Globe Life Inc (GL) — Q1 2026 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 and 2025 10-K 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 first quarter, net income was $271 million or $3.39 per share compared to $255 million or $3.01 per share a year ago. Net operating income for the quarter was $274 million or $3.43 per share, an increase of 12% over the $3.07 per share from a year ago. We are very pleased with the results of our operations this quarter. Despite the challenges faced by working class Americans in the current economic environment, Globe Life has now produced double-digit growth in net operating income per share in seven of the last eight quarters and the one quarter that didn't have double-digit growth was close at 8%. On a GAAP reported basis, return on equity through March 31 is 17.9%, and book value per share is $77.30. Excluding accumulated other comprehensive income, or AOCI, return on equity of 14%, and the book value per share as of March 31 is $98.56, up 12% from a year ago. Now in our insurance operations. Total premium revenue in the first quarter grew 6% over the year ago quarter. For the full year, we expect total premium revenue to grow approximately 7%. Life premium revenue for the first quarter increased 3% from the year ago quarter to $853 million. Life underwriting margin was $349 million, also up 3% from a year ago. For the year, we expect life premium revenue to grow between 3% and 3.5%. As a percent of premium, life underwriting margin was 41%, same as the year ago quarter. While we anticipate life underwriting margin to be between 42% and 45% for the full year 2026, we do expect it to be around 41% for both the second and fourth quarters and higher in the third quarter due to the anticipated remeasurement gain from assumption updates that will take place in the third quarter, as Tom will discuss in his comments. In health insurance, premium revenue grew 13% to $417 million, and health underwriting margin was up 12% to $95 million. For the year, we expect health premium revenue to grow in the range of 14% to 17%. This is due to premium rate increases in our Medicare supplement business as well as strong sales activity in both our United American and Family Heritage divisions. As a percent of premium, health underwriting margin was approximately 23% in the first quarter, same as the year ago quarter. For the full year, we anticipate health underwriting margins to be between 23% and 27%. Administrative expenses were $94 million for the quarter, an increase of approximately 8% over the first quarter of 2025. As a percent of premium, administrative expenses were 7.4%. For the year, we expect administrative expenses to be approximately 7.3% of premium. Over the long term, we anticipate that expanded implementation of AI applications across the company will help drive this ratio lower. We believe Globe Life is positively positioned to benefit from AI due to the high-volume nature of our business, including the number of applications received and policies issued, calls received by our customer service representatives and number of claims reviewed in pay. Of course, these AI-driven improvements would not be limited to administrative expenses, we expect enterprise-wide benefits including significant benefits to our distribution and underwriting activity in particular. I will now turn the call over to Matt for his comments on the first quarter marketing operations.

