Hello, and welcome to the Globe Life Fourth Quarter 2022 Earnings Call. My name is George. I'll be your coordinator for today's event. Please note, this conference is being recorded, and for duration of the call your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the call.

[Operator Instructions] I'd now like to hand the call over to your host today, Mr. Stephen Mota, Investor Relations Director. Please go ahead, sir..

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, 2021 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 a 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. Before getting started, I want to let you know that due to the ice storms in the DFW area, we are doing this call from multiple locations. So, if there are any issues with connections, please bear with us.

Then, Matt and I would like to quickly take this opportunity to thank Gary Coleman and Larry Hutchison once again and acknowledge their accomplishments as Globe Life's co-CEOs over the last 10 years, including 2022, another good year for Globe Life. Now to the results of the quarter.

In the fourth quarter, net income was $212 million, or $2.14 per share compared to $178 million or $1.76 per share a year ago. Net operating income for the quarter was $221 million or $2.24 per share, an increase of 32% from a year ago. On a GAAP reported basis, return on equity was 12.3%, and book value per share was $49.65.

Excluding unrealized losses on fixed maturities, return on equity for the full year was 13.4%, and book value per share as of December 31 was $64.01, up 9% from a year ago.

It is encouraging that our return on equity, excluding unrealized gains and losses for the fourth quarter, was 14.3%, reflecting the lessening impact of excess life claims on our operations. In the life insurance operations, premium revenue for the fourth quarter increased 3% from the year ago quarter to $754 million.

For the full year 2022, premium income grew 4%. Growth in premium income was challenged due to the lower sales growth we've seen this year, primarily in our direct-to-consumer channel in addition to the impact of foreign exchange rates on our Canadian premiums at American Income. In 2023, we expect life premium to grow around 4%.

Life underwriting margin was $212 million, up 45% from a year ago. The increase in margin is due primarily to improved claim experience.

With respect to anticipated underwriting income, as we've talked about on prior calls, underwriting margin will be calculated differently under the new LDTI accounting rules and is expected to be substantially higher due to the changes required by the new accounting standards. Tom will discuss the expected impact of LDTI in his comments.

In health insurance, premium grew 4% to $324 million, and health underwriting margin was up 1% to $82 million. For the full year 2022, premium grew 6%. In 2023, we expect health premium revenue to grow around 3%, lower than 2022 due to lower premium growth in our United American and General Agency operations.

Administrative expenses were $78 million for the quarter, up 12% from a year ago. As a percentage of premium, administrative expenses were 7.2% compared to 6.7% a year ago. For the year, administrative expenses were 7% of premium compared to 6.6% a year ago.

In 2023, we expect administrative expenses to be up approximately 3%, and be around 6.9% of premium due primarily to higher IT and information security costs. Higher labor costs are expected to be offset by a decline in pension-related employee benefit costs.

I will now turn the call over to Matt for his comments on the fourth quarter marketing operations..

Liberty National, a high single digit to the low double-digit increase; Family Heritage, a high single-digit increase; United American General Agency, low single-digit growth. I will now turn the call back to Frank..

Thanks, Matt. We'll now turn to the investment operations. Excess investment income, which for 2022, we defined as net investment income, less required interest on net policy liabilities and debt, was $63 million, up 7% from the year ago quarter.

On a per share basis, reflecting the impact of our share repurchase program, excess investment income was up 10%. Net investment income was $254 million, up 6% from the year ago quarter. On a per share basis, net investment income was up [90%] (ph).

With the adoption of LDTI in 2023, we will begin viewing excess investment income as net investment income less only required interest. For the full year 2023, we expect net investment income to grow approximately 5% as a result of the favorable rate environment.

With respect to required interest, it will be substantially higher than reported in 2022 as a result of changes related to the adoption of LDTI. As mentioned previously, Tom will further discuss LDTI in his comments. Now regarding investment yield.

In the fourth quarter, we invested $239 million in investment-grade fixed maturities, primarily in the financial, municipal and industrial sectors. We invested at an average yield of 6.10%, an average rating of A, and an average life of 21 years.

We also invested $104 million in commercial mortgage loans and limited partnerships that have debt-like characteristics. These investments are expected to produce additional yield and are in line with our conservative investment philosophy.

