in the third quarter. And thus, we have -- 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 diluted 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 probably 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 quarter'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% to 54%. We anticipate recent favorable mortality trends will continue through 2026 with full year normalized life underwriting 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 the range of 14% to 17% for the full year. This health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2020 by -- and anticipated in 2026, but also from approximately $65 million of additional premium from approved rate increases on individual Medicare supplement policies that will be received in 2026, primarily in the last 3 quarters of the year.

Our full year guidance, we anticipate United of Americans health margin as a percentage of premium to be in the range of 8% to 9%. However, we anticipate the average underwriting margin as a percent of premium to be approximately 10% over the last 3 quarters of the year as the impact 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%. At the midpoint of our guidance, the projected 3-year compound annual growth rate of normalized EPS is 11.5%.

Those are my comments. I'll turn the call back to Matt.

Thank you, Tom. Now those are our comments, and we will now open up the call for questions.

[Operator Instructions] Your first question comes from Jack Matten with BMO Capital Markets.

I said one on lapse rate trends, which takes higher. I think especially for first year lapses at 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 anything related to distribution? And any thoughts on your outlook for lapse rate trends from here?

Yes. Thanks for the question. Yes, we do expect lapse rates to remain elevated for '26 versus the pre-pandemic. And we've seen that over the past few years as well. And 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 lapse rate, 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 -- really just considered a fluctuation.

I think as we've indicated before, is that we do have impacts from macroeconomic 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 based on what's going on in the economy. But overall, fairly resilient as that moderates between a fairly narrow band of our experience.

Yes. And Jack, the other thing I was just going to add is that I think when you kind of look at some of the trends at Liberty and even DTC a little bit, some of that is just mix of business. So we do know that the worksite as L&L has continued to grow that site, that worksite business as it's growing some of the lapse rates in the early issue years are always higher than the later issue years. And so is that -- as you continue to grow the sales there, then you -- those renewal lax rates just tend to drift up a little bit. So we do think that we're seeing that a little bit.

And then we talked a little bit just -- some of the lapse rates at DTC on the internet business are just historically higher than what they are. So as that becomes a greater proportion of our total sales, that probably moved that up a little bit. But it is interesting. I think when you look at some of the economic forces, the renewal rates at DTC are continuing to be right in line with prepandemic experience. And so we're not seeing it consistently across the board on all the agencies. [ So that to us ] while the economy has some impact, surely, there's some other factors that are going on with the business that's being written today.

Got it. That's helpful. And maybe just follow up on some of the AI benefits that you referenced in your prepared remarks. I mean any way you could maybe unpack or quantify some of those benefits you expect over time, whether it's on 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 at American Income along with agent count trends there. I just wonder if you could talk about how you're seeing that play out so far?

Sure. On the administrative side, what we anticipate is over time as 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 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 on 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 to 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, we'll have longer-term gains. And we anticipate that to be a tailwind as we think about what our overall sales growth is going to be in the future. So those are embedded for '26 in our projections, and I anticipate that '27 will be -- continue to benefit from those technologies as we get those rolled out.

Yes. 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 a percent of premium down closer to 7% a bit over the next few years. And so that's kind of really how we're talking about some of those improvements to be reflected in admin expenses.

Your next question comes from Wilma Burdis with Raymond James.

Could you provide some clarity on what's driving the higher buyback for '26? Just maybe a little bit more color there. Is it related to higher capital generation and other source? Maybe just get into a little bit more detail.

Yes, Wilma, we were able to finalize our 2025 statutory earnings. And as we looked at excess cash flows, it still within the range that I provided on the last call, $600 million to $700 million, but it was just a little bit higher and that allowed us to the opportunity to have some additional share repurchases.

Yes. And then Wilma, I'd just add as far as the kind of the timing was concerned, we really did take a look at the opportunities that kind of presented itself during the first quarter, and there was a period of time where the shares had dropped below $140 per share and really saw that as a good opportunity 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 in that quarter.

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 on what's driving that, whether it's macro, just something in that kind of [indiscernible] process? Just a little bit of color would help.

Sure. I'd say we need to break it down between the components of our distribution. Liberty is growing both the agent count and the sales growth and consistent with earlier expectations, and we're really pleased with the trend that we're seeing there. From an American income perspective, I've mentioned this before, but our -- 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 that we're -- the compensation structure is driving a little bit more sales than 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 had originally anticipated.

We do, as I've mentioned in my prepared remarks, believe that some of the changes that we've made that will be -- that are implemented here at the beginning of the second quarter, those don't turn around things that 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 time line 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 3 different agencies, particularly if you look at recruiting, is we go to market very similarly on agent recruiting between the 3 agencies. And so when I see growth at 2 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 agencies. 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.

Your next question comes from Wes Carmichael with Wells Fargo.

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?

Yes. You may recall that on the last call, we guided to kind of flat sales, just considering the significant growth that we have in 2025. And really the dynamics that are going on there looked at our strong growth in sales during the first quarter of '26. And that, as a reminder, is a elevated premium levels because our price increases went in for new sales in the first quarter, even though a lot of the in-force premium increases come in primarily in the second quarter. And so we really want 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 -- where 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 will be interesting to see is 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.

Yes. 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 are really no other developments. We're working through getting our financial statements. The audits complete on those. And so really no changes to kind of our thoughts around the business plan 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.

Your next question comes from Andrew Kligerman with TD. Cowen.

My first question is around the assumption updates, just fantastic to see that come through. You talked about an estimate of 49% to 54% life margin third quarter versus the full year at 41%. So I'm wondering, 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 it sounds like things have gone really well in terms of your assumptions. And I would 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 how we update assumptions and want to actually see the results emerge before we actually make some of those changes to our long-term assumptions. So I think this year is, we are seeing some continued mortality trends that multiple quarters of favorable mortality trends that are informing our assumption update this year. I think if we continue to see those 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.

Well, 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 as just the long-term stability and the growth of that underwriting margin, those are kind of indicators that we're resetting to a new higher level since they're positives in the last several -- in Q3 as we've looked at the last several years.

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

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

Yes, I just -- if we continue to see the current mortality levels that we're seeing today as we continue to see that come in over time, that will work its way into those longer-term assumptions.

That was very helpful. And my follow-up is around the health underwriting margin, 23% in the first quarter. And then you guided to 23% to 27%, which is kind of wide. Agent's wise, could you kind of walk us through the next few quarters? Would it be more likely closer to 23% in the second and then we could see a significant bump in the last 2 quarters? How do you think about the cadence?

No. I think, Andrew, that actually in the remaining 3 quarters, as you would expect that full health margin to be north of 25%, at least we anticipate to be north of 25%. And in fact, you're probably a little bit lower out of those 3 in the fourth quarter just because that's, again, a little bit higher seasonality. So you have a little bit higher claims in that fourth quarter. So that's probably 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 around 25%. And so I think you'll see -- we expect to see pretty good margins over the next 3 quarters.

Your next question comes from Pablo Singzon with JPMorgan.

First question is with insurance moving in larger volumes from [indiscernible], is there a greater risk of anti-selection from your end? 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 experienced in the health business?

Yes. I don't think it's a function of selection that's impacting the margins in 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 million 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 3 quarters, which will help improve overall margins. But I don't think it's any selection at this point. So I don't think that's one of the drivers.

Well, yes, there was higher utilization across the entire industry for Medicare supplement over the last couple of years. What is unique to us...

And we have been seeing medical trends really stabilize and be relatively flat over the last couple of quarters. So that 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 in your quarterly [indiscernible] gains. I was wondering if you could speak about the lapse component of your [indiscernible] gains as well as the morbidity side for the health business. Have those factors been generally positive or negative? But clearly, [indiscernible] has been good, but I was just curious about how those other assumptions have been playing out for you?

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

Your next question comes from Randy Binner with Texas Capital.

It's a follow-up to Andrew Kligerman discussion with you on the -- I think you 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 like lifestyle behavior. It's just it's a significant shift. It's obviously very positive. But is there something changing with the cohort of insureds that's kind of worth noting in this change in the numbers?

I don't think it's really a function of the cohort changing. I think it is just continued trends and we see continued favorable mortality and part of circulatory [indiscernible]. We see continued trends and favorable cancer death, nonlung cancer gets, 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 the drug and alcohol abuse. So I think that's probably one area where we're seeing a little bit more improvement from a [indiscernible] purpose that actually impacted the overall mortality.

Yes, I was going to note that on the nonmedical side because in the late teens and then especially in the early days of COVID, we had really seen a spike a lot of 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. It's probably been 7, 8 years ago now and had that for a few years, and that's been really good to see that temper here the last couple of years. And we've seen really -- even though the nonmedical accounts for only about 20% of our claims, we're seeing some really significant changes in that. And I think that does have some impact, as Tom mentioned, they're a result of some of the societal impacts and that type of thing. And maybe some of the battles against the opioid crisis and that type of thing has maybe been a benefit there as well.

That's great color. And then one more, if I could, as a follow-up to the discussion on the American Income agent count. I guess I heard about the initiatives, and I think it was going to describe more of an issue of getting agents in the door. But is there is the retention of folks they are changing at all kind of after year one? Are you kind of keeping the same percentage? Or has that changed as well?

The -- it's a little bit of both. It's a little bit of just recruiting activity, and it's more of the agent retention in the first 6 months. And we really focus on our agent 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 onboarded, trained and producing and having a sustainable income really drives that long-term agent retention. So we really focused 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 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 2 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've mentioned, is we've got 3 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 to pin on a 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 2 agencies that tells us that it's really specific to this particular distribution versus a more macro view.

Randy, 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. I think a question that we get fairly often to when we are talking to folks, do we think that the new drugs that are coming out and weight loss treatment and those type of things are, is that being -- 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 we're really optimistic that over time that, that -- that could have some really positive benefits to our mortality experience especially some of the side effects from diabetes and those type of things, if they're able to kind of delay death from some of those [indiscernible] health benefits and causes.

And then I kind of look at 2, and I don't think we have this empirically, but you look at the higher utilization that we've been seeing on the [indiscernible] subside and so you have a lot of more senior folks that are going to the doctor more often, they're getting with the doctors. 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 the utilization numbers. And so I tend to think that maybe that has a little bit of some impact on that as well.

Okay. And thanks for the clarification on American Income.

Your next question comes from Suneet Kamath with Jefferies.

I wanted to come back to this idea of the resiliency of your customer base. Clearly, showing up in the first quarter results, but if I just think about what's going on 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 suggest 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, 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 customers' budget, for a couple of years, it's very resilient. And the renewal persistency rates just do not move very much. And I think that gets back to the affordability of our policies, the average premium, depending on the distribution for a rounding sake is $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 really not the first or the second place that we've seen that they look to scale back just because it's not significant dollars on a monthly basis as well as it's been in their budget for quite some time.

And the consumer also knows that is kind of a security perspective is that periods of uncertainty or high inflation or things like that, 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, requalify 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 from our perspective, as we look at it over decades, we see slight movements, but we do not see significant movements from that resiliency perspective.

And I would just say what we're really hearing from the field in more recent times. And is that while there might be a little bit harder, you're not really seeing a major pushback from the consumers at this point in time. And maybe it's an extra call we get the sales. I mean the thing that helps having the exclusive distribution and contractors wanting to make their own money. And so they're maybe they have to make an extra call or 2 during the week in order to get a sale, but they're continuing to work because they want to have their level of income.

And then I would say Matt noted on prior 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 to a lot of stress within the consumer that they would choose down, and they would say, maybe I can't afford $35 a month. I really want to have this. Let me add something for $25 a month, but we're really not seeing that. We're still continuing to see the average premium monitor issues holding steady, if not decreasing 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 your 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?

Yes. I think what's important there is a vast majority of our growth in 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 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 an easier market to get into from a new entrant perspective, the barrier to entry, the cost of entry is a lot less than agency sold business.

And so that's why I mentioned earlier, we think AI is going to be a benefit to our agency sold 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 -- 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 doesn't 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's smaller that is more active and looking than the majority of our agents sold business.

Our next question comes from Mark Hughes with Truist.

Just a quick one for me. You talked about the investment in lead generation. Can you talk about the trajectory you're spending there, whether they're are any new technologies or new approaches you're using? And does AI have any meaning for lead generation?

Yes. And so a lot of our lead generation is coming through our direct-to-consumer advertising. And so the benefit that we've had over the last year or 2 has been capitalizing on that investment spend and not just converting that advertising spend into sales of just the direct-to-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, 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 lease 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 will 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 the AI business in that -- no, 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 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 we're there with the seat at the table, so to speak, with these advertising platforms as they look to convert and monetize some of this AI technology. And it's much like what we saw in some of the early days with Facebook and some of the others as they convert into advertising platforms.

Your next question comes from Ryan Krueger with KBW.

Just a quick one. On the life margin, and maybe this is -- there's some rounding here, but I think you said you expected 41% 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 from the assumption review in the third quarter. So just curious how you're thinking about the benefit on a go-forward basis from the assumption for [indiscernible]?

Yes. Right. I think fourth quarter is one of those quarters that also has a little bit of seasonality in it. So that offsets some of the benefit that you get from a lower net premium ratio. And then also, the net premium ratio changes are relatively small. I mean, there are small incremental changes that happen 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 issue is -- would you expect -- do you think 41% roughly is the right margin at this point, stripping out assumption review impacts? Or could there be some upside as we go out further?

I do. I think that's a pretty good normalized underwriting margin. We've seen mortality come down, so obligation ratios have come down. 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 got to think of it as around that. So if it's 40%, it could be if it 41.1%, 41.2% we're still thinking of that as being around 41%, same as 40.8% or something like that. So it's going to move by a few tenths of a point, but it's going to be pretty close to around that. So you do have some of the impact of the amortization that's coming into play as well.

I'd just add that, and that continues to grow just a little bit each quarter, just as the new renewal commissions at American Income come into amortization. So you'll see some benefits on the policy obligation percentage a little bit more than that. I think that gets offset a little bit by the higher amortization.

Your next question is a follow-up from Wilma Burdis with Raymond James.

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 could 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?

Yes. Last quarter, excess cash flow, I said was going to be between $600 million and $700 million. I think as I look at it now, probably narrow that range to $650 million to $700 million. And so that excess cash flow, the midpoint of that is right around the $675 million side.

We got -- we have a better visibility, clearly, on the amount of dividend distributions coming out of the sub from that perspective. So you're down -- the downside clearly is much less, but -- and we're able to kind of get the sense of that as Tom said, in that upper part of the $600 million.

That concludes our Q&A session. I will now turn the conference back over to Stephen Mota, Vice President of Investor Relations for closing remarks.

All right. Thank you for joining us this morning. Those 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.

Hello, and welcome to Globe Life Inc. Fourth Quarter Earnings Release Call. My name is Jim. I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]. I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations, to begin today's conference. Thank you, sir.

Thank you. Good morning, everyone. Joining the call today are Frank Svoboda; and Matt Darden, our Co-Chief Executive Officers; Tom Kalmbach, our Chief Financial Officer; Mike Majors, our Chief Strategy Officer; and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release 2024 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for 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 fourth quarter, net income was $266 million or $3.29 per share compared to $255 million or $3.01 per share a year ago. Net operating income for the quarter was $274 million or $3.39 per share, an increase of 8% over the $3.14 per share from a year ago. For the full year 2025, net operating income was $14.52, $0.02 above the midpoint of our previous guidance.

On a GAAP reported basis, return on equity through December 31 is 20.9% and book value per share is $74.17 excluding accumulated other comprehensive income, or AOCI, and return on equity of 16% and book value per share as of December 31 is $96.16, up 11% from a year ago.

Before discussing the third quarter insurance operations, I would like to say a few words about the nature of our business. As I reflect on the results of the past year, I remain confident that our business model effectively positions us for future success. Globe Life helps provide financial security in the vastly underserved, lower middle to middle-income market that has largely been ignored by the financial services industry.

We distribute basic protection products that are simple for agents and consumers to understand and are designed specifically to meet the needs of this market. Studies indicate that over 50% of Americans are underinsured. As such, we have a significant sustainable growth opportunity without having to compete for market share with other insurance companies.

The history of growth at Globe Life is clearly demonstrated by both our recent and long-term results, and we are fully focused and confident in our ability to continue to grow in the future. We are honored to serve this market and grateful to have the opportunity to make tomorrow better for millions of working families.

