Globe Life Inc (GL) — Q1 2022 Earnings Call Transcript

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, 2021 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 terms and reconciliations to GAAP measures. I will now turn the call over to Gary Coleman.

Thank you, Mike, and good morning, everyone. In the first quarter, net income was $164 million or $1.64 per share compared to $179 million or $1.70 per share a year ago. Net operating income for the quarter was $170 million or $1.70 per share, an increase of 11% per share from a year ago. On a GAAP reported basis, return on equity was 8.5%, and book value per share is $69.16, excluding unrealized gains and losses on fixed maturities, return on equity was 11.5% and book value per share is $59.65, up 10% from a year ago. In our life insurance operations, premium revenue increased 7% from a year ago to $755 million. Life underwriting margin was $150 million, up 10% from a year ago. The increase in margin is due primarily to increased premium. For the year, we expect life premium revenue to grow around 6% and at the midpoint of our guidance, we expect underwriting margin to grow around 23% due primarily to an expected decline in COVID life claims. In health insurance, premium grew 8% to $317 million, and health underwriting margin grew 10% to $79 million. The increase in underwriting margin is due primarily to increased premium and improved claims experience. For the year, we expect health premium revenue to grow 6% to 7%, and at the midpoint of our guidance, we expect underwriting margin to grow around 5%. Administrative expenses were $73 million for the quarter, up 10% from a year ago. As a percentage of premium, administrative expenses were 6.8% compared to 6.6% a year ago. For the full year, we expect administrative expenses to grow 10% to 11% and be around 6.9% of premium, that’s due primarily to higher IT and information security costs, employee costs, a gradual increase in travel and facilities costs and the addition of Globe Life Benefits division. I will now turn the call over to Larry for his comments on the first quarter marketing operations.

Thank you, Gary. At American Income, life premiums were up 10% over the year-ago quarter to $370 million, and life underwriting margin was up 13% to $111 million. The higher premium is primarily due to higher sales in recent quarters. In the first quarter of 2022, net life sales were $85 million, up 23%. The increase in net life sales is due to increased productivity, plus a gradual improvement in issue rates, as some challenges in underwriting such staffing and speed in processing medical records and other information are resolving. The average producing agent count for the first quarter was 9,385, down 5% from the year-ago quarter and down 2% from the fourth quarter. The producing agent count at the end of the first quarter was 9,543. We are confident American Income will continue to grow. The agent count was trending up in the last several weeks of the quarter, and we also have seen improvement in personal recruiting, which yields better candidates and better retention than other recruiting sources. In addition, we have made changes to the bonus structure designed to improve agency middle management growth. At Liberty National, life premiums were up 7% over the year-ago quarter to $81 million, and life underwriting margin was up 35% to $13 million. The increase in underwriting margin is primarily due to improved claims expense. Net life sales increased 7% to $17 million and net health sales were $6 million, up 6% from the year-ago quarter due to increased agent productivity. The average producing agent count for the first quarter was 2,656, down 3% from the year-ago quarter and down 2% compared to the fourth quarter. The producing agent count at Liberty National ended the quarter at 2,687. We've introduced new training systems to help improve agent retention and updated our sales presentations to help agent productivity. We are pleased with the continued growth of Liberty National. At Family Heritage, health premiums increased 7% over the year-ago quarter to $90 million, and health underwriting margin increased 9% to $24 million. The increase in underwriting margin is due to increased premium and improved claims experience. Net health sales were up 19% to $90 million due to increased agent productivity. The average producing agent count for the first quarter was 1,100, down 14% from the year-ago quarter, and down 8% from the fourth quarter. The producing agent count at the end of the quarter was 1,130. We have modified our agency compensation structure and are increasing our focus on agency middle management development to drive recruiting growth going forward. We were pleased with the record level of productivity at Family Heritage. In our direct-to-consumer division of Globe Life, life premiums were up 3% over the year-ago quarter to $251 million. And life underwriting margin increased 3% to $9 million. Net life sales were $34 million, down 15% from the year-ago quarter. We expected this sales decline due to the 22% sales growth experienced in the first quarter of 2021. Although sales declined from the first quarter of 2021, we are still pleased with this quarter's sales results. At United American General Agency, health premiums increased 13% over the year-ago quarter to $133 million and health underwriting margin increased 6% to $20 million. Net health sales were $13 million flat compared to the year-ago quarter. It is difficult to predict sales activity in this uncertain environment. I will now provide projections based on trends we are seeing and knowledge of our business. We expect the producing agent count for each agency at the end of 2022 to be in the following ranges: American Income, a decrease of 2% to an increase of 3%; Liberty National, flat to an increase of 14%; Family Heritage, an increase of 8% to 25%. Net life sales for the full year 2022 are expected to be as follows: American Income, an increase of 9% to 17%; Liberty National, an increase of 4% to 12%; direct-to-consumer, a decrease of 13% to a decrease of 3%. Net health sales for the full year 2022 are expected to be as follows: Liberty National, an increase of 3% to 11%; Family Heritage, an increase of 4% to 12%; United American individual Medicare supplement, a decrease of 5% to an increase of 3%. I will now turn the call back to Gary.

