管理層發言
Hello and welcome to Globe Life Inc. Second Quarter Earnings Release Conference Call. This is Jim, and I will be your coordinator for today's event. Please note today's conference is being recorded. And during our presentation, all participants will remain in a muted or listen-only mode to prevent any background noise. After today's prepared remarks, we will conduct a question and answer session, and instructions on how to participate will be shared at that time. It is now my pleasure to hand over to your host, Stephen Mota, Vice President of Investor Relations, to begin today's conference.
Thank you. Good morning, everyone. Joining the call today are Frank Svoboda and James Matthew Darden, our Co-Chief Executive Officers; Thomas Peter Kalmbach, our Chief Financial Officer; Michael Clay Majors, our Chief Strategy Officer; and Robert 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, Forms 10-K and any subsequent Forms 10-Q on file with the SEC. Some of our comments may also contain non-GAAP measures. 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. In the second quarter, net income was $288 million or $3.65 per share, an increase of 20% over the $3.05 per share a year ago. Net operating income for the quarter was $285 million or $3.61 per share, an increase of 10% over the $3.27 per share a year ago. We are pleased to see continued strong results in our operations. As we have said many times over the years, our business model is resilient and able to generate earnings growth regardless of the economic environment, as clearly demonstrated by Globe Life having produced double-digit net operating income per share growth in eight of the last nine quarters. On a GAAP reported basis, return on equity through June 30 is 18.4%, and book value per share is $70.18. Excluding accumulated other comprehensive income, or AOCI, return on equity is 14.3% and book value per share as of June 30 is $100.04, up 11% from a year ago.
Now in our insurance operations, total premium revenue in the second quarter grew 7% over the year-ago quarter. For the full year, we expect total premium revenue growth to be in the range of 6.5% to 7%. Life premium revenue for the second quarter increased 3% from the year-ago quarter to $861 million. Life underwriting margin was $359 million, up 6% from a year ago. For the year, we expect life premium revenue to grow between 2.5% to 3%. As a percent of premium, life underwriting margin was 42%, up from 41% in the year-ago quarter. While we anticipate life underwriting margin to be between 43% to 45% for full year 2026, we do expect it to be over 50% in the third quarter due to the anticipated impact of assumption updates, and between 41% to 42% for the fourth quarter. Tom will discuss this more in his comments. In health insurance, premium revenue grew 16% to $437 million and health underwriting margin was up 1% to $99 million.
For the year, we expect health premium revenue to grow in the range of 14% to 16%. This is due to premium rate increases on our Medicare Supplement business as well as strong sales in both our United American and Family Heritage divisions. As a percent of premium, health underwriting margin was approximately 23% in the second quarter, down from 26% in the year-ago quarter. For the full year, we anticipate health underwriting margins to be between 23% to 27%. Administrative expenses were $91 million for the quarter, an increase of approximately 6% over the second quarter of 2025. As a percent of premium, administrative expenses were 7%. For the full year, we expect administrative expenses to be approximately 7.3% of premium, consistent with 2025. As we mentioned last quarter, over the long term, we anticipate that expanded implementation of AI applications across the company will help lower this ratio.
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 the number of claims reviewed and paid. Of course, these AI-driven improvements will not be limited to administrative expenses. We also expect enterprise-wide benefits, including those that will drive sales growth by helping our distribution operate more efficiently and effectively, and those that improve our underwriting and other sales support processes. I will now turn the call over to Matt for his comments on the second quarter marketing operations.
Thank you, Frank. Now I will 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 $466 million and the life underwriting margin was up 4% to $214 million. Net life sales were $95 million, down 2% from a year ago, due primarily to a decline in the agent count. The average producing agent count for the second quarter was 11.4 thousand, down 7% from a year ago, but this is up 3% since the end of the first quarter. As a reminder, compensation adjustments designed to improve agent recruiting and new agent retention were implemented at the beginning of the second quarter. As we indicated on the previous earnings call, these compensation changes are expected to have a positive impact on agent count in the second half of this year. I am pleased to see early signs of improvement with this sequential growth in agent count during the second quarter.