Now in our insurance operations. Total premium revenue in the fourth quarter grew 5% over the year ago quarter. For the full year 2026, we expect total premium revenue to grow approximately 7% to 8%. Life premium revenue for the fourth quarter increased 3% from the year ago quarter to $850 million. Life underwriting margin was $350 million, up 4% from a year ago, driven by premium growth and lower overall policy obligations.

In 2026, we expect life premium revenue to grow between 4% and 4.5% compared to 3% growth for the full year 2025. As a percent of premium, we anticipate life underwriting margin to be between 41.5% and 44.5%. In health insurance, premium revenue grew 9% to $392 million, and health underwriting margin was also up 9% to $99 million. In 2026, we expect health premium revenue to grow in the range of 14% to 16% compared to 9% growth for 2025.

This is due to strong sales activity and premium rate increases on our Medicare Supplement business. As a percent of premium, we anticipate health underwriting margin to be between 23% and 27%. The midpoint of the range is slightly below the underwriting margin percentage for 2025, primarily due to the strong premium growth expected in 2026 from our United American General Agency division which does have a lower underwriting margin percentage than our other distributions.

Administrative expenses were $92 million for the quarter, an increase of approximately 1% over the fourth quarter of 2024. As a percent of premium, administrative expenses were 7.4%. In 2026, we expect administrative expenses to be approximately 7.3% of premium the same as in 2025. I will now turn the call over to Matt for his comments on the fourth quarter marketing operations.

Thank you, Frank. Now as a reminder, I mentioned last quarter that while growth in our agent count has historically been subject to frequent short-term fluctuations, we continually see significant long-term growth. Over the last 10 years, our agent count has nearly doubled, and I am confident we can continue to see strong long-term growth due to the enormous pool of potential agent recruits and the opportunity that we provide. Our recruiting strategy does not target insurance agents. We are simply recruiting individuals from all walks of life who are looking to improve their financial position and have more control over their career.

Now let's discuss the results of each distribution, starting with our exclusive agencies. At American Income Life, the life premiums were up 6% over the year ago quarter to $457 million. The life underwriting margin was up 5% to $208 million. In the fourth quarter, net life sales were $102 million, up 10% from a year ago. The average producing agent count for the fourth quarter was 11,699, down 2% from a year ago.

While we generated strong recruiting activity, we had more agent turnover than expected. Now this is not always a bad thing as it can result in a more productive agency depending on the quality of the agent's loss. The 10% sales growth this quarter was due to better overall agent productivity. That being said, we place great importance on agent retention and have introduced an initiative to emphasize agent retention to help ensure continued agency growth.

Now at Liberty National, the life premiums were up 4% over the year ago quarter to $98 million, and the life underwriting margin was up 6% to $36 million. Net life sales were $28 million, up 6% from the year ago quarter. Net health sales were $9 million, roughly flat from the year ago quarter. The average producing agent count for the fourth quarter was 3,965, up 6% from a year ago. I believe the initiatives that I had mentioned last quarter are having a positive impact and I'm confident we will continue to see growth at this agency as we move forward.

At Family Heritage, health premiums increased 10% over the year ago quarter to $121 million, and the health underwriting margin also increased 10% to $44 million. Net health sales were up 15% to $31 million due to increases in agent count and productivity. The average producing agent count for the fourth quarter was 1,640, up 8% from a year ago. We've now seen 6 consecutive quarters of strong agent count growth for Family Heritage resulting from the continued focus on recruiting and growing agency middle management.

In our direct-to-consumer division at Globe Life, the life premiums were approximately flat over the year ago quarter to $244 million while the life underwriting margin increased 3% to $74 million. While life premiums were flat this quarter, net life sales were $29 million, up 24% from the year ago quarter. We are excited to see this continued sales turnaround from the declining trend of recent years. As we've mentioned before, new technology introduced earlier this year, has helped improve the conversion of customer inquiries into sales without incurring incremental underwriting risk. The resulting margin improvement has allowed us to increase marketing volume and further grow direct-to-consumer inquiries and sales.

Now we've also seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also contributed to margin improvement, allowing us to invest more heavily in advertising further increasing lead volume, which in turn leads to sales growth in both our direct-to-consumer and agency channels. We expect this division to increase leads generated for our 3 exclusive agencies during 2026 by approximately 10%.

United American is our General Agency division, and here, the health premiums increased 14% over the year ago quarter to $173 million and this is driven by sales growth in Medicare Supplement rate increases that we have discussed previously.

Health underwriting margin was $8 million, up $2 million from the year ago quarter. Strong activity across the entire agency resulted in net health sales of $77 million, an increase of approximately $47 million over the year ago quarter. We attribute this tremendous growth primarily to the significant movement of Medicare beneficiaries for Medicare Advantage plans to Medicare Supplement plans. As a result -- as a reminder, we do not market Medicare Advantage plans.

Now I'd like to discuss our projections and based on recent trends and our experience with our business, we expect the average producing agent count trends for the full year 2026 to be as follows: at American Income, mid-single digit growth; Liberty National, high single digit growth; and at Family Heritage, low double digit growth.

Net life sales for 2026 are expected to be as follows: at American Income, high single digit growth; Liberty National, low double digit growth; and direct-to-consumer, mid-single digit growth. Net health sales for 2026 are expected to be as follows: for Liberty National and Family Heritage, both low double digit growth.

Now for United American, considering we nearly doubled our sales in 2025, we are currently projecting flat sales growth for 2026. We acknowledge there are considerable dynamics in the Medicare marketplace, and we will refine our estimates as we move through the year. 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 $31 million, down approximately $8 million from the year ago quarter. Net investment income was $281 million, approximately flat while average invested assets grew 1%.

Required interest is up approximately 3% over the year ago quarter, relatively consistent with growth in average policy liabilities. Net investment income was negatively impacted in the current quarter by lower average invested asset growth. As discussed on prior calls, and lower average earned yield on our short-term direct commercial mortgage loan and limited partnership investments as compared to a year ago.

Net investment income also declined sequentially from the third quarter as we had very good returns from our limited partnership investments in the third quarter, but that returned to more normal levels in the fourth quarter. 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.

In addition, we held a little more cash during the current quarter than normal, due to the Bermuda reinsurance transactions executed in the quarter. For the full year 2026, we do expect net investment income to grow between 3% and 4%, required interest to grow around 4% and excess investment income to be relatively flat.

Now regarding our investment yield. In the fourth quarter, we invested $131 million in fixed maturities, primarily in the financial and industrial sectors. These investments were at an average yield of 6.23%, an average rating of A- and an average life of 27 years. We also invested approximately $145 million in commercial mortgage loans and limited partnerships with debt like characteristics and an average expected cash return over time of approximately 9% to 10%.

These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments while still being in line of our overall conservative investment philosophy. For the entire fixed maturity portfolio, the fourth quarter yield was 5.29%, up 2 basis points from the fourth quarter of 2024, including the investment income from our other long-term nonfixed maturity investments.

Fourth quarter earned yield was 5.4%. While we do own floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Invested assets are $21.7 billion, including $18.8 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.3 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-, same as a year ago.

Our fixed maturity investment portfolio has a net unrealized loss position of $1.2 billion due to the current market rates being higher than the book value 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 BBB comprised 42% of the fixed maturity portfolio compared to 46% from the year ago quarter. This percentage is at its lowest level since 2003. As we have discussed on prior calls, the BBB securities we acquire 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 such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities. Below investment-grade bonds remain near historical lows at $521 million compared to $529 million a year ago.

The percentage of below investment-grade bonds to total fixed maturities is just 2.8%, consistent with the year-end 2024. The amount of our below investment-grade bonds at just 6.7% of our total equity, excluding AOCI, is at its lowest percentage of equity at any year-end in over 25 years.

Due to the long duration of our fixed maturity liabilities, we invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. 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 full year 2026, at the midpoint of our guidance, we assume investment of approximately $900 million to $1.1 billion in fixed maturities at an average yield between 5.9% and 6% and approximately $300 million to $400 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average expected cash return over time of 7% to 9%.

Also at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.3% for the full year 2026. With respect to our nonfixed maturity long-term investments, we anticipate the yield impacting net investment income to be in the range of 7% to 8% for 2026. In total, including these additional investments, we anticipate the blended earned yield to be approximately 5.4% to 5.5%. Now I will turn the call over to Tom for his comments on capital and liquidity.

Thanks, Frank. First, I'll spend a few minutes discussing our available liquidity, share repurchases and the capital position. The parent began the year with liquid assets of approximately $90 million and ended the year with liquid assets of approximately $80 million. In the fourth quarter, the company repurchased approximately 1.3 million shares of Globe Life Inc. common stock for a total cost of approximately $170 million at an average share price of $134.44.

For the full year, we purchased 5.4 million shares for a total cost of $685 million at an average share price of $126.41. Including shareholder dividend payments of approximately $85 million, the company returned approximately $770 million to shareholders during 2025. In addition to the liquid assets held by the parent, the parent will generate excess cash flows during 2026.

The parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less interest paid on debt and is available to return to its shareholders in the form of dividends and through share repurchases. We invest -- we continue to invest in our growth through making investments in the business, 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.

In 2025, parent excess cash flow, excluding the benefit of extraordinary dividends, was approximately $620 million. Although statutory results are not yet final, for 2026, we anticipate excess cash flow to increase to approximately $625 million to $675 million, given recent favorable mortality trends and growth in premium.

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 parent's excess cash flow after the payment of shareholder dividends.

In our guidance, we anticipate distributing between $85 million to $95 million -- sorry, $85 million to $90 million to our shareholders in the form of dividend payments with the remainder being used for share repurchases in the range of $535 million to $585 million. We anticipate liquid assets at the parent to be in the range of $50 million to $60 million at the end of 2026.

Now with regards to the capital positions 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 our large number of in-force 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.

Since our statutory financial statements are not yet final, our consolidated RBC ratio for year-end 2025 is not yet known. However, we anticipate the final 2025 RBC ratio will be within our targeted range.

During the quarter, we finalized the licensing and formation of Globe Life Re LTD, a Bermuda reinsurance affiliate for the purposes of reinsuring a portion of new business and in-force life insurance policies issued by Globe Life affiliates and executed the initial reinsurance transactions.

As previously noted, we estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. We anticipate parent's annual excess cash flow will increase over time toward $200 million as earnings emerge from reinsurance additional in-force and new business. This additional excess cash flow will enhance the financial strength of the company and will provide additional financial flexibility for the parent to support growth.

Now with regards to policy obligations for the current quarter, for the fourth quarter, policy obligations as a percent of premium has declined from 36.7% in the year-ago quarter to 35.4%, consistent with continued favorable trends in mortality. Health policy obligations as a percent of premium were 53.7% compared with 54.1% from the year ago quarter. For United American individual Medicare supplement claim trends have been relatively stable. However, we did see seasonally high claims in the fourth quarter for both individual and group health products.

Now with regards to our full year underwriting margins, normalized for the impact of assumption updates. As I mentioned on previous calls, as required by GAAP accounting standards, each year, we review and generally update actuarial assumptions for mortality, morbidity and lapses, and we have chosen to do this in the third quarter each year.

When assumptions changes are made, GAAP accounting standards require a cumulative catch-up adjustment. This cumulative catch-up is the assumption related remeasurement gain or loss, an assumption remeasurement gain lowers the reserve balances and indicates an improved outlook as less premium is needed to fund reserves to meet future policy obligations. The opposite is true if there is an assumption remeasurement loss.

To better understand the performance of the business for the full year, we think it is beneficial to look at normalized underwriting margins, which exclude the impact of assumption changes and provide an improved basis for comparison of year-over-year results. For the full year 2025, normalized life underwriting margin as a percentage of premium increased to 41% compared with 39.7% for the prior year.

Normalized life policy obligations as a percent of premium improved by over 2 percentage points from the prior year due to favorable mortality trends but was partially offset by higher amortization of acquisition costs. Normalized health margin as a percent of premium was 25.4% compared with 27.3% for the prior year and is reflective of higher claims experience and the timing of premium rate increases during the year at United American.

Finally, with respect to our '26 guidance. For the full year '26 we estimate net operating earnings per diluted share will be in the range of $14.95 to $15.65, representing 5% earnings per share growth at the midpoint of the range. This is an increase from our prior guidance related primarily to continued improved mortality and experience trends that we are monitoring, including anticipated positive impacts from life assumption updates that will occur in the third quarter. In addition, we are anticipating higher health underwriting margins given the strong premium growth at United American.

Normalized earnings per share growth, which removes the impact of assumption updates in both 2025 and in the midpoint of 2026 is approximately 10%. At the midpoint of our guidance, we anticipate total premium revenue growth of 7% to 8% with life premium growth growing 4% to 4.5% and health premium revenue growth growing 14% to 16%.

Health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2025, but also $80 million to $90 million of additional annualized premiums resulting from approved rate increases on individual Medicare Supplement policies that would be phased in throughout 2026 and fully implemented by 2027.

Recall the majority of these rate increases will be effective beginning in the second quarter of 2026. As a result, this delay, along with seasonally high claims typically incurred in the first quarter, we anticipate United American's health margin percentage in the first quarter will be lower than the full year margin percent of 8% to 10%.

However, we anticipate an average of 10% to 11% in the last 3 quarters of the year as the full effect of the premium rate increases is realized. We anticipate underwriting margins as a percent of premium to be in the range of 41.5% to 44.5% for the Life segment and 23% to 27% for the Health segment.

In our guidance, we anticipate recent favorable trends will continue through 2026. Given this, our '26 guidance range reflects an estimated third quarter benefit from assumption updates and resulting remeasurement gain of $50 million to $100 million, which is expected to increase the life margin as a percent of premium in the third quarter to a range of 48% to 52%. Those are my comments. I'll now turn it over to Matt.

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

[Operator Instructions] Our first question today will come from the line of Jimmy Bhullar at JPMorgan.

I had a couple of questions. First was just on the first year lapses. They seem to pick up across various channels, especially in direct response. So hoping that you could give us some color on what's going on there.

Yes. Thanks, Jimmy. Yes, we -- you're definitely right. First quarter lapses for direct-to-consumer and actually Liberty National were actually a little bit higher than what we had expected. At this point, we see them as fluctuations and we'll continue to monitor them.

On DTC, our sales increases are primarily coming from the internet channel, which we actually see higher lapses on the internet channel. So a little bit higher, not to be unexpected, but it was higher than what we would have anticipated from that channel. The one thing I'd say is I think the growth in sales, even with a little bit higher lapses is a positive because it does add to underwriting margins overall, but it is something we'll continue to pay attention to..

Then on MedSup, maybe if you could just talk about the dynamics between MedSup and med advantage. Historically, obviously, with the Republican government, you'd assume med advantage was going to grow this time it's sort of going in the opposite direction.

But the 2 questions I had on that was, do you expect like -- I'm assuming your outlook for growth in MedSup is fairly constructive. And if that is correct, then if we think about, you filed prices, I think, around the middle of last year, maybe third quarter or so. And since then, claims trends have stayed elevated.

So should we assume that you'd have to sort of go through around the price increases to get the margins on the business that you've signed to more of a normal level. So maybe we should expect slightly weaker margins initially and then improved after you implement the higher prices.

Yes, Jimmy, on the claim trends, we've actually see claim trends stabilize in the third and fourth quarter. So that's different than what we saw in 2024, where we had seen claim trends increase in the third and fourth quarter. So those trends that we've seen recently are actually a little bit less than the anticipated trends that we had in our rate increases.

So we do feel like the rate increases that we got approvals for are adequate to bring us over the course of '26 and into '27 back to kind of our normal margins in that 10% to 12% range. As I mentioned in my comments, we'd expect 10% to 11% in quarters 2, 3 and 4 of 2026, and those rate increases will carry into the first quarter of '27 as well.

Yes, I'd probably just add just kind of a reminder that fourth quarter would just as -- again, seasonality would be probably just a little bit on the lower end of that range and probably just slightly behind where second and third quarter would have been. And then really, as you get all that rate increase fully into 2027, that's where we would really anticipate getting back into those more normal levels that you get it for the full year.

And then I'll touch on your market trend. Obviously, our results are very strong for the fourth quarter. A lot of that is, we believe, the dynamic of what's going on with Medicare Advantage market and people continuing to find value in Medicare Supplement. There's been a lot of discussion related to the government reimbursement rates and associated impact on Medicare Advantage. Carriers as well as what they're doing from either premium increase, cost reductions or scaling back.