For the entire fixed maturity portfolio, the fourth quarter yield was 5.18%, up 1 basis point from the fourth quarter of 2021 and up 1 basis point from the third quarter. As of December 31, the portfolio yield was 5.19%. Now regarding the investment portfolio.

Invested assets are $20 billion, including $18.3 billion of fixed maturities at amortized cost. Of the fixed maturities, $17.8 billion are investment grade with an average rating of A-minus. Overall, the total portfolio is rated A-minus, same as a year ago.

Our investment portfolio has a net unrealized loss position of approximately $1.8 billion due to the high -- higher current market rates on our holdings than book yields. We are not concerned by the unrealized loss position and it is mostly interest rate driven. We have the intent and, more importantly, the ability to hold our investments to maturity.

Bonds rated BBB are 51% of the fixed maturity portfolio, down from 54% from a year ago. While this ratio is in line with the overall bond market, it is relative -- 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.

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. Low investment grade bonds are $542 million compared to $702 million a year ago.

The percentage of below investment-grade bonds to fixed maturities is 3%. This is as low as this ratio had been for more than 20 years. In addition, below investment-grade bonds plus bond rated BBB are 54% of fixed maturities, the lowest ratio it has been in eight years.

Overall, we are comfortable with the quality of our portfolio, 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. During 2022, we executed some repositioning of the fixed maturity portfolio to improve yield and quality.

Over the course of last year, we sold approximately $359 million of fixed maturities with an average rating of BBB and reinvested the proceeds in higher-yielding securities with an average rating of A-plus.

Overall, we believe we are well positioned not only to withstand a market downturn, but also to be opportunistic and purchase higher-yielding securities in such a scenario.

I would also mention that we have no direct investments in Ukraine or Russia and do not expect any material impact to our investments in multinational companies that have exposure to these countries.

At the midpoint of our guidance, for the full year 2023, we expect to invest approximately $940 million in fixed maturities at an average yield of 5.5% and approximately $310 million in commercial mortgage loans and limited partnership investments with debt-like characteristics at an average cash yield of 7% to 8%.

As we've said before, we are pleased to see higher interest rates as this has a positive impact on operating income by driving up net investment income with no impact on our future policy benefits, since they are not interest sensitive. Now, I will turn the call over to Tom for his comments on capital, liquidity and LDTI.

Tom?.

Thanks, Frank. So, in the fourth quarter, the company purchased 490,000 shares of Global Life Inc. common stock for a total cost of $56 million at an average share price of $115.1, and ended the fourth quarter with liquid assets of approximately $91 million.

For the full year, we spent approximately $335 million to purchase 3.3 million shares at an average price of $100.90. The total amount spent on repurchases included $55 million of parent company liquidity. In addition to the liquid assets of the parent, the parent company will generate additional excess cash flows during 2023.

The 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 debt.

We anticipate the parent company's excess cash flow for the full year will be approximately $410 million to $450 million and is available to return to its shareholders in the form of dividends and through share repurchases.

This amount is higher than 2022, primarily due to lower COVID life losses incurred in '22, which will result in higher statutory income in '22 as compared to 2021, thus providing higher dividends to the parent in 2023 that were received in 2022.

As previously noted, we had approximately $91 million of liquid assets -- $91 million in liquid assets as compared to the $50 million or $60 million of liquid assets we have historically targeted.

With the $91 million of liquid assets plus $410 million to $450 million of excess cash flows expected to be generated in 2023, we anticipate having $500 million to $540 million of assets available to the parent in 2023, of which we anticipate distributing approximately $80 million to $85 million to our shareholders in the form of dividend payments.

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 the primary use of parent's excess cash flow after 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 modernization of our information technology and other operational capabilities, as well as to acquire new long-duration assets to fund their future cash needs.

The remaining amount is sufficient to support the targeted capital levels within our insurance operations and maintain the share repurchase program for 2023. In our earnings guidance, we anticipate between $360 million and $400 million of share repurchases will occur during the year. Now with regard to capital levels at our insurance subsidiaries.

Our goal is to maintain our capital levels necessary to support current ratings. Global Life targets a consolidated company action level RBC ratio in the range of 300% to 320%. For 2022, since our statutory financial statements are not yet finalized, our consolidated RBC ratio is not yet known.

However, we anticipate the final 2022 RBC ratio will be near the midpoint of this range without any additional capital contributions. As noted on the previous call, the new NAIC factors became effective in 2022 related to mortality risk, also known as C2.

