Q4 2025 Earnings Call Transcript

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.