We see that also on the provider side of scaling back, taking Medicare Advantage plans. All of those are beneficial to us for a marketplace perspective. I think it is going to be very interesting to see how Q1 and Q2 play out with the dynamics of that market. As we've mentioned before, we are pricing for profitability. We're not pricing just to gain market share.

And so it's very important, as Tom has mentioned, the management of our rate increases consistent with our claims performance is very important for the overall profitability of that block of business. And we're clearly, from what we see, not out of line with what other carriers are experiencing nor the rate increases that we're requesting which bodes well for our premium earnings in 2026.

And so there -- the sales side is really hard to predict right now, but we had tremendous growth in the current -- well, prior year now 2025. And so it will be -- we'll really see how things come through as we get into the first and second quarter of this year.

Maybe one other thing to mention, Jimmy, is just as we think about claim trends is, CMS did introduce prior authorization requirements for traditional Medicare Supplement starting in 6 states in 2026. So I would like to see kind of how that impacts overall claim trends. But I think overall, it should be a favorable impact as they try to reduce fraud, waste and other abuses that they've seen in the Medicare program.

Our next question today will come from Wilma Burdis at Raymond James.

Sales have been quite strong in the last few years, even probably stronger than the long term. And you cited some efficiencies there with branding and lead sharing and sourcing. Is there more tailwind to unlock there? Or has a lot of that work been done there?

No. I think as we continue to leverage on our technology investments, I think we'll continue to see tailwinds from an efficiency perspective. On the agency side, I think there's still more to unlock. There's a variety of technology that has been implemented, but there's a lot of things on the horizon that we are in process that will come online and in '26 and '27.

So I think that will continue to help our agent productivity, which clearly drives sales growth and drives it a little bit faster to the extent that we do that effectively, drives it a little bit faster than our agent count growth, which is our overall goal with those investments.

And then the technology on the DTC side, the way we market, as was mentioned, a significant amount of those sales are coming from our online channel. And as we market and target customers that are in our demographic that are looking for our type of product, the sophistication there from a technology perspective continues to be a significant focus of ours, and we continue to invest in that area.

And I think that's why you'll continue to see growth trends there as well as just any sort of efficiency that we have through the distribution model. So we've talked about of converting people that are interested, those leads and inquiries into ultimate sales and then keeping them on the books through a great customer experience will continue to benefit us going forward.

So I don't -- I'd say my punchline to all that is, I don't think we fully achieved all that we can through the use of technology enhancements, but we'll continue to focus on that in the coming days to get the growth that we're looking for.

Great to hear. Could you talk a little bit about remeasurement gains, which were strong in both life and in health, which actually reversed recently, but health remeasurement gains look pretty strong. Can you just go into a little bit more detail on the drivers there and how you expect that to trend?

Yes. With regards to kind of what I'd say is quarterly actual to expected remeasurement gains. We are seeing life mortality experience and lapse experience that's favorable relative to our long-term assumptions. And similarly, on the health side as well. I think we continue to expect mortality to continue at kind of where they've been recently, which would result in continued life actual to expected remeasurement gains. And as we're looking at that experience and looking to see how the first quarter and second quarter emerge we kind of follow our process of updating assumptions.

We'd also, as I mentioned, expect an assumption remeasurement gain in the $50 million to $100 million range in the third quarter of 2026. Now when we make those assumption changes, I think we can -- depending upon where we set those long-term assumptions, I think that we would continue to see remeasurement gains potentially even in the third and the fourth quarter of next year as well. So I don't think we'd necessarily eliminate all of them.

For the health side, it's a little bit different is health the premium rate increases on the health side will help our ability to generate experience that could produce continued remeasurement gains. But the health side remeasurement gains are much more volatile just because of the way Medicare Supplement and the rate increases are applied to in the reserve practices is just a little bit unique versus our normal supplemental health business. So we will see a little bit of volatility around remeasurement gains and losses in the health line.

Our next question will come from Jack Matten at BMO.

First question I have is on excess cash flow. I think the guidance this year is the same midpoint, and that's before even with a higher GAAP earnings outlook. So I guess that's partly related to the kind of the GAAP assumption remeasurement gain that you're embedding now. But anything else that's different across GAAP versus statutory that we should be thinking about there.

Yes. And I'm sorry, Jack, you're just a little bit -- it's hard to understand your question, but I think it was looking for differences that were kind of happening that we're seeing on the GAAP or the statutory side that was impacting the excess cash flows.

I mean I think in what Tom was providing from his guidance of $625 million to $675 million, we are just seeing that is really being driven in and of itself by just good solid statutory earnings in 2025 that then convert into dividends to the parent company in 2026. That is growing a little bit over, I'm going to say the normal statutory earnings that we had in the prior year there.

Of course, we had some extraordinary dividends in 2025 that were brought up as well. But if you kind of pull those out, we're seeing just a nice increase. I feel better that we're actually at a kind of another level with respect to our statutory earnings and therefore, the cash flow generation at the parent company.

No real significant changes in the statutory or the GAAP models. If you think about '25 or even '26 at this point in time, that's really impacting it, like we maybe it had in some of the prior years.

Yes. And just for clarity, we don't expect any benefit from the Globe Life Re Bermuda transaction in 2026 at this point in time.

And to the extent that, that changes at all, over the course of the year, as we talk to our regulators, we'll be sure to disclose that and talk about that on future calls.

Great. And then a follow-up on the American Income agent count. I know that there's usually like a stair-step pattern over time, but it looks like a bit of a larger drop this quarter than what we usually would see. Any sense on what's driving that? And then any more detail on the retention initiatives that you referenced in your prepared remarks?

Yes. I would say for American income, it is not uncommon for the fourth quarter end of the year for agent count from a sequential basis to go down. If you look at 3 of the last 4 years, we've had that phenomenon. So I'd say it's not unexpected. Typically, we see those agents that may be struggling with their productivity and production kind of toward the end of the year, may be a time that they fall off.

What we're doing from a focus on that perspective is, as we've talked about in the past, it's our middle management and managers that are out there recruiting, training, onboarding and retaining agents. And so we're looking at some incentives changing their incentive compensation a little bit to continue to focus on that agent retention. So those will go in towards the beginning of the year, and then obviously, they take a little bit of time to get implemented.

And so like I said, if you look at it over a long term, it's not a concerning trend. That's why we're projecting that we're going to have agent count growth. But overall, we are focused on the productivity of our entire agency and that continues to be very strong for all our agencies, but including American Income. And so I think that's why you see little bit higher sales growth than just the agent count growth. Again, quarter-to-quarter, we're going to get some of those fluctuations.

We'll take our next question from Andrew Kligerman at TD Cowen.

I want to stay on Jack's question with regard to sales. So it sounds like you're going to put the retention initiatives in place this year. So that wasn't the case last year. So I guess that explains why you cited average producing agents going up mid-single digit and then at American Income and then net life sales going up high single digit. So maybe that's -- I'm trying to get at the productivity a little bit more.

What drove it up in the fourth quarter to see a 2% drop in average producing agents with a 10% increase in sales? Was it -- I think you touched on earlier, those -- the lead generation coming from direct-to-consumer, but I can see that you're baking in more productivity even going forward. So trying to get it better. I'd like to get a better understanding of what's driving that.

Sure. I think as we've talked about in the past, you've got to look at the agent count growth as a leading indicator and then the sales growth follows. And so if you go back for American Income, Q4 of '24 was a 7% growth and in Q1, Q2 and Q3 were all low single-digit growth quarters for just the agent count.

And so that carries forward into sales in Q4. We're also seeing some productivity gains as well as just the premium on a per sale basis is up compared to the same quarter in the prior year. And so that's also driving it as well. And as we've talked about, the thing with the product in the marketplace is that the consumer is -- we go through a needs-based analysis that is sitting down with the customer and determining what their needs are and then based upon what those are.

We have the right amount of coverage, which obviously has an impact on the amount of premium that we collect on a per policy basis. I think some of the -- when I talked about the quality of the leads and the conversion of those globe leads generated out of our DTC channel into American Income is also helping on that productivity is reflected in the premium on a per sale basis as well as just the agents that are producing every single week what their sales are from that perspective.

And so you are correct, just recognizing the agent count, we think the agent count growth might be just a little bit slower than the sales growth for 2026, and it's just reflective of some of those dynamics. And we'll see how some of these incentives come into place. And I wouldn't characterize it that we had no incentives in 2025 for our managers to recruit and retain agents.

It's just we found that we always have to kind of adjust to that and make sure we've got the right incentives correct between that balance of sales and recruiting, training and retaining agents. And so we're doing some few tweaks that will go in here at the beginning of '26, and we'll see if we got it right as we move throughout the year.

Very helpful. And if I can go back to the MedSup, I mean, what a fabulous year in terms of sales growth at United American and just saying that you think sales will be flat in '26 is pretty darn good. As we look further out, is there a chance that the dynamic between med advantage and med Supplement kind of shifts in the favor of med advantage where they kind of align better with regulations and compliance and pricing and you could see a dip in the opposite direction, some real pressure on sales as more med advantage gets sold.

I mean, it's certainly possible. As we mentioned before, we've been in this business for decades. We have more and more people from an age perspective entering into the market in general. So that would be, I would think, a tailwind. But it's really hard to predict the government support within the Medicare Advantage space. And so that will play some into the dynamics.

But I think from a Medicare Supplement perspective, there's always going to be a need in a marketplace for that particular product. People that want the freedom of choice and some of the benefits that the Medicare Supplement marketplace provides. So again, I think there will always be a place in that market. We are very much focused on maintaining our margins, and we're really not going to chase market share at the expense of just pricing to gain market share for the sake of it.

So I think you've seen that over a long period of time with us is that our sales growth will ebb and flow in that area, depending on the marketplace, but it's very important that we maintain our pricing for the existing in-force block as well that really translates into that underwriting margin dollar that we're really focused on from a long-term stability perspective.

[Operator Instructions] Moving on, we'll hear from John Barnidge at Piper Sandler.

My first question on the investment portfolio, can you talk about exposure to software and how you see the portfolio impacted by AI along with any derisking activities that have been pursued.

Sure. Thanks, John. On our -- I think a lot of the discussion on potential exposure has kind of been in that alternative portfolio category. We've kind of taken a look at within the limited partnerships and the different investments looking at information that we have available there.

Our best estimate is that there's really less than probably $15 million within that alternative portfolio that is really related to software companies. So we do think it's pretty limited. Overall, our private credit is probably about 1% of our total invested assets. I think that's about the amount we had last quarter, and that really hasn't changed again this year.

So overall, we have pretty low allocation to the alternative space in general than private credit. And then it doesn't look like right now, at least in that side, we have much from the software. As we think about it on the fixed maturity portfolio, we've always been underweight, I would say, on tech you kind of think about we're out there trying to buy bonds that are 20, 30 years out, and it's hard to find the technology companies that we really feel comfortable fit into that space.

So less than 2% of our invested assets of our fixed maturity portfolio is in some type of a technology type activity within that sector. What we have exposure to mostly are the hardware providers, data service providers and that type of thing. There's probably a couple of names in there. We kind of think probably less than $50 million that have a little bit more susceptibility to be displaced. They do have some moats with respect to some proprietary data that they have with respect to the space that they operate in.

So I think it gives them some protection, but that we're kind of keeping an eye on. It is I think the whole AI disruption is a risk that the investment team has been considering for a number of years. And clearly, within part of the matrix that they utilize as they think about the bonds that the companies that we're going to invest in. And again, we're looking for those names that are really long term, we think, are going to be around for the long term. And so it's the IBMs and the Amazons and the Microsofts that are mostly in our portfolio.

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

I had a couple of questions on Bermuda. One, I think the press release in December, I think you noticed -- or you noted that the first reinsurance transaction you executed with your business plan. Wondering if you could provide a little more detail on that transaction just in terms of size and scope.

Sure. Yes, we are pleased to get the licensing information of the company and the approval of our U.S. regulators as well as the Bermuda regulators to complete that transaction. And our goal there was really to get the company established because we wanted to actually get it established in 2025, so we could have audited financial statements for the entity beginning in 2026 that we finalize as '25 results.

So that allows us to be on a path for the requirements of reciprocal jurisdiction. And so we're well on that path and we're executing relative to kind of our business plan at this point in time. That initial transaction was about $1.2 billion of statutory reserves that got transferred. And so during the course of 2026, we do intend -- and this is consistent with our business plan as well that was approved by Bermuda. We do intend to reinsure some new business as well as incrementally a little bit more in-force business in 2026. So we'll grow the amount of business that's reinsured in Bermuda over the next 3 to 5 years.

And I guess my follow-up was on that point is, is it still possible to get early approval for reciprocal jurisdiction? And I'm just trying to understand when you get that status. Are there near-term plans for -- to increase the pace of reinsurance? And just really trying to understand how much of a lift in excess cash flows do you kind of expect in 2026 or 2027?

We've kind of thought through that, and that's really part of kind of our business plan that we established earlier on. We do think it is possible to get early reciprocal jurisdiction, but it is subject to regulatory approval. So we really want to go through the process, and we'll update you if we do, in fact, get reciprocal jurisdiction early.

And that would allow the potential for, again, I'd say, potential for additional dividend distributions from the Bermuda sub, but those are also subject to Bermuda regulatory approval. So again, we don't want to get too far ahead of ourselves, and we want to actually go through the process of having those discussions with our regulators.

And I just add, if -- I think the kind of the time frame on that as far as working with the regulators is probably something that happens a little bit more mid-year, we do anticipate that if we were able to get that, any potential distributions that we might get in '26 would be toward the end of the year. And so -- we have not built any of that into our '26 plan as of this time, and we'll clearly take a look at that as the year progresses.

We do anticipate that there would be some opportunity then starting in 2027. And as Tom has kind of talked about, we think that it can be up to $200 million or at least working toward $200 million over time. And that would be -- just kind of a reminder that is what we would anticipate would be annual cash flows up to the parent. But again, part of that is with the business plan and continuing to build that up with continuing transactions here over the next few years.

And we'll hear from Mark Hughes at Truist Securities.

On the claims, you said were seasonally higher in individual and group health. Was that normal seasonality? Or is that a little bit above and beyond?

I think, first of all, we normally expect a little bit higher claims in the fourth quarter in the individual and group health lines. However, I would say is that in the group lines, we did see a little bit higher severity. And so it was a little bit higher than what we had anticipated.

Understood. And then you've talked to a lot of factors that could influence profitability in the health business, but the 23% to 27% the 4-point swing anything else that we should consider when we think about the high end or low end of that range?

I think some of it -- Frank alluded to in his comments as well, is that Medicare Supplement has a lower underwriting margin. Just on it as a line of business. And so to the extent that, that grows faster than some of the other lines, we're going to see a little bit of downward pressure on just the overall health underwriting margins as a percent of premium. Now the underwriting margin dollars from health would grow. And so I think we just got to -- so that's why the range of 23% to 27% is somewhat dependent upon how strong Medicare Supplement sales come in.

Yes. Mark, that's exactly right. When you kind of look at 2025, United American, that whole side of it, the Medicare Supplement side comprised about 49% of the total health premium, whereas in Family Heritage, Liberty, American Income that have that other limited, our true limited benefit product, that's a little bit more stable.

The margins on that limited benefit side are more in that 43% to 44% range versus what we had in 2025 of around 5%, 6% with respect to overall margins on the MedSup side. Now in 2026, we expect that MedSup margin to be up in that 8% to 10% range. But again, it's now at about 53% of the overall premium is what we kind of anticipate right now. And so it's just taking a little higher percentage of that overall premium piece.

And so it's kind of -- just bringing down the average just a little bit. Despite the lower margins that we have on that, I mean, it is still a very good business for us and -- because it is very lower amount of capital required ultimately.

So when you start thinking about internal rates of return and returns on capital and that type of thing, it is a very good business from that perspective. So we don't find it really overly concerning when you kind of see a slight decrease in the overall health margin percentage. If we think about it as long as it's kind of just from that overall mix of business, we think, overall, that's still a good diversification for us.

And that was our final question from our audience today. I'm happy to turn the floor back to Mr. Stephen Mota for any additional or closing remarks.

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

Ladies and gentlemen, thank you for joining today's Globe Life Inc. fourth quarter earnings. You may now disconnect your lines. Enjoy the rest of your day.