Thanks, Larry. We will now turn to the investment operations. Excess investment income, which we defined as net investment income less required interest on net policy liabilities and debt was $61 million, up 1% from a year ago. On a per share basis, reflecting the impact of our share repurchase program, excess investment income was up 5%. For the full year, we expect excess investment income to decline between 1% and 2% but be up around 2% on a per share basis. As to investment yield, in the first quarter we invested $351 million in investment grade fixed maturities, primarily in the municipal and financial sectors. We invested at an average yield of 3.97%, an average rating of A, and an average life of 27 years. We also invested $118 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 first quarter yield was 5.15%, down 9 basis points from the first quarter of 2021. As of March 31, the portfolio yield was also 5.15%. Regarding the investment portfolio, invested assets are $19.5 billion, including $18 billion of fixed maturities at amortized cost; as fixed maturities, $17.4 billion are investment grade with an average rating of A minus; and below investment grade bonds are $583 million, compared to $802 million a year ago. The percentage of below investment grade bonds fixed maturities is 3.2%, and I would add that this is the lowest ratio and has been for more than 20 years. Excluding net unrealized gains in the fixed maturity portfolio, the low investment grade bonds as a percentage of equity are 10%. Overall, the total portfolio is rated A minus, same as a year ago. Bonds rated BBB are 54% of the fixed maturity portfolio. While this ratio is in line with the overall bond market, it is high relative to our peers. However, we have little or no exposure to higher risk assets such as derivatives, equities, residential mortgages, CLOs and other asset-backed securities. Because we primarily invest long, a key criterion utilized in our investment process is that an issuer must have the ability to survive multiple cycles. We believe that the BBB securities that we acquire provide the best risk-adjusted, capital-adjusted returns, due in large part to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. I would also mention that we have no direct exposure to investments in Ukraine or Russia, and we did not expect any material impact to our investments in multinational companies that have exposure to those countries. For the full year, at the midpoint of our guidance, we expect to invest approximately $1.1 billion in fixed maturities at an average yield of around 4.3% and approximately $200 million in limited partnership investments with debt-like characteristics at an average yield of around 7.7%. We are encouraged by the recent increase in interest rates and the prospect of higher interest rates in the future. Our new money rates will have a positive impact on operating income by driving up net investment income. We're not concerned about potential unrealized losses that are interest rate-driven since we do not expect to realize them. We have the intent and, more importantly, the ability to hold our investments to maturity. In addition, our life products have fixed benefits that are not interest-sensitive. Now, I will turn the call over to Frank for his comments on capital and liquidity.

