# GLOBE LIFE INC. (GL) FY 2021 MD&A Verbatim Item 7 Management's Discussion and Analysis from GLOBE LIFE INC.'s 10-K for fiscal year 2021. SEC filing source: https://www.sec.gov/Archives/edgar/data/320335/000032033522000006/gl-20211231.htm Accession: 0000320335-22-000006 Filing date: 2022-02-24 Report date: 2021-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/GL/ All MD&A years: /company/GL/mda/ Next year: /company/GL/mda/fy2022/ (FY 2022) Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with Globe Life's Consolidated Financial Statements and Notes thereto appearing elsewhere in this report. The following management discussion will only include comparison to prior year. For discussion regarding activity from 2019, please refer to the prior filed Form 10-Ks at www.sec.gov. "Globe Life" and the "Company" refer to Globe Life Inc. and its subsidiaries and affiliates. Results of Operations [[GREPCENT_TABLE]] [["","","How Globe Life Views Its Operations. Globe Life Inc. is the holding company for a group of insurance companies that market primarily individual life and supplemental health insurance to lower middle to middle income households throughout the United States. We view our operations by segments, which are the insurance product lines of life, supplemental health, and annuities, and the investment segment that supports the product lines. Segments are aligned based on their common characteristics, comparability of the profit margins, and management techniques used to operate each segment."],["","","Insurance Product Line Segments. The insurance product line segments involve the marketing, underwriting, and administration of policies. Each product line is further segmented by the various distribution channels that market the insurance policies. Each distribution channel operates in a niche market offering insurance products designed for that particular market. Whether analyzing profitability of a segment as a whole, or the individual distribution channels within the segment, the measure of profitability used by management is the underwriting margin, as seen below:"],["","","Premium revenue (Policy obligations) (Policy acquisition costs and commissions) Underwriting margin"],["","","Investment Segment. The investment segment involves the management of our capital resources, including investments and the management of corporate debt and liquidity. Our measure of profitability for the investment segment is excess investment income, as seen below:"],["","","Net investment income(Required interest on net policy liabilities) (Financing costs) Excess investment income"]] [[/GREPCENT_TABLE]] 20 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Current Highlights, comparing year-to-date 2021 with 2020. •Net income as a return on equity (ROE) for the year ended December 31, 2021 was 8.8% and net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio(1) was 12.3%. •Total premium increased 7% over the prior year. Life premium increased 8% for the period from $2.7 billion in 2020 to $2.9 billion in 2021. Life underwriting margin declined 8% from $675 million in 2020 to $624 million in 2021. •Net investment income increased 3% over the same period in the prior year. Excess investment income declined 2% below the prior year. •Total net sales increased 7% over the same period in the prior year from $662 million to $706 million. •Book value per share increased 3% over the same period in the prior year from $83.19 to $85.97. Book value per share, excluding net unrealized gains on the fixed maturity portfolio(1), increased 10% over the prior year from $53.12 to $58.50. •The Company incurred $140 million of COVID-19 net life claims (net of reserves released upon death) for the year ended December 31, 2021 compared with $67 million during the same period last year. •For the year ended December 31, 2021, the Company repurchased 4.8 million shares of Globe Life Inc. common stock at a total cost of $455 million for an average share price of $95.11. The following graphs represent net income and net operating income for the three years ended December 31, 2021. (1)As shown in the charts above, net operating income is the consolidated total of segment profits after tax and as such is considered a non-GAAP measure. It has been used consistently by Globe Life's management for many years to evaluate the operating performance of the Company. It differs from net income primarily because it excludes certain non-operating items such as realized gains and losses and certain significant and unusual items included in net income. Net income is the most directly comparable GAAP measure. Net operating income as an ROE, excluding net unrealized gains on the fixed maturity portfolio, is considered a non-GAAP measure. Management utilizes this measure to view the business without the effect of the net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available-for-sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities, net of tax is $2.8 billion and $3.2 billion for the year ended December 31, 2021 and 2020, respectively. Book value per share, excluding net unrealized gains on the