Globe Life Inc (GL) — Q4 2025 Earnings Call Transcript

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 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 non-fixed 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 non-fixed 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 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 $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 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.

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, 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.

Could you discuss the relationship between MedSup and Med Advantage? Historically, with a Republican government, it was expected that Med Advantage would see growth, but this time it seems to be reversing. I'm curious about your growth outlook for MedSup; I assume it's quite positive. If that's the case, considering you filed prices around the middle of last year, perhaps in the third quarter, and claims trends have remained high since then, should we assume you'll need to go through the price increases to normalize the margins for the business? It seems we might initially see slightly weaker margins, improving after you implement the higher prices.

Yes, Jimmy, on the claim trends, we've actually seen 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 would just like to remind everyone that the fourth quarter may be slightly lower than the second and third quarters due to seasonality. We really expect to return to more normal levels as we fully implement the rate increases into 2027.

I will now discuss the market trends. Our fourth-quarter results are very robust, largely due to the ongoing dynamics in the Medicare Advantage market and the continued value that people find in Medicare Supplement plans. The conversation around government reimbursement rates and their impact on Medicare Advantage carriers has been significant, especially regarding premium increases, cost reductions, and scaling back initiatives. We are also observing providers reducing their Medicare Advantage plan offerings. These factors collectively benefit us in the marketplace. It will be intriguing to see how the first and second quarters unfold in relation to these market dynamics. As previously stated, we are focused on pricing for profitability rather than merely increasing our market share. Therefore, managing our rate increases in line with claims performance is crucial for the overall profitability of this segment. We believe that our requested rate increases are consistent with what other carriers are experiencing, which is positive for our premium earnings in 2026. The sales side is challenging to forecast at this moment, but we experienced significant growth in the previous year, now considered 2025. We will closely monitor how developments progress in the first and second quarters 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.

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?

No, I believe that as we continue to capitalize on our technology investments, we will see ongoing benefits from improved efficiency. On the agency side, there is still potential for further development. We have implemented various technologies, but there are many initiatives in progress that will launch in 2026 and 2027. This should enhance our agents' productivity, which will drive sales growth at a rate that exceeds the growth in our agent count, aligning with our goals for these investments. Additionally, on the direct-to-consumer side, a significant portion of our sales comes from our online channel. As we market and target customers within our demographic who are seeking our products, we are placing important emphasis on the sophistication of our technology in this area, and we continue to invest in it. This focus is why we expect to see growth trends in this segment, along with efficiency gains from our distribution model. We have discussed converting interested leads into actual sales and maintaining those customers through excellent experiences, which will continue to benefit us moving forward. In summary, I would say that we have not fully realized the potential of our technology enhancements yet, but we will keep working towards achieving the growth we are aiming 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. Regarding the quarterly actual to expected remeasurement gains, we are experiencing favorable life mortality and lapse experiences compared to our long-term assumptions. Similarly, we expect mortality trends to remain consistent with recent patterns, leading to continued life remeasurement gains. As we analyze this experience and observe the developments of the first and second quarters, we will update our assumptions as needed. We also anticipate an assumption remeasurement gain in the range of $50 million to $100 million for the third quarter of 2026. Depending on where we establish those long-term assumptions, we could see ongoing remeasurement gains even into the third and fourth quarters of next year. For the health sector, the premium rate increases will aid our ability to generate experience that can lead to continued remeasurement gains. However, the remeasurement gains in health are more volatile due to the unique way Medicare Supplement and the rate increases are integrated into our reserve practices. Therefore, we expect some volatility in remeasurement gains and losses in the health segment.

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, I'm sorry, Jack, it’s a bit hard to understand your question, but I believe you are asking about the differences on the GAAP or statutory side affecting the excess cash flows. From what Tom mentioned regarding his guidance of $625 million to $675 million, we see that this is primarily driven by strong statutory earnings in 2025, which then convert into dividends for the parent company in 2026. This represents a slight increase over the normal statutory earnings we observed in the previous year. Additionally, while there were some extraordinary dividends in 2025, excluding those, we still see a nice increase. I feel more confident that we have reached a higher level concerning our statutory earnings, which improves the cash flow generation at the parent company. There haven’t been any significant changes in the statutory or GAAP models that would impact 2025 or even 2026 compared to previous 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 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 a little bit higher sales growth than just the agent count growth. Again, quarter-to-quarter, we're going to get some of those fluctuations.

I want to follow up on Jack's question about sales. It seems you're planning to implement retention initiatives this year, which wasn't the case last year. That might explain why you mentioned that the average producing agents have increased in the mid-single digits at American Income, along with net life sales rising in the high single digits. I'm trying to delve deeper into productivity. What caused the increase in the fourth quarter, considering there was a 2% drop in average producing agents but a 10% rise in sales? I believe you mentioned earlier that lead generation from direct-to-consumer is a factor. It appears you're building in more productivity going forward, and I’m looking for more clarity on what is driving that.

