Globe Life Inc. (GL) Q1 2012 Earnings Report, Transcript and Summary

Thanks Ed. Well, first off, I've been told by my General Counsel that I have to share this slide. So everybody can read that real quick, but good morning, everybody. Torchmark was formed back in 1980 when Liberty National Life from Birmingham, Alabama acquired Globe Life out of Oklahoma City. For the first 15 years of our existence, we grew rapidly, both internally as well as through acquisition. The company also became much more diverse as we acquired a mutual fund company, started an oil and gas subsidiary, a real estate development company, as well as a major expansion of our property and casualty subsidiary. Over the past 15 or so years, the complexion of Torchmark has changed significantly. We have spun off Waddell & Reed. We also spun off Vesta, which was our property and casualty subsidiary. And we sold Torch Energy. Other than our administrative offices and our Direct Response facilities, we have sold off all of our real estate holdings. And a year ago, we also sold off United Investors, a subsidiary which basically was our variable life business. We have simplified the company and have focused on growing our core businesses. This changing company direction has also changed the way company is perceived by analysts and investors. The most common terms used to describe Torchmark today are safe and predictable, particularly in difficult economic climate. I would have to say that those terms are accurate. If you look at this first chart, you will see that our operating earnings per share showed remarkably consistent growth from 1995 through 2011. The compound annual growth rate was 8.7%. For 2011, we grew our operating earnings per share by 9.6%. And if we achieve the midpoint of our current guidance, we will see operating earnings per share growth of…

Yes?

Thank you. Two questions. So the first one is when you look at the LIMRA studies that come out, it continues to show that penetration of U.S. life insurance ownership is going lower and lower and lower. And your recent results and even beyond the recent results are very contrary to that. So I was just wondering if you could just give us a little bit more color on how you're able to do that.

Well, that is nice. So that's why we like the markets that we're in. We feel like the middle income marketplace is vastly underserved. And I tell people, when I started 36 years ago, I worked for Prudential for a while. They have 35,000 home service agents in this marketplace. And today, they have very few. It's been abandoned by most companies. And I do -- you're right. LIMRA came out with a study a year or so ago. It said 74% of the households in this country recognize that they are -- they don't have enough life insurance. And it was over 40% of the households had no life insurance. We think it's a vastly underserved market and we intend to fill that marketplace. The only thing restricting us is not our market, or is not -- that's just internal. Can we continue to develop people, to recruit more people, and train more people, because again, if I look at American Income, they're grown from 1,300 agents in 1999 to 4,600. Our goal is to have 10,000 in five years. We think that's very achievable.

And then, the follow-up question is unrelated. It's on the investment portfolio. So if I remember correctly, a good portion of your investment portfolio is invested in U.S. financials. And so, recently Moody's -- I guess it was yesterday or today -- announced they're going to be within the near future downgrading some of these larger global-type banks two or three notches. And I'm curious as to what your initial thoughts are on the impacts on your capital ratios from that.

Well, I'll let Gary comment. I know really since 2008, we have been reducing our exposure in financials and diversifying more into other segments. But Gary, do you want to comment?

[indiscernible] I think we're fairly diversified there, not only the barrier banks, but some of the other regional banks. As Mark said, we've reduced that exposure and we're comfortable with the bonds we have.

Right now, Gary, and banks represent what percentage of our total portfolio?

It's less than 15% now. It had been closer to 20%

Ed? Edward Spehar – Bank of America Merrill Lynch: Two questions. The decision to raise prices by 5%, it seems like that's more than what might have been necessary. Given new money rates, is there something that you see that suggests you have pricing flexibility now than what you've thought?

Well, again, raising the rates at American Income by 5%, we see as a non-event. So actually we're trying to get a little bit ahead of the game. Again, the outlook has been for an extended low interest rate environment. We did bring down the interest rate on new business in 2011. We expect to bring that down further in 2012 on new business written. So really, it's just anticipating that we're going to be in a low interest rate environment for several years. So we're just trying to stay ahead of the game. It is a little more than what we probably needed to do. But rather than put 2.5% increase, we went ahead and made it 5%. Edward Spehar – Bank of America Merrill Lynch: And then, as you're turning Liberty National into more of an American Income model, is there concern about cannibalizing anything that's going on at American Income in terms of recruiting or sales?

Well obviously, that was something I had to think hard about. I hated to pull too much talent away from American Income at a time when it was performing very well. But we have a lot of good people at American Income, and I'm really not concerned about that. And actually, if I look at first quarter results, our recruiting has been extremely strong. Again, I said I think on the last call, our agent account in January went from 4,381 to over 4,600. Our life sales at American Income through the first seven weeks of this quarter are running over 20% ahead of a year ago. So it's on a very good track and I feel confident that we'll keep that on track, that we won't lose anything thereby having Roger spend some of his time at Liberty National. Any other questions? Well, I think our time is about -- Edward Spehar – Bank of America Merrill Lynch: I think we can take one more if --

Sure. I don't see any hands. Edward Spehar – Bank of America Merrill Lynch: Well, I'm going to ask one more then.

Okay. Edward Spehar – Bank of America Merrill Lynch: The ability to grow your EPS at the rate that you said long-term, how much of that would be buy back in your view?

Well again, I think we'll see better growth in our underwriting income going forward. But a significant amount will still come from share repurchase. And I know people have said, well, as our stock price goes up, we'll be able to buy back fewer shares. But on the other hand, we also expect our free cash flow to grow going forward. So it will continue to be a combination. Gary, you -- comment?

No. We will see growth in the underwriting income going forward. There are higher prices we've been. But I still think -- I agree with Mark. Share repurchase is still going to be a big factor there. Edward Spehar – Bank of America Merrill Lynch: Okay, thank you very much.

Well, thank you for listening.