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, available liquidity and capital position. The parent began the year with liquid assets of $119 million. In addition to these liquid assets, the parent company will generate excess cash flows in 2022. The parent company's excess cash flow, as we define it, results primarily from the dividends received by the parent from its subsidiaries, less the interest paid on the parent company debt. During 2022, we anticipate the parent will generate $350 million to $370 million of excess cash flows. This amount of excess cash flows, which again is before the payment of dividends to shareholders is lower than the $450 million received in 2021, primarily due to higher COVID life losses and the nearly 15% growth in our exclusive agency sales in 2021, both of which resulted in lower statutory income in 2021, and thus lower cash flows to the parent in 2022. Obviously, while an increase in sales creates a drag to the parent’s cash flows in the short term, the higher sales will result in higher operating cash flows in the future. Including the excess cash flows and the $190 million of assets on hand at the beginning of the year, we currently expect to have around $470 million to $490 million of assets available to the parent during the year, out of which we anticipate distributing a little over $80 million to our shareholders in the form of dividend payments. In the first quarter, the company repurchased 880,000 shares of Globe Life Inc. common stock at a total cost of $88.6 million at an average share price of $100.70. Year-to-date, we have repurchased 1,097,000 shares for approximately $110 million at an average price of $100.76. We also made a $10 million capital contribution to our insurance subsidiaries during the first quarter. After these payments, we anticipate the parent will have $270 million to $290 million of assets available for the remainder of the year. As noted on previous calls, we will 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 a primary use of the parent's excess cash flows, along with the payment of shareholder dividends. It should be noted that the cash received by the parent company from our insurance operations is after our subsidiaries have made substantial investments during the year to issue new insurance policies, expand and modernize our information technology and other operational capabilities and acquire new long-duration assets to fund their future cash needs. As discussed on prior calls, we have historically targeted $50 to $60 million of liquid assets to be held at the parent. We will continue to evaluate the potential impact of the pandemic on our capital needs, and should there be excess liquidity, we anticipate the company will return such excess to the shareholders in 2022. In our earnings guidance, we anticipate between $400 and $410 million will be returned to shareholders in 2022, including approximately $320 to $330 million through share repurchases. Now with regard to our capital levels at our insurance subsidiaries, our goal is to maintain our capital levels necessary to support our current ratings. Globe Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. For 2021, our consolidated RBC ratio was 315%. At this RBC ratio, our subsidiaries have approximately $85 million of capital over the amount required at the low end of our consolidated RBC targets of 300%. At this time, I'd like to provide a few comments related to the impact of COVID-19 on first quarter results. In the first quarter, the company incurred approximately $46 million of COVID life claims equal to 6.1% of our life premium. The claims incurred in the quarter were approximately $17 million higher than anticipated, due to higher levels of COVID deaths than expected, partially offset by lower average cost per 10,000 US deaths. The Center for Disease Control and Prevention, or CDC, reported that approximately 155,000 US deaths occurred due to COVID in the first quarter, the highest quarter of COVID deaths in the US since the first quarter of 2021. This was substantially higher than the 85,000 deaths we anticipated based on projections from the IHME. At the time of our last call, we utilized IHME's projection of 65,000 first quarter US deaths and added a provision for higher deaths in January, as reported by the CDC, but that were not reflected in the IHME projection. IHME's projection anticipated a significant drop off in deaths starting in mid-February. Obviously, the decline in death did not occur as quickly as anticipated, especially during the latter half of the quarter. With respect to our average cost per 10,000 US deaths based on data we currently have available, we estimate COVID losses on deaths in the first quarter were at the rate of $3 million per 10,000 US deaths, which is at the low end of the range previously provided. This reflects an increase in the average age of COVID deaths and a decrease in the percentage of those deaths occurring in a particular demographic. The first quarter COVID life claims include approximately $25 million in claims incurred in our direct-to-consumer division, or 10% of its first quarter premium income, approximately $4 million at Liberty National, or 5.5% of its premium for the quarter, and approximately $15 million at American Income, or 4% of its first quarter premium. We continue to experience relatively low levels of COVID claims on policies sold since the start of the pandemic. Approximately two-thirds of COVID claim counts come from policies issued more than 10 years ago. For business issued since March of 2020, we paid 624 COVID life claims with a total amount paid of $9.3 million. The 624 policies with COVID claims comprise only 0.01% of the approximately 4 million policies issued by Globe Life during that time. These levels are not out of line with our expectations. As noted on past calls, in addition to COVID losses, we continue to experience higher life policy obligations from lower policy lapses and non-COVID causes of death. The increase from non-COVID causes of death are primarily medical related, including deaths due to lung ailments, heart and circulatory issues, and neurological disorders. The losses we are seeing continue to be elevated over 2019 levels, due at least in part to the pandemic and the existence of either delayed or unavailable health care, and potentially side effects of having contracted COVID previously. In the first quarter, the life policy obligations related to the non-COVID causes of death and favorable lapses were approximately $7 million higher than expected, primarily due to higher non-COVID deaths in our direct-to-consumer division than we anticipated. For the quarter, we incurred approximately $22 million in excess life policy obligations, of which approximately $15 million relates to non-COVID life claims. For the full year, we anticipate that our excess life policy obligations will now be approximately $64 million or 2.1% of our total life premium, two-thirds of which are related to higher non-COVID causes of death. This amount is approximately $11 million greater than we previously anticipated. With respect to our earnings guidance for 2022, we are projecting net operating income per share will be in the range of $7.85 to $8.25 for the year ended December 31, 2022. The $8.05 midpoint is lower than the midpoint of our previous guidance of $8.25 primarily due to higher COVID life policy obligations related to higher expected US deaths during the year. We continue to evaluate data available from multiple sources, including the IHME and CDC to estimate total US deaths due to COVID, and to estimate the impact of those deaths on our enforced book. At the midpoint of our guidance, we estimate we will incur approximately $71 million of COVID life claims, assuming approximately 245,000 COVID deaths in the US. This is an increase of $21 million overall from our prior estimate. This estimate assumes daily deaths will diminish somewhat from recent levels, but remain in an endemic state throughout the year. With respect to our cost per 10,000 deaths, we now estimate we will incur COVID life claims at the rate of $2.5 million to $3.5 million per 10,000 US COVID deaths for the full year, or approximately $2.8 million per 10,000 US deaths over the final three quarters of the year. Those are my comments. I will now turn the call back to Larry.