As I have said many times, agent count growth is a precursor to sales growth. During the second half of the year, we expect to see mid-single-digit growth in both agent count and life sales at American Income. At Liberty National, life premiums were up 3% over the year-ago quarter to $101 million and the life underwriting margin was up 10% to $37 million. Net life sales were $26 million, up 6% from the year-ago quarter due primarily to agent count growth. Net health sales were $7 million, down 15% from the year-ago quarter as more emphasis has been placed on life business in recent periods. We are currently implementing changes to the sales presentation and placing additional emphasis on health sales. Average producing agent count for the second quarter was 4.19 thousand, up 8% from a year ago. I am excited about the strong life sales and agent count growth we are seeing, and I am confident that this momentum will carry forward.
At Family Heritage, health premiums increased 9% over the year-ago quarter to $126 million and the health underwriting margin increased 10% to $45 million. Net health sales were up 4% to $31 million, driven by an increased agent count. The average producing agent count for the second quarter was 1.61 thousand, up 7% from a year ago. The ongoing emphasis on developing agency middle management has really solidified this division's performance. I believe Family Heritage is well positioned for sustainable growth going forward. Now in our direct-to-consumer division at Globe Life, life premiums were down 1% over the year-ago quarter to $244 million while life underwriting margin increased 10% to $76 million. Net life sales were $27 million, down 15% from the year-ago quarter. DTC is in a transition period due to a shift in the way consumers search online for goods and services, including life insurance.
The increased utilization of AI by consumers has resulted in a reduction in paid search volume from internet marketing. We have initiatives underway to adapt to this change and position digital content to be visible to and easily interpreted by AI assistants. This shift is similar in many ways to the initial move to digital marketing away from direct mail many years ago when consumers began to utilize the Internet. I am confident that DTC will successfully make this transition as we continue to meet the consumer where they want to be met. In addition, as we have discussed before, the value of this division extends well beyond DTC sales due to the support it provides to our agencies, and we still anticipate that we will meet agency demands by generating in excess of 1 million leads this year. We have seen improved conversion of the direct-to-consumer leads shared with our agencies, which has also led to margin improvement.
We will continue to optimize margin as we navigate changes in online advertising. Now on to United American. Here, health premiums increased 29% over the year-ago quarter to $211 million and the health underwriting margin was $11 million, down $1 million from the year-ago quarter. Net health sales were $28 million, a 10% increase over the year-ago quarter. Sales continue to be very strong in the Medicare Supplement business, due primarily to tailwinds from the high volume of people turning 65, movement of Medicare beneficiaries from Medicare Advantage to Medicare Supplement, and the rate increases implemented during the second quarter. Once again, I would note that we do not market Medicare Advantage plans. As a reminder, the UA general agency includes both individual and group business. The decline in health margin as a percent of premium from the year-ago quarter at UA was primarily driven by the group business.
As you may recall, we announced the acquisition of Every Health a few years ago. Evri is included in the United American division as they market group health insurance through brokers. While Evri is immaterial to our overall financial results, they have generated enough recent sales activity to have an impact on UA health margin trends. For the full year 2026, we expect Evri sales to be approximately $50 million. As a start-up, they do not yet have the scale to meet our target margins, but we anticipate as they continue to grow sales and thus premium, they will ultimately contribute to UA health margins as they achieve scale and generate a credible block of business. Excluding the impact of Evri, the UA health margin as a percent of premium would have been approximately 9% in the second quarter. Now I would like to move on to projections. Based on what we have seen for the first half of 2026, as I mentioned earlier, we expect to see mid-single-digit growth at AIL during the second half of the year for both average producing agent count and life sales.
Liberty National and Family Heritage, we expect the average producing agent count growth to be low double digits for the full year 2026. Net life sales at Liberty National and direct to consumer for the full year 2026 are expected to be as follows: Liberty National, low double-digit growth; direct to consumer, a single-digit decline. Net health sales for the full year 2026 are expected to be as follows: Liberty National, slightly down; Family Heritage, low double-digit growth; and United American, 30% to 35% growth. I will 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 $38 million, up 10% from the year-ago quarter. Net investment income was $294 million, up 4% 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. For the full year, we expect both net investment income and required interest to grow around 4%, resulting in excess investment income growth of approximately 7%. Now regarding our investment yield. In the second quarter, we invested $399 million in fixed maturities, primarily in the industrial and utility sectors. These investments were at an average yield of 6.27%, an average rating of A, and an average life of 3.6 years. We also invested approximately $91 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 second quarter, the earned yield on our total long-term invested assets, which include our fixed maturities, commercial mortgage loans, and other long-term non-fixed maturity investments, was 5.51%. For the full year, we expect the average yield earned on our total long-term investments will be approximately 5.5%. For the fixed maturity portfolio, we anticipate the earned yield for 2026 will be around 5.31%. 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 $22.1 billion, including $19.3 billion of fixed maturities at amortized cost. Of the fixed maturities, $18.8 billion are investment grade with an average rating of A. Overall, the total fixed maturity portfolio is rated A-minus, same as a year ago.
