Good day, and welcome to the Fourth Quarter 2021 Earnings Release Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mike Majors, Executive Vice President, Administration and Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co-Chief Executive Officers; Frank Svoboda, our Chief Financial Officer and Brian Mitchell, our General Counsel. Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to our earnings release, 2020 10-K in 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 and reconciliations to GAAP measures. I will now turn the call over to Gary Coleman.

Thank you, Mike, and good morning, everyone. In the fourth quarter, net income was $178 million or $1.76 per share compared to $204 million or $1.93 per share a year ago. Net operating income for the quarter was $172 million or $1.70 per share, a decline of 2% per share from a year ago. On a GAAP reported basis, return on equity was 8.8%, and book value per share is $85.9, excluding unrealized gains and losses on fixed maturities, return on equity was 12.3% and book value per share is $58.50, up 10% from a year ago. In our life insurance operations, we continue to see improved persistency compared to pre-pandemic levels. In the fourth quarter, premium revenue increased 8% from a year ago to $733 million. Life underwriting margin was $146 million, down 11% from a year ago. The decline in margin is due primarily to higher COVID-related claims, which Frank will discuss further in his comments. In 2022, we expect life premium revenue to grow 6% to 7%, and at the midpoint of our guidance, we expect underwriting margin to grow around 29% due primarily to an expected decline in COVID claims. In health insurance, Premium revenue grew 8% over the year ago quarter to $313 million, and health underwriting margin was up 12% to $81 million. The increase in underwriting margin is primarily due to increased premium and improved claims experience. In 2022, we expect health premium revenue to grow 6% to 7%, and underwriting margin to grow around 3%. Administrative expenses were $70 million for the quarter, up 11% from a year ago. As a percentage of premium, administrative expenses were 6.7% compared to 6.5% a year ago. For the year, administrative expenses were 6.6% of premium, same as last year. In 2022, we expect administrative expenses to grow 9% to 10% and be around 6.8% of premium due primarily to higher IT and information security costs, employee costs, a gradual increase in travel and facilities costs and the addition of Global Life Benefits division. I will now turn the call over to Larry for his comments on the fourth quarter marketing operations.

Thank you, Gary. I will now discuss each distribution channel. At American Income, life premiums were up 11% over the year ago quarter to $364 million, and life underwriting margin was down 3% to $102 million. The higher premium is primarily due to improved persistency and higher sales in recent quarters. In the fourth quarter of 2021, net life sales were $74 million, up 4%. The increase in net life sales is due to increased productivity. The average producing agent count for the fourth quarter was 9,530, down 1% from the year ago quarter and down 4% from the third quarter. The producing agent count at the end of the fourth quarter was 9,415. At Liberty National, life premiums were up 7% over the year ago quarter to $79 million, while life underwriting margin was down 12% to $12 million. The decline in underwriting margin was caused by higher claims expense. Net life sales increased 4% to $19 million and net health sales were $8 million, up 7% from the year ago quarter due to increased agent productivity. The average producing agent count for the fourth quarter was 2,724, up 1% from the year ago quarter and up 1% compared to the third quarter. The producing agent count at Liberty National ended the quarter at 2,804. About 4% sales growth may not appear dramatic. We are very pleased with the ability of both Liberty and American Income agencies to build on the significant increases we saw a year ago. Fourth quarter sales for 2021 at Liberty and American Income are higher than the fourth quarter of 2019 by approximately 29% and 25%, respectively. At Family Heritage shelf premiums increased 8% over the year ago quarter to $89 million, and health underwriting margin increased 16% to $25 million. The increase in…