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

Hi, good morning. So I had a couple of questions. First, if you could talk about the decline in the agent count. And I guess it's multiple factors. But to what extent is a difficulty finding new agents in this labor market versus just the departures of people that you've hired over the past couple of years for other jobs? And then did lead... How do you think this applies for sales? Do you think this is something that will pressure sales as you get into late this year and into next year?

Jimmy, I'll address the first question first. I'm not sure the second part is true that recruiting has been challenging because there are so many work opportunities. I'd also remind everyone that there's typically a decline in agent count sequentially from the fourth quarter to the first quarter because of seasonality during the holidays that affects American Income and Family Heritage. We also have open enrollments at Liberty National during the holidays, which means people are focused on open enrollment during that period. I do believe continued agency growth is possible because our agency is focused on selling to the underserved middle-income market. Also, there's absolutely no shortage of underemployed workers looking for a better opportunity. Historically, we've been able to grow the agencies regardless of economic conditions. For example, during the economic downturn and high unemployment from 2008 to 2010, American Income had very strong agency growth in 2018 and 2019, and the US experienced record-low unemployment, while American Income, Liberty National, and Family Heritage had strong growth. Our long-term ability to grow the agencies, Jimmy, really depends on growing middle management, expanding new office openings, and providing additional sales tools for agents. During 2022, we anticipate opening new offices and increasing the number of general managers in all three agencies. We're also providing additional sales technology to support our agents. Jimmy, could you repeat the sales question? I don’t think I heard the sales question.

It was just that like, obviously, to the extent that you are losing people who were recently hired, then you don't lose a lot of production from them because they hadn't ramped up. But how do you think that like - does the decline in the agent count both people leaving or already agents and difficulty in hiring new agents, does that make you less optimistic about sales later this year and into next year?