Thank you, Frank. We had strong first quarter sales results as the total life net sales grew 6%, and the total health net sales grew 58%. I'm pleased to point out that we have seen growth in net life sales in each division for the last two quarters. Given the current economic environment, these results are indicative of the resiliency of our business model. Now I'll discuss the trends at each distribution starting with our exclusive agencies. At American Income Life, life premiums were up 5% over the year ago quarter to $459 million and the life underwriting margin was up 7% to $209 million. Net life sales were $101 million, up 3% from a year ago due to improved agent productivity. The average producing agent count for the first quarter was 11,064, down 4% from a year ago due primarily to a decline in new agent retention. Short-term declines in agent count are not necessarily a problem as we can see improved sales productivity among our veteran agents when they have more time to focus on sales. Now that being said, long-term growth is dependent on agent count growth. As we discussed in the last call, at the beginning of the second quarter, we have implemented compensation adjustments for our middle management team that are designed to emphasize new agent recruiting and retention of new agents. We expect these adjustments to have a positive impact on our overall agent count during the second half of this year. Despite these short-term challenges, I am very pleased with the improvement in agent productivity we have seen over the last several quarters. Our investments in branding, lead generation and technology are paying off. And overall, I'm very optimistic regarding the long-term prospects for American Income. At Liberty National, the life premiums were up 4% over the year ago quarter to $100 million, and the life underwriting margin was up 11% to $35 million. Net life sales were $25 million, up 13% from the year ago quarter due primarily to agent count growth. Net health sales were $7 million, down 3% from the year ago quarter as more emphasis has been placed on life business. The average producing agent count for the first quarter was 4,031, up 9% from a year ago. I'm excited about the strong life sales and agent count growth we are seeing and confident we will continue to see growth at this agency as we move forward. In Family Heritage, the health premiums increased 10% over the year ago quarter to $123 million, and the health underwriting margin increased 11% to $44 million. Net health sales were up 22% to $33 million, and this is due to increases in agent count and productivity. The average producing agent count for the first quarter was 1,561, up 10% from a year ago. We continue to see strong agent count growth at Family Heritage. This is resulting from the continued focus on our recruiting and growing agency middle management. Now in our direct-to-consumer division, the life premiums were down approximately 1% over the year ago quarter to $244 million, while the life underwriting margin increased 15% to $74 million. Net life sales were $27 million, up 8% from the year ago quarter. Now as we've discussed before, the value of this division extends well beyond DTC sales and due to the support it provides to our agencies. We've seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also led to margin improvement. This allows us to invest more heavily in advertising and other lead generation activities, further increasing lead volume, which in turn leads to additional sales in both our direct-to-consumer and agency channels. We expect this division to increase leads generated for our three exclusive agencies during 2026 by approximately 5% to 10%. At the United American General Agency, health premiums increased 22% over the year ago quarter to $194 million, and the health underwriting margin was $5 million, up approximately $4 million from the year ago quarter. Net health sales were $62 million, and this is an increase of approximately $34 million over the year ago quarter. Sales were strong across the division in both the Medicare supplement and the group worksite business due primarily to tailwinds from the continued movement of Medicare beneficiaries from Medicare Advantage to Medicare supplement and the further development of our group worksite business. As an additional note, I would remind everyone that we do not market Medicare Advantage plans. Now I'd like to discuss projections. And based on these recent trends and our experience with the business, we expect the average producing agent count trends for the full year of 2026 to be as follows: at American Income, low single-digit growth; and then at both Liberty National and Family Heritage, low double-digit growth. Our life sales for 2026 we expect the following: at American Income, mid-single-digit growth; Liberty National, low double-digit growth; direct-to-consumer, low single-digit growth. For health sales for 2026, we expect to be as follows: Liberty National, mid-single-digit growth; Family Heritage, low double-digit growth, and United American high teens growth. I'll now turn the call back to Frank.

Thanks, Matt. We'll now turn to the investment operations. Excess investment income, which we define as net investment income less required interest, was $37 million, up approximately $1 million from the year ago quarter. Net investment income was $290 million, up 3%, while average invested assets grew 2%. Required interest grew 3%, slightly lower than the 4% growth in average policy liabilities over the year ago quarter. Net investment income also increased 3% from the fourth quarter as we had higher returns from our limited partnerships. 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. For the full year, we expect both net investment income and required interest to grow around 4%, resulting in excess investment income growth between 4% and 4.5%. In the first quarter, we invested $419 million in fixed maturities, primarily in the industrial and financial sectors. These investments were at an average yield of 6.23% and an average rating of A and an average life of 4.2 years. We also invested approximately $147 million in commercial mortgage loans and other long-term investments with debt-like characteristics. These non-fixed maturity investments are expected to produce additional cash yield over our fixed maturity investments while still being in line with our overall conservative investment philosophy. In the first quarter, the earned yield on our total long-term invested assets, which includes our fixed maturities, commercial mortgage loans and other long-term nonfixed maturity investments, was 5.5%. For the full year, we expect the average yield earned on our long-term investments will be between 5.45% and 5.5%. For just the fixed maturity portfolio, we anticipate the earned yield for 2026 will be around 5.3%. While we do own some floating rate investments, they are well matched with floating rate liabilities on the balance sheet. Now regarding the investment portfolio, invested assets are $22 billion including $19.1 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.6 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-, same as a year ago. Of our total investment portfolio, only 1% is in senior direct lending and asset-based finance platforms and another approximately 1% is in traditional private placements. Our fixed maturity investment portfolio has a net underlying loss position of $1.6 billion due to current market rates being higher than the book yield on our holdings. As we have historically noted, we are not concerned by the unrealized loss position and 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 41% of the fixed maturity portfolio compared to 45% 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 acquired 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. Low investment-grade bonds remained near historical lows at $511 million compared to $506 million a year ago. The percentage of below investment-grade bonds to total fixed maturity is just 2.7%, consistent with year-end 2025. The total exposure to both BBB and below investment-grade securities as a percent of our total equity, excluding AOCI, is at its lowest level in over 25 years and is among the lowest of our peers due to our low overall leverage. Due to the long duration of our fixed maturity liabilities, we predominantly 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 clients. With respect to our anticipated investment acquisitions for the remainder of the year, at the midpoint of our guidance, we assume investment of approximately $800 million to $900 million of fixed maturities at an average yield of between 5.9% and 6.1%. Including the expected investments in commercial mortgage loans and other long-term investments with debt-like characteristics, we expect to invest approximately $1.1 billion to $1.2 billion across all asset classes at an average yield of 6.3% to 6.5%. Now I will turn the call over to Tom for his comments on capital and liquidity.