Hello, and welcome to the Globe Life Inc. Third Quarter Earnings Release Call. My name is Jeannie, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations, to begin today's conference. Thank you.

Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and Matt Darden, our co-Chief Executive Officers; Tom Kalmbach, our Chief Financial Officer; Mike Majors, our Chief Strategy Officer; and Brian Mitchell, our General Counsel.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release 2024 10-K and a 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 third quarter, net income was $388 million or $4.73 per share, compared to $303 million or $3.44 per share a year ago.

Net operating income for the quarter was $394 million or $4.81 per share, an increase of 38% over the $3.49 per share from a year ago. On a GAAP reported basis, return on equity through September 30 is 21.9% and book value per share of $69.52. Excluding accumulated other comprehensive income, or AOCI, return on equity at 16.6% and book value per share as of September 30 is $93.63, up 12% from a year ago.

Before I discuss the third quarter insurance operations, I would like to revisit the nature of the market we serve. As most of you know, we serve the lower middle to middle income market. This market is vastly underserved and has significant growth potential, providing us with a distinct competitive advantage. This advantage is protected due not only to our ability to efficiently reach this market through both exclusive and direct-to-consumer distribution channels, but also due to the tremendous amount of data and experience we possess as we have been in the same market for over 60 years with essentially the same products.

The basic protection life and health insurance products we offer are specifically designed to help provide financial security to consumers in this market. We continue to be proud to serve this market and are grateful for the opportunity to help working family protect their financial future. In our insurance operations, total premium revenue in the third quarter grew 5% over the year ago quarter. For the full year 2025, we expect total premium revenue to grow approximately 5% as well, which is slightly higher than in 2024 and consistent with our 10-year average growth rate.

Life premium revenue for the third quarter increased 3% from the year ago quarter to $844 million. Life underwriting margin was $482 million, up 24% from a year ago, driven by premium growth plus remeasurement gains due to good mortality experience, including the updating of both mortality and lapse assumptions. For the full year, we expect life premium revenue to grow between 3% and 3.5%. As a percentage of premium, we anticipate life underwriting margin to be between 44% and 46%. In health insurance, premium revenue grew 9% in the quarter to $387 million and health underwriting margin was up 25% and to $108 million due primarily to premium growth and remeasurement gains. For the year, we expect health premium revenue to grow in the range of 8% to 9% and anticipate health underwriting margin as a percent of premium to be between 25% and 27%.

Administrative expenses were $90 million for the quarter, an increase of 1% over the third quarter of 2024. As a percent of premium, administrative expenses were 7.3%. For the year, we expect administrative expenses to be approximately 7.3% of premium, the same as in 2024.

I will now turn the call over to Matt for his comments on the third quarter marketing operations.

Thank you, Frank. I'd like to start with a few comments about our exclusive agency force. We currently have over 17,500 exclusive agents that sell only for us. These agents are the strength to grow Globe Life.

While we frequently see short-term agent count fluctuations in a stairstep pattern, this agency force has consistently generated significant long-term growth. In fact, the average agent count has nearly doubled over the past 10 years. The ability to maintain and grow an exclusive agency force is a core competency of our company. As a reminder, we typically recruit individuals who haven't previously sold insurance and are looking for a better opportunity. This provides us with an enormous pool of potential recruits that provides a tremendous growth opportunity going forward.

As we have mentioned in the past, there is a very close correlation between sales growth and agent count growth over the long term. And we are confident that our agent force will continue to grow, and our goal is to surpass 28,000 exclusive agents and $1.4 billion in annual sales by 2030.

Now I'll discuss each distribution channel. First, let's start with our exclusive agencies, American Income, Liberty National and Family Heritage. At American Income, the life premiums were up 5% over the year ago quarter to $451 million. And the life underwriting margin was up 18% to $261 million. In the third quarter of 2025, net life sales were $97 million, flat compared to a year ago. But as a reminder, we had a difficult comparable this quarter as American Income had a 19% increase in life sales in the year ago quarter. The average producing agent count for the third quarter was 12,230 up 2% from a year ago. We are currently focused on initiatives to enhance our recruiting as growth in agent count will lead to future sales growth.

At Liberty National, the life premiums were up 5% over the year ago quarter to $98 million, and the life underwriting margin was up 57% to $70 million. Net life sales were $24 million, flat from the year ago quarter, and net health sales were $8 million, up 4% from the year ago quarter. Average producing agent count for the third quarter was 3,847, up 1% from a year ago. We have a few initiatives underway that we expect to have a near-term positive impact. We have developed a new worksite enrollment platform designed to improve agent productivity and training. In addition, we are in the process of rolling out a new recruiting CRM which will further enable the use of data and analytics to enhance the recruiting process. I continue to be optimistic about the future growth of this agency.

At Family Heritage, the health premiums increased 10% over the year ago quarter to $119 million, and the health underwriting margin increased 49% to $51 million. Net health sales were up 13% to $33 million, and this is due to an increase in agent count and productivity. The average producing agent count for the third quarter was 1,553, up 9% from a year ago. And this is 5 consecutive quarters of strong agent count growth for family heritage. The continued focus of the past few years on recruiting and growing agency middle management has produced significant momentum and results.

Now let's move on to our direct-to-consumer channel. In our DTC division of Globe Life, the life premiums were down 1% over the year ago quarter to $245 million while the life underwriting margin increased 29% to $114 million. While the life premiums were down slightly this quarter, net life sales were $27 million, up 13% from the year ago quarter. I'm very pleased to see this continued sales turnaround from the declining trend of recent years. As we mentioned on our last call, we have implemented new technology to enhance our underwriting process. This technology is helping improve the conversion of customer inquiries into sales.

Now as a reminder, the value of our direct-to-consumer business is not only those sales directly attributable to this channel, but the significant support that is provided to our agency business through brand depressions and sales leads. We expect this division to generate approximately 1 million leads during 2025, which will be provided to our 3 exclusive agencies. Improved conversion of our direct-to-consumer leads across the enterprise allows us to increase our marketing spend and increase direct-to-consumer lead volume and marketing campaigns, which leads to sales growth in both our DTC and agency channels.

United American is our General Agency division, and here, the health premiums increased 14% over the year ago quarter to $170 million, driven by the sales growth and Medicare supplement rate increases we have discussed previously. Health underwriting margin was $16 million, up $2 million from the year ago quarter. Strong activity across the entire agency resulted in net health sales of $25 million, an increase of approximately $9 million over the year ago quarter.

Now I'd like to discuss projections. And based on the trends we are seeing, we expect the average producing agent count trends for the full year 2025 to be as follows: at American Income, an increase of around 2%, at Liberty National, an increase of around 4% and family heritage, an increase of around 8%. We Net life sales for the full year 2025 are expected to be as follows: American Income, an increase of around 3%, Liberty National, an increase of around 1% and direct-to-consumer, an increase of around 4%. Net health sales for the full year 2025 are expected to be as follows: Liberty National, flat family heritage, an increase of around 13%, United American, an increase of around 50%.

Now let's move on to projections for 2026. And at the midpoint of our guidance, we expect sales growth for the full year to be as follows. For net life sales, we expect American income to have mid-single-digit growth Liberty National high single-digit growth; direct-to-consumer, low single-digit growth. For net health sales, we expect Liberty National to have high single-digit growth; Family Heritage, low double-digit growth; and United American mid-single-digit growth.

I'll now turn the call back to Frank.

Thanks, Matt. We will now turn to investment operations. Excess investment income, which we define as net investment income less only required interest was $37 million down approximately $3 million from the year ago quarter. Net investment income was $286 million in the quarter, slightly above last year's third quarter. The low growth of net investment income is consistent with the low growth in average invested assets.

Required interest is up approximately 1% over the year ago quarter, relatively consistent with the growth in average policy liabilities. As a reminder, the growth in average invested assets and average policy liabilities is lower than normal, primarily due to the impact of the annuity reinsurance transaction in the fourth quarter of last year, which involved approximately $460 million of annuity reserves being transferred to a third party along with supporting invested assets. Net investment income was also negatively impacted in the current quarter by lower average earned yield as compared to a year ago. For the full year 2025, we expect net investment income to be flat and required interest to grow around 2%, resulting in a decline in excess investment income of around 10% to 15% for the year.

The growth in average invested assets for the full year is lower than normal due to the impact of the previously mentioned annuity reinsurance transaction as well as higher dividend distributions from the insurance companies to the parent.

Now regarding our investment yield. In the third quarter, we invested $279 million in fixed maturities, primarily in the municipal and industrial sectors. These investments were at an average yield of 6.33%, an average rating of A+ and an average life of 29 years. We also invested approximately $86 million in commercial mortgage loans and limited partnerships with debt-like characteristics and an average expected cash return of approximately 9%. None of our direct investments in commercial mortgage loans involve office properties. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments while still being in line with our conservative investment philosophy.

For the entire fixed maturity portfolio, the third quarter yield was 5.26%, up 1 basis point from the third quarter of 2024. As of September 30, the fixed maturity portfolio yield was 5.28%. Including the investment income from our commercial mortgage loans, limited partnerships and corporate owned life insurance investments, the third quarter earned yield was 5.46%. 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 $21.5 billion, including $18.9 billion of fixed maturities and amortized cost. Of the fixed maturities, $18.5 billion are investment grade with an average rating of A-. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of $1.1 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 it is mostly interest rate driven internally 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 comprised 43% of the fixed maturity portfolio compared to 46% from the year ago quarter. This percentage is at its lowest level since 2003. As we have discussed on prior calls, we believe the BBB securities we acquire 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. While the percent of our invested assets comprised of BBB bonds might be a little higher than some of our peers, remember that we have little or no exposure to other high-risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities.

Below investment-grade bonds remain at historical lows at $455 million compared to $556 million a year ago. The percentage of below investment grade bonds to total fixed maturities is just 2.4%, are below investment-grade bonds as a percent of equity, excluding AOCI, are at their lowest level in over 30 years. While there is 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.

In addition, due to the long duration of our fixed policy liabilities, we invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. In addition, we have very strong underwriting profits and long-dated liabilities so we will not be forced to sell bonds in order to pay claims. With respect to our anticipated investment acquisitions for the full year 2025, at the midpoint of our full year guidance, we assume investment of approximately $800 million to $850 million in fixed maturities at an average yield of around 6.4%. And approximately $300 million to $400 million in commercial mortgage loans and limited partnership investments with debt-like characteristics and an average expected cash return of 7% to 9%.

Also at the midpoint of our guidance, we expect the average yield earned on the fixed maturity portfolio to be around 5.27% for the full year 2025 and approximately 5.29% for the full year 2026. With respect to our commercial loans, limited partnerships and corporate-owned life insurance, we anticipate the yield impacting net investment income to be in the range of 7% to 8% for 2025 and 2026. In total, including these additional investments, we anticipate the blended earned yield to be approximately 5.45% in 2025 and in the range of 5.4% to 5.5% in 2026.

Now I'll turn the call over to Tom for his comments on capital and liquidity.

Thanks, Frank. First, I'll spend a few minutes discussing our available liquidity, share repurchase program and capital position.

The parent began and ended the quarter with liquid assets of approximately $105 million. We anticipate concluding the year with liquid assets in the range of $50 million to $60 million. In the third quarter, the company repurchased approximately 840,000 shares of Global Life Inc. common stock for a total cost of approximately $113 million at an average share price of $134.17. Including shareholder dividend payments of $22 million for the quarter, the company returned approximately $135 million to shareholders during the third quarter and approximately $580 million year-to-date. We expect share repurchases will be approximately $170 million and anticipate distributing approximately $20 million to our shareholders in the form of dividend payments in the fourth quarter.

For the fourth quarter, share repurchases are higher than previously anticipated as we recently received approval for an extraordinary dividend from one of our subsidiaries, which will be -- which we anticipate will be available to support additional share repurchases by the parent. At the midpoint of our guidance, we anticipate share repurchases will total $685 million in 2025. In addition, we intend to distribute approximately $85 million to our shareholders in the form of dividends.

We will continue to use our cash as efficiently as possible. We still believe that share repurchases provide the best return of yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flow after payment of shareholder dividends. The parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries less the interest paid on debt and is available to return to its shareholders in the form of dividends and through share repurchases. We continue to invest in our growth through investments in sales, technology 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 substantial investments during the year to issue new insurance policies, implement new technologies, enhance operational capabilities, and modernize existing information technology as well as to acquire new long-duration assets to fund their future cash needs.

Financial strength is paramount to our company's success, and we believe the $500 million contingent capital funding arrangement established early in this quarter, will add to our already strong capital generation capabilities that exist within our insurance companies.

Now with regard 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. To do that, Global Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. Although the target range is lower than many of our peers, it is appropriate given the stable premium revenue from the large number of in-force 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 we do every quarter, we performed stress tests on our investment portfolio under multiple economic scenarios, anticipating various levels of downgrades and defaults. If all estimated losses under our stress tests were to occur before year-end, which we believe is highly unlikely, we have concluded that we have sufficient capital resources exist within our subsidiaries and the parent to maintain our target RBC range and our share repurchases as planned. For 2025, we intend to maintain our consolidated RBC within the target range of 300% to 320%.

As previously discussed, we continue to progress towards establishing a Bermuda reinsurance affiliate for the purpose of reinsuring a portion of new business and in-force life insurance policies issued by Global Life affiliates. We currently estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. This additional excess cash flow will enhance the financial strength of the company and provide additional flexibility, allowing the company to meet various capital and liquidity needs of the parent. We continue to make progress on the required regulatory filings and subject to approvals, we anticipate executing the first reinsurance transaction by the end of 2025, and we will provide an additional update on our next call.

Now with respect to policy obligations for the current quarter. Each year, GAAP accounting requires us to review and generally update actual assumptions for mortality, morbidity and lapses. We have chosen to review and update as necessary both our life and health reserve assumptions in the third quarter each year. The remeasurement exhibit included in our supplemental financial information available on our website includes the impact of these assumption changes as well as experience related remeasurement gains and losses by distribution channel. When assumption changes are made, GAAP accounting standards require a cumulative catch-up adjustment going back to January 1, 2021, the transition date for LDTI. This cumulative catch-up is the assumption related remeasurement gain or loss. An assumption remeasurement gain lowers the reserve balances and indicates an improved outlook as less premium is needed to fund reserves to meet future policy obligations. The opposite is true if there is an assumption to remeasurement loss.

For the quarter, the overall impact of both life and health assumption changes reduced policy obligations by $134 million, with life obligations reduced by $131 million and health obligations reduced by approximately $3 million, indicating an anticipation of an improved outlook for future policy obligations. To put this into perspective, total GAAP life and health reserves on our balance sheet are approximately $19 billion, so the adjustment to reserves is less than 1%.

To better understand the performance of the business, we think it is beneficial to look at normalized underwriting margins, which exclude the impact of assumption changes and provide an improved basis for comparison of quarterly results. For the third quarter, normalized life underwriting margin as a percent of premium was 41.5% compared with 40.4% for the year ago quarter, which is a notable improvement and reflects recent favorable mortality experience. Normalized health margin as a percent of premium was 27.2% compared with 27.5% for the year ago quarter. For the Health segment, as expected, health margins as a percent of premium continued to increase from the first half of the year. This is largely driven by margin increases from the Medicare supplement business as 2025 premium rate changes became fully effective.

So now with respect to guidance for 2025. For the full year 2025, we estimate net operating earnings per diluted share will be in the range of $14.40 to $14.60, representing 17% growth at the midpoint of our range and 11% growth when excluding the impact from assumption updates in both '24 and '25. The midpoint is higher than our previous guidance due to the anticipation of continued favorable mortality experience.

Finally, with respect to 2026 guidance. For the full year 2026, we estimate net operating earnings per diluted share will be in the range of $14.60 to $15.30 representing 3% growth at the midpoint of the range. The growth rate is lower than historical averages given the significant impact of the assumption updates in 2025. At the midpoint of our guidance, we anticipate total premium revenue growth of 6% to 7%, with life premium revenue growth growing 4% to 5% and health premium revenue growing 9% to 11%. We anticipate underwriting margins as a percent of premium to be in the range of 40% to 43% for life and 24% to 27% for health. We anticipate net investment income growth will be approximately 3%.