Of our total investment portfolio, only 1% is in senior direct lending and asset-based finance combined, and another approximately 1% is in traditional private placements. Our fixed maturity investment portfolio has a net unrealized loss position of $1.4 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 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 comprise 41% of the fixed maturity portfolio, compared to 44% 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 declined 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 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. Below-investment-grade bonds remain near historical lows at $516 million compared to $503 million a year ago. The percentage of low investment-grade bonds of total fixed maturities 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. 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 claims. With respect to our anticipated investment acquisitions for the remainder of the year, at the midpoint of our guidance, we assume investment of approximately $550 to $600 million in fixed maturities at an average yield between 6% to 6.1%. Including the expected investments in commercial mortgage loans and other long-term investments with debt-like characteristics, we expect to invest approximately $700 to $800 million 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, I will spend a few minutes discussing our share repurchase program, available liquidity, and capital position. During the quarter, the company repurchased approximately 1.1 million shares of Globe Life, Inc. common stock for a total cost of $175 million at an average share price of $154.28. Including shareholder dividend payments of $25 million, the company returned approximately $200 million to shareholders during the second quarter of 2026. At the end of the second quarter, the company amended its term loan, increasing the principal balance from $250 million to $450 million, an increase of $200 million, and extended the maturity date to June 2029. Additionally, the company's credit facility was amended at the end of the second quarter to extend its maturity date to June 2031. The term loan and the credit facility provide additional sources of parent liquidity. We intend to use the excess proceeds from the term loan for general corporate purposes including reducing commercial paper balances, increasing share repurchases, and other parent needs.
The parent ended the quarter with liquid assets of approximately $110 million. We anticipate ending the year with liquid assets in the top end of our target range of $50 million to $60 million. The parent will also generate excess cash flows over the remainder of 2026. The parent company's excess cash flow, as we define it, results primarily from dividends received by the parent from its subsidiaries less the interest paid on debt, and is available to return to its shareholders in the form of dividends and through share repurchases. Utilizing a portion of the parent's liquid assets at the end of the quarter, the excess proceeds from our increased term loan and excess cash flow expected to be generated for the second half of the year, we anticipate the parent will return to shareholders over the remainder of the year approximately $350 million to $370 million in the form of dividends and share repurchases after meeting the anticipated needs of the parent.
We continue to invest in our growth through making 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 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 the parent's excess cash flow after the payment of shareholder dividends. For the full year, we anticipate distributing approximately $95 million to our shareholders in the form of dividend payments. In addition, we anticipate share repurchases will be in the range of $670 million to $700 million.
This reflects a $100 million increase at the midpoint of our range from what we indicated on our last call given the additional term loan proceeds. As a reminder, our current excess cash flow estimates for 2026 do not anticipate any additional cash flows to the parent resulting from the establishment of the new Bermuda entity in 2025. Now with regards to capital levels at our insurance subsidiaries, our goal is to maintain capital within our insurance operations 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 the 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 the end of 2025, our consolidated RBC ratio for our US subsidiaries was 316%, which provides approximately $95 million of excess capital above what is needed to be at our minimum capital target level of 300%. For 2026, we intend to maintain our consolidated RBC within the targeted range of 300% to 320%. Now I would like to update you on the progress we are making with our Bermuda subsidiary. We are pleased with our progress so far. Our lead regulator in Nebraska approved reciprocal jurisdiction in the second quarter for Globe Life Re, the company's Bermuda reinsurance affiliate. Given this approval, we are now in the process of seeking reciprocal jurisdiction approval from Indiana, American Income's state of domicile. I will provide you with an update on our next call. In addition, consistent with our business plan, we expect to complete a new reinsurance cession in the third quarter, which will reinsure a portion of new business and in-force policies issued by our subsidiaries to Globe Life Re.