Thanks, Frank. First, let me spend a few minutes discussing our available liquidity, share repurchase program and capital position. The parent began the year with liquid assets of approximately $80 million and ended the quarter with liquid assets of approximately $85 million. We anticipate ending the year with liquid assets within our target range of $50 million to $60 million. During the quarter, the company purchased approximately 1.4 million shares of Globe Life Inc. common stock for a total cost of approximately $205 million at an average share price of $141.24. We accelerated a portion of our 2026 anticipated share repurchases given favorable market conditions in the first quarter. Including shareholder dividend payments of approximately $20 million, the company returned approximately $225 million to shareholders during the first quarter of 2026. In addition to liquid assets held by the parent, the parent will generate excess cash flows during 2026. The parent's excess cash flow, as we define it, primarily results from the dividends received by the parent from its subsidiaries less interest paid on debt and is available to return to shareholders in the form of dividends or through share repurchases. We continue to invest in our growth through investments 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. We will continue to use our cash as efficiently as possible. We believe that share repurchases provide the best return yield to our shareholders over other available options. Thus, we anticipate share repurchases will continue to be the primary use of the parent's excess cash flow after the payment of shareholder dividends. In our guidance, we anticipate distributing approximately $90 million to our shareholders in the form of dividend payments over the course of the year, which reflects the recently announced 22% increase in the annual dividend rate per share. In addition, we have increased the range for anticipated share repurchases to $560 million to $610 million for the full year. As a reminder, our excess cash flow estimates for 2026 do not anticipate any additional cash flows to the parent resulting from the establishment of our new Bermuda entity in 2025. As discussed in our last call, we anticipate filing for a simple jurisdiction in the second quarter and we'll provide an update on our next call. With regards to the capital levels at our insurance subsidiaries, our goal is to maintain capital within our insurance operation at levels necessary to support our current ratings. Globe 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 a 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. As of year-end 2025, our consolidated RBC ratios of our U.S. subsidiaries was 316%, which provides approximately $95 million of excess capital above what is needed to meet our minimum target capital level of 300%. For 2026, we intend to maintain our consolidated RBC within the targeted range of 300% to 320%. Now with regards to policy obligations for the current quarter. For the first quarter, life policy obligations as a percent of premium declined from 36.3% in the year ago quarter to 35.4%, slightly favorable to management estimates and consistent with the continued favorable trends in mortality. Health policy obligations as a percent of premium were 56.3% compared to 55.6% from the year ago quarter. This was consistent with management estimates for the quarter, reflecting first quarter claims seasonality at United American. As a reminder, we intend to update our life and health assumptions annually in the third quarter. And thus, there have been no changes to our long-term assumptions this quarter. Finally, with respect to our 2026 guidance. For the full year of 2026, we estimate net operating earnings per diluted share will be in the range of $15.40 to $15.90, representing 8% earnings growth per share at the midpoint of the range. The increase in our prior guidance is primarily due to the impact and timing of anticipated repurchases for the share, refined estimates of potential positive impacts of third quarter life assumption updates and increased estimates of full year investment income. The guidance range reflects the estimated before tax benefit from anticipated assumption updates of $70 million to $110 million expected in the third quarter. This range is higher and narrower than last quarter's call due to continued refinement to estimates. Given the estimated benefit from assumption updates in the third quarter, we anticipate the third quarter life margin as a percent of premium will be in the range of 49% to 54%. We anticipate recent favorable mortality trends will continue through 2026 with full year normalized life underwriting margin as a percent of premium, which excludes the impact of the third quarter assumption update, of approximately 41% at the midpoint of our guidance. As previously mentioned, we expect health premium to grow in the range of 14% to 17% for the full year. This health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2026, but also from approximately $65 million of additional premium from approved rate increases on individual Medicare supplement policies that will be received in 2026, primarily in the last three quarters of the year. For our full year guidance, we anticipate United American's health margin as a percentage of premium to be in the range of 8% to 9%. However, we anticipate the average underwriting margin as a percent of premium to be approximately 10% over the last three quarters of the year as the impact of premium rate increases are realized. Finally, I do want to point out that at the midpoint of our guidance, normalized EPS growth, which removes the impact of assumption updates in both 2025 and 2026, is approximately 11%. At the midpoint of our guidance, the projected three-year compound annual growth rate of normalized EPS is 11.5%. Those are my comments. I'll turn the call back to Matt.