What doesn't make it less optimistic? New agents were less productive than veteran agents. As you look across the three agencies, the increases in sales are partially explained by the increase in productivity. For example, the largest clients of Family Heritage had a 16% increase in the percentage of agents submitting business, also a 22% increase in the average premium written for agents. So that level of productivity that comes from the veteran agents is notable. In American Income, in the first quarter we saw personal recruits increase about 15% versus the first quarter of 2021. That's important because personal recruits stay twice as long and are twice as productive as recruits from other sources. So you'll have confidence even though the agent increase will be slower this year; we'll still have the sales within the range that we provided during the script.

Okay. And then any comments on what you're seeing in terms of non-COVID mortality? Because it seems like claims for a number of life companies have been elevated even beyond COVID because of other health issues or related issues potentially related to COVID but not direct COVID claims?

Yeah, Jimmy. That is really consistent with what we're seeing right now as well, and we did see, especially in the first quarter, elevated levels, especially in our direct-to-consumer segment, but across various distributions, and really across several different causes of deaths. But primarily, as I mentioned, in the heart and circulatory, lung, and some of the neurological disorder areas, we really do attribute it to the various side effects of COVID, whether it's just not getting care when needed throughout 2021, or side effects of having contracted COVID previously. As we're looking at 2022, looking back, we thought some early trends in December indicated that we would start to see a decrease in those claims in 2022. The first quarter really wasn't worse than what we’ve seen in the past, but it was slightly elevated, not substantially so. However, we believe over time that these claims will revert back towards normal levels, but probably a little more slowly than previously anticipated.

And then just lastly, on the accounting changes, do you have any sort of initial commentary on what you expect the impact to be, both in terms of the balance sheet and on the income statement?

Yeah, no updates from what we had talked about on the last quarterly call. We do anticipate providing some further quantitative disclosure after the end of the second quarter. We're still in the process of finalizing our model and doing the testing, ensuring our controls are in place, and looking at various aspects of validating our numbers. So, as I said, on the last call, we do anticipate a favorable impact on operating earnings primarily through reduced changes made on the amortization side of the balance sheet or the income statement. With respect to equity on the AOCI, there will be some decrease there, clearly from just the changes in the interest rate.

Hi, good morning. I thought I'd go back to the producing agent count numbers. So the new targets for American Income are negative 2 to positive 3, that's versus 3 to 8 at your last quarterly guidance. Liberty National is zero to 14, compared to 3 to 18 last time, and then Family Heritage is expecting an increase of 8 to 25 versus 12 to 30 the last time. So I guess the question is, was it the tight labor market that's primarily driving this change in guidance? Is there something else? You know, what are some of the key drivers of this new guidance?

For American Income, one of the key drivers is just the amount of agency growth we had in 2020 and 2021. As you recall, we had greater than 20% agency growth; agency growth is always a stair-step process. So I wouldn't expect the same level of agency growth in 2022 that we had in 2020 and 2021. I think the uncertainty around the other two agencies has to do with COVID. Now, if you recall, Liberty National sells a majority of its sales worksite presentations, and those take place at the place of business. Those appointments are more difficult to set during the pandemic. The decline in COVID will allow the agency count growth of Liberty National to potentially reach the upper end of the range. Similarly, for Family Heritage, they don't sell life insurance in a traditional manner. They sell in-home, or physically at the business. Those appointments were very tough to set during the pandemic. If COVID continues to decline, the agent count growth with Family Heritage will reach the upper end of the range because it will be easier to recruit for those in-home or at-business sales. However, what's encouraging is the sales levels we had in the first quarter, with a 90% sales growth at Family Heritage, because that makes recruitment easier as agents are having such success. Likewise, we saw worksite sales increase by 10% for the quarter, first quarter of '22 compared to '21.

That makes a lot of sense, particularly Liberty and Family Heritage. But again, on American Income, you knew about the agency growth that was strong in '20 and '21, but you gave guidance of 3% to 8% and now it's off pretty sharply. Anything other than just the tight labor market that might explain this change in thinking in the course of two or three months?