Now with regards to our policy obligations for the current quarter, for the second quarter, life policy obligations as a percent of premium improved from 36.7% in the year-ago quarter to 34.3%, favorable to management's estimates and consistent with the continued favorable trends in mortality. Health obligations as a percent of premium were 56.8% compared with 53.3% from the year-ago quarter. This was higher than our estimates. The higher health obligation ratio was driven by a number of factors, including Medicare Supplement claims related to prior periods, including an industry-wide correction that CMS made to physician reimbursement rates; higher loss ratios at Evri due to an adverse fluctuation in high-severity claims; and an adverse fluctuation in the quarter related to cancer claims at Liberty National division. We expect the claims experience to moderate during the remainder of the year.
As a reminder, we intend to update our life and health assumptions annually in the third quarter and thus, we have made no changes to our long-term assumptions this quarter. Now with respect to our 2026 guidance: For the full year 2026, we estimate net operating earnings per diluted share will be in the range of $15.55 to $15.95, representing 8.5% earnings per share growth at the midpoint of the range. This increase from our prior guidance is primarily due to improved life underwriting margins and excess investment income offset by higher financing costs and the reduced impact of share repurchases due to the higher share price. The guidance range reflects potential remeasurement gains from the third-quarter life and health assumption updates in the range of $110 million to $130 million with a life assumption update in the range of $90 million to $100 million and the health assumption update in the range of $20 million to $30 million.
The midpoint of the range is higher than last quarter's call due to continued refinements in estimates, with the increase primarily related to the health assumption update, which was previously anticipated to be relatively small. Given the estimated benefit from assumption updates in the third quarter, we anticipate third-quarter life underwriting margin as a percent of premium will be in the range of 52% to 53% and the third-quarter health underwriting margin as a percent of premium will be in the range of 29% to 32%. We anticipate recent favorable trends will continue through 2026. For the full year normalized life underwriting margin as a percent of premium, which excludes the impact of the third-quarter assumption update, is between 41% to 42% at the midpoint of our guidance. As Frank previously noted, we expect health premiums to grow in the range of 14% to 16% for the full year. As mentioned on the previous call, this health premium growth is benefiting not only from strong growth in Medicare Supplement sales in 2025 and anticipated in 2026, but also from approximately $65 million additional premium from approved rate increases on individual Medicare Supplement policies that will be received throughout 2026, primarily in the last three quarters of the year.
In our full-year guidance, we anticipate United American's premium growth to be in the range of 25% to 35% and the health margin as a percent of premium to be approximately 7% for the second half of the year. As Matt previously discussed, United American's health margin includes our group health business, including Evri. When excluding Evri, United American's health margin as a percent of premium for the second half of the year will be in the range of 8% to 9%. Finally, I do want to point out that the midpoint of our guidance normalized EPS growth, which removes the impact of assumption updates to both 2025 and 2026, is estimated to be between 9% to 10%. At the midpoint of our guidance, the projected three-year compound annual growth rate of normalized EPS is approximately 11%. Those are my comments. I will now turn the call back to Matt.
Thanks, Tom. Those are our comments, and we will now open up the call for questions.
分析師問答
Gentlemen, thank you for your remarks. And to our audience joining today, at this time if you would like to ask a question, simply press star and 1 on your telephone keypad. We will hear first from the line of Wilma Jackson Burdis at Raymond James. Please go ahead.
Hey. Good morning. Could you just give us a little bit more color on how you see it playing out as far as adjusting the sales and advertising environment in DTC to AI? What are some of the options? Just maybe how long you see it playing out? Thanks.
Yes. There has been a lot discussed recently about just the quantity of search going down and the volume of paid search. What is happening is that it is really just bidding up the price for paid search. As we have discussed before, we are going to be disciplined on our spend and make sure that we maintain our margin, and we are not just going to chase sales that do not meet our profitability targets. What we are seeing out there is that paid search has moved to AI-generated search. You are also seeing other platforms such as Instagram and Facebook coming on stronger with advertising. So, as I mentioned in my prepared remarks, that is just something that we are navigating: going to different avenues for online advertising. That is not something unique to Globe Life or even to the life insurance industry. It is just the overall dynamics that are happening in online advertising.
And can you just talk a little bit more about the share repurchases? Because I think the pace in the first half has been pretty high. Just talk a little bit about that and how you see that continuing and playing out for the rest of the year? Thanks.