Thank you, Tom. Now those are our comments, and we will now open up the call for questions.

I had one on lapse rate trends, which takes higher. I think especially for first year lapses at American Income. I guess can you talk about what you're seeing in terms of consumer behavior? Is this more kind of macro-driven affordability issues or anything related to distribution? And any thoughts on your outlook for lapse rate trends from here?

Yes. Thanks for the question. Yes, we do expect lapse rates to remain elevated for 2026 versus the pre-pandemic levels. And we've seen that over the past few years as well. And I think the experience we expect is going to be more consistent with last year, given the economic stress that is on our policyholders from the current economic environment and overall price inflation. With regards to American Income Life, first quarter lapse rates were definitely high relative to recent experience. We consider this more of a fluctuation at this point, and we'll continue to monitor it. But we really consider it a fluctuation.

I think as we've indicated before, we do have impacts from macroeconomic environments. The resiliency of the business, though, is that I would say what we're seeing now is consistent with historical norms and other economic cycles. So we'll get a little bit of fluctuations based on what's going on in the economy. But overall, fairly resilient as that moderates within a fairly narrow band of our experience.

Yes. And Jack, the other thing I was just going to add is that I think when you kind of look at some of the trends at Liberty and even DTC a little bit, some of that is just mix of business. So we do know that the worksite business has continued to grow and as it's growing some of the lapse rates in the early issue years are always higher than the later issue years. And so as you continue to grow the sales there, those renewal lapse rates just tend to drift up a little bit. So we do think that we're seeing that a little bit. And then, as we talked about, some of the lapse rates at DTC on the internet business are historically higher than what they are in other channels. So as that becomes a greater proportion of our total sales, that probably moves that up a little bit. But it is interesting. I think when you look at some of the economic forces, the renewal rates at DTC are continuing to be right in line with pre-pandemic experience. And so we're not seeing it consistently across the board on all the agencies. While the economy has some impact, there are some other factors that are going on with the business that's being written today.