Although 2025 statutory results are not final for the year, we anticipate parent excess cash flows available to return to shareholders through both dividends and share repurchases in 2026 will be approximately $600 million to $700 million. This is greater than the amount available in 2025, excluding the impact of extraordinary dividends. On the next call, I'll provide an update as we get updated statutory results for 2025 and after we finalized the initial reinsurance transactions for the new Bermuda subsidiary.

Those are my comments, and now I'll turn it back to Matt.

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

[Operator Instructions] We will take our first call from Jack Matten of BMO Capital Markets.

First question was just on the life sales growth of the exclusive agencies. Just wondering is there anything you're seeing or hearing from customers since driving more muted sales growth in recent quarters? Is the challenge really around agent productivity given that you currently have a higher mix of newer agents? And I guess looking forward, what gives you confidence that life sales growth can reaccelerate in the coming quarters?

Yes. Thanks, Jack, for the question. It's not anything we're hearing from a consumer perspective as we talk with our agency owners. We're actually seeing an improvement in the premium on a per sale basis. And so we're not seeing any demand weakening from a consumer perspective. It really does get back to agent count growth.

And what I'd point to is usually followed years that follow significant growth years, we do temper the growth a little bit as we get those new agents onboarded. Start producing, and then they start moving into the middle management ranks. And then the middle managers out there in the field are responsible for a lot of the recruiting, training and onboarding. And so as I've mentioned before, one of the things we look at is just our whole recruiting pipeline. What we're talking about on the call on our agent count is those agents that are actually up and producing for us. But we look at what the agents are in the pipeline coming in as they get onboarded and licensed and trained, et cetera.

And so our hires for AIL are actually up this quarter by 17%. And so this is individuals that have started into the process there in the process of taking exams, getting their licenses and in the move forward into training and selling their first policy. And so it's a good leading indicator for us. And so some of those trends are what we're seeing that gives us the confidence that 2026 will have a higher agent count growth, which bodes well for sales growth for 2026 as well as we've looked at some of our incentive programs and just getting our middle management focused on growing the agent count by recruiting activities and onboarding also plays into our consideration for our sales growth guidance.

Got it. And my follow-up on excess cash flow. I think you said that the guidance for next year is $600 million to $700 million. I mean, does that include any assumption or an incorporation of a benefit from Bermuda entity? I guess related to, you thought out, I think, an extraordinary dividend this quarter. Any other updates you can or color you can provide on that? I think it looks like you sort of the buyback guide for the full year by $50 million or $60 million. So just making sure I have the numbers right there.

Yes. Thanks, Jack. The $600 million to $700 million does not include any benefit from the Bermuda affiliate. We -- it takes at least 2 accounting periods. The rules require 2 accounting periods for reception jurisdictions. So we think the earliest time at this point would be 2027. And as I mentioned on prior calls, we'll try -- we'll work with and try to get recipe jurisdiction earlier, but it's just really not up to us. It's really up to the regulators to accept receptible jurisdiction status.

Our next question comes from the line of Andrew Kligerman of TD Cowen.

First question, just kind of following up on JAK about the sales growth outlook and the recruiting outlook.

You mentioned, Matt, on the comments earlier that you've got a newer worksite enrollment platform new recruiting CRM with different kinds of data and analytics, there are 2 things. They sound very interesting. Could you elaborate a little bit more on that and how they work and why they're different and why they'll have an impact?

Sure. So Liberty, as you may recall, about 75% of our business is marketed at work sites for those smaller employers. And we've rolled out -- or we're in the process of rolling out technology that's a new enrollment platform, and it really takes some of the lessons that we've learned in our processes on our individual sales and it really where an agent sits down with the client and really goes through and you've heard us talk about a needs-based analysis.

And so on the worksite side, put some more tools in the hands of our agents where they sit down with the customer, go through their needs and help customize a package appropriate for them of the various different coverages and types of policies. And as I said, we're early on and rolling that out, but on the first few agencies that we've rolled that out, we've seen significant increase in premium production on a per worksite basis as well as just a per sale basis. And it exceeds 20-plus percent on the increase there. And so we anticipate as that gets rolled out across the entire agency, which will take into the beginning of next year, that's really going to be a tailwind for our worksite sales growth there.

And then the recruiting CRM system, right now, a lot of our agencies are tracking that manually with spreadsheets and those type of things. And so just like a sales CRM system, the recruiting CRM system is going to have all of that data in one place to be able to for our agency owners and those middle managers to be able to have the data and the analytics they need to really understand their recruiting pipeline, much more on a real-time basis so they can see what's happening during the week as people start listening to our opportunity, come back for the different interviews, get through the various phases of taking the test, getting licensed and ultimately producing.

And so what we've seen with some of our agencies that utilize more of a system that they've developed on their own, it's definitely an improvement for them to be able to manage all of that activity. And so we're designing a system that will be enterprise-wide, roll that out to the organization. And it will just give us a more real-time view into the recruiting pipeline and being able to manage the various conversion points that happen throughout the life cycle of a new person coming into the organization and getting up and producing.

Sounds very impactful. And then my follow-up is still on the sales area, direct-to-consumer. And I think the stats you mentioned on the call were that while sales in direct-to-consumer were up 13%, premiums were down 1%. I'm kind of curious maybe a mesh of a question here. I'm kind of curious as to the policy retention ratio in direct-to-consumer? And then secondly, you mentioned low single-digit sales in direct-to-consumer next year. Is that just because you're going to you're having a really good second half of 2025 that you want to get too aggressive?

Yes. Let me address your first part of that question. Related to -- if you think about it, we've got a big in-force block. And so we've been discussing sales declines for quite some time over the last couple of years. And so those sales declines are hitting that our premium growth rate. And so we've only had 2 quarters now of positive sales growth, and it's been very strong and we anticipate that continuing. So the premium earnings are going to turn around as we continue to have positive sales growth. But that's just kind of the dynamic you're looking at from this quarter's perspective. And so we're very pleased.

As we mentioned, this is technology and processes we've been working on for quite some time. they're coming to market here in Q2 and Q3, we're seeing the results. And so we're -- we've got very strong results here. And so we're just kind of cautiously optimistic is we're, at this point, before we see what fourth quarter looks like as we think about next year. And so I'd just say that's a good estimate right now based on what we're seeing early days. We'll certainly modify that as we have Q4 experience. But obviously, we've got a pretty good lift here in the last half of this year. And so we just want to be a little bit cautious about what we think at this early stage for 2026.

Andrew, one thing I'd just like to tack on to that is really the decline in the premium growth rate here that we're seeing in 2025 really has more to do with those -- the declining sales that we've been seeing here in the recent periods. Really, if you look at the lapse rates for DTC overall, they're pretty consistent with our long-term averages. We've actually seen very good lapse rates, favorable lapse rates, if you will, in our renewal. Once the policies have been on the books here for several years, really seeing with our renewal premium seeing a little bit higher in some of the first year the last few quarters. But again, it's really stabilized when you look at it overall, it's pretty consistent with our long-term rates.

And then I think with -- as we're getting a little bit of that ability, as Matt was talking about, reinvesting some of those dollars and improving those sales we really do anticipate some growth in premium -- overall premium income in 2026. And then assuming that, that continues on with growth in that low to mid-single digits on the sales side, and that will help to bring up the premium growth then as well.

Thank you. Our next call comes from Jimmy Bhullar of JPMorgan.

I had a couple of questions. Maybe first just on your 2025 guidance. If we look at what that's implying for EPS in 4Q, it seems like it's 325 to 345. So that's a lower number than you've had in the most recent quarter even at the high end, if you take out the remeasurement gain. So wondering if you're seeing anything in the business that suggests you to be conservative? Or just any color on sort of the guidance -- the implied guidance for 4Q?

Thanks, Jimmy, for the question. Yes, the $0.05 raise reflects the favorable third quarter results and anticipated fourth quarter results. One thing I'd say is third quarter, we benefited a little bit from timing on a couple of items. So for instance, we had a research and development tax credit that came through in the third quarter that we had planned for the full year, but just the timing was favorable to us.

The other thing is that really mortality experience was really very favorable in the third quarter. And you kind of can see that from -- we expected remeasurement gains, but the remeasured gain life, excluding assumption updates was $18 million. So that's indicative of a pretty favorable quarter. And we -- to us, it's a fluctuation at this point. We'd love to see that emerge in 2024, but it's not really -- sorry, in the fourth quarter, but it's not really in our guidance for the fourth quarter. And that would -- if it does come through, that would put us, I think, at the higher end of our guidance range.

The other thing is health experience was very favorable as well in the third quarter that we really wouldn't expect that to continue in the fourth quarter either for both life and health. Fourth quarter claims tend to tick up a little bit just from a seasonal perspective, where we're starting to get in the flu season for life and then at the end of the year, people start to give the doctor a little bit more and try to get some of those medical visits in. So we do see a little bit of an uptick oftentimes in the fourth quarter.

So those are some of the things impacting kind of our fourth quarter EPS expectations, but I'm glad to see that we also raise the guidance by $0.05 at the midpoint.

Okay. And then secondly, could you comment on what you're expecting in terms of name trends and sales in the health business. There's obviously been a lot of concern about margin compression at some of the major medical companies in various products. Your margins had gone down too, but they seem to be recovering. Should we assume that, that continues into 2026 as you implement price hikes? Or -- and then similarly, with a lot of companies indicating that they're going to raise prices on met advantage plans do you -- are you seeing that happen? And how is that affecting demand for your metaproduct?

I'll start first, Jimmy, on the health trends is we're really pleased with the third quarter with Medicare supplement and the group retiree health trends. They are favorable to our expectations, which is great. And we've really seen the medical trend claim cost trends really flatten, which is actually a nice sign for us.

So we actually have built in the experience that we saw late in the fourth quarter of -- third and fourth quarter of 2024 as well as the experience we've seen in the first half of 2025 into our rate increase requests to regulators, and we really believe that those rate increases will bring us back to target profitability. Again, those get implemented throughout 2026. So in the first quarter, I think it's going to look a little bit more like 2025, but in the second, third and fourth quarter of '26, I think we'd see an increase in margins just because of the rate increases becoming effective then.

And then, Tom, it's fair to say that recent experiences we're just kind of seeing trend moderate a little bit. We had some acceleration of that in Q3 and Q4 of last year.

Exactly. Certainly, third quarter trend moderated.

And then, Jimmy, to answer your second part of your question, yes, we're seeing that related to the Med Advantage, which we don't write. As you know, the market that is providing a tailwind as price increases happen or carriers pull out of the market. It's definitely been a tailwind for us. It's hard to say now what 2026 will look like. That's why we kind of have a moderate growth, considering the significant sales growth that we've had for 2025.

And so really, we need to see what happens here over the next quarter or 2. But right now, I do believe it will be a tailwind for us to continue to grow those sales in a profitable way, as Tom mentioned, related to our price actions. But there's a lot of dynamics, as you know, going on in that market. And so things change quite a bit. But currently, I think we're getting some benefit from a lot of that disruption that's going on in the Medicare Advantage space.

Our next call comes from John Barnidge of Piper Sandler.

So my question is around health. The performance and production in the third quarter wasn't really that far off from the level you produced in the fourth quarter of a year ago. And I know there's in seasonality, it would really occur in the fourth quarter, and I understand you updated your sales assumptions. But this is more of a broader question. What are you seeing in the distribution environment and we all have parents in the baby boomer generation is aging? Is there a portion of the cohort that more and more is a need on our products that will be secular in nature and more extended beyond just what we've seen in recent years?

Well, like I said, I just kind of go back to the conversation around where to the extent that there is -- Medicare Advantage has been growing for quite some time with just the appeal from a -- I think from a pricing perspective, some of those were offered at very low premiums or if not virtually free.

And so I think now with some of what's happening on the profitability side, you see carriers increasing the rates. And so we kind of have a different customer in the Medicare supplement space where people are willing to pay for choice and willing to pay to keep their providers or be able to have the freedom of choice to go to who they want to. And so I think that will always be there for a segment. There's, of course, a segment of the market that was kind of on the bubble that may move back and forth depending on when they sign up what's appealing at that point. But I think there will always be a place for Medicare Advantage from our product portfolio perspective.

Medicare Supplement.

Oh, sorry, Medicare Supplement, excuse me. I think there will always be that opportunity for us. It just as we've seen over a long period of time, we've been in this business forever. It ebbs and flows just a little bit with what's going on in the overall broader market. So we feel good from a long-term perspective, but just recognize there's going to be short-term disruption as we have pricing and competitive pressures in that marketplace.

I do think there's some demographic characteristics of growing retirement a number of people that are in retirement and those that are retiring over the next few years is also a favorable dynamic that will support continued product sales.

My follow-up question. Shortly after the last call, the DOJ and SEC investigations have concluded. Is the EEOC investigation still ongoing? And what's your visibility into that taking care of itself?

As a reminder, the EEOC findings are not binding the litigation has to actually be initiated, and there is no pending litigation. So I don't really have anything to update from that perspective is just -- it's kind of status quo.

Yes. And John, I would just remind you that the courts have with respect to just the whole independent contract or employee issue, the courts have addressed this issue in the past several times with regard to AIL sales agents and have always found that they have been appropriately classified. So if there are any lawsuits, we would vigorously defend those.

Our next call comes from [ Joel Hurwitz ] of Dillingham Partners.

Tom, on excess cash flow generation, the $600 million to $700 million is above the $500 million to $600 million run rate you mentioned a few quarters ago. I guess, what's the driver of the increase there? And is that level sustainable going forward before factoring in Bermuda benefits?

Yes. Thanks. I really do believe that it is sustainable. I think it's indicative of the improving trends that we've seen in mortality. To the extent that health margins continue to improve, that will be a tailwind for future years. And I also I think the investment income environment or the investment yield environment, '25 was more favorable than 2024. So as long as that stays consistent, I think we'll also benefit from higher yields going forward.

Yes. Then I would just remind you that the $500 million to $600 million range that I think Tom has talked about on prior calls was the amounts available for shareholders or share repurchases after dividends. And when Tom is talking about the $600 million to $700 million that is the total excess cash flow. And so if you assume around $80 million, $85 million of dividends, shareholder dividends being paid out of that, that brings you back into the mid-$500 million consistent with what Tom had talked about before.

Got it. That makes sense. And then just a follow-up. In terms of the '26 guidance and the margin guidance for Life, does that factor in any expectation for remeasurement gains?

Yes, thanks. The -- with mortality, we just updated assumptions. As I mentioned, third quarter remeasurement gains, excluding the assumption update impact were very favorable as well, right? So we do expect that the -- our assumptions that our mortality is performing. We're getting mortality results, which are better than our assumptions, and we anticipate that mortality experience to continue into 2026, which we would then expect continued remeasurement gains relative to the assumptions that we just set.

And so I think the important thing, I think, to pay attention to is what are the obligation ratios that are emerging. And are those obligation ratios staying similar to what we've seen in the third quarter. And I think that those -- that really is kind of the more -- the thing that I pay attention to more. I think as we see remeasurement gains, if we see continued positive remeasurement gains I think that's a leading indicator that we might have an assumption change. And so I think that's kind of what I would take from looking at remeasuring gains themselves. But the absolute number that I pay attention to would be policy obligations and I'd normalize those policy obligations for assumption updates.

Our next call comes from Wes Carmichael of Autonomous Research.

Just wanted to circle back to Bermuda real quick. Just curious has there been any progress with the BMA or other regulators? And should we expect any change to your expectations on uplift to free cash flow or the timing there? I think you had previously mentioned $200 million and maybe that's in 2027, but I just wanted to see if that still stands?

Yes. Previous comments were $200 million trending over time. So over time, to $200 million of benefit. We have -- Bermuda has approved our business plan. We have started -- we've established the company. We're going through the licensing process, and we're going through U.S. regulatory approvals for the reinsurance transactions and the transfer of assets to the new entities. So we're in the middle of the approval process. And once we get that, then we can actually execute on that first reinsurance transaction.

And John, I would think that we haven't seen anything at this point in time that would really change what we said with respect to amount of timing at this point. I think as we kind of get the final approvals, I think we should be pretty close to being able to really give a little bit more guidance early next year on what that kind of looks like and maybe a little bit more sense of what that timing might be too.

Got it. And second question, I just wanted to come back to your comments on floating rate exposure. I think you mentioned that assets and liabilities are well matched. But how should we think about sensitivity of your NII if we get additional Fed cuts from here?