Yes. Thanks, Wilma. It is Tom. I do want to correct a statement that I made. We would anticipate the parent will return to shareholders over the remainder of the year approximately $350 million to $370 million. I think I said $250 to $270, but that should be $350 to $370. Over the course of the year, we do expect to have share repurchases in that $670 to $700 million range for the full year. And we would expect to pace share repurchases pretty much pro rata during the third quarter and the fourth quarter.
Yeah. And Wilma, I think the one thing I would add, as Tom mentioned in his comments, is that it is higher than what we had anticipated as of our last call. We are using a portion of the proceeds from the increase in the term loan to increase the amount of the buybacks over the course of the year. We leaned into the first half of the year given some of the favorable pricing in our share price that we had. We were a little bit over 50% in the first half of the year. This will bring us to being just a little bit more in the first half than we will be in the second half. We expect to pace the remainder of repurchases across Q3 and Q4.
Okay. Thank you. That definitely helped. Appreciate it.
Our next question comes from Ryan Krueger at KBW. Please go ahead.
Hey, thanks. Good morning. Can you quantify the potential capital impact of the planned cession to Bermuda in the third quarter? And then at what point would you expect to get that capital up to the holding company? Would that be more next year?
On this next reinsurance cession, the real benefit of reinsuring some of the in-force business is to balance out our ability to reinsure new business in the Bermuda entity. So we do not really expect any capital benefit in 2026 from that transaction, and we would expect to see some benefit in 2027, but not likely the full benefit that we have communicated on prior calls in 2027. That would emerge over a longer period of time of the business plan, over the next three to five years.
Got it. And then on the health side, I guess I am a little surprised that you have increased the expectation for remeasurement gains in the assumption review given the weaker claims experience this quarter. Can you give some more color on where that is coming from? Maybe it is a different area than where you had the claims weakness.
The assumption update on health is primarily driven by American Income Life, Family Heritage, and Liberty National. On the Liberty National claims, we did see some higher cancer claims this quarter, but we really see that as a fluctuation and not a continuing morbidity trend for Liberty National. As we look at those assumptions, the predominant driver for assumption updates is improved morbidity that we have seen over the past few years.
Our next question will come from Wesley Carmichael at Wells Fargo. Please go ahead.
Hey. Thank you. Good morning. So I had a question on buybacks or capital management. The stock has done better recently; does that change the outlook for capital deployment looking forward to 2027? Does it impact your willingness at all to look towards M&A? And are there any interesting acquisition opportunities out there?
Yes. Wesley, as we think about buybacks as a strategy, the higher share price does not deter us from continuing to buy back our shares. We will continue to have that as a predominant use of excess cash flows. Absent some better alternative, we will look at and continue to look at M&A opportunities. We are committed to growing organically and are confident in our ability to grow the organization organically. But if we could find the right opportunity that fits with our strategy, fits in the marketplace and the products, and has a distribution that we can grow, we would consider it. In the meantime, we feel comfortable that the current share price is still below what we think is the intrinsic value of the organization, so buybacks remain a good use of shareholder capital.
Thanks. And my follow-up was on American Income. Just looking at lapses there, I think the first-year lapses ticked down sequentially, but renewal lapses remain a little bit elevated relative to historical trends. Do you think that is a better run rate going forward or maybe just a couple of quarters of deviation from the longer-term trend?
We were pleased to see those first-year lapses at American Income come down back to where they have been. Renewal lapses are a little bit higher than they were pre-pandemic, and we see that as continuing to be around that level. So think that is a good baseline.
Our next question will come from Joel Hurwitz at Dowling and Partners. Please go ahead.
I wanted to start on the life sales trends and particularly American Income. The growth has been coming in below sort of your outlook. Do you think that is cost-of-living pressures emerging with your targeted consumer? Or is it largely just the agent count and the ramp of new agents?