Sure. On the administrative side, what we anticipate is over time as those things get implemented, that we should be able to moderate our expense growth commensurate with our premium earnings growth. And so we would expect a little bit of margin expansion over time as those things get implemented as we're able to grow our revenue faster than our expenses. And so as we implement those right now, we've got a variety of different pilots going on. So we're very optimistic on the future, as Frank had mentioned in his prepared remarks on where we're headed. On the sales side, we do anticipate that there will be a benefit. And it shows up in a variety of different areas. We've talked about in the past our investments in technology, and we have seen improvements in that. So we know that to the extent that we can deploy technology that improves our agent experience and that can be in multiple facets from the fact that to the extent that we can onboard and train agents quicker and more effectively and get them producing and more effective sooner. We know our agent productivity will go up, but we also know our agent retention will go up as well. And so anything that we can do there to deploy technology that helps on that agent recruiting and onboarding as well as just overall efficiency, we'll have longer-term gains. And we anticipate that to be a tailwind as we think about what our overall sales growth is going to be in the future. So those are embedded for 2026 in our projections, and I anticipate that 2027 will continue to benefit from those technologies as we get those rolled out.

Yes. I would just add from an admin expense perspective, we're really looking at the margin improvement, bringing that 7.3% of admin expenses as a percent of premium down closer to 7% a bit over the next few years. And so that's kind of really how we're talking about some of those improvements to be reflected in admin expenses.

Could you provide some clarity on what's driving the higher buyback for 2026? Just maybe a little bit more color there. Is it related to higher capital generation or other source? Maybe just get into a little bit more detail.

Yes, Wilma, we were able to finalize our 2025 statutory earnings. And as we looked at excess cash flows, it's still within the range that I provided on the last call, $600 million to $700 million, but it was just a little bit higher and that allowed us the opportunity to have some additional share repurchases.

Yes. And then Wilma, I'd just add as far as the timing was concerned, we really did take a look at the opportunities that presented themselves during the first quarter, and there was a period of time where the shares had dropped below $140 per share and we really saw that as a good opportunity for us and the shareholders. And so we did take that opportunity to accelerate, do a little bit more in the first quarter than what we had anticipated originally.

And then it seems like the life sales agent count and even premium growth are coming in a little bit lower than your prior expectations. Could you just give us a little bit more color on what's driving that, whether it's macro or something in the distribution process? Just a little bit of color would help. Sure. I'd say we need to break it down between the components of our distribution. Liberty is growing both the agent count and the sales growth and consistent with earlier expectations, and we're really pleased with the trend that we're seeing there. From an American Income perspective, I've mentioned this before, but when we talk about our incentive compensation at the agent level, we're always trying to strike a balance between incentivizing and rewarding for recruiting and onboarding and training of new agents versus sales. And so what we're seeing is that the compensation structure is driving a little bit more sales than recruiting. And so that's why we have some sales growth, but agent count growth is behind a little bit of where we had originally anticipated. We do, as I've mentioned in my prepared remarks, believe that some of the changes that we've made that were implemented at the beginning of the second quarter, those don't turn things around immediately; it takes a little bit of time for that to get into the agency operations and change behavior because when we talk about recruiting new agents, there's a timeline and a pipeline associated with that. So we anticipate over the second half of the year, we'll start getting the agent count growth we're looking for. And then if I talk about the life sales at our direct-to-consumer channel, what's going on there is just we looked at what happened in Q1, we're pleased with the continued sales growth that started the last half of last year. But we just looked at our comparables of how strong the growth was in Q3 and then into Q4 for 2025. And so we just tempered, I'll say slightly, our sales projections there. Overall, we're still very pleased with the sales growth that we're getting at our direct-to-consumer channel. The nice thing about having the three different agencies, particularly if you look at recruiting, is we go to market very similarly on agent recruiting between the three agencies. And so when I see growth at two of our agencies and strong growth, I know that it's really not a macroeconomic environment concern or issue. It's much more specific to the particular agency growth aspects that we have there. And so that's why I feel very confident about the overall environment providing a good environment for us to continue to grow our agent count across the agencies. So a little bit of tweaks in our compensation system, we think, will play out well because the overall macroeconomic environment, we believe will still be supportive for growth going forward.