Yes. I think it's around $1 million that -- for a 1% change in the short-term rates.

But I also think that there's a -- the geography of the change is -- happens in a few places, which is required interest would also go down a little bit if short-term rates went down. And then we have a floating rate debt as well, which would also go down as well. So we'd see a little bit reduction in financing costs, which is part of one of the offsets. So Frank, your $1 million is really a combination of the 2. Yes.

Our next call comes from Ryan Krueger of KBW.

I just had a couple of quick ones. Can you give us a couple more details on your 2026 guidance in terms of admin expenses and excess NII growth?

Yes, Brian. I think admin expenses, we still expect to be around 7.3% of premium, so very stable with in 2025. So we're pleased with respect to that. And then with respect to net investment income, we probably see being up around 3% and required interest probably being a little bit higher than that, closer to maybe a little bit closer to 4%.

Got it. And then for the -- I guess, what did you assume for buybacks? I assume it's just the $600 million to $700 million of free cash flow minus the $85 million dividend, just want to confirm.

Yes, I think that's a reasonable way of looking at it. Yes. I think that's right. And then it's really, again, fairly well spread out over the course of the year at this point in time with respect to the buyback. One thing else I would know, Ryan, is that you think about -- bring the conversation around some of the floating rates, we do anticipate that interest. Our financing costs will be down a little bit next year as compared to 2025. Just given some of the floating rate exposure we have there on the CD balances and our term loan. We do -- we just follow the economists forecast with respect to what the expectations are around those changes in the short-term rates.

Our next call comes from Elyse Greenspan of Wells Fargo.

I guess my first question, given, I guess, your comments around share repurchase as well as, I guess, the plan outlined for next year. it feels like, I guess, M&A is still less likely, but I was just hoping to get some updated thoughts there.

Yes. I would say M&A is always in our minds, it's not foremost, if you will, and that we're feel compelled that we have to do on M&A transactions. So we're very comfortable with our ability to grow organically. And so with our baseline as we think about guidance, we anticipate that the excess cash flows would, in fact, be used for share repurchases. Now if an opportunity came along, that provided us a better return and a better answer to our shareholders than using that money for share repurchases then we would clearly divert some of that money and make a good positive acquisition.

I think as we think about M&A, it's still really being very focused on opportunities that really improve the core of who we are around being able to provide protection-oriented products in the middle and lower middle income markets. And we really distribution that comes along with that ability. So it's something that we feel that we can come in and help to grow much like the acquisition family heritage been over 10 years ago now, but an organization that is really hitting its stride as far as continuing to grow. So we'll also look for opportunities that there are for -- to help us within our operations and to make those operations more efficient, but that becomes from the value proposition there that we'd be looking for.

And then I guess my second question, just given the focus right on agent recruitment, would you expect, I guess, the sales guidance in life to be more back-end weighted? Or I guess, maybe there's some easier comps to start the year. Just if you could kind of help us think about the cadence there?

Sure. As we've talked about before, it's definitely a momentum game with the agent count being a leading indicator for the sales growth. So early Q4 is good for us. And then as you might imagine, around the holidays and things like that, there's a little bit of slowdown and then picks up back again mid-January and moving forward. So the first quarter of the year definitely has an impact of determining what the entire year looks like.

We're seeing some good, as I've mentioned, positive momentum from our hires, which is a leading indicator for new agents. And so we've got hires up at 15% at Liberty and 17% up at AIOs compared to a year ago. And so I think that bodes well for where we're at for Q4 and leading into Q1 of next year. But there is typically a quarter or 2 lag, I'll say, between good increase in agent count growth and the sales growth comes as some of those agents get onboarded, producing and get a little bit more experienced.

But I do agree with you also. I have to kind of go back and look at -- we're talking about quarter-over-quarter. You got to look at comps from the prior year quarters to kind of really think through that. But right now, as we had indicated, I think Liberty is set up well to have high single-digit growth next year in AIL in that mid-single-digit growth range.

Our next call comes from Suneet Kamath with Jefferies.

First question, just in your prepared remarks, you talked about an extraordinary dividend. I was just curious if you could size that. And was that a 2025 event? Or is that something that's going to show up in 2026?

Yes, it was a 2025 event and it was $80 million.

Got it. And then I guess on this whole remeasurement mortality thing. I guess the way I think about it, and maybe I'm wrong, is every third quarter, you true-up your assumptions to your best estimates. But if you expect that mortality will still continue to improve or remain favorable, why would that not be in your best estimates at this point?

I think we just really want to see it emerge quarter-to-quarter before we actually put it into our valuation assumptions. There's been some discussion about did we have a pull forward of deaths from the pandemic. And so we're just patient in making those changes into our overall long-term assumptions. So again, they're long-term assumptions. And so we do see short-term trends that actually influence us in our judgments, but we want to really focus on kind of where we believe the long term is.

Yes. To me, that's the key. It's very much a long term over the life of the business assumption and we can have differences in the short run that are different from that. And I think Thomas' fair assessment is that we're fairly close to kind of pre-pandemic levels from a long-term assumption perspective. But some of our recent experience is actually more favorable than that. So we're reluctant to move it back to a short-term very favorable position at this point.

Our next call comes from Tom Gallagher of Evercore ISI.

First question is the long-term assumption changes that were made in 3Q, how much of a go-forward earnings boost is that -- will that result in, in terms of prospective earnings?

Yes. I actually -- I reflected those in my comments around normalized underwriting margins that we saw for the quarter. I think that's a good way to kind of think about the go-forward normalized and also just the range that I gave you for underwriting margins in general for each of the life and health. I think that's a reasonable range for where we see life underwriting income coming in or life under earning margins and help underwriting margins.

Yes. So Tom, if you look at it back in for 2024, your normalized margins were closer -- a little under 40%. And now we're a little bit closer to 41%. I think Tom noted that maybe 41.5% for Q3 and maybe for the full year, we're closer to 41%. So you see a little bit of that uptick. And that really comes from having the lower policy obligations as a result of that assumption change.

It's exactly right. I mean in 2023, we were 38%. In 2024, we're 39.7%. In 2025, we're right around 41%. It's really demonstrating the significant improvement in mortality we've seen over time.

And so something that as you think about those remeasurement gains, the normal fluctuations, if you will, each quarter as we continue to see positive experience below those long-term assumptions end up with some positive remeasurement gains, but that's really just showing that the book of business is still performing really better than the long-term assumptions and over time just by the nature of the long-term assumptions we wouldn't.

We currently anticipate that eventually, they'll kind of revert back to those long-term assumptions. And -- but what we're seeing right now, as Tom was talking about. We do anticipate the trends that we're seeing right now saying that we anticipate those continuing on in '26. As we get more experience as that emerges over time, then we'll either be change of long-term assumptions? Or do you ultimately have fewer remeasurement gains.

And just relatedly, just to clarify, are there any long-term assumption change benefits embedded in your '26 guidance? Or is it only some assumption of sort of current period measurement gains that you're assuming?

Yes. The way we're thinking about that is the range that we've provided. The top end of the range would be indicative of a number of things, but one of those possibilities could be an assumption update that comes through. And so we've tried to factor in, in the scenarios that we look at in determining the range an assumption update of what that might do to the results overall.

Got you. So high end would have something in it for that?

Correct.

And then just, I guess, final question, if I could, in terms of thinking about I think you mentioned the actuarial assumption update was under 1% of reserves. Just to sort of compare how favorable the remeasurement gains are and quantifying it. I assume they're running well better than 1% of your long-term assumption in terms of current experience. And that's the reason you pointed out that the reserve release was under 1%. Can you quantify how -- like right now, if you just isolate to 3Q, how much more favorable is that running? Is it 3%? Is it 5%? Is it 10%? Can you give sort of indication of comparing 1 versus the other?

That's a hard question to answer directly. What I'd point to is, again, kind of looking at normalized underwriting margins and normalized policy obligations. And I think that really -- the normalized policy obligations is really the underlying metric that reflects the actual experience that's coming through. And I think that's kind of where I put a little bit of focus as far as looking at those trends.

And I think the point of the 1% comment was just recognizing that a small change in an assumption can have a decent size impact in the current quarter and -- on a dollar-wise but [ not ] 100% of reserve. And it's a cumulative catch-up from the day of transition. And so just slight tweaks and long-term assumptions can have a decent impact. So it's just really reflective of the reserve balances and moving significantly 1%.

I think what's also important there is what it's telling us, right, is when we have an adjustment from the assumptions that brings down reserve levels. That said that we have -- and I mentioned in my comments that we have a more favorable outlook of future profits from that business or future that we need less premium to fund the benefits that we have promise to our policyholders. So that's a really, I think, good indication of just kind of how the business is performing and how we think it's going to perform.

Our next call comes from Maxwell Fritscher of Truist.

I'm calling in for Mark Hughes. Just further digging into DTC, how does this conversion rate lead to sales compared historically in the same channel? And then is that elevated compared to recent experience in DTC? Or are conversions high historically?

Yes. So the technology improvements that we've put in and just process improvements is that keep in mind, direct-to-consumer sale is fairly passive. The customer goes out an application. Well, in some of those instances, based on how they fill out the application, we have follow-up questions or we have information from data perspective related to some medical questions that we need to follow up on. And so there was times when we could not get a hold of a customer. And therefore, that policy just never got issued, it pinned it out.

And so now with more advanced data and analytics, we knew there was some good risks in there that we want to go ahead and issue but trying to get past some of this friction. And so we're issuing those policies now without really changing our risk profile. So the conversions ratio has gone up just in the last couple of quarters as that's been implemented. And again, that's kind of a onetime adjustment upward for a new conversion ratio that we would expect on a go-forward basis and an improvement. The other thing that's going on in the direct-to-consumer channel, though is that as we have a better conversion of those advertising spend across the entire organization. Then you've heard me talk about in the previous quarters, how we scaled back advertising from unprofitable different campaigns.

We were able to go back into those campaigns and other campaigns because the profitability metrics have changed because now I'm issuing more policies with the same advertising spend. And so that's why I said in my comments that the that program and the conversion of looking at it enterprise-wide, meaning agency and direct-to-consumer allows us to spend more money on advertising, and that's growing sales, both in our direct-to-consumer channel as well as giving more leads and growing sales in our agency channel. And so that's what we're very pleased about is all of those channels working together from a growth perspective.

There are no further questions in queue. I will now hand it back to Stephen Mota for closing remarks.

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

This does conclude today's call. You may now disconnect.

Hello, and welcome to Globe Life Inc. Second Quarter Earnings Release Call. My name is Laura, and I will be a coordinator for today's event. Please note, this call is being recorded. [Operator Instructions].

I will now hand you over to your host, Stephen Mota, Senior Director of Investor Relations to begin today's conference. Thank you.

Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and Matt Darden, our Co-Chief Executive Officers; Tom Combat, 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 provided for general guidance purposes only. Accordingly, please refer to our earnings release 2024 10-K and any subsequent forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures, please see our earnings release and website for 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 $253 million or $3.05 per share compared to $258 million or $2.83 per share a year ago. .

Net operating income for the quarter was $271 million or $3.27 per share, an increase of 10% over the $2.97 per share from a year ago. On a GAAP reported basis, return on equity through June 30 is 18.8%, and book value per share is $66.07, excluding accumulated other comprehensive income, or AOCI, return on equity is 14.4% and book value per share as of June 30 is $90.26, up 10% from a year ago.

In our Life Insurance operations, premium revenue for the second quarter increased 3% from the year ago quarter to $840 million. Life underwriting margin was $340 million, up 6% from a year ago, driven by premium growth or overall policy obligations. For the year, we expect life premium revenue to grow around 3.5%. As a [indiscernible] premium, we anticipate life underwriting margin to be between 43% and 45%, which is higher than our previous estimate, continued favorable mortality.

In Health Durante, premium revenue grew 8% to $378 million, while health writing margin was down 2% to $98 million due primarily to higher obligations than the year ago period at United American. Tom will talk more about the Medicare Supplement business in his comments, but I would like to point out here that we saw a slight reduction in utilization from first quarter to the second quarter, resulting in an underwriting margin at United [indiscernible] as a percent of premium at the high end of our expectations. For the year, we expect health premium revenue to grow in the range of 8% to 9% and anticipate health underwriting margin as a percent of premium to be between 25% and 27%.

Administrative expenses were $86 million for the quarter, an increase of approximately 5% over the second quarter of 2024. As a percent of premium, administrative expenses were 7.1%. For the year, we expect administrative expenses to increase by about 4% over 2024 and be approximately 7.3% of premium, lower than noted on the last call.

I will now turn the call over to Matt for his comments on the second quarter marketing operations.

Thank you, Frank. I'll start by addressing recent agent count trends. Each of the exclusive agencies increased average agent count from the first quarter to the second quarter, for a combined sequential growth rate of 6%, resulting in an average total agent count of 17,621 for the second quarter. We've seen strong results over the past several months in agent recruiting and onboarding. While rapid increases in new agents can have an impact on productivity in the short term, this bodes well for sustainable future growth. .

The exclusive agencies are the strength of Globe Life and the ability to maintain and grow an exclusive agency force is a core competency of our company. While we frequently see short-term fluctuations, there is a very close correlation between sales and agent count over the long term. Now I'll discuss each of the distribution channels. At American Income Life, life premiums were up 5% over the year ago quarter to $446 million, and the life underwriting margin was up 6% to $205. In the second quarter of 2025, net life sales were $96 million, up 2% from a year ago.

And as a reminder, we had a difficult comparable this quarter as American Income had a 16% increase in life sales in the year ago quarter. The average producing agent count for the second quarter was 12,241, up 3% from a year ago. I am confident we will continue to see growth in this agency as we move forward.

At Liberty National, the life premiums were up 5% over the year ago quarter to $97 million. And the life underwriting margin was up 8% to $33 million. Net life sales decreased 5% to $25 million, and net health sales were $8 million, down 2% from the year ago quarter. The decreases were primarily due to lower productivity. Additionally, we had a higher comparable this quarter as [indiscernible] National had an 11% increase in our sales in the year ago quarter.

The average producing agent count for the second quarter was 3,882, up 5% from a year ago. Liberty National continues to have positive agent count growth, which is a good leading indicator for continued sales growth. At Family Heritage, the health premiums increased 9% over the year ago quarter to $116 million, and the health underwriting region increased 12% to $41 million.

Net health sales were up 20% to $30 million due to an increase in agent count and productivity. The average producing agent count for the second quarter was $1,498 and up 10% from a year ago. And I'm excited to see this continued growth, this is 4 consecutive quarters of strong agent count growth for family heritage. Now in our direct-to-consumer division, here, the life premiums were down 1% over the year ago quarter to $246 million, while life underwriting margin increased 8% to $69 million.

Net life sales were $31 million, and this is up 2% from the year ago quarter and up 24% from the first quarter. I'm very pleased to see these results as this is a turnaround of a declining trend in recent years. As we mentioned on the last call, we have been working on implementing new technology to enhance our underwriting automation. This technology is helping improve the conversion of inquiries into sales. The resulting improvement in return on marketing investment could allow us to reinstate some of the marketing campaigns that were discontinued in the past due to high marketing costs. Now as a reminder, the value of direct-to-consumer business is not only those sales directly attributable to this channel but the significant support that is provided to our agency business through [indiscernible] and sales leads.

We expect this division to generate approximately 1 million leads during 2025, and which will be provided to our 3 exclusivities. Improved conversion of our direct-to-consumer leads across the enterprise will allow us to increase our marketing spend and increase future lead volume and marketing gains. Now on to United American General Agency. Here, the health premiums increased 10% over a year ago quarter to $164 million. and this is driven by prior year -- strong prior year sales growth and premium rate increases. Health underwriting margin was $12 million, down $4 million from the year ago quarter due to higher claim costs. Net health sales were $25 million, up approximately $7 million over the year ago quarter. We continue to see strong individual Medicare supplement sales activity.

Now I'd like to discuss projections and based on these recent in our experience with our business, we expect the average producing agent count trends for the full year 2025 to be as follows: at both American Income, Evry National mid-single-digit growth at Family Heritage, high single to low double-digit growth. Net life sales for 2025 are expected to be as follows: at American Income and Liberty National, both mid-single-digit growth direct-to-consumer low single-digit growth. Net health sales for 2025 are expected to be as follows: Liberty National mid-single-digit growth; Family Heritage, low double to mid-teens growth and United American double-digit growth.

