Globe Life Inc.

Ladies and gentlemen, good day and welcome to the Globe Life Incorporated first quarter 2020 earnings release conference call. Today's conference is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Mike Majors, Executive Vice President, Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchinson, our co-chief executive officers, Frank Svoboda, our chief financial 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 the first quarter earnings release we issued yesterday. 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'll now turn the call over to Gary Coleman.

Gary Coleman Thank you, Mike, and good morning, everyone. The developments of the last several weeks have been difficult for everyone, and our thoughts are with all those impacted by the current crisis. Today, most of our comments will address our thoughts on the potential impact of COVID-19 on our insurance operations and financial position. However, we do want to begin by giving a brief summary of the first quarter results. In the first quarter, net income was $166 million, or $1.52 per share. compared to $185 million or $1.65 per share a year ago. Net operating income for the quarter was $189 million or $1.73 per share, a per share increase of 5% from a year ago. On a GAAP-reported basis, return on equity for the year was 9.6% and book value per share was $60.98. Excluding unrealized gains and losses on fixed maturities, return on equity was 14.1%, and book value per share grew 9% to $49.66. In our life insurance operations, premium revenue increased 4% to $650 million, and life underwriting margin was $179 million, up 5% from a year ago. Health insurance premium revenue grew 5% to $280 million, and health underwriting margin was up 3% to $63 million. Administrative expenses were $64 million for the quarter, up 7% from a year ago, and in line with our expectations. For the full year, we expect administrative expenses to be up around 5%. I will now turn the call over to Larry for his comments on first quarter marketing results.

Thank you, Gary. We had strong sales and record recruiting growth in the first quarter. Total life sales were up 5 percent, while health sales were up 9 percent. The combined average agent count at the three exclusive agencies was up 15 percent over the year-ago quarter, and total agent count at the end of the quarter was just over 12,000. I'll discuss current trends at each of the distribution channels later in our comments. I will now turn the call back to Gary for his comments on our investment operations.

Thanks, Larry. Excess investment income, which we define as net investment income less required interest on net policy liabilities and debt, was $63 million, a 4% decrease over the year-ago quarter. On a per share basis, reflecting the impact of our share repurchase program, excess investment income declined 2%. As to investment yield, in the first quarter, we invested $212 million in investment-grade fixed maturity, primarily in the municipal, industrial, and financial sectors. We invested at an average yield of 3.81 percent, an average rating of A-plus, and an average life of 27 years. For the entire portfolio, the first quarter yield was 5.39 percent, down 14 basis points from the yield in the first quarter of 2019. As of March 31st, the portfolio yield was approximately 5.39 percent. We have net unrealized gains in the fixed maturity portfolio of $1.5 billion. One last item for the first quarter results. We took an after-tax impairment of approximately $25 million on an offshore driller during the first quarter. Later, I will discuss our investment portfolio in more detail. Now, let's move to the current crisis and its potential impact on our insurance operations, investments, and capital. I'd like to start by talking about our general approach. To effectively navigate a crisis, proper planning, communication, and teamwork is critical. Back in January, we formed a working group to monitor and evaluate coronavirus developments and discuss the possible impact it could have on our business. Once COVID-19 was recognized as an immediately disruptive issue, we activated the crisis management teams as contemplated in our formal business continuity plan. These teams monitor developments, identify issues, recommend solutions, and develop communications for employees, agents, and customers. The entire executive management team met on a daily basis as well. All this activity was designed to incorporate both a top-down and bottom-up approach to ensure an effective, comprehensive response to the crisis. In addition, the executive management team is having biweekly meetings with the board of directors to discuss our ongoing response to this crisis. Our main priority was to develop a plan that would maximize the safety and well-being of our employees, agents, and customers, and ensure our ability to continue normal business operations. We were able to quickly shift most of our employees to working remotely while maintaining compliance with our information and security protocols. For the employees whose duties required them to be in the office, we implemented processes and procedures consistent with CDC guidelines to help provide a safe environment. We are extremely pleased with the manner in which our employees have responded to this crisis. I would like to take this opportunity to express our gratitude for everything our employees have done. Thanks to their efforts, we are operating at a nearly full capacity with respect to all home office operations. In monitoring operations, one key area of focus is premium collections. While it is still early, we have not seen an unusual decline in daily premium collections. This is consistent with past experience, as the persistency of our enforced block has historically been stable when difficult macroeconomic conditions exist. For the full year, we currently project live premiums to go around 3%, and life underwriting margin to be at 1%, with a potential range of a decline of 3% to an increase of 4%. We expect health premiums to go 5% to 6%, and health underwriting margin to go approximately 1%, with a potential range of a decline of 2% to an increase of 4%. Frank will provide more detail on the underlying assumptions related to premiums, underwriting margins, and revised guidance later in his comments. I'll now turn the call back over to Larry to discuss the impact of COVID-19 on our marketing operations.

Thanks, Gary. Our agents have always done business face-to-face in customer homes and businesses. Obviously, COVID-19 presents a challenge to this way of doing business. As the crisis began, we quickly pivoted to a virtual sales and recruiting process to enable our agencies to continue their activities. while sales for the past several weeks have declined