No, I do not think it is economy-driven. I do think it is agent count driven. We had mentioned before the agent count has not been where we wanted it to be from a growth perspective over the last few quarters, but we are seeing that turnaround here in Q2. We anticipate Q3 and Q4, as I said in my comments, to be in that mid-single-digit growth rate. From an overall productivity perspective on a per-sale basis, the premium per sale at American Income continues to tick up over the last several quarters. That is an indicator of consumer health as consumers are willing to spend a little bit more for a little bit more coverage. We are not having to present more; conversion rates are not going down from an overall consumer presentation to sales perspective. I do think it is an agent count story and I am pleased to see sequential growth from Q1 to Q2. Over the last 25 years, agent count and sales count are very momentum-driven. We get quarterly fluctuations, and we encourage folks to look at it on an annual basis.
Got it. That is helpful. And then for my second one, just on the United American margin: It sounds like Evri was like a 4-point drag in the quarter. How much of a drag has that business been in past quarters? And then what is the expectation in the near term? I think you said ex-Evri the margin is expected to be 8% to 9% in the back half. Should we expect that business to have a 4-point drag going forward?
No. I do not think, on a go-forward basis, it will be that way. It was just a high-claims quarter at Evri. It was concentrated in a handful of claims. What is interesting is Evri has had a pretty significant increase in sales and premium starting to come through in 2026. As a start-up, the premium comes in throughout the plan year, but the claims do not come in evenly every quarter. From a prior-period perspective, the margin side has not had much of an impact, it just did in this quarter because of the concentration of claims.
Joel, for the first half of the year, the total underwriting loss at Evri is around $10 million and about $7 million of that was in the second quarter. We only anticipate $3 million or $4 million in the second half of the year. So we do not anticipate the drag for the full year; it might be about two percentage points on the underwriting margin percentage.
Even despite some of the drags we had, as Tom mentioned, we had some adjustments to prior periods and some claims in the second quarter related to prior periods as well as Evri. For the full year, we still see the underwriting dollars for United American increasing 24% year-over-year. So it will still be a very good year.
Got it. Thank you.
Our next question will come from Randy Binner at Texas Capital. Please go ahead.
Hey, thanks. I have a couple of follow-ups. First on adapting to AI search and direct-to-consumer, are you planning to use performance marketing intermediaries? Or are you looking — can you remind us if that is something you utilize? As far as reaching social media and AI search better, can you dig into a little bit more tactically what you are doing and if expanding your tool set is part of what you are contemplating?
The amount of advertising that we spend online is usually working directly with the platforms for optimization. Historically, Google has been one of those big partners, but we do operate on other platforms like Facebook, Instagram, etc. As I mentioned, traditional paid search is changing; the volume of paid search is down, which pushes costs up. You are seeing Google and others move into AI-generated ads and related formats. We are working alongside those programs as these new advertising methods roll out. We will continue to work directly with the various platforms for optimization.
Okay. That is helpful. And then a follow-up on the agent initiatives on the life side, mostly at American Income. Can you share a little bit more about the dynamic with the sales force there? I am not sure what you are able to share about the compensation changes, but can you provide a little more detail on how that has changed? Is it in line with when you have made these adjustments in the past as was alluded to earlier? Just trying to get a sense of the dynamic on the ground with the sales force and how they are viewing these compensation changes.
Simplistically, agent compensation consists of a base level of commission paid on sales, and incentive compensation. Incentive compensation is something we regularly adjust, typically at least once a year. We design incentives to move certain KPIs depending on what we're managing: incentivizing sales growth, recruiting, retention, or training new agents. Managers split time between direct sales and recruiting and training new agents. The change implemented at the beginning of Q2 focused more on agent onboarding and retention of new agents in their first year. We are seeing this come to fruition as our middle management spends more time recruiting and training. American Income has a consistent model over decades, so short-term fluctuations are not unexpected. We also have three agencies that recruit, train, and onboard agents in similar manners; Liberty National and Family Heritage show strong agent count growth, which gives us confidence that American Income will improve in the second half of the year.
Randy, I would just add that, on a longer-term basis, we are working on AI opportunities within the sales process. We are implementing training bots to give our agents various personas they might encounter, enabling them to practice before selling live. We are also taking a look at wholesale productivity: how to improve the agent experience and retention, eliminate frictions in the sales process from lead generation through sale. There are many initiatives underway, especially at American Income given the size of that agency and its virtual nature. These will not be immediate, but over time we expect to see benefits.
Alright. Great. Those answers are helpful. Thanks.
We will hear next from Pablo Singzon at JPMorgan. Please go ahead.
