Globe Life Inc.

Hello and welcome to Globe Life Inc. Second Quarter Earnings Release Conference Call. My name is Jim and I will be your coordinator for today's event. Please note today's conference is being recorded and during our presentation, all participants will remain in a muted or listen-only mode to prevent any background noise. After today's prepared remarks, we will conduct a question and answer session and instructions on how to participate will be shared at that time. It is now my pleasure to hand over to your host, Stephen Mota, 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 2025-10-K and the subsequent forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. Please see our earnings release and website for discussion of these terms and reconciliation to GAAP measures. I will now turn the call over to Frank.

Thank you, Stephen, and good morning, everyone. In the second quarter, net income was $288 million, or $3.65 per share. an increase of 20% over the $3.05 per share a year ago. Net operating income for the quarter was $285 million, or $3.61 per share, an increase of 10% over the $3.27 per share a year ago. We are pleased to see continued strong results in our operations. As we have said many times over the years, our business model is resilient and able to generate earnings growth Regardless of the economic environment, as clearly demonstrated by Globe Life having produced double-digit net operating income per share growth in eight of the last nine quarters. On a GAAP-reported basis, return on equity through June 30th is 18.4%, and book value per share is $70.18. Excluding accumulated other comprehensive income, or AOCI, return on equity is 14.3%, and book value per share as of June 30th is $100.04, up 11% from a year ago. Now in our insurance operations, total premium revenue in the second quarter grew 7% over the year-ago quarter. For the full year, we expect total premium revenue growth to be in the range of 6.5% to 7%. Life premium revenue for the second quarter increased 3% from the year-ago quarter to $861 million. Life underwriting margin was $359 million, up 6% from a year ago. For the year, we expect life premium revenue to grow between 2.5% and 3%. As a percent of premium, life underwriting margin was 42%, up from 41% in the year-ago quarter. while we anticipate life underwriting margin to be between 43 and 45% for the full year of 2026. We do expect it to be over 50% in the third quarter due to the anticipated impact of assumption updates and between 41 to 42% for the fourth quarter. Tom will discuss this more in his comments. In health insurance, premium revenue grew 16% to $437 million and health underwriting margin was up 1% to $99 million. For the year, we expect health premium revenue to grow in the range of 14 to 16%. This is due to premium rate increases on our Medicare supplement business, as well as strong sales in both our United American and Family Heritage divisions. As a percent of premium, health underwriting margin was approximately 23% in the second quarter down from 26% in the year-ago quarter. For the full year, we anticipate health underwriting margins to be between 23 and 27%. Administrative expenses were $91 million for the quarter, an increase of approximately 6% over the second quarter of 2025. As a percent of premium, administrative expenses were 7%. For the full year, we expect administrative expenses to be approximately 7.3% of premium, consistent with 2025. As we mentioned last quarter, over the long term, we anticipate that expanded implementation of AI applications across the company will help lower this ratio. We believe 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 the number of plans reviewed and paid. Of course, these AI-driven improvements will not be limited to administrative expenses. We also expect enterprise-wide benefits, including those that will drive sales growth by helping our distribution operate more efficiently and effectively and those that improve our underwriting and other sales support process. I will now turn the call over to Matt for his comments on the second quarter

