Globe Life Inc. (GL) Earnings Call Transcript & Summary

Well, I think we're live. I hope so. Welcome, everybody who's joined this conference. This is the annual U.S. Bank of America Insurance conference. And I'm looking at the attending list. There's a lot of you on the line and really pleased that you joined me. And this is my first conference, as you know. COVID has interrupted things a little bit, so we're doing this virtual conference. I joined Bank of America in May. Yesterday was my first day in the office, here at 1 Bryant Park. Hope to resolve that as soon as possible. I hope that everybody is healthy, your families are well. And I know these are unusual times, but we're going to get through them. And we have a really good conference. Insurance isn't everything, but it's what we're here for today. And so I want to thank you all for joining us. If you are logging on through Bank of America, you'll notice that there's a possibility of asking me questions and asking the companies questions. We can't go live with the camera to you and get you, which I'd really like to see. Most everybody who's logged on, I know, and I haven't seen you all in a long time. I hope to resolve that. But in the interim, you can type questions to me. And you can type questions to me for the upcoming Globe Life meeting, which is going to happen in a minute or 2. Or you can go ahead later in the program and type a question in, and it will come to me. I will see it. You can e-mail me a question, and I'll try and incorporate it. It's a little hard to manage e-mail and the web situation for the conference and whatnot at the same time. But I would really love to ask your questions. This is your conference. I'm going to be talking for 8 straight hours, and if you give me a couple of minutes to not have to think for myself and think for you, I would find that really appreciative. So anyways, it's a beautiful day in New York, sun could be out but snow's melting. It's a little above freezing here, and we have a full day packed. I can't stress enough how pleased I am you joined us today. And so we'll get started. The first conference of the day is going to be Globe Life. I'll just say [indiscernible] in advance we have Axis after if you're preparing ideas, know Axis is going to come on after Globe Life, you can think about what you want to ask to Axis. But Globe Life's going to be now, please send me questions. We're really excited. We've got Larry, Gary and Frank, the Co-CEOs and CFO. And so I'm really pleased. I'm not -- Globe Life is a newer name for me. Hopefully, that you can [indiscernible] track work has been phenomenal. And so let's start with Globe Life. And please send me your questions. And I think that we're tuning in, I'm being joined by the team. And I see them on my screen, so I assume you see them as well. Welcome, everybody, how you join today?

We're doing fine. How are you?

We're doing great.

We're doing great.

Okay. So we got the audio. We got the visual. Everything is going perfectly. Thank you for joining us. You are the -- at the perfect position of being the first presenters at the conference at my first Bank of America Insurance Conference and certainly my first virtual conference. I'm really sorry that we can't be in a room together talking. We're going to work on that in 2022. Obviously, an unusual year. Can you just talk a little bit about the hard-working people at Globe Life, and how they're doing, what's happening in terms of adaptation, how hard they're working, obviously, what makes a company is its employees and how your employees are managing this very unusual time.

Well, I think one thing that as we look -- our employees, it's been a big change. We've obviously moved from basically everybody in our home office, being in the office every day to the vast majority of our people working from home, like everybody else, and we continue to work from home. And luckily, we've really had great success with that. We've been very pleased that the employees have been able to continue the normal operations and being remote and really have minimal impact on productivity. So I think at this point, we really -- the employees are first and foremost in trying to keep everybody safe during this time, and we're really pleased that we've been able to -- in our minds, really make that transition and to be able to work for home and keep everybody safe.

I'll add to that. And likewise, our 13,000 agents have done very well. They've transitioned from an in-person sale in March to a virtual sale and I -- once they made that transition, we saw sales pick up in the second quarter and strong sales in the third and fourth quarter, and we've had good recruiting this year. So right. I have to complement the feel that they quickly adapted to the COVID environment and have been successful in that environment.

Terrific. And they'll continue to do so. Obviously, that's a testament to the company's strength. For those who are not so familiar with Globe Life, can you just give a little tutorial and background about where Globe Life fits in, in the whole life insurance ecosystem? What is the product, who it reaches? What sort of walls or moats you have and why you're successful?