Hi. Good morning. On Evri, I was hoping you could expand on your comments on higher severity. Is there something different about the products there, or was that comment more about the unique nature of claims that showed up this quarter? Also, it does not sound like you are having to put through any repricing or re-underwriting but I wanted to confirm. Thanks.
It is a different product than what is sold by the other health plans. In 2025, we just had a handful of groups in the sales, and in 2026 sales have been good. On an annual basis, there is an opportunity to reprice groups, and we do that with our groups to make sure we have the right pricing based on experience. Overall, we think long term this business will be an 83% to 85% loss ratio type business, but in the early stages, it is a start-up and we have to get scale first to generate the credibility of experience.
We also have reinsurance coverages to protect ourselves from any really severe claims that might otherwise be incurred, to manage our risk on that line.
Got it. And then my second question, on cancer claims at Liberty National: I think you might have an even bigger cancer book at Family Heritage. Was anything similar showing up there, or does the fact that nothing showed up at Family Heritage give you confidence that what happened at Liberty National was more of an aberration?
I think that is exactly right, Pablo. We have not seen that at Family Heritage. We have seen very consistent and favorable underwriting results at Family Heritage; the products are a little different, and we see the Liberty National experience as a fluctuation at this point for the quarter.
Our next question will come from Suneet Kamath at Jefferies. Please go ahead.
Great. Thanks. Good morning. Just on the assumption update that you are guiding to for the third quarter, post that change should we be thinking about that as really a one-time benefit or do you think you are still going to have these ongoing quarterly remeasurement gains? I am trying to get a sense: is this assumption update going to true up everything and we are back to normal, or will we still have these ongoing remeasurement benefits?
On mortality primarily on the life side: we look at mortality results over a long period to inform our long-term assumptions. We have been seeing very good mortality experience recently, so I would not expect our assumptions to be adjusted all the way down to our current experience. I would expect some remeasurement gains to continue to come through. We will always see remeasurement gains and losses each quarter because things will not exactly emerge as we intend, but I do think there will be some continued favorable remeasurement gains even post assumption update.
As Tom said, our current experience is clearly emerging better than the long-term assumptions. To the extent that continues, we will continue to evaluate in future periods and may have future assumption updates. When you have those assumption updates it does lock in a lower policy obligation percentage for that book of business going forward, which benefits margins on a going-forward basis.
One additional point: we indicated normalized life underwriting margins in that 41% to 42% range. That is a starting point for how experience will emerge in the coming years. Also, we will see a little bit of amortization increase in the future due to continued capitalization and amortization of renewal commissions, primarily at American Income Life.
That is helpful. Thanks. And then on Bermuda, based on conversations with some investors, some were hoping for an acceleration relative to the three- to five-year range you have given. Could you walk us through how you see the next couple of years developing? What needs to happen to get you to a position where you can regularly take cash out of Bermuda?
The next step is getting Indiana approval for reciprocal jurisdiction. We have been in active discussions and those discussions have gone well. Once we get Indiana reciprocal jurisdiction, to the extent we want dividends to come out of the Bermuda subsidiary, the Bermuda Monetary Authority would need to approve those distributions to the parent. We would expect to seek some subsidiary dividends to the parent in 2027; however, not at the magnitude of our long-term run rate. We are looking to have consistent dividend distributions each year from the entity. As we put more new business in, we continue to create capacity to provide dividend distributions.
We have been structuring our business plan and reinsurance transactions to not just be a one-time capital release but to more efficiently manage the emergence of profits from the block of business over time, which will continue to provide ongoing annual cash flows up to the parent. We have been consistent in saying we anticipate some additional dividends beginning in 2027. It is possible we could get some late in 2026, but that is subject to regulatory approval. We do not want to get ahead of regulatory approvals or put out expectations before approvals are secured.
We typically discuss our estimates for the next year on the next quarterly call, and this would be one of those items as we think about dividends and free cash flow up to the parent. I would anticipate we would discuss that on the next call as part of our 2027 plans.
Our next question will come from Tom Gallagher at Evercore ISI. Please go ahead.
Hi. Where do you expect the health margin to come in fourth quarter, outside of the actuarial review? Assuming they normalize.
It should come in around the mid-20s. Let's say 23% to 25% in the fourth quarter. We would anticipate it being better than Q2. Q4 is always a little bit seasonally high from an overall health perspective because you do have some seasonal effects. Absent any assumption update, probably around 24% in the fourth quarter and about 25% in the third quarter.