fixed maturity portfolio, is also considered a non-GAAP measure. Management utilizes this measure to view the book value of the business without the effect of net unrealized gains, which are primarily attributable to fluctuation in interest rates on the available-for-sale portfolio. The impact of the adjustment to exclude net unrealized gains on fixed maturities is $27.47 and $30.07 for year ended December 31, 2021 and 2020, respectively. Refer to Analysis of Profitability by Segment for non-GAAP reconciliation to GAAP. 21 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Summary of Operations. Net income increased 2% to $745 million in 2021, compared with $732 million in 2020. This increase was primarily related to an increase in realized gains offset by higher COVID-19 life claims. On a diluted per common share basis, net income per common share for 2021 increased from $6.82 to $7.22. Included in net income were after-tax realized gains of $47 million in 2021, compared with realized after-tax losses of $2 million for 2020. Realized gains and losses are presented more fully under the caption Realized Gains and Losses in this report. Net operating income from continuing operations declined 4% to $707 million in 2021, compared with $738 million in 2020. On a diluted per common share basis, net operating income per common share decreased slightly from $6.88 to $6.86. Net operating income is the consolidated total of segment profits after tax and as such is considered a non-GAAP measure. Net income is the most directly comparable GAAP measure. We do not consider realized gains and losses to be a component of our core insurance operations or operating segments. Additionally, net income was affected by certain significant and unusual non-operating items in 2020 and 2021. We do not view these items as components of core operating results because they are not indicative of past performance or future prospects of the insurance operations. We remove items such as these that relate to prior periods or are non-operating items when evaluating the results of current operations, and therefore exclude such items from our segment analysis for current periods. Despite headwinds with COVID-19, the Company continues to see positive signs in its core operations, including strong sales, favorable persistency and a strong ROE, excluding net unrealized gains on the fixed maturity portfolio. COVID-19. For the year ended December 31, 2021, the Company incurred $140 million of COVID-19 net life claims. Per the Centers for Disease Control and Prevention (CDC), there were approximately 460 thousand U.S. COVID-19 deaths in 2021. In the second half of the year, the COVID-19 deaths were concentrated in geographies and younger age groups where the Company has greater risk exposure. The Company’s level of COVID-19 net life claims, on average for the year, was approximately $3 million per 10,000 U.S. deaths. Going forward, we anticipate that COVID-19 deaths will continue at elevated levels throughout 2022, with an impact of approximately $50 million at the mid-point of our guidance based on incurred claims in the range of $3 million to $4 million per 10,000 U.S. deaths. The projected life claims are dependent on this estimate and many other variables, including, but not limited to, projected U.S. deaths from COVID-19, the timing and availability of effective treatments for the disease, vaccination rates, and effectiveness of vaccines, impact from potential variants, and the ages and geographic areas in which infections and deaths occur. 22 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Globe Life's operations on a segment-by-segment basis are discussed in depth below. Net operating income has been used consistently by management for many years to evaluate the operating performance of the Company and is a measure commonly used in the life insurance industry. It differs from GAAP net income primarily because it excludes certain non-operating items such as realized gains and losses and other significant and unusual items included in net income. Management believes an analysis of net operating income is important in understanding the profitability and operating trends of the Company’s business. Net income is the most directly comparable GAAP measure. Analysis of Profitability by Segment (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019","","2021 Change","","%","","2020 Change","","%"],["Life insurance underwriting margin","$","623,675","","","$","674,946","","","$","703,464","","","$","(51,271)","","","(8)","","","$","(28,518)","","","(4)"],["Health insurance underwriting margin","304,302","","","272,369","","","243,638","","","31,933","","","12","","","28,731","","","12"],["Annuity underwriting margin","8,704","","","9,029","","","9,458","","","(325)","","","(4)","","","(429)","","","(5)"],["Excess investment income","238,528","","","244,424","","","257,605","","","(5,896)","","","(2)","","","(13,181)","","","(5)"],["Other insurance:"],["Other income","1,216","","","1,325","","","1,318","","","(109)","","","(8)","","","7","","","1"],["Administrative