Josh, I'll take that. Our business model is quite different from the other companies probably that you cover. For years, we have operated in the Bell Acon market, selling basic protection, life products and supplemental health products. We sell our products through control distribution, and we control the cost. And we generated a significant underwriting income in that, along with our investment income, meet your -- generates cash that we need to fund our current operations, but at the same time, it provides excess capital that we return to the shareholders. Just kind of going to each one a little bit. We like the middle income market because it is a very large and underserved market that has great growth potential and little competition. As far as the market industry data shows that over half the people in the market don't have life insurance or are underinsured. Most other companies operate in the higher income markets, where there's many companies operating. There's much competition for agents and customers. We just don't face that in our market. Also our protection, life products that we sell they have advantages. One, those are the products that are needed in that middle-income market; but two, they have an added advantage in that they are simple products, they're easy to understand by both our agents and customers. So that aids in the sales process. And then different from other companies is that those protection life products, both term and whole life, have a liability that's fixed at the issue date. It doesn't change over time. And that's in contrast to the companies in the higher end market that are selling products where the ultimate liability's determined either by market interest rates or the credit markets. I also mentioned that we control our distribution. We have exclusive agencies and as well as our large direct-to-consumer operation, and by controlling our distribution we're able to control the cost, which also helps in facing any competition in the market. And by doing so, we are able, as I mentioned earlier, generate an underwriting profit. And over the years, selling these long-term protection products, we have built up a large in-force block of business. That every year generates investment income as well as the underwriting income that we use to fund our operations. And as I mentioned earlier, we do generate a fair amount of excess capital each year. And we've consistently, over the years, returned to that excess capital to our shareholders, generally through dividends and share repurchases. So it's a model that we've followed for many years, Larry and I have been with the company over 35 years. And the model is pretty much the same as it's been. The difference is we do have to change our methods of how to execute the model, but it is a model that is strong and has a great future.

Let's talk a little about the methods. I mean, if we go back, look, 20 years ago, I'm guessing, obviously, generating leads and whatnot heavily due to mailings and . To what extent are mailing still a viable way of generating business to what -- and obviously, technology is disintermediating a lot. And this year, clearly with COVID, we're learning a lot more. But given the markets that you try and tap into, what -- how do the old ways stack up in terms of distribution and have some consistency in generating leads and sales today.

If you look at our distribution, about 75% of new life sales come from our agency, the other 25% is our direct-to-consumer. If you look at direct-to-consumer, the Internet is the fastest-growing channel in our direct-to-consumer business. However, the direct mail, insert media, inbound phone calls are also very important. And that gives us a variety of ways to reach customers. In 2020, we had sales growth across each of those channels. And I think Direct Mail will continue to be important. Our Direct Mails out hundreds of millions of mail pieces every year. Besides those direct sales, that volume has a positive advertising effect for the other direct-to-consumer channels and our agencies. I think most importantly, direct mail generate sales as a follow-up to our Internet sales. And Direct mail also supports our agencies by providing sales leads that becomes a more and more important part of Direct Mail as we go forward. I think Direct Mail will continue to grow as we use analytics and attribution, we'll make it more efficient, and we can reach more customers with our Direct Mail operation.

And to what extent, I guess there's 2 ways. One is that as direct becomes a bigger part of the business, it seems like -- and maybe I'm wrong, that the barrier to entry, the moat comes down, which I guess is one part. I mean, we will get to the Internet a little bit and how that plays in. But 2, I guess, the other angle question I'm getting at is to what extent, given how attractive your returns and your results have been, why haven't others also tried to follow suit and copy you? I know it's low base insurance sales. But I mean, at a certain amount of success, you have to realize somebody is doing something right. So I guess between -- I guess, to the one direct feels to me like a low barrier entry opportunity. But two, I still feel that you guys are kind of out there and people aren't trying to compete directly against you.