Got it. And then on direct-to-consumer, I want to be clear: is there increased competition online? Do you think direct sales are going away from you? And if you pivot to a Google portal or sales model, what would the margin look like? Would you have to give up some of the economics relative to where you are currently based on how you think this pivot may happen? Any color would be appreciated.
I would not characterize it as competition from other carriers. It is really that the volume of paid search is down and therefore it costs more on a per-click basis to appear toward the top of search results. We are being disciplined and not spending past our target margins for advertising campaigns. The pivot is that more testing is rolling out where Google and others are running ads in AI search modes. We will participate in those as they optimize, and I do not anticipate having to give up margin to participate. We will optimize sales and maintain our margins. Also, many DTC leads are shared with our agency business, which converts at a much higher rate than passive DTC. So as things shake out, our organization is well-positioned because our overall conversion ratio should be better when you consider the entire organization rather than just one channel.
Our next question will come from Maxwell Frischer at Truist. Please go ahead.
Thank you. Good morning. I am calling in for Mark Hughes. Could we get your broader thoughts around the recruiting environment and current experience around agent retention? I know you mentioned the compensation adjustment implemented at the beginning of the quarter, but broader thoughts would be great.
We see our pipeline as strong. We track the pipeline all the way through recruiting into hires, and that is where folks start training and ultimately become producing agents. We feel good about our pipeline and the numbers that convert into new producing agents. As I mentioned, Liberty National and Family Heritage are not going to market differently on recruiting and both show agent count growth. That is why I am confident American Income will have a better second half of 2026 than the first half.
Lastly, we will hear from Andrew Kligerman at TD Cowen. Please go ahead.
Okay. Last but not least, thank you. I have a couple of quick follow-ups. On American Income with recruiting down in the first half, you are confident in the second half mid-single-digit sales growth even though recruiting was down in the first half. What gives you that confidence?
We look at the pipeline — people in school and getting licensed — and that is up 8% from Q1. Sequentially, we had 3% growth in agent count from Q1 to Q2. Those are early indicators that momentum is returning. Agent recruitment and conversion dynamics are momentum-driven, so with the pipeline and sequential improvements we see, we expect mid-single-digit growth in the second half.
Great. And on direct-to-consumer, you are guiding to sales down single digits for the year. Is this mostly a short-term transitional issue that will take a lot of trial and error before you get confident you are back into growth mode in 2027?
Yes. That is a transition period: we are testing and optimizing as platforms evolve into AI-based advertising and search. We have a long history of testing many campaigns; these changes require short-term adjustments. From a longer-term perspective, I am confident we can continue to grow because the underlying consumer demand for the product remains. We need to be visible where consumers are searching and interacting online, and we will be there as the transition happens.
One last quick one: as I think into 2027, given the items discussed today — the health margin was a blip this quarter, American Income sales seem on track, and DTC is protecting margins — is it fair to think Globe Life is tracking to historical EPS growth rates, i.e., high-single-digit to low-double-digit EPS growth? Is that a fair observation coming out of Q2 without asking for guidance?
Yes, and we will give more input next quarter, but that is a fair observation. One wildcard is the magnitude and timing of assumption updates. We expect a life assumption update benefit of $90 million to $100 million and health $20 million to $30 million in the third quarter; if those remeasurement gains are smaller, that will temper year-over-year growth. That said, normalized margins remain strong, and we expect positive trends to continue. Investment income is starting to grow sequentially as well, and with the yields on new purchases, we expect continued contribution from investments.
I would add that while there has been dialogue about margin percent on the health business, look at the margin dollars and the growth due to rate increases and strong sales. That makes me feel good that the underlying business is performing strongly. DTC sales are a longer-term earnings driver; current-year sales generate future earnings. Our margin was up in DTC in the quarter, and we still expect over $100 million of sales in the DTC channel, which we can continue to optimize. We want to be disciplined about growing our underwriting margin dollars.
That concludes our Q&A session for today. We thank you all for your calls and your questions. I will turn it back to Mr. Stephen Mota for any additional or closing remarks.
All right. Thank you for joining us this morning. Those are our comments. We will talk to you again next quarter.
Ladies and gentlemen, this does conclude today's Globe Life, Inc. conference call. We thank you all for your participation.