Thank you, Frank. Now I'll discuss the trends at each distribution, starting with our exclusive agencies. At American Income Life, life premiums were up 5% over the year-ago quarter to $466 million, and the life underwriting margin was up 4% to $214 million. Net life sales were $95 million, down 2% from a year ago due primarily to a decline in the agent count. The average producing agent count for the second quarter was 11,391, down 7% from a year ago, but this is up 3% since the end of the first quarter. As a reminder, compensation adjustments designed to improve agent recruiting and new agent retention were implemented at the beginning of the second quarter. As we indicated on the previous earnings call, these compensation changes are expected to have a positive impact on agent count in the second half of this year. I am pleased to see early signs of improvement with this sequential growth in agent count during the second quarter. As I've said many times, agent count growth is a precursor to sales growth. During the second half of the year, we expect to see mid-single-digit growth in both agent count and life sales at American Income. At Liberty National, the life premiums were up 3% over the year-ago quarter to $101 million, and the life underwriting margin was up 10% to $37 million. Net life sales were $26 million, up 6% from the year-ago quarter, due primarily to agent count growth. Net health sales were $7 million, down 15% from the year-ago quarter, as more emphasis has been placed on life business in recent periods. We are currently implementing changes to the sales presentation to place additional emphasis on health sales. The average producing agent count for the second quarter was 4,194, up 8% from a year ago. And I'm excited about the strong life sales and agent count growth we are seeing and I'm confident that this momentum will carry forward. At Family Heritage, here the health premiums increased 9% of the year ago quarter to $126 million and the health underwriting margin increased 10% to $45 million. Net health sales were up 4% to $31 million driven by an increased agent count. The average producing agent count for the second quarter was 1,608 up 7% from a year ago. The ongoing emphasis on developing agency middle management has really solidified this division's performance. I believe Family Heritage is well positioned for sustainable growth going forward. Now, in our direct-to-consumer division at Globe Life, the life premiums were down approximately 1% over the year-ago quarter to $244 million, while life underwriting margin increased 10% to $76 million. Net life sales were $27 million, down 15% from the year-ago quarter. Now DTC is in a transition period due to a shift in the way consumers search online for goods and services, including life insurance. The increased utilization of AI by consumers has resulted in a reduction in paid search volume from internet marketing. We have initiatives underway to adapt to this change and positioned digital content to be visible to and easily interpreted by AI assistance. This shift is similar in many ways to the initial move to digital marketing away from direct mail many years ago when consumers began to utilize the internet. And I'm confident that DTC will successfully make this transition as we continue to meet the consumer where they want to be met. In addition, as we have discussed before, The value of this division extends well beyond DTC sales due to the support it provides to our agencies. And we still anticipate that we will meet agency demands by generating in excess of 1 million leads this year. We have seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also led to margin improvement. And we will continue to optimize margin as we navigate changes in online advertising. Now onto United American. Here, the health premiums increased 29% over the year-ago quarter to $211 million, and the health underwriting margin was $11 million, down $1 million from the year-ago quarter. Net health sales were $28 million, a 10% increase over the year-ago quarter. Sales continue to be very strong in the Medicare supplement business, and due primarily to tailwinds from the high volume of people turning 65, movement of Medicare beneficiaries from Medicare Advantage to Medicare Supplement, and the rate increases implemented during the second quarter. Once again, I would note that we do not market Medicare Advantage plans. As a reminder, the UA General Agency includes both individual and group business. The decline in health margin as a percent of premium from the year-ago quarter At UA was primarily driven by the group business. As you may recall, we announced the acquisition of Every Health a few years ago. Every is included in the United American division as they market group health insurance through brokers. While Every is immaterial to our overall financial results, they have generated enough recent sales activity to have an impact on UA health margin trends. For the full year 2026, We expect every sales to be approximately $50 million. As a startup, they don't yet have the scale to meet our target margins, but we anticipate as they continue to grow sales and thus premium, they will ultimately contribute to UA Health margins as they achieve scale and generate a credible block of business. Excluding the impact of every, the UA Health margin as a percent of premium would have been approximately 9% in the second quarter. Now I'd like to move on to projections and based on what we've seen for the first half of 2026. As I mentioned earlier, we expect to see mid single digit growth at AIL during the second half of the year for both average producing agent count and live sales. For Liberty National and Family Heritage, we expect the average producing agent count growth to be Low double digits for the full year 2026. Net life sales at Liberty National and direct to consumer for the full year 2026 are expected to be as follows. Liberty National, low double digit growth. Direct to consumer, a single digit decline. Net health sales for the full year 2026 are expected to be as follows. Liberty National, slightly down. Family Heritage, low double-digit growth, and United American, 30% to 35% growth. I'll now turn the call back to Frank.