I think what you're really asking about, but what's the competition we see. And I guess, along with that is, is competition limited by the barriers to entry. Let's talk about direct-to-consumer first. It really operates in a different segment of the market and the other direct mail competitors. We offer a lower face amount and in our inquiries, there's 2 types of Internet inquiries. One is where people research on the Internet, the other is where they go out to different sites, and they look for the ability to buy insurance on the Internet. At those sites, we really have a lower face and lower premium amount that we offer than a lot of the competitors. The other advantage we have in the direct-to-consumer operation is this, is that we have 50 years' worth of data. So we know when to mail, who to mail, how to segment that market. We continue to build on that ability. The other thing is the low-cost environment that we create for our direct-to-consumer operation. If we take the raw paper, and we convert that into a finished product and have it in mail order delivery as it's delivered to the post office, our volume at several hundred million pieces of direct mail, so large, we have postal inspectors on site. So with a low-cost, we can offer those low phase, low premium policies more competitively than our competitors. On the agency side, as Gary mentioned, we're in an underserved market. And so typically, we are not going head-to-head with competitors. We're the only agent typically that's calling on that household. There's not an agent before us or an agent that follows behind us. We also operate in a different part of the market. As Gary stated earlier, we are in the lower premium, lower face basic protection life insurance. And to date, that just has a competitive market. I think the other thing that protects our niche is that at American income, we're the only union based company I'm aware of that has a unionized agency force and unionized home office. We have a 60-year relationship with labor, and that's important to us. We work at that relationship and it helps us as we receive endorsements from the various locals, then that leads to a lot of referrals for the business in American income. So it's somewhat of a protective niche. Again, at Liberty National in our worksite market, we're at the small employer. We're not really trying to write coverage on employers that have 1,000 or 10,000 employees. Our sweet spot for that market are typically an employer has 10 to 50 employees. And that's been a growing market for us. Again, it's competitive, but we don't see agents ahead of us or agents behind us in that market.

No, so --

Well, I was going to say, I would add on the agency side, the type of products we sell, as we mentioned before, there's low face amounts, but that means low premiums as well. And it is, as Larry alluded to, but it's important, if you're in that market to be able to control not only the administrative expenses, but the acquisition cost because there's just not that much revenue to offset. If you go back in time, most companies were in the middle-income market, and they were operating through exclusive agencies. And I think Met and Pru were the two biggest. But over time, those companies, in the '80s and '90s, started leaving the business because the expenses of running those expensive agencies, we're growing at a faster pace than the premium revenue. So they were losing margin, and so that's why they moved up to the higher income market. And most companies sell -- in that market sell through independent agents. I don't think they could track them through the agents back into the middle-income market. But again, going back to the low premium revenue, there would be low commissions at the point of sale. So it's -- yes, it's a big market, and it's got to be a market that's enticing to people. But I think in many companies will have difficulty making a transition into the middle-income market through agency sales.

So the other thing I should mention is another barrier entry is having to create an agency. We have agency owners, all 3 agencies have started out with the agents in each respective agency. We don't go out and hire experienced agents. We take neophytes. We train them, as they become new agents, they move into a management track, and after 4 or 5 years, they can become agency owners. It would take a tremendous investment and a fair amount of time to create that body of knowledge we have with all of our agency owners, from middle managers and our agent. Secondly, it's a variable cost model. As Gary said, it's owner expense. But those expenses and training and recruiting the agents are primarily borne by those agency owners. So for a company to find the talent, develop the talent, make that investment, I think, would be a long process. To date, we really haven't seen any agencies that have come in, in our end of the market to try and compete with us.

Well, I have a lot more questions that I want to know me answer to, but we have about 70 people online and questions are coming through. And a question just came through that is right along this topic. Someone asks, can you compare your distribution strategy to that of Pramerica, which is better for targeting lower middle-income customers?

Pramerica is a little different agency than the Global Life agencies. First of all, they sell some other investment type products. So they do some estate planning type work. I think their agents tend to be more of a part-time agent, although they have full-time agents. It's a great company. But we don't run into them in the market as a competition. The market is so large, that we're not calling on the same customers, and we don't hire Pramerica agents. So I'm not aware that any of our agents have left for Pramerica. So it's a great model. It's just a very different model from Globe Life.

And Larry, I do think that they target just a little bit higher income than what we tend to plan in our customer base.

That's right. Because they are offering some investment products and our products on both the life and health side are really basic protection, low premium products.

