- Net Income: $258 million or $2.83 per share, up from $215 million or $2.24 per share a year ago.
- Net Operating Income: $271 million or $2.97 per share, an increase of 14% from a year ago.
- Return on Equity (GAAP): 20.8% through June 30.
- Book Value per Share (excluding AOCI): $82.38, up 14% from a year ago.
- Life Insurance Premium Revenue: $815 million, up 4% from the year-ago quarter.
- Life Underwriting Margin: $320 million, up 8% from a year ago.
- Health Insurance Premium Revenue: $352 million, up 7% from the year-ago quarter.
- Health Underwriting Margin: $100 million, up 9% from a year ago.
- Administrative Expenses: $82 million, up 9% from a year ago.
- American Income Life Premiums: $424 million, up 7% from the year-ago quarter.
- American Income Life Underwriting Margin: $193 million, up 7% from a year ago.
- Liberty National Life Premiums: $92 million, up 6% from the year-ago quarter.
- Liberty National Life Underwriting Margin: $31 million, up 9% from a year ago.
- Family Heritage Health Premiums: $106 million, up 8% from the year-ago quarter.
- Family Heritage Health Underwriting Margin: $37 million, up 12% from a year ago.
- Direct-to-Consumer Life Premiums: $249 million, flat compared to the year-ago quarter.
- Direct-to-Consumer Life Underwriting Margin: $64 million, up 13% from a year ago.
- Net Investment Income: $286 million, up 9% or $24 million from the year-ago quarter.
- Excess Investment Income: $43 million, up $11 million from the year-ago quarter.
- Share Repurchases: Approximately 3.8 million shares for $314 million at an average price of $81.87 per share.
- Shareholder Dividends: $23 million for the quarter.
- Full Year Net Operating Earnings Guidance: $11.80 to $12.10 per diluted share, representing 12% growth at the midpoint.
Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net income for the second quarter increased to $258 million or $2.83 per share, up from $215 million or $2.24 per share a year ago.
- Net operating income for the quarter was $271 million or $2.97 per share, marking a 14% increase from the previous year.
- Life insurance premium revenue grew by 4% to $815 million, with life underwriting margin up 8% to $320 million.
- Health insurance premiums increased by 7% to $352 million, with health underwriting margin up 9% to $100 million.
- The company repurchased approximately 3.8 million shares for a total cost of over $314 million, taking advantage of favorable market conditions.
Negative Points
- Administrative expenses rose by 9% to $82 million, representing 7% of premium, up from 6.8% a year ago.
- The company is still dealing with ongoing inquiries from the SEC and DOJ, which could potentially impact future operations.
- First-year lapses in various divisions have increased slightly, which could be related to economic conditions or changes in sales practices.
- Legal expenses related to the WilmerHale investigation and short-seller allegations are expected to continue for the rest of the year.
- Net life sales in the direct-to-consumer division were down 3% from the year-ago quarter, primarily due to reduced marketing spend on certain campaigns.
Q & A Highlights
Q: First, I had a question just on lapses. If you look at first-year lapses across the various divisions, they seem like they've increased a little bit in all of them. Is this a normal aberration, or is it related to the economy and inflation?
A: (Thomas Kalmbach, CFO) We're pleased with recent persistency despite short-seller reports and economic conditions. First-year lapses at AIL were slightly up but in line with our 10-year average. DTC lapses were slightly higher, possibly due to increased internet sales. LND lapses were consistent with last quarter.
Q: You had a couple of items below the line that affected your net income, including legal expenses. How much of those were cash expenses versus reserves, and what is the likely impact on free cash flow next year?
A: (Thomas Kalmbach, CFO) Legal expenses are related to the WilmerHale investigation and short-seller allegations, and we expect some to continue for the rest of the year. M&A expenses are not expected to continue unless new opportunities arise. These expenses should not materially impact our excess cash flows.
Q: On the accelerated buybacks and related financing, are you pulling forward activity from next year, or do you have debt capacity to continue buybacks next year?
A: (Thomas Kalmbach, CFO) We have debt capacity to finance an additional $400 million in buybacks, bringing our debt cap ratio closer to 25%, within our 23-27% range. (Frank Svoboda, Co-CEO) We're also exploring capital management opportunities within our insurance operations.
Q: Regarding the audit committee's investigation, is there a broader review of short-seller allegations, especially around agent behavior at American Income?
A: (J. Matthew Darden, Co-CEO) The review included our processes for preventing, identifying, and responding to misconduct. We continually evaluate and enhance our procedures and controls as necessary.
Q: On June 13, you filed an 8-K about a tech issue with unauthorized access. Do you have an update on that?
A: (Frank Svoboda, Co-CEO) We addressed the vulnerabilities and initiated a comprehensive investigation. The investigation is ongoing, but there has been no material impact on operations.
Q: Can you talk about the optionality to bring forward '26 cash flows given the share repurchase authorization through the end of '25?
A: (Thomas Kalmbach, CFO) We plan to raise additional financing for share repurchases in the second half of the year. We are also exploring options to raise additional capital from our insurance operations through reinsurance and other means.
Q: Just wanted to start with the Audit Committee review. Did they identify anything that needs improvement in monitoring sales practices?
A: (J. Matthew Darden, Co-CEO) The review focused on financial allegations and our processes for preventing, identifying, and responding to misconduct. We continually enhance our internal controls and processes as necessary.
Q: On the DOJ and SEC reviews, will there be a conclusion, or is it ongoing without finality?
A: (J. Matthew Darden, Co-CEO) We will update you on material developments in both cases as they happen.
Q: Regarding the remeasurement gains, does this suggest a favorable assumption review in the third quarter?
A: (Thomas Kalmbach, CFO) The remeasurement gains are relative to our current assumptions. We anticipate a favorable remeasurement gain on the life business, which is reflected in our updated EPS guidance.
Q: Can you expand on potential reinsurance as a way to free up capital?
A: (Thomas Kalmbach, CFO) We are evaluating expanding our financial reinsurance program and exploring capital management options in Bermuda. We are also considering disposing of certain books of business.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