Given the consistent generation of strong statutory gains from insurance operations and given our product portfolio, these new factors will simply result in even stronger capital adequacy at our target RBC ratios. Now I'd like to provide you a few comments related to the impact of excess policy obligations on fourth quarter results.

Overall, fourth quarter excess policy obligations were in line with our expectations. In the fourth quarter, the company incurred approximately $5 million of COVID life claims related to approximately 31,000 U.S. COVID deaths occurring in the quarter as reported by the CDC and was in line with expectations.

We also incurred excess deaths as compared to those expected based on pre-pandemic levels from non-COVID causes, including deaths due to lung disorders, heart and circulatory issues and neurological disorders. We believe the higher level of mortality we have seen is due in large part to the effects of the pandemic.

So, as the number of COVID deaths had moderated, so has the number of deaths from other causes. In the fourth quarter, the impact of excess non-COVID policy -- life policy obligations were generally in line with our expectations at about $6 million.

For the full year, the company incurred approximately $49 million of COVID life policy obligations related to approximately 243,000 U.S. COVID deaths, an average of $2 million per 10,000 U.S. deaths. In addition, we estimate non-COVID claims resulted in approximately $69 million of higher policy obligations for the full year.

The $118 million combined impact of COVID and higher non-COVID policy obligations was around 4% of total life premium in 2022, down from approximately 6% in 2021. Based on the data we currently have available, we estimate incurring approximately $45 million of total excess life policy obligations from both COVID and non-COVID claims in 2023.

We estimate that the total reported U.S. deaths from COVID will be approximately 105,000 at the midpoint of our guidance. Finally, with respect to earnings guidance for 2023. As noted on prior calls, the new accounting standard related to long-duration contracts is effective January 1, 2023.

From this point forward, we report 2023 results and guidance under the new accounting requirements. I will do my best to bridge the gap as there are many changes with these new requirements. So, we are projecting net operating income per share will be in the range of $10.20 to $10.50 per diluted common share for the year ending December 31, 2023.

The $10.35 midpoint of our guidance is lower than what we had indicated last quarter when including the impact of LDTI adoption. The reduction is primarily due to a reduction in the expected impact from the adoption of LDTI as we get more information and have refined our assumptions and estimates impacting both 2022 and 2023.

In addition to the lower LDPI impact, we anticipate slightly lower premiums, higher customer lead and agency expenses, as well as higher financing costs, which are reflective of higher short-term yields than previously anticipated.

We estimate the after-tax impact of implementing the new accounting standard results in an increase in 2023 net operating income in the range of $105 million to $115 million. We are still in the process of determining the full 2022 results under the new standard. Once finalized, it could affect the 2022 -- 2023 estimated results.

Going forward, fluctuations in experience and changes in assumptions will result in changes in both future policy obligations and the amortization of DAC as a percent of premium.

The largest driver of the increase is lower amortization of deferred acquisition costs, or DAC, than under the prior accounting standard due to the changes in the treatment of renewal commissions, the elimination of interest on DAC balances, the updating of certain assumptions and the methods of amortizing DAC.

Due to the treatment of deferred renewal commissions on amortization in our captive agency channels, we do expect that acquisition costs as a percent of premium will increase slightly over the next few years.

In addition to the changes affecting the amortization of DAC, the new accounting standard changes how policy obligations are determined under the new standard, life policy up -- life policyholder benefits reported in 2021 and 2022 will be required to be restated to reflect the new requirements and will include the impact of unlocking and updating prior assumptions.

For 2023, absent any assumption changes, we expect the following impacts. Life obligations as a percent of premium will be in the range of 40.5% to 42.5%. This is consistent with the average life policy obligation ratio over the last five years. Health obligations as a percent of health premium will be in the range of 50% to 52%.

This is about 3% to 4.5% lower than the average health policy obligation percentage over the last five years. For the life and health lines combined, commissions, amortization and non-deferred acquisition costs as a percent of premium will be in the range of 20% to 21.5%, approximately 8% to 9.5% lower than the recent five-year averages.

The resulting life underwriting margin as a percent of premium are expected to be in the range of 37% to 38%, and health underwriting margins as a percent of premium in the range of 28% to 29%.

So, offsetting the increases in underwriting income will be a reduction to excess investment income to the elimination of interest accruals on DAC balances that historically have reduced net required interest. In 2022, interest on DAC balances was approximately $260 million.