Thanks, Matt. We will now turn to the investment operations. Excess investment income, which we define as net investment income, what's only required interest, was $38 million, up 10% from the year-ago quarter. Net investment income was $294 million, up 4%, while average invested assets grew 2%. Required interest grew 3%, slightly lower than the 4% growth in average policy liabilities over the year-ago quarter. For the full year, we expect both net investment income and required interest to grow around 4%, resulting in excess investment income growth of approximately 7%. Now regarding our investment yield. In the second quarter, We invested $399 million in fixed maturities, primarily in the industrial and utility sectors. These investments were an average yield of 6.27%, an average rating of A, and an average life of 36 years. We also invested approximately $91 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 second quarter, the earned yield on our total long-term invested assets, which include our fixed maturity, commercial mortgage loan, and other long-term non-fixed maturity investments was 5.51%. For the full year, we expect the average will be around 5.31%. While we do own some floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Now regarding the investment portfolios. Invested assets are $22.1 billion, including $19.3 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.8 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Of our total investment portfolio, only 1% is in senior direct lending and asset-based Thank you for joining us. and currently relates entirely to bonds with maturities that extend beyond 10 years. We have the intent and more importantly, the ability to hold our investments to maturity. Bonds rated BBB comprise 41% of the fixed maturity portfolio compared to 44% 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 declined over the past few years as we have found better risk-adjusted, capital-adjusted value in higher-rated bonds given the narrowing of corporate spreads. While the concentration of 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. Below-investment-grade bonds remain near historical lows at $516 million, compared to $503 million a year ago. The percentage of below-investment-grade bonds with total fixed insurities is just 2.7%, consistent with year-end 2025. The total exposure to both BBB and below investment grade securities as a percent of our total equity, excluding AOCI, is at its lowest level in over 25 years. Due to the long duration of our fixed maturity liabilities, we predominantly invest in long-dated assets. As such, a critical and foundational part of our investment philosophy is to invest in entities that can survive through multiple economic cycles. While there may be uncertainty as to where the U.S. economy is headed, we are well positioned to withstand a significant economic downturn due to holding historically low percentages of invested assets in BBB and below investment-grade bonds as a percentage of equity. In addition, we have very strong underwriting profits and long-dated liabilities, so we will not be forced to sell bonds in order to pay 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 $550 to $600 million in fixed maturities at an average yield between 6 and 6.1%, including the expected investments in commercial mortgage loans and other long-term investments with debt-like characteristics. We expect to invest approximately $700 to $800 million across all asset classes at an average yield of 6.3 to 6.5%. Now I will turn the call to Tom for his comments on capital and liquidity.