I had a question on United American. I think the guidance there—I think your guide for health sales was in the high teens, but you had, I think, 122% growth in the first quarter. Are you thinking that sales growth might be a little bit negative over strong growth last year? How are you thinking about the remaining quarters of 2026?

Yes. You may recall that on the last call, we guided to kind of flat sales, just considering the significant growth that we had in 2025. The dynamics that are going on there considered our strong growth in sales during the first quarter of 2026. As a reminder, that included elevated premium levels because our price increases went in for new sales in the first quarter, even though a lot of the in-force premium increases come in primarily in the second quarter. We really want to see how the market played out. Very pleased with that. So we raised our guidance related to our overall year for 2026 sales. But we are cognizant that when you start looking at our fourth quarter, in particular, sales for the General Agency division, we nearly doubled our sales last year. So continuing to grow above that is a high hurdle. It will be interesting to see if the continued tailwinds that we're seeing right now from the Medicare Advantage market and the benefit that we're getting from Medicare supplement sales continue for the rest of the year. So it's really not, in our view, a softening over the remainder of the year, just recognizing the high hurdle to overcome to continue to grow on top of that significant growth we had last year.

I would just say Q2 and Q3 are probably still slight improvements over last year, but Q4, as Matt said, is the quarter where we anticipate it may not quite reach that same exceptional level from last year.

All right. That's very helpful. And then my follow-up on Bermuda, I know in the prepared remarks you mentioned that you're working to file reciprocal jurisdiction in the second quarter. Have there been any other developments around that initiative since the last earnings call, either with regulators or expectations around cash flow or near-term reinsurance sessions?

There are really no other developments. We're working through getting our financial statements and the audits complete on those. So really no changes to our thoughts around the business plan and our expected capital generation.

I think on the next call, we should have a more significant update based on the activity planned for the second quarter.

My first question is around the assumption updates, just fantastic to see that come through. You talked about an estimate of 49% to 54% life margin third quarter versus the full year at 41%. Is this the gift that's going to keep on giving? What should we be thinking about assumption update potentials in 2027, 2028, 2029? It sounds like things have gone really well in terms of your assumptions, and I would like to know how you're thinking longer term about it.

I think, Andrew, first of all, we take a really disciplined approach as far as how we update assumptions and want to actually see the results emerge before we make changes to our long-term assumptions. This year we are seeing continued mortality trends—multiple quarters of favorable mortality trends—that are informing our assumption update this year. If we continue to see those current mortality levels, there is always the opportunity or potential for additional assumption updates as we move forward. So no real quantification of those at this point, but I think there is potential.

Well, the other important point beyond the third quarter assumption update is that when we reset our long-term assumption to reflect better experience, that means we're setting the new long-term assumption at a higher margin. So we should have earnings on the book of business overall at a higher level on a go-forward basis because it indicates we don't need as much reserve as we originally thought on that book of business. That's how I think about it: a long-term stability and growth of that underwriting margin, resetting to a new higher level.

And you can really see that by looking at normalized underwriting margins over the past few years by moving the impact of the assumption updates; you can see the trend in the overall improvement in underwriting margins.

Andrew, on the third quarter comments, the range on that is 49% to 54%. If you take the assumption update of $70 million to $110 million, you have in that one quarter roughly an 8% to 13% bump in that underwriting margin for the quarter, off of the 41% normalized margin we're expecting in other quarters. If we continue to see current mortality levels as they come in over time, that will work its way into those longer-term assumptions.

That was very helpful. My follow-up is around the health underwriting margin: 23% in the first quarter and guidance of 23% to 27%, which is kind of wide. Could you walk us through the next few quarters? Would it be more likely closer to 23% in the second and then a significant bump in the last two quarters? How do you think about the cadence?

No. In the remaining three quarters, as you would expect the full year health margin to be north of 25% on average, at least we anticipate north of 25%. In fact, you may see a little bit lower in the fourth quarter because of seasonality—higher claims in that quarter. So that would be closer to the 25% range in Q4. The midpoint of our range is around 25%, and we expect to see pretty good margins over the next three quarters.