In 2023, this will be zero under the new standards as compared to between $275 million and $285 million of interest accruals on DAC under historical GAAP, that we would have anticipated. In addition, required interest will change due to the changes in reserve balances at transition and restated balances in 2021 and 2022 under the new requirements.

We anticipate that required interest in 2023 will be in the range of $910 million to $920 million.

With respect to changes in AOCI, we noted in the past few quarters that under the new accounting standard, there is a requirement to remeasure the company's future policy benefits each quarter, utilizing a discount rate that reflects the upper medium grade fixed income instrument yield and affects the changes -- with the effects of the change to be recognized in AOCI, a component of shareholders' equity.

The upper medium grade fixed income yields generally consist of single A-rated fixed income instruments at a relative -- reflective of the currency and tenor of the insurance liability cash flows.

As of year-end 2022, had the new accounting standard been in place, we anticipate the after-tax impact on AOCI would have decreased reported equity in the range of $1.3 billion to $1.4 billion.

While the GAAP accounting changes will be significant, it's very important to keep in mind that the changes impact the timing of when future profits will be recognized, and that none of the changes will impact our premium rates, the amount of premium we collect or the amount of claims we ultimately pay.

Furthermore, it has no impact on the statutory earnings -- statutory capital we're required to maintain for regulatory purposes or the parent company's excess cash flows nor will it cause us to make any changes in the products we offer. Those are my comments. I'll now turn it over to Matt..

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

Thank you very much, sir. [Operator Instructions] Our first question is coming from Jimmy Bhullar from J.P. Morgan. Please go ahead, sir..

Hey, good morning. So, I had a question first on direct response sales. They've been weak for the last several quarters.

Wondering how much of it is a reduction in your part on mailings and circulations versus just weak consumer demand with higher inflation?.

Yes. It's really on the distribution side. As we've talked about in the past, scaling back our mailings and other print media that's associated with the higher cost these days of the postage in paper.

What we're seeing on the consumer side, as I mentioned in my comments, is actually the sale amount on a per policy basis, the premium amount for each sale is actually going up slightly.

So that would indicate to me that it's really more of a reduction of that cost in the amount of things that we're distributing, because we are really going to make sure that each one of those mailings and all of our campaigns are profitable.

And that's what the benefit is of switching more of our distribution over time to more of the electronic media side versus the sales side. But I do want to remind everyone that the -- all of these channels work together and with the mail does support and drive activity to our other channels such as the call center as well as just online..

Okay. And then, maybe with the economy and inflation overall, there had been concerns about policy retention.

And it seems like lapses are now close to historical levels, but do you expect that they'll go up above where they were pre pandemic?.

Yes, Jimmy, I think with respect to last level, I mean, you're right, the fourth quarter did really trend favorably versus the third quarter, while they're still higher than 2021. We're actually back to in the fourth quarter around the lapses, the persistency levels pretty much where they were in the fourth quarter of 2019.

So, looking forward, I think for the most part, we do think they'll trend back here to pre-pandemic levels during 2023. Probably Direct to Consumer would probably see those maybe sticking around at slightly higher lapse rates than what we've had pre-pandemic, but not that significantly.

And Liberty for the most past of first year lasted back to pre-pandemic levels as well..

Okay. Thanks. And if I could just ask one more on LDTI, obviously, it's affecting the timing of income, GAAP income, it doesn't really change the underlying economics.

But do you -- and I'm assuming had you not been growing -- if you don't grow the business at some point in the next several years, it would actually have a negative impact on your results.

But how do you think about with normal growth, could you reach a point where LDTI goes from being a tailwind to a drag on your results? Do you see that happening in the next like three, four, five years or so?.

Yes. Jimmy, we did take a look. I think this is the same question you had asked last year or the last quarter as well....

Yes, last quarter..

And did take a look at that. And actually, for that amortization to turn around, it takes -- it's 20, 30 years out there in the future before we end up actually where it's the amortization under the LDTI ends up being greater than what we would have anticipated under historical GAAP. So, it's actually a long ways out there..

Okay. Thank you..

Thank you very much, sir. We'll now move to Erik Bass calling from Autonomous Research. Please go ahead..

Hi, thank you. So, it looks like recruitings turned nicely at Liberty and Family Heritage, and you're starting to see the growth in the agent count there, but it hasn't come through American Income yet. And I realize the fourth quarter can have some noise with the holidays.