expense","(271,631)","","","(250,947)","","","(240,321)","","","(20,684)","","","8","","","(10,626)","","","4"],["Corporate and other","(39,825)","","","(45,783)","","","(55,103)","","","5,958","","","(13)","","","9,320","","","(17)"],["Pre-tax total","864,969","","","905,363","","","920,059","","","(40,394)","","","(4)","","","(14,696)","","","(2)"],["Applicable taxes","(157,472)","","","(167,771)","","","(167,957)","","","10,299","","","(6)","","","186","","","\u2014"],["Net operating income","707,497","","","737,592","","","752,102","","","(30,095)","","","(4)","","","(14,510)","","","(2)"],["Reconciling items, net of tax:"],["Realized gain (loss)\u2014investments","54,220","","","(1,915)","","","16,291","","","56,135","","","","","(18,206)"],["Realized loss\u2014redemption of debt","(7,358)","","","(501)","","","\u2014","","","(6,857)","","","","","(501)"],["Part D adjustments\u2014discontinued operations","\u2014","","","\u2014","","","(92)","","","\u2014","","","","","92"],["Administrative settlements","(1,047)","","","\u2014","","","(400)","","","(1,047)","","","","","400"],["Non-operating expenses","(1,923)","","","(816)","","","(508)","","","(1,107)","","","","","(308)"],["Legal proceedings","(6,430)","","","(2,587)","","","(6,603)","","","(3,843)","","","","","4,016"],["Net income","$","744,959","","","$","731,773","","","$","760,790","","","$","13,186","","","2","","","$","(29,017)","","","(4)"]] [[/GREPCENT_TABLE]] The life insurance segment is our primary segment and is the largest contributor to earnings in each year presented. The life insurance segment underwriting margin declined $51 million compared with the prior year, primarily due to higher life claims related to COVID-19 offset by premium growth. The health segment contributed to growth in income in both years contributing $32 million of additional underwriting margin in 2021 and $29 million in 2020. 23 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis In 2021, the largest contributor of total underwriting margin was the life insurance segment and the primary distribution channel was American Income Life Division. The following charts represent the breakdown of total underwriting margin by operating segment and distribution channel for the year ended December 31, 2021. Total premium income rose 7% for the year ended December 31, 2021 to $4.1 billion. Total net sales increased 7% to $706 million, when compared with 2020. Total first-year collected premium (defined in the following section) was $583 million for 2021, compared with $547 million for 2020. Life insurance premium income increased 8% to $2.9 billion over the prior year total of $2.7 billion. Life net sales rose 8% to $522 million for the year ended 2021. First-year collected life premium rose 14% to $423 million. Life underwriting margins, as a percent of premium, declined to 22% in 2021 from 25% in the prior year. Underwriting margin declined to $624 million in 2021, 8% below the same period in 2020. The decline in the life underwriting margin is primarily due to approximately $140 million of COVID-19 net life claims incurred during the year ended 2021 versus $67 million during the same period in 2020. Health insurance premium income increased 5% to $1.20 billion over the prior year total of $1.14 billion. Health net sales rose 4% to $184 million for the year ended 2021. First-year collected health premium fell 9% to $160 million. Health underwriting margins, as a percent of premium, increased to 25% in 2021 compared with 24% in 2020. Health underwriting margin increased to $304 million for the year ended 2021, 12% over the same period in 2020. Excess investment income, the measure of profitability of our investment segment, declined 2% during 2021 to $239 million from $244 million in the same period in 2020. Excess investment income per common share, reflecting the impact of our share repurchase program, increased 1% to $2.31 from $2.28 when compared with the same period in 2020. Insurance administrative expenses increased 8% in 2021 when compared with the prior year period. These expenses were 6.6% as a percent of premium during the year ended 2021 and 2020. For the year ended December 31, 2021, the Company repurchased 4.8 million Globe Life Inc. shares at a total cost of $455 million for an average share price of $95.11. 24 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis The discussions of our segments are presented in the manner we view our operations, as described in Note 14—Business Segments. We use three statistical measures as indicators of premium growth and sales over the near term: “annualized premium in force,” “net sales,” and “first-year collected premium.” •Annualized premium in force is defined as the premium income that would be received over the following twelve months at any given date on all active policies if those policies remain in force throughout the twelve-month period. Annualized premium in force is an indicator of potential growth in premium revenue. •Net sales, a statistical performance measure, is calculated as annualized premium issued, net of cancellations in the first thirty days after issue, except in the case of Direct to Consumer, where net sales is annualized premium issued at the time the first full premium is paid after any introductory offer period has expired. Management considers net sales to be a better indicator of the rate of premium growth than annualized premium issued. •First-year collected premium is defined as the premium collected during the reporting period for all policies in their first policy year. First-year collected premium takes lapses into account in the first year when lapses are more likely to occur, and thus is a useful indicator of how much new premium is expected to be added to premium income in the future. See further discussion of the distribution channels below for Life and Health. 