Not two or three months. I'd remind you at American Income, we had a large number of offices opened in 2018 and 2019, which resulted in higher agency growth for those new offices. During COVID, it was more difficult to open those new offices. So we have lower new office resumes in 2022 than we had in '21 and '22, compared to '18 and '19. Again, I will say that we look at American Income with approximately 10,000 agents; a 3% increase is 300 agents, which is a large number to bring in and train. So again, referring back to the startup process, we always see agent growth following faster growth. If you go back to '17 and '18, you would see that American Income and Family Heritage had almost zero agent growth in those two years. Then in '19 to '20, we saw accelerated agent growth. This follows a pattern that historically we've seen in all three agencies.

I see. Okay. And then, you know, you talked a little bit about going forward, some building out the middle management and increasing the offices further as we go through '22. Could you put any numbers around it or any further color?

For all three agencies, we expect to increase middle management by 5 to 8 percent. That's important, because middle management drives most of the recruiting in all three agencies. So the lack of agent growth at American and Family Heritage has hampered some middle management growth during 2022. As we see agent growth accelerate, more people will take that opportunity and move into middle management. Again, we've had rapid agent growth at American Income. I think the 5% to 8% growth is a reasonable range to assume for 2022. I feel Family Heritage has - or excuse me, Liberty National, you will see the worksite sales increase, and we expect to see that same increase in middle management.

Got it. And, you know, I guess lastly, you were just touching on how sort of those elevated, you know, non-COVID, but COVID-related claims reverting back over time and we've heard that from some of the big US life reinsurers as well. Anything further there, is it just, you know, once COVID subsides, all these situations where people aren't getting medical checkups, et cetera, will just kind of subside with COVID? Anything else that gives you confidence that this will revert over time?

No, I think that's largely when you think about getting back to access to health care, and generally people getting more comfortable with getting out of their homes, visiting the doctor's office, and receiving the care they need for their conditions. I think that as time goes on, obviously, we will start to see, you know, get more experience with the numbers and we will be able to gain a better sense of that. I think at this point in time, you know, where you look at this elevated level, and you kind of see the situation and it's more from the belief that over time, as we get past the COVID pandemic, access to health care will normalize, and we anticipate that the non-COVID deaths will also revert back to normal levels as well, at least until we see something in the numbers indicating otherwise.

Yeah, that seems very encouraging for '23 and '24. Anyway, thank you very much for answering the questions.

Thanks.

Hi, thank you. It looks like the lapses ticked up a little bit from where they've been running in the life business. So just wondering, are you starting to see persistency begin to normalize? And is that something you'd expect to continue?

Eric, I think that's true of Liberty National. It appears that we're getting back more towards the pre-pandemic level of lapses. On the direct-to-consumer side, the lapse rates were a little higher; first-year lapse rates were a little over 10%, which is typically less than 9%. I think we will settle down as we go forward. In American Income, I think we've had a fluctuation this quarter. The first-year lapse rate was a little over 10%. I think that will stabilize moving forward. I think, on the direct-to-consumer front, the lapse rate in American Income will be slightly higher than what we experienced in '21 but still favorable compared to pre-pandemic levels.

Got it. Thank you. And then can you remind me, I think one of the other factors driving the excess life claims you're assuming is the better persistency. Just provide a reminder of what you're assuming there and how that works through?

Yeah, about a third, you know, I mentioned in the opening comments that we anticipate total excess policy obligations, and we're estimating at around $64 million. About a third of that is due to the higher lapses. Over time, we are projecting that down throughout 2022. As Gary indicated, we still anticipate having favorable persistency versus pre-pandemic levels. However, we are adjusting that back as we go through the year, anticipating some favorable persistency improvement. That favorable persistency does result in some higher policy obligations than normal. So, over time, we are gradually working that down throughout the year.

Thanks. And if I could sneak one more, on your excess investment income, I think it was up year-over-year this quarter, and your guidance is still for it to decline on a dollar basis. Was there anything unusual in the investment income this quarter?