First question: with insurance moving in larger volumes from Medicare Advantage, is there a greater risk of anti-selection from your end? I know in most cases you can underwrite, but I was just wondering if higher sales might have contributed to some of the margin compression you experienced in the health business?

I don't think it's a function of selection that's impacting the margins in the first quarter. I think it really is some seasonality of claims in the first quarter as well as the fact that the rate increases that we filed last year will largely come into effect in the second, third and fourth quarter. As I mentioned on our last call, the premium increases that we filed for were $80 million to $90 million on a 12-month run rate. We expect about $65 million to be received over the course of 2026 and then the remainder being received in 2027. So we didn't receive very much of that in the first quarter. We'd expect to be on average about $20 million of additional premium in each of the next three quarters, which will help improve overall margins. But I don't think it's selection at this point.

Yes, there was higher utilization across the entire industry for Medicare supplement over the last couple of years. What is unique to us is our rate actions and how those come into effect, which Tom just discussed, and that will impact margins as those rate increases flow through.

We have been seeing medical trends really stabilize and be relatively flat over the last couple of quarters. That bodes well as well.

Got it. That makes sense. For my second question, mortality has been a net contributor to your assumption updates and quarterly remeasurement gains. Could you speak about the lapse component of your remeasurement gains as well as the morbidity side for the health business? Have those factors been generally positive or negative? I know mortality has been good, but I'm curious how those other assumptions have been playing out for you.

On the life remeasurement gains, it's largely mortality claims that are driving the remeasurement gains. In our work, we look at how much is mortality and how much is all other things, and it's about 70% mortality and 30% all other factors from a remeasurement gain on a quarterly basis. On the health side, a lot of it is being driven by what the future rate increases are doing to result in remeasurement gains. So it's more the impact to future premiums than it is claims, although claims are positive as well overall, providing some health remeasurement gains.

It's a follow-up to Andrew Kligerman's discussion on the mortality assumptions. Could you share more like a qualitative assessment of lifestyle behavior? It's a significant shift and obviously very positive. Is there something changing with the cohort of insureds that's worth noting in this change in the numbers?

I don't think it's really a function of the cohort changing. I think it is continued trends: continued favorable mortality, particularly around circulatory disease and continued favorable non-lung cancer trends, which are really favorable. Another area is non-medical deaths such as suicide, homicide and drug and alcohol abuse. Those seem to be improving, which has an impact on overall mortality.

Yes, I'd add on the non-medical side: in the late 2010s and especially in the early days of COVID, we saw a spike in opioid-related deaths and other non-medical causes. That's been tempering over the last couple of years. Although non-medical accounts for only about 20% of our claims, we've seen significant improvement there, and that likely reflects broader societal efforts against the opioid crisis and other factors. That helps explain some of the improvement in mortality.

That's great color. One more follow-up on American Income agent count. I heard about the initiatives and it seems like an issue of getting agents in the door, but is retention after year one changing at all? Are you keeping the same percentage or has that changed?

It's a little bit of both—recruiting activity and retention in the first six months. We really focus on agent retention in the early days because we recruit people new to the industry or new to direct sales. The onboarding, training and production timeline and a sustainable income really drive long-term retention. Our middle managers in the field spend time recruiting and training while also doing direct sales. That's the balance we're addressing with the incentive tweaks. We have three quarters in a row of improvements in agent productivity, just agent count is a little behind. We're moving incentives to focus more on getting agents trained and onboarded effectively. That's the dynamic at American Income; growth and retention at the other two agencies tell us it's specific to that distribution rather than macro.

Randy, one more point about mortality trends: some wonder whether new drugs for weight loss and other therapies are impacting results. It's probably a little early to see significant effects for our insured population because access and affordability are still developing. Over time, those therapies could have positive effects, particularly for diabetes-related mortality. Additionally, we've seen higher utilization—more senior policyholders visiting doctors more often—which can lead to better management of conditions. So both medical advances and increased engagement with care may be contributing a bit to improved outcomes.