25 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis LIFE INSURANCE Life insurance is the Company's predominant segment. During 2021, life premium represented 71% of total premium and life underwriting margin represented 67% of the total. Additionally, investments supporting the reserves for life products produce the majority of excess investment income attributable to the investment segment. The following table presents the summary of results of life insurance. Further discussion of the results by distribution channel is included below. Life Insurance Summary of Results (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% ofPremium","","Amount","","% ofPremium","","Amount","","% ofPremium"],["Premium and policy charges","$","2,898,210","","","100","","","$","2,672,804","","","100","","","$","2,517,784","","","100"],["Policy obligations","2,070,485","","","71","","","1,809,373","","","68","","","1,638,053","","","65"],["Required interest on reserves","(735,282)","","","(25)","","","(698,112)","","","(26)","","","(666,168)","","","(26)"],["Net policy obligations","1,335,203","","","46","","","1,111,261","","","42","","","971,885","","","39"],["Commissions, premium taxes, and non-deferred acquisition expenses","234,033","","","8","","","212,859","","","8","","","203,052","","","8"],["Amortization of acquisition costs","705,299","","","24","","","673,738","","","25","","","639,383","","","25"],["Total expense","2,274,535","","","78","","","1,997,858","","","75","","","1,814,320","","","72"],["Insurance underwriting margin","$","623,675","","","22","","","$","674,946","","","25","","","$","703,464","","","28"]] [[/GREPCENT_TABLE]] The lower life insurance underwriting margins for the year ended December 31, 2021 are primarily attributed to approximately $140 million of COVID-19 net life claims, compared with $67 million in the prior year. 26 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Life insurance products are marketed through several distribution channels. Premium income by distribution channel for each of the last three years is as follows: Life Insurance Premium by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% of Total","","Amount","","% of Total","","Amount","","% of Total"],["American Income","$","1,402,878","","","48","","","$","1,257,726","","","47","","","$","1,160,495","","","46"],["Direct to Consumer","971,461","","","34","","","906,959","","","34","","","855,543","","","34"],["Liberty National","311,081","","","11","","","293,897","","","11","","","285,551","","","11"],["Other","212,790","","","7","","","214,222","","","8","","","216,195","","","9"],["Total","$","2,898,210","","","100","","","$","2,672,804","","","100","","","$","2,517,784","","","100"]] [[/GREPCENT_TABLE]] Annualized life premium in force was $2.9 billion at December 31, 2021, an increase of 7% over $2.7 billion a year earlier. The following table shows net sales information for each of the last three years by distribution channel. Life Insurance Net Sales by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% of Total","","Amount","","% of Total","","Amount","","% of Total"],["American Income","$","290,512","","","56","","","$","253,276","","","52","","","$","237,587","","","55"],["Direct to Consumer","148,846","","","28","","","165,426","","","34","","","126,208","","","29"],["Liberty National","71,184","","","14","","","54,931","","","12","","","53,718","","","13"],["Other","11,055","","","2","","","10,371","","","2","","","12,301","","","3"],["Total","$","521,597","","","100","","","$","484,004","","","100","","","$","429,814","","","100"]] [[/GREPCENT_TABLE]] The table below discloses first-year collected life premium by distribution channel. Life Insurance First-Year Collected Premium by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% of Total","","Amount","","% of Total","","Amount","","% of Total"],["American Income","$","250,937","","","59","","","$","214,566","","","58","","","$","195,225","","","59"],["Direct to Consumer","111,761","","","27","","","104,262","","","28","","","82,615","","","25"],["Liberty National","50,336","","","12","","","42,435","","","11","","","39,840","","","12"],["Other","9,705","","","2","","","10,190","","","3","","","11,564","","","4"],["Total","$","422,739","","","100","","","$","371,453","","","100","","","$","329,244","","","100"]] [[/GREPCENT_TABLE]] 27 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis A discussion of life operations by distribution channel follows. The American Income Life Division markets to members of labor unions and continues to diversify its lead sources by building relationships with other affinity groups, utilizing third-party internet vendor leads and obtaining referrals to facilitate sustainable growth. This division is Globe Life's largest contributor of life premium of any distribution channel at 48% of the Company's 2021 total life premium. Net sales increased 15% to $291 million in 2021 over the 2020 total of $253 million. The increase in net life sales is due to increased productivity and well as an increase in agent count. Premium increased 12% primarily due to improved persistency and higher sales. The underwriting margin, as a percent of premium, was 30% for the year ended December 31, 2021, down from 32% from the prior year primarily due to higher COVID-19 claims and higher reserve increases from lower policy lapse rates. This division incurred $36 million in COVID-19 net life claims, representing approximately 3% of premium, for the year ended December 31, 2021, compared with $18 million in COVID-19 net life claims during the prior year. Below is the average producing agent count at the end of the period for the American Income Life Division. The average producing agent count is based on the actual count at the end of each week during the year. The division continues to see a significant recruiting opportunity due to the current economic conditions and our ability to recruit virtually and in-person. Sales growth in our exclusive agencies is generally dependent on growth in the size of the agency force. [[GREPCENT_TABLE]] [["","2021","","2020","","2019","","2021 Change","","%","","2020 Change","","%"],["American Income","9,971","","","8,738","","","7,360","","","1,233","","","14","","","1,378","","","19"]] [[/GREPCENT_TABLE]] American Income Life continues to focus on growing and strengthening the agency force, specifically through emphasis on agency middle-management growth and additional agency office openings. In addition to offering financial incentives and training opportunities, the agency has made considerable investments in information technology, including a customer relationship management (CRM) tool for the agency force. This tool is designed to drive productivity in lead distribution, conservation of business, manager dashboards and new agent recruiting. Additionally, this division has invested in and successfully implemented technology that allows the agency force to engage in virtual recruiting, training and sales activity. Over the past year and through the pandemic, the agents have shifted to primarily a virtual experience with the customers and have generated a vast majority of its sales through virtual presentations. We find this flexibility to be enticing for new recruits as well as a driver of sustainability for our agency force. The Direct to Consumer Division (DTC) offers adult and juvenile life insurance through a variety of marketing approaches, including direct mailings, insert media, and electronic media. In recent years, production from electronic media, which is comprised of sales through both the internet and inbound phone calls to our call center, has grown rapidly compared with direct mail response as management has aggressively increased marketing activities related to internet and mobile technology as well as focused on driving traffic to our inbound call center. This had been steadily increasing prior to COVID-19, but the pandemic accelerated this activity due in part to the awareness of needing life insurance from the effects of COVID-19. The different approaches support and complement one another in the division's efforts to reach the consumer. The DTC's long-term growth has been fueled by constant innovation and name recognition. We continually introduce new initiatives in this division in an attempt to increase response rates. While the juvenile market is an important source of sales, it also is a vehicle to reach the parents and grandparents of juvenile policyholders, who are more likely to respond favorably to a DTC solicitation for life coverage on themselves than is the general adult population. Also, both juvenile policyholders and their parents are low acquisition-cost targets for sales of additional coverage over time. The DTC division continued to see high demand of its life insurance products in the current year primarily through its internet and inbound phone channels as a result of the response from COVID-19. Our continued investments in technology have allowed us to successfully serve the higher demands for our products through the digital self-serve and phone channels. 