Thanks, Frank. First, I'll spend a few minutes discussing our share repurchase program, available liquidity, and capital position. During the quarter, the company repurchased approximately 1.1 million shares of Globe Life Inc. common stock for a total cost of $175 million at an average share price of $154.28. including shareholder dividend payments of $25 million, the company returned approximately $200 million to shareholders during the second quarter of 2026. At the end of the second quarter, the company amended its term loan, increasing the principal balance from $250 million to $450 million, an increase of $200 million and extended the maturity date to June, 2029. Additionally, the company's credit facility was amended at the end of the second quarter to extend its maturity date to June 2031. The term loan and the credit facility provide additional sources of parent liquidity. We intend to use the excess proceeds from the term loan for general corporate purposes, including reducing commercial paper balances, increasing share repurchases, and other parent needs. The parent ended the quarter with liquid assets of approximately $110 million. We anticipate ending the year with liquid assets in the top end of our target range of $50 million to $60 million. The parent will also generate excess cash flows over the remainder of 2026. The parent company's excess cash flow, as we define it, results primarily from dividends received by the parent from its subsidiaries, less the interest paid on debt, and is available to return to its shareholders in the form of dividends and through share repurchases. Utilizing a portion of the parent's liquid assets at the end of the quarter, the excess proceeds from our increased term loan and excess cash flow expect to be generated for the second half of the year. We anticipate the parent will return to shareholders over the remainder of the year, approximately $250 million to $270 million in the form of dividends and share repurchases. after meeting the anticipated needs of the parent. We continue to invest in our growth through making investments in new business, technology, and the insurance operations. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made these substantial investments and acquired new long duration assets to fund their future cash needs. We will continue to use our cash as efficiently as possible We still believe that share repurchases provide the best return or yield to our shareholders over other available alternatives. Thus, we anticipate share repurchases will continue to be the primary use of parents' excess cash flow after the payment of shareholder dividends. For the full year, we anticipate distributing approximately $95 million to our shareholders in the form of dividend payments. In addition, we anticipate share repurchases will be in the range of $670 million to $700 million. This reflects $100 million increase at the midpoint of our range from what we indicated on our last call given the additional term loan proceeds. As a reminder, our current excess cash flow estimates for 2026 do not anticipate any additional cash flows to the parent resulting from the establishment of the new Bermuda entity in 2025. Now with regards to capital levels at our insurance subsidiaries, Our goal is to maintain capital within our insurance operations at levels necessary to support our current ratings. 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 the large number of enforced policies, the nature of our protection products with benefits that are not sensitive to interest rates or equity markets, are conservative investment portfolio and strong, consistent underwriting margins, which result in consistent statutory earnings at our insurance companies. As of the end of 2025, our consolidated RBC ratio for our U.S. subsidiaries was 316%, which provides approximately $95 million of excess capital above what is needed to meet our minimum capital target level of 300%. For 2026, we intend to maintain our consolidated RBC within targeted range of 300% to 320%. Now, I would like to update you on the progress we're making with our Bermuda subsidiary. We are pleased with our progress so far as our lead regulator, Nebraska, approved reciprocal jurisdiction in the second quarter for Globe Life Re, the company's Bermuda reinsurance affiliate. Given this approval, we are now in the process of seeking reciprocal jurisdiction approval from Indiana, American Incomes, State of Domicile, and we'll provide you with an update on our next call. In addition, consistent with our business plan, we expect to complete a new reinsurance session in the third quarter, which will reinsure a portion of new business and enforce policies issued by our subsidiaries to Global Equity. Now with regards to our policy obligations for the current quarter. For the second quarter, life policy obligations as a percent of premium improved from 36.7% in the year-ago quarter to 34.3%, favorable to management's estimates and consistent with the continued favorable trends in mortality. Health obligations as a percent of premium were 56.8% compared with 53.3% from the year-ago quarter. This was higher than our estimates. The higher health obligation ratio was driven by a number of factors including Medicare supplement claims related to prior periods, including an industry-wide correction that CMS made to physician reimbursement rates. Higher loss ratios at every due to an adverse fluctuation in high severity claims and an adverse fluctuation in the quarter related to cancer claims at Liberty National Division. We expect the claims experience to moderate during the remainder of the year. As a reminder, we intend to update our life and health assumptions annually in the third quarter and thus, We have made no changes to our long-term assumptions this quarter. Now with respect to our 2026 guidance. For the full year 2026, we estimate net operating earnings per diluted share will be in the range of $15.55 to $15.95, representing 8.5% earnings per share growth at the midpoint of the range. This increase from our prior guidance is primarily due to improved life underwriting margins and excess investment income offset by higher financing costs and the reduced impact of share repurchases due to the higher share price. The guidance range reflects potential remeasurement gains from the third quarter life and health assumption updates in the range of $110 million to $130 million with the life assumption range update, sorry, with the life assumption update in the range of $90 million to $100 million and the health assumption update and the range of $20 million to $30 million. The midpoint of the range is higher than last quarter's call due to continued refinements and estimates with the increase primarily related to the health assumption update, which was previously anticipated to be relatively small. Given the estimated benefit from assumption updates in the third quarter, we anticipate third quarter life underwriting margin as a percent of premium will be in the range of 52% to 53%, and the third quarter health underwriting margin as a percent of premium will be in the range of 29% to 32%. We anticipate recent favorable trends will continue through 2026 for the full year, normalized life underwriting margin as a percent of premium, which excludes the impact of the third quarter assumption update between 41% and 42% at the midpoint of our guidance. As Frank previously noted, We expect health premium to grow in the range of 14% to 16% for the full year. As mentioned on the previous call, this health premium growth is benefiting not only from strong growth in Medicare supplement sales in 2025 and anticipated in 2026, but also from approximately 65 million additional premium from approved rate increases on individual Medicare supplement policies that will be received throughout 2026, primarily in the last three quarters of the year. In our full-year guidance, we anticipate United American's premium growth to be in the range of 25% to 35%, and the health margin as a percent of premium to be approximately 7% for the second half of the year. As Matt previously discussed, United American's health margin includes our group health business, including Every. When excluding Every, United American's health margin as a percent of premium for the second half of the year would be in the range of 8% to 9%. Finally, I do want to point out that the midpoint of our guidance, normalized EPS growth, which removes the impact of assumption updates to both 2025 and 2026 is estimated to be between 9% and 10%. At the midpoint of our guidance, the projected three-year compound annual growth rate of normalized EPS is approximately 11%. Those are my comments. I will now turn the call back to Nat.

