The Long and Short

Stable credit and diversification in Globe Life

| March 31, 2023

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

Globe Life (GL) intermediate bonds still offer stable credit, higher ratings (Baa1/A/BBB+) and diversification from the dominant life insurance debt issuers. Investment grade insurance company credit spreads widened substantially during the latest banking stress, along with most financial credits. Investors should establish or add to positions among conservative issuers with limited direct exposure to the current volatility. While life insurance company investment portfolios are subject to some of the rate-related mark-to-market losses that initially triggered a capital squeeze at some banks, this form of operating risk is normally encountered in the course of asset and liability matching for credits within the sector.

Exhibit 1. GL vs unsecured life insurance comparables (BBB+ or higher)

Source: SanCap, Bloomberg/TRACE G-spread indications

GL 2.15% 8/15/30 @ +170/10YR; G+164; 5.26%; $81.21

Life Insurance Comps:

Issuer: Globe Life Inc. (GL)
CUSIP: 37959EAA0
Amount outstanding: $400 million
Rating: Baa1/A/BBB+
Global Issue

Based in McKinney Texas, Globe Life (previously Torchmark) is the holding company of four life and supplemental health insurance operating subsidiaries. The company generates the majority of premiums through individual life insurance coverage, with additional business lines in supplemental health, investments, and a now small portion of run-off annuities businesses. GL maintains consistent operating performance through conservative cost controls at its operating subs. As of the year-end 2022, GL had combined life statutory operating assets of $22.3 billion and policy reserves of $19.1 billion.

GL reported fourth-quarter results last month with operating EPS of $2.24 beating the consensus estimate of $2.17. Top-line performance was roughly in-line with expectations at $1.32 billion versus the $1.34 billion estimate.

GL appears to have weathered the COVID pandemic well with manageable impacts to operations over the past several years. The company saw just $67mm in COVID-related life claims for full-year 2020. The Company recorded just $49 million in COVID life claims in 2022, down from $140 million in the prior year. For 2023 the company is anticipating approximately $45 million excess life claims from both COVID as well as non-COVID causes.

GL has a very solid liquidity profile. Although the company had only $93 million in cash on the holding company balance sheet, they generate highly consistent free cash flow of approximately $1.4 billion per year. GL has just $166mm in maturities in 2023, and the next maturity is not until 2028. Their entire $340 million credit facility remains available through 2026.

GL appears extremely well capitalized. The aggregate risk-based capital ratio for its life operating subsidiaries was 644% at year-end 2022 and has remained highly consistent over the past five years. Capital and surplus stands at $1.52 billion as of the fourth quarter of 2022.

Dan Bruzzo, CFA
dan.bruzzo@santander.us
1 (646) 776-7749

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