Eric, we had the income from the limited partnerships that we had was about $2.5 million higher than expected. I think that's a little bit of a timing thing. The investment income was weighted heavier towards the first quarter than it will be later in the year.

Hi, good morning. On the $15 million of non-COVID excess mortality claims in the quarter, can you give that by division? I guess I'm curious if it was more concentrated in direct-to-consumer like your - like the direct COVID claims or...

Yeah, the total excess obligations I think indicated were about $7 million higher. About $10 million of that was related to direct-to-consumer, which is about $11 million, and about $2 million each from American Income and Liberty National.

I was looking at the $15 million of the – I think you said there was $24 million of indirect policy obligations, and $15 million was from mortality?

Yes. Okay. Yes. And about $10 million of that was from direct-to-consumer, and approximately $2 million each from American Income and Liberty National.

I guess, is there any - as you dug into the data, are there any conclusions as to why you think you're seeing more concentration in both direct and indirect COVID claims in direct-to-consumer relative to the agent-driven divisions?

You know, I think just in general, as we look at it, remember that direct-to-consumer is just a higher mortality business. In the normal course of time, their policy obligations make up about 54% or 55% of their total premium. Whereas for both Liberty and American Income, they're in that 30% to 35% range on a pre-pandemic level. So just from a proportion perspective, direct-to-consumer has this higher mortality. Beyond that, we don’t really see anything else in the numbers to specifically point to in direct-to-consumer.

Thanks. And then when I look at your - if I take your life underwriting income in both 2021, and in the first quarter, and if I add back the direct and indirect COVID and mortality impacts that you cited, it looks like the margin would have been about 29% of premium. If you add everything back, which is higher than it was running pre-pandemic, which I think was more in the 27% to 28% range. Is 29% more indicative of what you'd expect once the pandemic fully ends? Are there some other offsets?

You know, Ryan, I think one additional piece there is that we're seeing improved or lower amortization of deferred acquisition costs because of improved persistency. That's an important piece that gets you from the 20 into what we'd say a normal 28 to the 29 that you came up with.

Thank you very much. Can you maybe talk about how inflation changes the dynamics or distribution of products in your targeted demographic? Maybe a bit differently, how do you think through sales persistency holding up in a soft economic environment driven by inflation?

I'll first talk about the impact of inflation. It's really different in each distribution for the agency channels. We expect a little impact on sales due to inflation. Remember, we sell based on needs. This shift in customer needs requires clients to purchase larger face amounts if necessary, though the monthly premiums associated with the products will see only a slight increase. Our premiums are designed to comprise only a small percentage of the agency's budget. The direct-to-consumer inflation could be a negative for the channels, as inflation increases overall costs of media due to postal rate and paper cost increases. As such, we will likely need to adjust mail volumes to maintain profit margins. However, we can expand the use of internet and email channels to offset these decreases. For Medicare Supplement United American, inflation can lead to higher medical trends. Higher trends will be offset with rate increases over time to achieve the lifetime loss ratios. To the extent that medical trends are higher than assumed, profit margins may actually improve as the fixed dollar acquisition costs become a lower percentage of the premium.

That's very helpful. And then maybe on the investment portfolio as a follow-up. The rate environment has changed a lot. Does this change your interest in floating rate securities versus more fixed? Or could you maybe talk about how rates have changed your view on investments?

Well, John, we primarily invest long because our liabilities are long. We've seen a flattening in the curve from the beginning of the quarter to the end. However, when you consider spreads, the longer 25-year bonds that we're purchasing still provide substantial yield enhancement over shorter bonds. We don't rule out shorter investments when needed, especially if we want to improve diversification or quality. In fact, we are going shorter to a certain extent regarding the alternatives we're investing in, as I mentioned, we'll invest approximately $200 million in 2022 in these limited partnerships that are credit-structured arrangements. They're shorter but still yield well. But for the most part, as I mentioned, 15% will go to the shorter investments; but that means 85% are still dedicated to longer investments.

Thank you very much for answering. Best of luck in the quarter ahead.

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