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

Gentlemen, thank you for your remarks. And to our audience joining today at this time, if you would like to ask a question, simply press star and one on your telephone keypad. We will hear first from the line of Wilma Burtis at Raymond James. Please go ahead.

Hey, good morning. Could you just give us a little bit more color on how you see it playing out as far as adjusting the sales and advertising environment in DCC? to AI. What are some of the options? Just maybe how long you see it playing out. Thanks.

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

Can you just talk a little bit more about the share repurchases? Because I think the pace in the first half has been pretty high. Just talk a little bit about that and how you see that continuing and playing out for the rest of the year.

Thanks. Thanks, Will. I did want to correct a statement that I made. We would anticipate the parent will return to shareholders over the remainder of the year. approximately $350 million to $370 million. I think I said $250 to $270, but that should be $350 to $370. Over the course of the year, we do expect to have share repurchases in that $670 to $700 million range for the full year. We would expect to pace share repurchases pretty much pro rata during the third quarter and the fourth quarter.

Yeah, Wilma, I think the one thing that I would add, obviously, as Tom mentioned in his comments, that is higher than what we had anticipated in our last call. And we're using a portion of the proceeds from the increase in the term loan to increase the amount of the buybacks over the course of the year. We really wanted to kind of lean in on the first half of the year, given some of the favorable pricing in our share price that we had. wanted to, you know, so we were a little bit over 50% in the first half of the year, and this will bring us to, you know, we'll be just a little bit more in the first half than we'll have in the second half.

Okay, thank you. That definitely helped. Appreciate it.

Our next question comes from Ryan Kruger at KBW.

Hey, thanks. Good morning. Can you quantify the potential impact Thank you. Thank you. Thank you.

reinsured new business in the Bermuda entity. So we don't really expect any capital benefit in 26 from that transaction. And we'd expect to see some benefit in 2027, but not likely the full benefit that we've communicated on prior calls in 27 that would emerge over a longer period of time of the business plan. So the next three to five years.

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

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

Thank you.

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

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

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

Thanks. And my follow-up was on American income. Just looking at lapses there, I think the first-year lapses ticked down sequentially, but renewal lapses maybe remain a little bit elevated relative to historical trends. So, I'm wondering if you think maybe that's a better run rate going forward or maybe just a couple of quarters of deviation from the longer term trends.

Yeah, we were really pleased to see those first year lapses at American income come down back to kind of where they have been. And, you know, renewal lapses are a little bit higher than they were pre-pandemic. And we do kind of see that as continuing to be in that range, right around that range. So I think that's a good baseline.

Thank you. Our next question will come from Joel Hurwitz at Dowling and Partners.

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

Yeah, no, I don't think it's economy driven. I do think it is agent count driven. And, you know, we've mentioned before, you know, the agent count has not been where we wanted it to be from a growth perspective over the last few quarters, but we are seeing that turnaround here in Q2. And we anticipate that Q3 and Q4, as I said in my comments, to be in that mid-single digit growth rate. But what we see from an overall productivity perspective on a per sale basis, the premium on a per sale basis at American income continues to tick up over the last several quarters. And to me, that's an indicator of consumer health as consumers are willing to spend a little bit more for a little bit more coverage. And what we see in the field and hear from the field is that We're not having to present more. Our conversion rates are going down from just an overall consumer presentation to sales perspective. So really, I do think it's an agent count story, and I'm pleased to see that we've got sequential growth from Q1 to Q2, and we anticipate that coming around further. It's just It's interesting, you know, some of the work that we've done as you go back and look over the last 20 and 25 years is the agent count and sales count is very much momentum driven. So we're going to get fluctuations on a per quarter basis. And it's not uncommon that we'll have two or three quarters of fairly stagnant or maybe even slight declines in our agent count. But then that's usually followed by several quarters, three, four, or five, a very strong sales growth and agent count growth. And so that's why we really encourage folks to look at it more on an annual basis. It's pretty rare over the last 25 years. It's only happened one or two times that overall from an annual basis, our agent count is down, but we definitely get more fluctuations on a per quarter basis when you just look at it on a very short term.