Thanks, Larry. We will now turn to the investment operations. Excess investment income, which we define as net investment income less required interest on net policy liabilities and debt, was $59 million, down 4% from a year ago. On a per share basis, reflecting the impact of our share repurchase program, excess investment income was flat. For the year, excess investment income in dollars declined 2%, but on a per share basis, was up 1%. In 2022, we expect excess investment income to decline around 3% but to grow around 1% on a per share basis. As to investment yield, in the fourth quarter, we invested $271 million in investment-grade fixed maturities, primarily in the municipal, industrial and financial sectors. We invested at an average yield of 3.49%, an average rating of A+ and an average life of 31 years. We also invested $45 million in limited partnerships that have debt-like characteristics. These investments are expected to produce additional yield and are in line with our conservative investment philosophy. For the entire fixed maturity portfolio, the fourth quarter yield was 5.17%, down 12 basis points from the fourth quarter of 2020. As of December 31, the portfolio yield was 5.17%. Invested assets are $19.2 billion, including $17.8 billion of fixed maturities at amortized cost. Other fixed maturities, $17.1 billion are in investment grade with an average rating of A-, and below investment-grade bonds are $702 million compared to $841 million a year ago. The percentage of below vessel grades bonds to fixed maturities of 3.9%. Excluding net unrealized gains in the fixed maturity portfolio below investment-grade bonds as a percentage of equity or 12%. Overall, the total portfolio is rated A minus, same as years ago. Bonds rated BBB are 54% of the fixed maturity portfolio. While this ratio is…

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, available liquidity and capital position. In the fourth quarter, the company repurchased 1.6 million shares of Globe Life Inc. common stock at a total cost of $145 million at an average share price of $90.97. The ended the fourth quarter with liquid assets of approximately $119 million. For the full year, we spent approximately $455 million to purchase 4.8 million shares at an average share price of $95.11. The total amount spent on repurchases included $85 million from excess liquidity at the parent. To date, in 2022, we have repurchased 230,000 shares for $23 million at an average price of $101.17. In 2021, the parent had approximately $450 million of excess cash flows available to be returned to shareholders. Of this amount, $80 million was paid to shareholders in the form of dividends, and $370 million was returned through share repurchases. Including our total share repurchases and the shareholder dividends, the company returned $535 million to its shareholders in 2021. For 2022, while 2021 statutory financials have not been finalized, we expect around $465 million to $470 million in cash flow to be available to the parent before the payment of interest on its debt and dividends to its shareholders. After payments of interest on its debt, the parent should have around $380 million to $385 million available to return to its shareholders either in the form of dividends or through share repurchases. This amount is lower than 2021, primarily due to higher COVID life losses incurred in 2021, and the nearly 15% growth in our exclusive agency sales, both of which result in lower statutory income in 2021 and thus lower dividends to the parent in 2022 that were received in 2021. Obviously, while…

Thank you, Frank. Those are our comments. We will now open the call up for questions.

[Operator Instructions] We can now take our first question from Jimmy Bhullar of JPMorgan. Please go ahead.

So first, just a question on claims and the life side. You mentioned non-COVID claims being high. Do you think some of those are related to the pandemic as well indirectly? Or are they independent of that and could stay elevated even once go over debates?

We do think that a good portion of those are indirectly related to the pandemic seems to be just looking at trends that we're seeing across the U.S. would give an indication that some of these are at least can be attributed to either delayed in care or delay in care, so we do anticipate the start and to subside somewhat in 2022. And we anticipate that they'll start to be less impactful over the course of 2 but we do anticipate that we'll still at least see some elevated levels throughout the year.

And has your view on margins being like longer term changed at all because of what's happened with COVID either because of any potential sort of adverse selection in your sales or just long-term health effects of the pandemic?

At this time, Jimmy, it's really hard to determine what that impact will be. Right now, our views are not -- have not been changed with respect to that. Whether it has some potential negatives due to COVID and, if you will, the long cover that's being talked about, having an adverse impact on mortality, there's also the possibility of some positive impacts to mortality in the future, whether that be through improved vaccines. The use of this particular vaccine, another type of factors that might normally cause some better mortality. So at this time, it's a little bit early. We'll continue to look at the data and see what's out there and take that into consideration.

And just lastly, can you talk about like recruiting and retention, how that is given the tight labor market? And how much of a tough environment it is given the market?