I'll now turn the call back to Frank.

Thanks, Matt. We'll now turn to the embedment operations. Excess investment income, which we define as net investment income less required interest was $35 million. down approximately $8 million from the year ago quarter. Net investment income was $282 million, down 1% and average invested assets were relatively flat. Required interest is up approximately 2% over the year ago quarter, consistent with growth in average policy liabilities.

The growth in average invested assets and average policy liabilities are lower than normal, primarily due to the impact of the annuity reinsurance transaction in the fourth quarter last year, which involved approximately $460 million of annuity reserves being transferred to a third party, falling with supporting invested assets. Net investment income was also negatively impacted by lower average earnings rates on our commercial mortgage loans and limited partnership investments in the current quarter as compared to a year ago.

For the full year 2025, we expect net investment income to be up about 1% and required interest to grow around 2.5%, resulting in a decline in excess investment income of around 10% to 15% for the year. While the growth in average invested assets will be lower than normal for the full year due to the impact of the annuity reinsurance transaction last year, as well as higher dividend distribution from the insurance companies.

We do anticipate sequential growth in the third and fourth quarters, which should set us up well for more normalized growth in 2026. Now regarding our investment yield. In the second quarter, we invested $263 million in investment-grade fixed maturities, primarily in the industrial and financial sectors. These investments were at an average yield of 6.44% an average rating of A and an average life of 34 years. We also invested $68 million in commercial mortgage loans and limited partnerships with debt-like characteristics, and an average expected cash return of approximately 9.7%. None of our direct investments in commercial mortgage loans involve office properties. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments. while still being in line with our conservative investment philosophy.

For the entire fixed maturity portfolio, the second quarter yield was 5.29%, up 3 basis points from the second quarter of 2024. As of June 30, the portfolio yield was 5.26%. Including the investment income from our commercial mortgage loans and limited partnerships, the second quarter earned yield was 5.38%. Now regarding the investment portfolio. Invested assets are $21.5 billion, including $18.9 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.4 billion are investment grade with an average rating of A-.

Overall, the total fixed maturity portfolio is rated A-, the same as a year ago. Our fixed maturity investment portfolio has a net unrealized loss position of approximately $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 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 BBB priced $0.44 of the fixed maturity portfolio compared to 46% from the year ago quarter.

This percentage is at its lowest level since 2006. As we have discussed on prior calls, we believe the BBB securities we acquire 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. While the percent of our invested assets comprised of BBB bonds might be a little higher than some of our peers, remember that we have little or no exposure to other higher-risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities.

The low investment grade bonds remain at historical lows at $503 million compared to $564 million a year ago. The percentage of below investment-grade bonds to total fixed maturities is just 2.7%. Our below investment grade bonds as a percent of equity, excluding AOCI, are at their lowest level in over 30 years. While there are clearly uncertainties as to where the U.S. economy is headed, we are well positioned to stay a significant economic downturn. Due to the long duration of our fixed policy liabilities, we invest in long-dated assets.

As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. In addition, we have very strong underwriting profits and long-dated liabilities. So we will not be forced to sell any of our bonds in order to pay claims. With respect to our anticipated investment acquisitions for the full year, at the midpoint of our full year guidance, we assume investment of approximately $900 million to $1 billion in fixed maturities at an average yield of around 6.2%, and approximately $200 million to $300 million in commercial mortgage loans and limited partnership investments with debt-like characteristics, at an average expected cash return of 7% to 9%.

Now I will turn the call over to Tom for his comments on capital and liquidity.

Thanks, Mike. I'll spend a few minutes discussing our available liquidity, share repurchase program and capital position. The parent began the quarter with liquid assets of approximately $90 million and ended the quarter with approximately $105 million of liquid assets. We anticipate concluding the year with liquid assets in the range of $50 million to $60 million. For the second quarter, the company repurchased approximately 1.9 million shares of Global Life common stock for a total cost of approximately $226 million at an average share price of $121.13. Thus, including shareholder dividend payments of $22 million for the quarter, the company returned almost $250 million to shareholders during the second quarter of 2025. This amount is greater than what we indicated on the prior call, as we took advantage of declines in the price of our stock, which created market conditions more favorable for repurchases during the quarter.

The parent's liquid assets at the end of the quarter, along with excess cash flow expected to be generated for the second half of the year will provide the [indiscernible] with $240 million to $290 million that we expect to return to shareholders in the form of dividends or share repurchases after meeting the anticipated needs of the parent. 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 the parent's excess cash flow after the payment of shareholder dividends. We also intend to reduce the outstanding commercial paper balances over the course of the year to be more in line with historical levels. For the full year, we anticipate share repurchases will total $600 million to $650 million and we intend to distribute $80 million to $90 million to our shareholders in the form of dividends.

Remaining share repurchases will be spread over the remainder of the year with approximately $100 million to $125 million expected in the third quarter. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to issue new insurance policies, implement new technologies, and enhanced operational capabilities and modernize existing information technology as well as to acquire new long-duration assets to fund their future cash needs. At the beginning of the third quarter, we strengthened our financial preparedness through the issuance of a 30-year $500 million contingent capital funding arrangement. This arrangement complements our existing capital resources and enhances our financial flexibility by providing additional source of committed long-term capital regardless of capital mix and economic conditions.

This transaction has no impact on the company's debt has finance costs of just under $9 million pretax per full year. Overall, we believe that financial strength is paramount to our company's success, and this arrangement will simply add to our already strong capital generation capabilities that exist within our insurance companies. With regards to the 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%.

As of year-end 2024, our consolidated RBC ratio was 36% and which provides approximately $100 million of capital more than what is needed to meet our minimum target capital of 300%. As we do every quarter, we performed stress test in our investment portfolio under multiple economic scenarios, anticipating various levels of downgrades and defaults. If all of the estimated losses under our stress tests were to occur before year-end, which we believe is highly unlikely, we have concluded sufficient capital resources exist within our subsidiaries and the parent to maintain our target RBC ratios and our share repurchases as planned.

For 2025, we intend to maintain our consolidated fee within the targeted range of 100% to 320%. As I said on the call, I would like to share an update with our progress towards establishing a Bermuda reinsurance affiliate. During the quarter, we submitted a preliminary business plan to the Bermuda Monetary Authority for the [indiscernible] to establish an affiliate reinsurer in Bermuda for the purpose of reinsuring a portion of new business and in-force life insurance policies issued by Globe Life affiliates. An updated business plan, along with the formal licensing application will be submitted in the third quarter, and we anticipate establishing our Bermuda reinsurance entity and executing the first reinsurance transaction by the end of the year.

During the finalization of the application and licensing process, we need to have dialogue with regulators as well as rating agencies, and we will continue to provide additional information as warned on future calls. This initial reinsurance transaction is currently intended to reinstill small block of life reserves to get the company up and running. However, we invite that over time, approximately 1/4 of total statutory life reserves may be ceded to our Bermuda subsidiary as a portion of new business and additional business is reinsured. Of course, we have not completed our evaluation and our final business plan has not been approved, so they change over time. At this time, we are not contemplating any changes to our overall investment strategy will be needed.

Our decision to pursue this new Bermuda captive reinsurer is for the following strategic reasons. First, Bermuda's economic capital Frank will better support Globe Life's continued sales and premium growth rates, which are generally above industry average. We are also very comfortable with Bermuda's statutory framework as it is consistent with U.S. GAAP and capital is determined under an economic framework. This supports earnings emergence consist with GAAP earnings, which, over time, will provide additional dividend competing to the parent, enhancing the parent's overall financial strength and flexibility.

In addition, Bermuda is an established and stable regulatory environment with international insurance industry experience. Bermuda regulators have been actively engaged in discussions with us and have developed a good understanding of our business and the insurance products we intend to reinsure with the new entity. [indiscernible] approval of reciprocal jurisdiction, which we will seek to obtain as soon as possible.

We currently estimate parent excess cash flow will increase from incremental earnings from our U.S. and Bermuda subsidiaries over time as the reinsurance block grows. This additional excess cash flow will enhance our financial strength of the company and provide additional flexibility for the company to meet various capital and liquidity needs of the parent. There is still a lot of work in front of us as regulators and rating agencies to finalize plans. While we do anticipate any additional parent excess cash flows until 2027, we do see the potential for additional distributable earnings from our subsidiaries to the parent trending over time towards $200 million annually as earnings emerge from reinsuring additional in-force and new business.

This will provide additional financial flexibility for the parent to support our growth. Now with regards to policy obligations for the current quarter. As we discussed on prior calls, we have included within our supplemental financial information available on our website an exhibit that details remeasurement gains and losses by distribution channel. For the quarter, we continue to experience favorable mortality results resulting in life remeasurement gains. The life remeasurement gain was $16.7 million, reflecting mortality and lapse experience for the quarter. This was favorable to management's estimates and resulted in lower life policy obligations than anticipated.

The health remeasurement gain was about $3.9 million was favorable to management's estimates and contributed to favorable obligation trends at Family Heritage and experience fluctuations for other health lines, including Medicare supplement. There have been no changes to our long-term assumptions this quarter as we will update life and health assumptions in the third quarter of 2025. Due to the continued favorable mortality we are experiencing, we are increasing our estimate on the margin impact for the third quarter life assumption updates as recent mortality and lapse experiences are incorporated into these assumptions.

Although we have not finalized our assumption updates, we have updated and revised our estimates for the anticipated impacts. At this time, our guidance anticipates a total remeasurement gain in the third quarter related to both life and health assumption updates to be in the range of $110 million to $160 million. At this time, our current estimates for life assumption updates reflect future mortality levels generally in line with pre-pandemic levels. It should be noted that recent mortality experience is favorable to prepandemic levels overall, and to the extent this continues, we would expect continued quarterly remeasurement gains even after updating long-term assumptions.

For the Health segment, as expected, health margins as a percent of premium increased from the first quarter. This was largely driven by anticipated margin increases from the Medicare supplement business as 2025 premium rate changes became fully effective. In addition, we saw some improvement in Medicare supplement claims, which were favorable to our expectations. The claim cost trends continue to run higher than those reflected in our recent rate filings. We intend to reflect these higher trends in our 2026 rate filings to improve long-term profitability consistent with those needed to achieve historical margins as a percent of premium. Our estimate for total remeasurement gains related to assumption updates include an estimate of $5 million to $15 million related to the Health segment. Finally, with respect to our earnings guidance for 2025. For the full year 2025, we estimate net operating earnings per diluted share will be in the range of $14.25 to $14.65, representing 17% growth at the midpoint of our range and 10% growth when excluding the impact of remeasurement gains from assumption updates in both 2024 and 2025.

The midpoint is higher than our previous guidance due to the anticipation of continued favorable mortality experience and the updated anticipated impact of third quarter assumption updates. In addition, we anticipate health margins will improve slightly relative to our prior expectations.

Those are my comments. I will now turn it back to Matt.

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

[Operator Instructions] We will now take our first question from Jack Matten of BMO Capital Markets.

The first one, the higher earnings guidance for this year. I guess how should we think about that translating to stat earnings and cash flows looking ahead to next year. I guess there's a significant portion that's related to the actual experience issue that we would see come through immediately? Or is more of that benefit kind of lag over time since it seems like there's a big remeasurement gain you're expecting in the Life business that include some favorable assumptions on a forward-looking basis.

So the -- what I would say is that the mortality experience that we're seeing, which has generally been favorable -- continues to be favorable trends, that translates into additional statutory income. So we'll see that come through statutory income. The assumption changes, which are really only GAAP related, so those are updates to GAAP assumption changes is really not an impact to statutory income levels overall. And then also, I think given the slightly favorable trends that we saw in the second quarter and then a little bit of favorable experience that we think in the remainder of the year for the Health segment that will come through statutory earnings as well.

That's helpful. And then a follow-up on the Bermuda affiliate, I appreciate the details you gave on the $200 million, I think, potential incremental benefits to your cash over time. I guess just any thoughts on like the time line towards getting to that run rate? And I guess, does that assume you you move -- I think I mentioned 1/4 of your life reserves over to that entity. And then, I guess, just lastly then just curious how you got to the like 1 quarter target. And I guess are thinking about that and could it be revised over time?

Yes. We still -- as I mentioned, we still have a lot to do. So we're still in conversations with our regulators as well as a lot of conversations with our rating agencies on the Bermuda subsidiary and the impact there. So it's a little bit premature to talk about timing, but we will certainly provide updates once we have clarity later this year.

As Tom mentioned, in the latter half of this year and the third quarter will be finalizing an updated business plan with the regulators and -- as a result of that work, we'll be able to update you here on the next 1 or 2 calls as we get more of those plans finalized and approved. .

We will now take our next question from Andrew Kligerman of TD Securities.

My first question is around the sales. It's appears you've got a bit lower guidance on the life insurance sales. And Matt, I think you mentioned 8% agent count growth. So I guess 2 things. Given that you've lowered the guidance, what that confidence that the back half of the year will bump up from what we saw in the first half of the year. And should we use that 6% agent count close as an indication? I know you're not giving guidance yet, but that would be a ballpark expectation for next year?

Yes. I was commenting on the 6% was an overall growth rate of Q2 compared sequentially to to Q1. I'd mentioned on the last call, just kind of what we were seeing early stages as we moved into the second quarter. So just wanted to comment overall was very positive growth from our perspective for just 1 quarter. You're correct. We're revising down slightly on the sales side, still in that mid-single-digit growth. As we've talked about before, the agent count growth, which has been very strong, if you look at over the last 6, 12 months, that is a leading indicator in sales. And so we're still having that strong agent count growth, which does, as I've mentioned, impact productivity sometimes in the near term is our more experienced agents are spending their time, training and onboarding new agents.

But we know over a long term, that bodes well for sales growth. And so the revision of the guidance is just really reflective of what actually happened in Q2 and recognizing that increase in sales from the increase in agent count may be delayed a little bit more toward the latter half of this year and into the beginning of next year. So it's really nothing other electing just some timing considerations of those new agents coming on and getting more productive there.

And so then as you'd mentioned, just our overall, I look at just kind of our overall agent count growth this year in our guide there. would be reflective of what we would think as we get into 2026 guidance, but that would be a leading indicator of what we think sales would look like for 2026 based on what we know today.

That's really encouraging. And then on the med sub side, I mean, your sales have been phenomenally strong. And Part of that is -- and correct me if I'm wrong, part of that is a function of the Medicare Advantage under a lot of regulatory scrutiny unchanged. Now if we're a year out and that stabilizes, do you think that there could be kind of the flip side, a little bit of pressure on Med Sup sales? Or do you think that you can kind of continue to grind up?

I would say it this way, you're correct. There is a lot of noise in the system around Medicare Advantage, as we've talked about in the past, we have been the beneficiary of some of that dislocation on the med subsales side. What we see over time is there are some ebbs and flows to this business, but there continues to be a segment of the population that values what the benefits are from a MedSup policy versus Medicare Advantage as it relates to being able to have more choice and some of the benefits that come along with those type of policies.

So I think there will always be a strong market for that, but it will ebb and flow based on some things that we see in the Medicare Advantage side. Also, to the extent we look at the significant size of our in-force block there and the premium growth that happens as a result of the rate filings that Tom had mentioned. And so I think that bodes well for earnings growth here over the next coming periods, including into 2026. And so as we mentioned, within Medicare Supplement and in the United American group there, we do have some group business, and so that does come through a little bit lumpy. And so we'll get higher sales growth sometimes associated with as those new groups come on, particularly as compared to the same quarter in the prior year.

We'll now take our next question from Jimmy Bhullar of JPMorgan.

So first, I just wanted to discuss your comments around guidance. I think the midpoint is up about $0.70. And you implied that a lot of it is because of a reserve release, but I think you said that some of it might also be because of higher assumed earnings on an ongoing basis because of sort of ongoing reserve remeasurement gains. So is that true? And to what extent are you able to quantify how much of the [ $70 million ] is just a onetime 3Q impact versus maybe assuming normal earnings outside of the annual actuarial review. .

Jimmy, you're right, is that we expect mortality results to continue to run favorably, and we'd expect those to continue throughout the year, which is not impacted by the assumption change.

We'd expect like the fourth quarter life underwriting margins to be more in the 41% range. So that's kind of indicative of some of the results coming through. And then also some continued small benefits from the Health segment.