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

No, I don't think on a go-forward basis. It was just kind of a high claims quarter. It was really concentrated in a handful of claims. What's interesting to know with Every is that you've just had a pretty significant increase in the sales and the premiums starting to come through in 2026. And so from a prior period perspective, the Thank you for joining us.

First half of the year, you know, the total underwriting losses in that is around $10 million and about seven of that was in the second quarter. And we only anticipate, you know, three or $4 million in the second half of the year. So we don't anticipate the drag, you know, for the full year, you know, might be about 2% on the underwriting margin percentage. You know, I think, you know, I think some of the note is that, you know, even despite Some of the drags we had, as Tom mentioned, we had some adjustments to some prior periods and some claims in the second quarter related to some of the prior periods, as well as in the February. And even with that, you know, for the full year, we still see the underwriting dollars for United American increasing 24% year over year. So it's still going to be a very good year.

Got it. Thank you.

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

Hey, thanks. I have a couple of follow-ups. I guess the first is on your adapting to AI search and direct-to-consumer. Are you planning to use performance marketing intermediaries, or are you looking – maybe you can remind us if that's something you utilize – As far as reaching social media and AI search better, you can just dig into a little bit more kind of tactically what you're doing and if kind of expanding your tool set there is part of what you're contemplating.

Yeah, the amount of advertising that we spend online is we're usually working directly with the platforms themselves for optimization purposes. Historically, Google obviously has been one of those big partners, but we do operate on the other platforms, Facebook, etc. And so, as I mentioned, what we're seeing is just, I'll call it traditional paid search is changing a little bit, just the volume of paid searches down, the basic economics, the cost is up, but you are seeing... Google and others move into AI generated ads and those types of things. And so we're working alongside with those programs as those new advertising methods of getting in front of consumers are happening. So we'll continue to work with the platform, but from our volume perspective, we really do most of that internally working directly with the various platforms.

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

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

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

All right, great. Those answers are helpful. Thanks.

Again, ladies and gentlemen, that is star and one. We'll hear next from Pablo Singzon at J.P. Morgan.

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

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

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

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

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

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

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

Definitely. So primarily on the life side, the way that I think about this is that we look at mortality results over a long period of time to inform our long-term assumptions. And so we've been seeing a very good mortality experience recently. So I would not expect our assumptions to be adjusted all the way down to our current experience that we're seeing. So I would expect some remeasurement gains continue to come through and We'll always see remeasurement gains and losses. It's every quarter because things won't exactly emerge as we intend to, but I do think that there will be some continued favorable remeasurement gains as we even post assumption update.

I think as time goes on, as Tom said, our current experience is clearly emerging better than those long-term assumptions, and to the extent that that continues, which right now we're not seeing anything in our numbers that say that it won't but then we'll continue to evaluate that in future periods and if we're continuing to see positive experience from the longer term assumptions then in the future it would be possible that we might have some future assumption updates again in the future. As you have those assumption updates remember that it does kind of lock in that a lower policy obligation percentage for that book of business going forward. So it ends up you needing less of that premium to fund those future claims. And so it does impact and benefit the margins on a going forward basis.

One thing I'd look at or additionally emphasize is that we had indicated normal life-life underwriting margins in that 41 to 42% range. And that to me is kind of a starting point for how experience will emerge in the coming years. So that's really the all-in underwriting margin. We will see a little bit of amortization increase in the future as well, just as we've seen that trend over the past few years due to continued capitalization and amortization of renewal commissions, primarily at AIL.

Okay, that's helpful. Thanks. And then I guess just on Bermuda, just based on my conversations with some investors, I think some were hoping that maybe there would be an acceleration in the timing relative to this sort of three to five year range that you've given. It doesn't sound like that's going to happen, but maybe could you just walk us through how you see the next kind of couple of years developing? Like what are the things that we need to, what are the things that need to happen in order to get you to a position where you can regularly take cash out of Bermuda? Thanks.