I'm sure the new agent recruiting was down as expected in part because of the seasonality we experienced in the fourth quarter of this year and we relate season of last year, agent retention has actually increased over the last 2 years, particularly about income because of the export home schedule. I would say that the -- we're seeing more candidates look at the Asian opportunity. There's just so many available jobs in this labor market, it's been a little bit difficult to track and also retain new agents. But I know we can grow our 3 agencies going forward. Historically, we've been able to do that. And as an example, the economic downturn in 2010 following that American Income had strong agency growth. And in 2018 and '19, where we had record low unemployment, American Income, Liberty and Family Heritage all had strong growth, assuming our ability to grow the agencies, it really depends on growing middle management, expanding through new office openings and providing additional sales to our agents. And during 2022, we are going to open new offices in the 3 agencies. We increased the number of mine managers in all 3 agencies are also providing additional sales technologies to support our agents. So as COVID declines, we expect to see the recruiting and agent counts pick up during the end of the first and the second quarter of this year.

We can now take our next question from Andrew Kligerman from Credit Suisse. Please go ahead.

Hello, can you hear me?

Yes.

You mentioned $27 million of the COVID claims came from direct-to-consumer. Any concern around that is it something to lead into that being the biggest component of the COVID claims and not the biggest component of premium.

No, the -- it has a little bit more of an impact on DTC, kind of given their one, their simplified underwriting, there -- they tend to have a mortality that mirrors a little bit more closely to that of the general U.S. population. And then just remember that their policy obligations are a much greater percentage of their premiums. And so we expect higher mortality just in general, within our DTC line than we do in our other agency lines. One of the things that we do look is we look at what percentage of their claims are being paid related to COVID versus kind of the average for the entire company, and it's in line. And when you look at total claims, we also take a look at just what levels of increased activity we're seeing on our COVID claims versus what would be expected when looking at COVID death across the U.S. And again, we're comfortable that our risk profile really hasn't changed with respect to GTC.

And maybe just a quick follow-up on the recruiting question. As we looked at the American Income agents down 3% year-over-year. And the Family Heritage agents down 21%. The points were great as to the ability to grow. But why not in 2021? Why the drop off, particularly at Family Heritage?

I think 2021 is an extraordinary year that we and the COVID, and I think in all 3 agencies, there was an equal or maybe a greater emphasis on production rather than recruiting. At Family Heritage, the family heritage is a life insurance company -- excuse me, a health insurance company versus a life insurance company. And I think it was much more difficult to recruit returns in 2020 and 2021 that was life insurance because of the extraordinary demand for life insurance. In addition, Family Heritage is a much smaller -- or has much smaller agencies in either Liberty National or American Income. So now managers at Family Heritage are much more involved in production within recruiting in larger agencies of American Income and Liberty National. Middle Managers are primarily focused on recruiting rather than production. I think the last change at Family Heritage is that if you think about life insurance agencies leads, we support virtual contact and presentations. And so it was easy to recruit to those virtual presentations. Health Agent usually contacts health insurance without the benefit of leads, and those tend to be in person in home presentations versus virtual. So again, it was more difficult to be true.

And then just maybe lastly, real quickly on persistency. You highlighted that it was very good. Premium was up a terrific 8% in the quarter. Do you feel good about that from a claims standpoint going forward? Some have suggested a variety of insurance companies that there could be persistency anti-selection. How do you feel about the greater persistency in terms of the profitability going forward?

Well, Andrew, we're seeing the improvements in persistency both in the first year and renewal year. And -- but we haven't seen anything to cause us have concern that we would have ANDA selection. I think it's -- again, it's more of the -- what we've talked about before that the pandemic has raised the awareness of the need for protection. And our policyholders, that's 1 they buy is for the pure protection. And so -- we haven't seen indications that could be a selection. We really don't expect it. Now the persistency may not hold at the higher levels, higher than pre-pandemic levels for a longer period of time, that we don't know. The persistency this year is just a little bit less than it was for 2020, but we're still higher at prepandemic level. At some point, it could go back to prepandemic levels, but we don't expect there to be any extreme as far as analyst selection or things like that.

And we can now take our next question from John Barnidge of Piper Sandler. Please go ahead.

Can you maybe talk about average age of COVID death in 4Q '21 versus 3Q '21 for your insurance?