I was hoping you just talk more about the trends you're seeing in both recruiting and retention and what steps you're taking to improve those at American Income in 2023..

Yes. As we had mentioned in the past, there's been some adjustments to the incentive side of the compensation at American Income. Those went in very late in the year and then obviously, is going to continue through 2023. We are seeing -- it's in the early stages, but we are seeing some positive development there.

We had, as a reminder, a significant increase in our agent count during the pandemic, went from approximately 7,500 agents to over 10,000. And so, our attrition has been a little bit higher here in the recent quarters than what we would like. And these programs that we've put in place seem to be working.

We've got some -- while it's still early, early indications that there's been a turnaround in our retention as well as recruiting efforts at American Income. So, we're positive where that's headed from a 2023 perspective. And as was noted, really feel like that is in our control, because we do have strong agent growth at our two other agencies.

And so not really impacted by environmental factors, but really believe this is in our control to maintain..

Thank you. And then, I appreciate all of the color you gave on the LDTI impacts. Just a quick question.

When do you expect to release an updated financial supplement with recast financials?.

Yes. We would do that along with our first quarter results as our intended plan at this point..

Got it.

So, I guess we shouldn't expect that in advance, so we should kind of model based off of the numbers you walked through on the call?.

Exactly. Yes. When we -- talk again after first quarter, we'll have quite a bit of detail around the impact on the various distribution channels and lines of business. So, that will be the time to talk more about those details..

One of the things, Erik, we have to be a little bit careful about is we can't be releasing some of the numbers on the restated '21 and '22 until it's actually get audited. So, we get into a little bit of a timing, especially around the first quarter.

So, as Tom said, that -- we really tend to be able to provide more of the detail on that, as we said later on..

Got it..

Thank you very much, sir. We'll now move to Mr. Ryan Krueger calling from KBW. Please go ahead, sir..

Hi, thanks. Good morning. I guess, I appreciate all the LDTI guidance. My first question is actually ex LDTI. I think last quarter's guidance, which was ex LDTI, had a $9.35 midpoint. If we back out the LDTI impact this quarter, it looks like it's -- the midpoint is more like $9.20.

So, just curious if you can give us any perspective on kind of why that ex LDTI guidance seemed to come down a little bit?.

Hey, Ryan, it's Tom. I would say that the midpoint, more like $9.25, so it dropped by about $0.10. And really, the main drivers there are the lower premium growth that we had previously -- that we mentioned. And then, we are seeing a little bit higher lead costs and agency expenses impacted by inflation.

As travel starts increasing and as meetings start increasing, and we have some additional training and recruiting costs that were incurred, we just had that pick up a bit. And then, as I mentioned also higher cost on debt given the higher cost for commercial paper, just the rates are a bit higher.

And then, given the share repurchase program, just a slightly higher share count than what we had previously estimated in our prior guidance work..

Okay. Thanks. And then -- no, go ahead..

I'll just say one thing I'd just add on that is with the higher share count, the -- wasn't from the amount that we were anticipating, but just a higher -- with the higher share price that we're at this current time versus where we were back at the time of the last call, obviously, we're just getting fewer shares purchased with the same amount of dollars..

Good.

And then, on the free cash flow guidance of $410 million to $450 million, is there some drag in that still from COVID and non-COVID excess claims that occurred in 2022? I'm trying to think about if there would be a further bounce back as we go beyond 2023 to a more normalized level?.

Yes. The way that we think about that is last year, we had combined -- in 2022, we had combined COVID non-COVID about $118 million. And in '23, we expect about $45 million. So, kind of the difference between those two should result in higher statutory earnings in 2023, which would, therefore, lead to higher dividends to the parent in 2024..

Okay.

So, the difference between those two and then tax affected would be basically additive to free cash flow in '24?.

Exactly, yes..

Okay, great. Thank you..

Thank you very much, sir. We'll now move to John Barnidge calling from Piper Sandler. Please go ahead..

Thank you very much. My question is around Direct to Consumer and the mailings. Seems like increased postage and paper cost is more of a secular trend.

Are there areas that can be developed beyond just mailings that can be incorporated into the Direct to Consumer marketing efforts?.