Sure. As we've mentioned before, agent count growth is a leading indicator, which is then followed by sales growth. If you look back at American Income, for Q4 of '24, there was a 7% growth, while Q1, Q2, and Q3 all saw low single-digit growth in agent count. This trend will impact sales in Q4. We're also noticing gains in productivity, and the premium collected per sale is higher compared to the same quarter last year, contributing to this growth. Additionally, our approach to understanding consumer needs through direct meetings allows us to determine appropriate coverage, which positively affects the premium collected per policy. The quality of leads generated through our direct-to-consumer channel also enhances productivity, influencing the premium per sale as well as the performance of our agents each week. It’s important to note that we expect agent count growth might lag slightly behind sales growth in 2026 due to these dynamics. We'll monitor how our new incentives impact recruitment and retention, as these incentives are vital for balancing sales, recruiting, training, and retaining agents. We're making some adjustments at the start of 2026 and will assess their effectiveness 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.

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. A lot of the discussion regarding potential exposure has centered around the alternative portfolio. We have reviewed the limited partnerships and various investments available to us. Our best estimate indicates that there is likely less than $15 million in the alternative portfolio related to software companies, so we believe it's quite limited. Overall, our private credit represents about 1% of our total invested assets, which is consistent with last quarter and hasn't changed this year. Therefore, our allocation to the alternative space, including private credit, is relatively low. Currently, we don't see much exposure to software in that area. As for the fixed maturity portfolio, we've consistently been underweight in technology. We're focused on acquiring bonds that span 20 to 30 years, and finding technology companies that fit comfortably into that category has been challenging. Less than 2% of our fixed maturity portfolio is associated with technology activities in that sector. Our exposure is primarily to hardware and data service providers, with a handful of names in that category. We estimate this exposure to be under $50 million, and while they have some vulnerability to being displaced, they possess certain advantages due to proprietary data relevant to their operations. We are monitoring this situation closely. The potential for disruption from AI has been a consideration for our investment team for several years and is factored into their evaluation of the bonds we invest in. We are looking for companies that we believe will endure in the long term, primarily including names like IBM, Amazon, and Microsoft in our portfolio.

I had a couple of questions on Bermuda. One, I think the press release in December, I think 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.

We are happy to share that we have received the necessary licensing information and approval from both U.S. and Bermuda regulators to finalize our transaction. Our objective is to establish the company by 2025, enabling us to produce audited financial statements starting with the 2026 results. This is part of our strategy to meet the reciprocal jurisdiction requirements. We are making good progress and are currently executing our business plan. The initial transaction involved the transfer of approximately $1.2 billion in statutory reserves. Throughout 2026, and in line with our approved business plan, we plan to reinsure some new business as well as gradually increase our in-force business. We aim to expand the amount of business reinsured in Bermuda over the next three to five 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 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. 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.

I would like to add that the timeline for engaging with regulators is likely more mid-year. We expect that if we are able to achieve that, any potential distributions in 2026 would occur toward the end of the year. Currently, we have not incorporated that into our 2026 plan, but we will evaluate it as the year moves forward. We foresee some opportunities starting in 2027. As Tom mentioned, we believe it could reach up to $200 million or at least be aimed at that amount over time. That figure represents the anticipated annual cash flows to the parent company. However, this is contingent upon our business plans and the continued expansion through transactions in the coming years.

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 part of the situation is that Medicare Supplement has a lower underwriting margin relative to other lines of business. If it grows faster than those other lines, we may experience some downward pressure on overall health underwriting margins as a percentage of premium. However, the underwriting margin dollars from health will increase. Therefore, the range of 23% to 27% will depend on the strength of Medicare Supplement sales.

Yes, Mark, that's exactly right. Looking at 2025, the Medicare Supplement part accounted for about 49% of the total health premium, while the Family Heritage, Liberty, and American Income segments, which include our limited benefit products, are more stable. The margins for those limited benefit products are around 43% to 44%, compared to the 5% to 6% margins we had for MedSup in 2025. For 2026, we expect MedSup margins to rise to the 8% to 10% range, and we anticipate that it will represent about 53% of the overall premium. This shift is slightly lowering the average margins. Despite the reduced margins, it remains a strong business for us, requiring very little capital. When we consider internal rates of return and capital returns, this segment is advantageous. Thus, we aren't overly concerned about the small decrease in the overall health margin percentage, especially since it stems from the business mix, which we believe offers good diversification.

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