Yes. What we saw in the -- in our paid claims was about the same. It's -- we had about overall, about 62% of our debts are over 60. And that was a little bit about the same overall is what we really saw in Q2. What we're starting to see -- because a lot of those COVID deaths still are kind of hitting a little bit of the younger ages than what we had seen earlier in the pandemic. And of course, we also saw kind of more in the south in those paid claims in both Q3 and Q4. Q4 was probably about the same. As far as the geography was concerned as well. I should probably just a little bit more even in the South as we caught up on some of those death that had occurred in the third quarter. When we kind of tried to sit through the numbers and look at more of our incurred claims, we're seeing just a slight trending upward on that average age. I don't have what that exact -- the exact age is, are seeing a little bit more trend toward higher ages, which gives us an indication for the future anyway that may be seeing that average age move forward a little bit as some of the younger ages get more vaccinated.

And then my follow-up question, with employment market hot makes it more challenging for commission like job recruitment. Can you maybe talk about the tools that are being brought to existing producing agents to drive productivity gains?

Well, I think that it's not necessarily tools, but we obviously have additional technology we've entered or we've given the agents from 2019, '20 and '21, so they can better recapture beads and a more efficient with the virtual presentations in terms of more presentations and it's a lower cost of them because it’s not the travel alone.

We can now take our next question from Eric Bass of Autonomous Research. Please go ahead.

I think you mentioned one of the factors and you're changing your guidance range was a reduction in the health underwriting margin outlook. So I was just hoping you can give some more color there on what you're seeing?

Yes, Eric, we're just looking at what we were seeing in October and what we were projecting back at that point in time versus revised outlook here, just slightly higher. It's a little bit in several different things, maybe a little lower premium, a little higher acquisition expenses, and a little higher claims as well. So -- and I think it's a combination of all those. For the most part, we're looking at our health margins to gravitate back we had toward 2020, 2019 levels. 2020 was that we had some very favorable claims just experience, I should say. And we're really just kind of anticipating those to move back a little bit more towards the more normal levels you think about our underwriting margin on the health side, still thinking it's about between 24% and 25%, but maybe a little bit closer to 24% as a percentage of premium than what we had anticipated back in October.

And then just another question on sort of the ties between recruiting and sales and obviously, a pretty wide ranges for both. And should we think of those 2 things being linked so that -- I mean if you come in towards the higher end of the agent count growth that would push you towards the higher end of the sales range and vice versa? Or are those 2 things not as directly tied?

They're connected and there's a connection over a long period of time. In the short run, you can have a decrease in recruiting the new agents but actually have an increase in production because it's no veteran Asia much more productive than new agents -- so with less training time involved with middle managers, as you have more a veteran agents, you can increase your production because the percentage of agents submitting on a weekly basis can go up, the average premium written for Asian will also go up in the short run. The long-term success is obviously tied to an increase in the agent count. So if you look at long periods of time, there's a correlation that's very close between agent growth and sales growth and premium growth for each of the agency companies.

So the sales ranges for this year are more a function of productivity rather than the number of agents.

It's a product, but it's also -- those sales ranges are based on the impact of COVID and with COVID declines. If COVID declines quickly, we'd expect sales to be in the upper side of those ranges. If COVID continues at this new variants, and I expect the sales activity and the agent count would be a little lower site of those ranges.

[Operator Instructions] We can take our next question now from Mike Zamansky of Wolfe Research. Please go ahead.

Maybe 1 question on pricing. Just given the continued uncertainty regarding the pandemic would -- are you using pricing as a tool or as the industry are you seeing pricing as a tool to kind of maybe increase pricing and combat some of the margin pressure. I feel like you guys are in a unique position to -- since your sales are mostly captive.

Yes, Mike, I would say that our pricing isn't so much to combat the COVID and changes in mortality. We haven't really viewed our -- the mortality, I kind of mentioned before, the long run, long-term mortality assumptions very differently. We did have some pricing increases in 2021, but that was more for regulatory changes that went into place as well as the lower interest rate environment. So that's where -- while we had some premium increases. And given our captive agency, we're able to put in some premium increases from time to time for those purposes. But I would say that we're really seeing any for -- directly related to the COVID.

And we have no further questions at this time. I'd now like to turn the call back to Mike Majors for closing remarks.

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

This concludes today's call. Thank you for your participation. You may now disconnect.