I wanted to come back to the resiliency of your customer base. Given macro developments like higher gas prices that happened later in the quarter, are you seeing anything as we start Q2 that suggests incremental pressure? Is it too early to see pressure from higher gas prices?

Historically, during different economic cycles there might be a little pressure, particularly in the first year of a policy. In the early 2000s and the Great Financial Crisis, we actually saw benefits in sales and agent recruiting. For in-force policies, renewal persistency rates do not move very much after a couple of years on the policy. The affordability of our policies—average premium depending on distribution is roughly $40 to $60 a month—means it's not a significant component of a consumer's wallet. It's not typically the first place consumers look to cut. Also, canceling a policy often requires new underwriting at an older age, which can be more expensive. Over decades, we've seen slight movements but not significant declines—the business is resilient.

What we're hearing from the field more recently is that while it may be a bit harder, we're not seeing major pushback from consumers. Agents may have to make an extra call or two to close sales, but they're continuing to work because they want to maintain income. The average premium remains steady and we are not seeing significant downshifting in coverage by consumers.

Okay. That's helpful. I wanted to circle back to AI: are you seeing any additional threats emerge in terms of your target customer base or distribution channels where new entrants could attack your market with different distribution strategies?

A vast majority of our growth in sales comes through exclusive agency channels. We don't see a lot of competition in those channels at the time of sale—our agents generate activity, referrals, and work leads. The direct-to-consumer channel is more subject to competition because it goes after consumers actively shopping; barriers to entry are lower there. That's why AI could bring more competition in the DTC space. Conversely, we believe AI will benefit our agency-sold business by improving agent productivity, onboarding and retention. The market we target is also underpenetrated—over 50% of that population doesn't have life insurance—so a lot of our growth is expansion rather than taking market share. We're focused on competition in DTC, and we expect that channel to be more challenged and correspondingly grow at a lower rate over time.

You talked about investment in lead generation. Can you talk about the trajectory of your spending there, whether there are any new technologies or approaches you're using? Does AI have any meaning for lead generation?

A lot of our lead generation comes through direct-to-consumer advertising. The benefit we've had over the last year or two is capitalizing on that investment spend and not just converting that advertising spend into DTC sales, but sharing many of those leads with the agency channel which has a higher conversion rate. We've had significant growth in the total volume of leads. As I mentioned in my prepared remarks, we're likely to generate another 5% to 10% growth in the number of leads. Through 2025 we scaled back advertising spend as costs rose and conversion fell. Now conversion is improving across DTC and agency, which gives us more ability to spend on generating more leads. We plan to increase advertising spend in 2026 and into 2027 if the trend continues. Regarding AI, consumer behavior and how consumers respond to ads may change as AI platforms develop advertising monetization models. We participate in beta programs with major platforms and will be active as they monetize AI. Our experience in online advertising and significant spend on these platforms positions us well to adapt and participate in new AI-driven advertising channels.

On the life margin—would you expect roughly 41% to be the right normalized margin stripping out assumption update impacts? Or could there be upside as we go further out?

I think that 41% is a pretty good normalized underwriting margin. We've seen mortality improve, so policy obligations have come down. Amortization is coming up a little bit, but overall it aligns around that 41%.

You should think of it as around that 41%—it could be 40.8% or 41.2%; it will move by a few tenths of a point. You'll see some impact of amortization as new renewal commissions at American Income come into amortization, which may slightly affect the obligation percentage, but overall it should be close to that level.

Just wanted to confirm—you mentioned earlier that the cash flow generation was a little bit towards the higher end of the range. Could you give us a little bit more clarity on where the cash flow generation ended up? Remind us of the range and if there was anything in particular that drove it toward the higher end?

Last quarter, excess cash flow was expected between $600 million and $700 million. I think as I look at it now, I'd narrow that range to $650 million to $700 million. So that excess cash flow midpoint is right around $675 million.

We have better visibility on the amount of dividend distributions coming out of the subsidiaries, which reduces downside uncertainty, and that supports the higher-end estimate Tom referenced.

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