Yes. And as I'd mentioned, we're really focused on growing our Internet and electronic media inquiries in -- which results in additional applications and sales. And so that's been the offset is that, as I mentioned in my comments, continue to grow and is much more a significant part of the business than it was just even three or four years ago.

So really, that's the offset as we've declined based on profitability in our models, the direct mail operation, we've offset that with an increase on the electronics side. So, overall, those dynamics are going on.

But if inflation, depending on how that market dynamic plays out over the next several quarters, we will continue to adjust throughout the year based on the returns that we're seeing in the profitability.

So, overall, we want to make sure that we're maintaining our profitability targets on each of these campaigns and we're flexible enough that we can adjust that throughout the year as market conditions warrant..

Great. Thank you. And a follow-up question. I know the indirect mortality is in the COVID estimate. Is that -- you anticipate tapered over the year or is present an equal level throughout the year? Just trying to dimension if further away that from the pandemic portion of that degrades..

For 2023, you mean?.

Yes, correct. Thank you..

Yes. So, for 2023, for the -- we expect a little bit higher COVID deaths in the first quarter than we would for the third -- second, third and fourth quarter. So that's -- we do kind of think that will be front-loaded a little bit during the course of '23..

Great. Thank you..

Thank you very much, sir. Next question will come from Mr. Andrew Kligerman calling from Credit Suisse. Please go ahead, sir. Your line is open..

Good morning. First question is around American Income. And completely understand kind of 2023 being kind of a digestion period of having 10,000 producers.

As you go into this new incentive strategy, just different initiatives, do you think in 2024, and I know it's early for guidance, but is there a reason to believe you'll kind of get back on track to that kind of mid-single-digit producer growth, maybe mid-upper single-digit sales growth? I mean, is there any reason to believe you can't get there in '24 that maybe it will take longer?.

No, that's a great question as we do believe we can get back there. As a reminder, agent count and average agent count for the quarters is a leading indicator, and it takes time to get these new agents onboarded, trained and producing. And then, obviously, the longer they've been here, the more effective they are from a production perspective.

And so, that's why you'll see in our guidance as we have growth projected on the agent count side, but the sales are lagging that a little bit and more toward flat. We do believe that we can get to middle management growth in 2023 that will drive that longer term growth in -- on the sales side in '24.

We also anticipate opening three to five offices in American Income over this next year, and that too will set us up for good growth in 2024. And I also wanted to just clarify, when we talk about compensation adjustments, there's two primary components to the compensation for agents. One is just the base commission on sales.

And then, we also have incentive-based compensation that's targeted at specific behavior. And we do that throughout our history.

So, when we talk about changing the compensation we're really not changing the total amount of compensation that is in our overall pricing and profitability targets, but really, we're targeting two specific activities and behavior that we're trying to influence.

So, I just wanted to clarify that overall, our compensation and acquisition costs are going to be consistent with what we've experienced in the past..

Super helpful. Shifting over to the health lines, particularly United American with sales down 25%, and I think that was due to pressures not only in MedSup, but also like Med Advantage gaining share. We look at a number of companies, the online players, some of them are subs of the other insurers we cover.

And many of them seem to be pulling back in that kind of online Medicare Advantage product.

And so, as I look at United American down in the agency channel, I'm wondering, a, where is the competition coming from? And -- yes, I guess, it's just where is the competition coming from as I kind of think the players seem to be getting more disciplined?.

Yes. I'll say what we saw throughout 2022 was just more aggressive pricing by certain competitors. And we're focused on maintaining our profitability targets and underwriting margins in this area, and we're really not going to chase the sales, so to speak.

But -- and we are also seeing and experiencing a movement toward Medicare Advantage plans as well. I'll say that we've been in this business since the program started, and we've seen these market dynamics happen over time. And so, we anticipate that some of that will abate as we move forward.

But Mike, do you want to add anything to that? You've been running this area for quite some time..

Yes. I think while there may have been some that have pulled back, I mean, overall, we are seeing movement into Medicare Advantage plans. And in this line of business, there's big carriers or small carriers. The cost of entry is low, because it's not a capital-intensive business. So, I couldn't speak to which are particularly pulling back or not.

But overall, there is a move on the group side and individual side, Medicare Advantage plans. I think the current economic environment contribute to that.

I would assume that people are more willing now to give up the benefits of a Medicare supplement plan that doesn't have provider network [indiscernible] or referral requirements to go to a cheaper managed care. And as Matt said, we've been in this business since Medicare started in the '60s. We've seen these swings back and forth over the years.