Given COVID going on, the resiliency of your agency force, are there things that you learn about distribution during COVID, that if and when things get back to normal, the business model is going to continue to use those skills that you've developed in the past year because actually, if you -- you're right, there's extra opportunity in a certain type of customer who you weren't reaching or certain types of sales you weren't doing before that now is going to -- both things will be back normal and you'll have an extra virtual sales. I don't know what it is, but maybe are there any learnings that really enhance the future for Globe?

Josh, I'm smiling because I don't know what back to normal is. I don't think there's a back to normal. I think it will be a new normal. One of the things we really learned with the advent of COVID is, we could sell virtually in addition to in-person. And we looked at virtual sales related to COVID, encouraged us to make the investment and the change. In the agencies, all 3 agencies have said, we want to continue virtual sales and virtual recruiting. So I think it's really opened another distribution for the Globe Life companies. I think in-person sales will still be important. Part of the change with virtual is the consumer itself. I think consumers now are much more open to virtual presentations than they were a year ago or 2 years ago. So to go forward, I think you'll see that the virtual sales will be a large percentage of the sales within the Globe Life agencies, and there's some advantage of those virtual sales. It really expands the efficiency in the territory for the agent. Now the agent can work leads to be in Houston this morning, in Dallas this afternoon, in Oklahoma City tomorrow, and there's not that time lost in travel. So the agents like the greater efficiency. I think the other good thing about the virtual process is the virtual recruiting. Before, most of the group interviews or individual interviews took place in the agency owner's office, and what we found is that virtual recruiting is very effective. And again, the larger the territory in which -- or the region of which an agency can recruit because they're not limited by someone having to drive to an office. They can explore the opportunity virtually. And the training virtually is also advantageous because with field training, a new agent can accompany an experienced agent as a field training. With the virtual presentation, you have multiple agents watching that presentation and learning from the veteran agent of how to present and how to explain the coverage to potential customers. So we're excited about virtual training and recruiting, and we think it offers a great opportunity for the Global Life companies to grow as we go forward.

Well, I have a question here from an investor about working remote. Do you expect any change in your office footprint [indiscernible]? And if so, what effect on operating leverage do you think that will have? Examples, marginal improvement, meaningful improvement -- as answers marginal, meaningful, significant or no effect are the 4 choices that they've given; it's like a poll, you can pick. How much improvement comes from that efficiency rationalization, I guess?

Frank, do you want to answer that?

Sure. Yes. No, I think as we're really planning for people to come back into our office. And we really -- it really depends on the particular department. And there's not going to be one rule that applies to the organization as a whole. And so there are certain parts of our organization that worked very well remotely. And we're actually finding a little bit better productivity out of those areas. And I think we'll continue to use those folks remotely on an ongoing basis. Also gives us a little bit more geographical footprint as far as that ability to hire folks, especially with respect to some of our customer service areas. I think some of the other areas is probably a little bit more of a blend type model that we will probably come back to and give people a little bit more flexibility. And I think one of the underlying -- several of our departments, it's one of those things, hey, we're working just fine. We can get the work done. But the collaboration isn't quite there. And if we -- and to really move forward and to put in -- put the steps in place to move forward, we need to have some of that together time and to be able to meet together and to really work. Individuals here in this organization work not just in their own little silos, it's across the organization. So I think we'll end up seeing some type of a hybrid model as we move forward.

So I guess, there's a lot of questions I have and still some more in the audience on COVID-19. Just a quick question. What's the relationship between the pandemic and maybe persistency due to hardship and whatnot during that time? Have we seen any change? I mean sometimes we hear about people who've saved money during the pandemic due to less leisure usage. Is there any impact on your persistency from the pandemic?

Josh, we've seen an improvement in our persistency. And it's been across all our distribution units, and it's been also our first year premium, renewal year premiums, we've seen improvements -- significant improvements, positive improvements. And it's interesting because, as I mentioned earlier, and I've been with the company for a long time, over the years, we really haven't seen much of an impact of macroeconomic conditions on persistency. It's good economy, bad economy, the persistency has stayed consistent over the years. But this pandemic is different. Like I said, it's had a significant positive impact on persistency. And we -- what we draw from that is we think that because of -- every family has been affected by this pandemic in one way or the other. I think it's on people's minds. And I think it's reminded people of the importance of maintaining their life insurance coverage.