Yeah, so the next step is getting Indiana approval for reciprocal jurisdiction.

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

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

And I was going to say in the next quarter call, typically discuss our estimates for 2027. And this would be, of course, one of those items as we think about dividends and free cash flow up to the parent. So I would anticipate we'd discuss that on the next call of our 2027 plans.

Okay, thanks.

Our next question will come from Tom Gallagher at Evercore ISI.

Hi, where do you expect the health margin to come in in 4Q outside of the actuarial review?

The normalize, it should come in around 20,

4-ish percent, so let's just say 23 to 25 percent in the fourth quarter.

Got it, so 23 to 25, so potentially a little better than QQ?

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

Gotcha. On an underlying basis. Yeah. Okay. That makes sense. And then just wanted to come back to The comment you made about the direct-to-consumer business and what's happening. So I just want to be clear as I know what's happening. So is there increased online competition? Do you think some direct sales are going away from you? Is that right now what you're seeing? And then if you do pivot to, let's say, a Google portal sales model, What would the margin look like? Would you have to give up some of the economics relative to where you are currently based on how you think this pivot may happen? Any sort of color on that would be appreciated.

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

Gotcha. Thank you for that color. Sure.

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

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

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

Great. Thank you.

And lastly, we'll hear from Andrew Kligerman at TD Cowell. Please go ahead.

Okay, last but not least, thank you. Good color on the prior questions. I have just some very basic follow-ups. Just going back to the American income issue, with recruiting down in the first half. And Matt, I understand your point that the good read throughs from Liberty National and Family Heritage, but I just want to understand that you're confident in the second half of the year that you'll see mid single digit sales growth, even though recruiting is down in the first half. Maybe just something you're seeing. What's giving you that confidence as you look to the second half of the year?

Sure.

So, Andrew, you know, like I just mentioned, the pipeline is one of the things we look at. And I think also, you know, we're comparing this quarter to the same quarter last year, but sequentially, We've got growth in our agent count. We've got 3% growth. And so that to me is an indicator that things are starting to turn around. The other thing I would point to is that our pipeline, so our agents that have agreed to join the organization that are in school and in the process of getting licensed, that is up 8% from Q1. That's another early indicator that our pipeline is strong. Like I said, it's just kind of a momentum game. When we're comparing quarter over quarter, we're going to get a little bit different answer than when we've got recent turnaround and improvement. It's all a momentum. We've got people in the pipeline. Those are getting converted into producing agents. We're starting to see that. and so that's why I was very specific on the second half of the year we anticipate that to be that mid single digit growth on the agent side just seeing the momentum of where we're at right now.

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

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

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

Yeah, and I think, Andrew, and obviously we'll give more input next quarter, but I think that's fair. The one little wild card probably is you look at the assumption updates and where mortality comes in, and when you look at the year-over-year and then operating income, we'll have, as Tom said, we're going to have You have $90 to $100 million of assumption update on the life side. So depending on where mortality kind of trends, and it can still trend favorably, but to the extent that that, you end up having a $50 million adjustment. I'm just throwing numbers out there, right? But if it's a lesser number, then that'll impact some of that year over year growth rate just a little bit. But that's not to say that, you know, especially when you think about normalized margins, Those normalized margins will still be very good. I think we're optimistic as where our growth of getting some of the premium growth back up a little bit more from where we're at, especially on the health side, continuing, I think, on the health margins. We would anticipate those health margins, I would say right now, I would anticipate them being a little bit better next year just because of some of the unique things that we've had in the second quarter, as well as we'll be putting together, you know, new premium adjustments with respect to the MedSupp that will reflect some of the higher, you know, these higher costs that we saw here in the first and second quarter. And so then that'll come through in the, you know, for next year as well. So... I still think there's some positives I would say. And then investment income, we're starting to see that growing on a sequentially basis. We would look at that continuing to grow with the current yields on our new purchases of where they're at.

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

That was super helpful. Thank you.

And that concludes our Q&A session for today. We thank you all for your signals and your questions. I'm happy to turn it back to Mr. Stephen Mota for any additional or closing remarks.

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

Ladies and gentlemen, this does conclude today's Globe Life Inc. conference call. We thank you all for your presentation.