So, it's not really unusual or surprising. We're going to maintain that distant approach. That said, it's to protect our margins. It's also to protect our customers. We want to avoid having higher than necessary renewal rate increases. We've never been the lowest cost provider here.

We think that's fair to the customer to have the right price and have reasonable rate increases. And the other thing to remember is that price of this business -- the price we have in our new business is the same as our renewals.

So, it's not like we can go in and have lower new business prices because if we were to do that, that would impact the profitability of our in-force block, which is the United American [Technical Difficulty] around $500 million. So, again, it's something that we've seen before and again, not particularly surprising..

And just to kind of a little further clarification on this, so you're seeing the competition across agencies and online.

And is there any interest [Technical Difficulty] in terms of kind of transitioning to more Medicare Advantage products as opposed MedSup?.

I'm sorry. There was a lot of background noise.

Could you repeat that?.

Absolutely.

So, in terms of distribution competitors, is it pretty much across agency and online? And then, with that, is Globe likely to pivot more to Med Advantage as opposed to historically being in the MedSub area?.

Matt, do you want to take that or you want....

Sure..

Okay..

Let me start. I'll say we don't have plans to pivot into the Medicare Advantage area. I think the competition is coming from all pass. We do have a little bit of our sales that are online as well. So, we do see the competition in the pricing, in the agency and online channels. A bulk of our sales are in the agency [Technical Difficulty] business.

So, Mike, do you want to add to that?.

Sure. I think the Medicare Advantage, we don't use networks for one and that would be something that -- that'd be a big change for us. And it's just -- it's not a line of business that we've been in, and I know we considered a long time ago. At one time, we were in the Part D plan, which is similar, and we exited that.

And it's something that we wouldn't want to do. It's really, I think, harder for smaller players to do that and to get involved with the Medicare Advantage and Part D. I don't think that undertaking would make sense for us..

Seems like a thoughtful approach as usual..

Does that answer your question, Mr.

Kligerman?.

Absolutely. Thank you..

Thank you very much, sir. We'll now take a question from Mr. Mark Hughes calling from Truist. Please go ahead, sir..

Yes, thank you. Excuse me, good morning. I don't know if you touched on the [Technical Difficulty] Is there anything about the LDTI accounting standard that impacts your growth on a go-forward basis? You, obviously, got a nice EPS benefit this year.

But just the timing and the emergence of profitability, is it changed over time so that there's a natural acceleration or deceleration perhaps as time goes by, that will impact your kind of trend line growth rate in future years?.

Yes, I'll answer that one. Probably the one thing as we think about the implementation of LDTI is the treatment of future deferrals of renewal commissions.

So, to the extent that a portion of renewal commissions are deferred, the new rules require us now to -- in historical gap, we would look at all anticipated future renewal commissions and determine an amortization rate, that was an average that was needed to amortize both the first year capitalized expenses as well as future renewal capitalized expenses.

Under the new method, we're only allowed to -- as we capitalize, we're only -- we are forced to change the amortization rate upon each additional capitalization. And so, for our AIL line of business, we do have some renewal commissions that we capitalize.

And we had kind of talked last quarter that for the block, we'd expect kind of a 50 basis point increase in amortization. That's really driven by two things. One is, we have a mix of business where -- we don't have any DAC on some of the business. And on the other business we have DAC that is being amortized.

So, as the block that we don't have any DAC on where we fully amortize it with as that runs off, the average amortization rate goes up. But the other is that as we get new renewals, commissions that are deferred on AIL, we'll see the amortization rate tick up a little bit.

In aggregate, we'd see probably that amortization rate tick up around 20 basis points to 30 basis points over the next few years and then kind of even out and that increase would diminish over time as we put new business on the books..

And Mark, the one thing I would just add to that is, I think, really other than that, and other than assumption changes that might come through from time to time, I would expect once it kind of gets reset, then that the general level of growth rate should be somewhat similar..

Okay, great. Thank you very much..

Thank you, Mr. Hughes. [Operator Instructions] We do not appear to have any further questions at this time, gentlemen. I'd like to turn the call back over to you, Mr. Mota, for any additional or closing remarks..

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

Ladies and gentlemen, that will conclude this conference. Thank you very much for your participation. You may now disconnect. Have a good day, and goodbye..