The one thing I would add to that, Jimmy, is that we also, I think, seeing some favorable reductions, if you will, in our admin expenses. So our guidance -- we reduced that just a little bit, see that as being closer to 7.3% for the full year, and we're really seeing some moderation in our expenses that's kind of helping with that.

So I think that will be something that will carry a for us, and then we did have a little bit of pickup in the overall guidance just from the additional repurchases that we had in the second year as well, which, of course, will continue to benefit us not only from the remainder of this year but going forward as well.

And then on direct sales, I think you had been down 16 quarters ago on sales and direct on the life side. And this quarter, there was a slight improvement, is that channel close to bottoming? Or was this just a blip given that the comps are easy. And just trying to get an idea on whether you're seeing some stability or signs of recovery there.

Yes. No, we do think this is a starting point from a recovery perspective. As I've mentioned, there's some fundamental things that we have put in place that came online here at the beginning of the year. There will be some continued benefit of the activity from an underwriting perspective and which ultimately results in improvement from a conversion of those inquiries that we get into ultimately issued policies. So we anticipate that continuing through the rest of the year. The other thing that's very important too is that to the extent that are now able to convert our leads that we're getting through that direct-to-consumer channel, and we look at that conversion across the entire organization. The agent channel is able to convert those leads at a higher rate than a passive channel like direct-to-consumer. And so what that's doing for us is that we analyze that on an aggregate basis, it gives us more margin to be able to spend on getting back into and expanding some of the campaigns that we've scaled back on. So there is a benefit to the direct-to-consumer sales just as a result of that continued marketing in addition to the sales that will happen in the agency channel. And so I'd say those 2 things are really fundamental changes that drives our guide for the rest of the year of an overall increasing trend from a sales perspective. So we're very pleased to see those 2 things come into fruition.

And then just lastly, on Bermuda, I realize like the structure is not final and it's a couple of years out. But -- and there's, I guess, some discretion on how much business you decide to put into it. But if you do get a $200 million benefit on annual free cash flow, assuming you're using it for buybacks that sort of implies a 2 percentage point uptick in whatever your growth would have been otherwise. Is that the right way to think about it? Or are there any other sort of offsets that would reduce the benefit versus what I mentioned.

No, I think that's the right way to think about it, Jenny. .

We'll now take our next question from Elyse Greenspan of Wells Fargo.

I guess my first question is just on some of the recent headlines we've seen from to Centene and some others just on the medical trends that have been making the news it doesn't seem like there has been any impact on you guys, but I was just hoping that you could address that.

Yes. I'll comment on that and then if Matt or Frank, you guys want to as well. But that comment on Centene was primarily around Medicaid experience which is kind of major medical coverage. And so I think the Medicare supplement market is just quite a bit different. The demographics are a bit different. And -- and I think, in general, I think the experience is just different in the Medicare Supplement business versus the Medicaid business. And I think they also commented on some favorable trends in their Medicare supplement side of things. Medicare Advantage. Yes. .

And then my second question, like, if we just kind of look at the health business in general, kind of excluding the noise, right, from the medical subbusiness versus pre-COVID, right, the the margins seem pretty good. And we're just trying to get a sense like is this kind of a good kind of run rate level to think about going forward? Or is there anything else to consider?

No, I think the supplemental health business, which is based upon the incidence of certain medical events and not really medical reimbursement overall. I think those trends have been fairly stable and consistent. And so I think we're in a pretty good place there.

Yes. No, I would agree. I think we really do like the supplemental health business that we have that's limited benefit in the nonsupplemental health has been really good and stable for us. especially, we really like the return of premium product that we have with family heritage. That has continued to be a very good product for us, and they're showing really good growth with that. And that -- and we really like that because it's one that stays on the books a little bit longer because of the return of premium feature as well as just having really good, stable margins. And so we really see that continuing to grow for us and to be a positive addition going forward. .

And then one last one. Is there any kind of update on just like relative to the DOJ and just the ongoing investigation?

Really, there have been no developments on both the DOJ and the SEC and investigations. And in fact, we have not received any request from either of those groups since the beginning of the year. So as a reminder, just both the DOJ and the SEC, they have not asserted any claims or made any allegations against Globe Life or AIL and we're not aware that there is an intention to do so. So in the -- as I've said before, to the extent we have significant developments, we'll be sure to update you. .

We'll now take our next question from Ryan Krueger of KBW.

I had another Bermuda question. It looks like the $200 million would be about 15% of your GAAP operating income. I guess, trying to think about what your free cash flow conversion could look like following Bermuda. It seems like maybe it could be about 60% or so, but hoping to get some color from you guys on what you would expect.

Yes. Ryan, we haven't really finalized that at this point in time, but I think your math is good and in line with kind of what would happen if we were to get that earlier. -- like we obviously expect to have earnings growth over the coming years. So it really is dependent upon kind of the timing of the earnings emergence from the Bermuda subs and the U.S. subs as it relates to the Bermuda affiliate.

And Ryan, I would say we have talked about really looking at how do we get that our conversion rate does it make sense for us to have a higher conversion rate and trying to look at that 60% or so. Looking at this, is there an opportunity here and this could potentially definitely help us to get at least to that level. And I would agree with Tom. I mean I think that's kind of the math that is part of that.

And of course, we really like it in that it does it gives additional flexibility to the holding company from just an overall liquidity and capital management perspective. as those dividends emerge just at a different time frame than it would be under just regular U.S. statutory. So obviously, it gives us flexibility for how we manage the capital within our organization. And obviously, then to the extent it's truly excess, then it would be returned back out to the shareholders.

And just to make sure I have this right. So the expected benefits are likely to start emerging in 2027 and beyond. Is that right?

That's what we're seeing right now. And again, once we yes, and as Matt mentioned, once we finalize the business plan and here over the remainder of this next quarter. So we'll have better insight into how some of that might emerge. .

We'll now take our next question from John Barnidge of Piper Sandler.

My question is a follow-up on Bermuda. I know you talked about getting to 25% of the in-force. Do you anticipate once that initial transaction establishes the infrastructure on the island -- it will be a series of transactions that follow or 1 large one. .

Yes, John, we probably do a series of transactions as kind of that operation is up and running, including evaluating in-force as well as some portion of new business being seated to Bermuda as well.

Yes. And I was going to say, for clarity, the statutory reserves is more of a longer-term view as we do in-force blocks as well as the new business and we start seeing new business into there as the reserves on that new business grow over time. And so that's just our preliminary view. Somebody asked a question earlier, could that change over time? And the answer is yes, that could change over time as we get more of our plans finalized and we're focused on getting it up and running this year and then developing out what that looks like from a long-term perspective. .

And because of the free cash flow that frees up and the leverage it creates on an operating perspective. At the same time, with some of these operational efficiencies that have been brought for automation sounds like on applications that could lead to higher close rates. Do you think this will allow you to accelerate agent growth? Or maybe pursue opportunistic inorganic of other distribution channels.

I mean to the -- I'm not sure it really accelerate agent count growth because right now, we don't restrict sales in any manner because we're not capital constrained. As we've mentioned, part of our cash flow conversion is because of the amount of money that we're investing in new sales every year. So to the extent that we start putting some of those new sales through a GAAP regime with the deferral of acquisition costs. the timing of emergence under GAAP is different than stat. That would continue to help from a cash flow conversion ratio. But we're not going to change the amount of investment into new sales because right now, we invest all that we can that has the appropriate return, but it will provide us more flexibility. And then from a potential M&A perspective in the future, that could provide additional, as we've said, additional cash flows at the parent company are strategic in nature, and we look at funding a variety of things and then, of course, returning excess to shareholders.

We'll now take our next question from Wilmar Burdis of Raymond James.

After the massive amount of buybacks you guys have done and then you've got a lot more capital you're freeing up as well. Is M&A more interesting? I know there's something you guys were looking at a couple 18 months ago. Maybe just give us an update there.

There are M&A lens that we look through is always opportunistic and the fact that it has to fit in with our overall strategy, as we've said, we -- our distribution organic growth companies to the extent that it would add to that with expertise that we have that we feel like we could continue and enhance our growth -- we'll continue to look at those opportunities are not in right now, based on our view of our stock price and where that's trading now from compared to a historical level still is the overall compelling use of our funds for continuing to invest in stock buyback. But we'll continue to look for an M&A opportunity to the extent it makes strategic sense for us.

Okay. I know a lot of people have asked about mortality. But given the reserve releases you guys anticipate in 3Q from the life side, the mortality remeasurement continue to accumulate. Can you just talk about how that would flow through future years? How do you think about it in the future? .

Yes. I think -- so Wilma right now, we anticipate the our life mortality assumption to be fairly in line with prepandemic levels, right? And I would say that the recent experience we're seeing is a little bit below that. So to the extent that our recent experience continues. As I mentioned, we see continued remeasurement gains relative to that new baseline mortality assumption urge even into next year. So I think we'll just have to wait and see whether that mortality continues that we're seeing currently.

Wilma, the one thing I would just add to that is if -- just kind of by default those long-term assumptions are what we ultimately expect that mortality to be over the long term. So we would expect even though we're seeing some favorable mortality right now, we would expect that to trend back to those long-term averages over time. And if that's -- and if actual experience emerges kind of in line with those long-term expectations and long-term assumptions, I think Tom mentioned that you're kind of looking at that margin percentage and kind of similar to what we're kind of projecting for the fourth quarter, which is in that 5% to around 41%.

And we've talked on the prior call that there's probably still a little degration of that degradation of that that's going to happen over the next couple of years just as amortization the transition to LDTI continues to -- as that blends in on the changes to the DAC amortization. And -- but I think -- to the extent that we have favorable mortality versus the long-term assumptions like I said that we would expect those margins to be a little bit north of that.

We'll now take our next question from Mark Hughes of Truist.

How about last experience in the life business -- you talked about that press contributing to the remeasurement gain, but any observations there?

Yes. I would say in general, our lapse experience on their life business has been fairly consistent in -- with recent quarters. I think there's a couple right spots that first are lapses at AIL actually were favorable this quarter. So that could be a fluctuation. But I also think that we're pleased to see that as well. And then DTC as first year lapses have been direct-to-consumer channel first year at a has been consistent with prior quarters, but they're still running a little bit higher than where they have from historical norms. And so we're continuing to monitor that to see whether that's kind of the new normal or whether that comes back over time as well.

Yes. I would say overall, I think we're pretty -- we're pleased overall with the resiliency of business, especially given some of the economic uncertainties that are kind of running through the the marketplace in recent times. And as Tom said, we had -- I'm going to say the exception of DTC, we had good first year lapses our first year lapses in the second quarter did improve sequentially over Q2.

A lot of that is seasonality. That's kind of typically happens. But overall, they're kind of then staying if you look at general levels, pretty consistent with our long-term ads, and you kind of think about prepandemic from that perspective because we had very favorable lapses during the pandemic years. So there definitely has been a recovery in our lapse rates to some of those pre-pandemic levels. And I'll tell you, in general, we're pleased where we're at given the kind of economic situations and clearly not out of any kind of norm that we've seen in prior periods. It's some economic [indiscernible]. We think they've stabilized and feel pretty good with where they're at right now.

Understood. On the health business, the rate increase and then the slight reduction in utilization. Was that fully reflected in the P&L, would you say in 2Q? Or is there some marginal improvement yet to come in 3Q?

I would say it's fully reflected in the second quarter results. I mean there's a trickle that will come in later, but it's really very, very small. And I think 1 of the important pieces is that in that UAGA line, it includes individual supplements as well as group coverages. And so the rate increases are really a function are really coming into play on the individual Medicare supplement business. But they're fully reflected.

We'll now take our next question from Wes Carmichael of Autonomous Research.

So I guess I wanted to talk about the direct-to-consumer channel. It's the first time, I think, in recent memory, you guys are talking pretty positively about that. So I just wanted to get a little more color on what was the technology that you guys put into place. I think if I think back, it was a lot of mailings and now it seems like that's changed. So maybe just the evolution there? And is there any associated increase in corporate or admin expenses from marketing in that channel? Or how should we think about that?

Sure. You're right. history was a significant amount of the marketing campaigns and inquiries came through more of a paper medium, whether it was male or inserts. But over the last recent years, up to about 75% or 80% of that business really comes through a digital channel now, and some of that is fulfilled through call center that we have. But essentially, what's happening is, is that the technology investments are associated with kind of the throughput of taking those leads and ultimately issuing those policies. We're able to utilize the data in other way than we have in the past from a underwriting perspective.

And so historically, part of the process was based on how people filled out applications we had to have follow-up and understand some of those health situations better. Well, there's a falloff because we can't contact everybody that submitted an application. And so there's a little bit of friction in the system from that perspective. Now with the use of data, we can go ahead and issue certain policies with that meet our risk criteria and without even contacting an individual. And so a lot of that is just from a technology throughput perspective. We're still issuing policies from a same risk profile perspective. We're just able to do it much more efficiently. And so to the extent that our conversion rate goes up overall, for that marketing spend because we're spending money upfront for an estimate of what policies get issued at the end.

The combination of direct-to-consumer channels, conversion rate going up as well as being able to utilize that marketing spend in our agencies and the conversion of that marketing spend through sales in those agency channels, changes the dynamic of evaluating the marketing spend for the policies and the profit, estimated future profits that we're ultimately issuing. So it enables us to spend more money on marketing as well as certain campaigns that were kind of on the bubble related to whether they were profitable or not, it makes them now more profitable. So to the extent that we spend more on marketing, we get more inquiries and the conversion those across the organization. So we're very pleased to see both of those factors coming into play that are going to benefit the sales on both sides of the equation, meaning direct-to-consumer and our agency channels.

Yes, and you raised the question on whether any of those expenses go through the corporate or admin expenses and they do not. So as we look at increasing spend on there, that's all acquisition cost that's supported by the profits and the sales of DTC. .

And we'll now take our next [indiscernible] [indiscernible].

I guess I know we're on once, I'll just leave it at one. On the reviews, I appreciate your comment about not being contacted by anybody since the beginning of the year, but I think there still is a bit of an overhang on the stock from this issue. And I know you want to be probably careful about how much noise you make on it, but is there an objective here to just put this to bed maybe by the end of the year? And if the government is being slow, maybe just trying to see if there's anything that you can do to just put it behind you because it's been going on for a while. And like I said, I think there's still a bit of an overhang on the stock. So just curious about your thoughts the strategy just sit back and wait and let them come to you and when they have time to do that, they'll do that.

No. We have proactive outreach. Of course, we're not in control of the agency's timing. I was just pointing out that we received no new inquiries or requests from either agency for this calendar year. So that's what we know to date. We're still active in trying to bring that to fruition and resolution and we'd like to be able to communicate that. But as I've mentioned before, these are informal processes, and so being able to bring that to a conclusion that we can discuss publicly is definitely our goal. .

And we will now take our last question from Tom Gallagher of Evercore ISI.

First, question just on the $200 million of additional annual free cash flow from Bermuda that you're thinking, I know you said the initial benefits will start in 2027. And just curious, how long do you think it would take to get up to that run rate? That's a very big percentage increase of your current free cash flow. So I mean, is this years down the road? Or is it sooner than that? Can you give a little bit of color for how long you think that might take to get up to that level? SP-5 Yes. As I said earlier, it's a little bit early to give you timing on that. And we still need to work through putting together that final business plan in getting regulatory approval and rating agency discussions solidified. So I think that's an update for a future call.

It's safe to say that would not all happen in year 1, but we'll have better timing discussion in the next couple of calls. But it's also -- it's not a 10-year runway either. So it's probably a 3% to 5% if we're handicapping it, but we want to be able to finalize all those discussions that Tom just mentioned, and then we'll give a little bit more clarity on timing.

Got you. And then -- and just a mechanics question on the free cash flow. Does most of the $200 million annual improvement come from acquisition expenses -- or are there other components like discount rate? Are you -- do you think you'll get some benefit from this mortality improvement that you've seen? It probably doesn't sound like that. But I'm just curious if you could kind of dimension like what are the major drivers of the improvement? .

6 Yes. I think it's generally a difference between how statutory earnings emerge versus how GAAP earnings emerge is really the key difference.

And the 2 big components of that, of course, are your deferred acquisition costs and how those are treated between GAAP and statutory as well just differences in reserving. .

There are no further questions in queue. I will now hand it back to [indiscernible] closing remarks.

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

This concludes today's call. Thank you for your participation. You may now disconnect.