28 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis DTC net sales decreased 10% to $149 million for the year ended December 31, 2021 compared with $165 million in the prior year, primarily due to the record high net life sales in the prior year at the onset of the pandemic. We expect continued strong sales in 2022 due to the heightened awareness as to the benefits of life insurance. DTC incurred $69 million of COVID-19 net life claims, representing approximately 7% of premium, in 2021 compared with $35 million in 2020. DTC’s underwriting margin, as a percent of premium, was 7% for the year ended December 31, 2021, which was lower than the 14% result in 2020 primarily due to higher COVID-19 net life claims in 2021. The Liberty National Division markets individual life insurance to middle-income household and worksite customers. Recent investments in new sales technologies as well as recent growth in middle management within the agency will help continue this growth. The underwriting margin as a percent of premium was 17%, down from 23% for the year ended 2020. The decrease is primarily attributable to higher than normal policy obligations during 2021 as a result of COVID-19. This division incurred $28 million of COVID-19 net life claims, representing approximately 9% of premium, for the year ended December 31, 2021 compared with $12 million in 2020. Net sales increased 30% in 2021 over 2020. With the division's ability to return to face-to-face customer interaction and the option of virtual sales, total net life sales increased for the full year 2021. However, due to higher policy obligations as result of COVID-19, underwriting margin as a percent of premium was lower for the full year 2021 as compared with 2020. Below is the average producing agent count at the end of the period for Liberty National Division. As the division continues to gain momentum in its sales and recruiting initiatives and advances its technology and CRM platform, the agency should see an increase in recruiting of new agents and an increase in the average producing agent count. [[GREPCENT_TABLE]] [["","2021","","2020","","2019","","2021 Change","","%","","2020 Change","","%"],["Liberty National","2,716","","","2,575","","","2,350","","","141","","","5","","","225","","","10"]] [[/GREPCENT_TABLE]] The Liberty National Division average producing agent count increased 5% in 2021. We continue to execute our long-term plan to grow this agency through expansion from small-town markets in the Southeast to more densely populated areas with larger pools of potential agent recruits and customers. Continued expansion of this agency’s presence into more heavily populated, less-penetrated areas will help create long-term agency growth. Additionally, the agency continues to help improve the ability of agents to develop new worksite marketing business. Systems that have been put in place, including the addition of a CRM platform and enhanced analytical capabilities, have helped the agents develop additional worksite marketing opportunities as well as improve the productivity of agents selling in the individual life market. The Other Agencies distribution channels primarily include non-exclusive independent agencies selling predominantly life insurance. The Other Agencies contributed $213 million of life premium income, or 7% of Globe Life's total in 2021, but contributed only 2% of net sales for the year. HEALTH INSURANCE Health insurance sold by the Company primarily includes Medicare Supplement insurance, accident coverage, and other limited-benefit supplemental health products including cancer, critical illness, heart, and intensive care coverage. Health premium accounted for 29% of our total premium in 2021, while the health underwriting margin accounted for 32% of total underwriting margin. Health underwriting margin increased 12% to $304 million primarily due to lower policy obligations. The Company continues to emphasize life insurance sales relative to health due to life’s superior long-term profitability and its greater contribution to excess investment income. 29 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis The following table presents underwriting margin data for health insurance. Health Insurance Summary of Results (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% ofPremium","","Amount","","% ofPremium","","Amount","","% ofPremium"],["Premium","$","1,201,676","","","100","","","$","1,141,097","","","100","","","$","1,077,346","","","100"],["Policy obligations","758,745","","","63","","","733,481","","","64","","","687,764","","","64"],["Required interest on reserves","(102,574)","","","(8)","","","(93,475)","","","(8)","","","(87,289)","","","(8)"],["Net policy obligations","656,171","","","55","","","640,006","","","56","","","600,475","","","56"],["Commissions, premium taxes, and non-deferred acquisition expenses","97,453","","","8","","","91,959","","","8","","","94,973","","","8"],["Amortization of acquisition costs","143,750","","","12","","","136,763","","","12","","","138,260","","","13"],["Total expense","897,374","","","75","","","868,728","","","76","","","833,708","","","77"],["Insurance underwriting margin","$","304,302","","","25","","","$","272,369","","","24","","","$","243,638","","","23"]] [[/GREPCENT_TABLE]] Health premium increased 5% from $1.14 billion in 2020 to $1.20 billion in 2021. Health underwriting margin increased 12% from $272 million in 2020 to $304 million in 2021 primarily due to growth in premiums. Further discussion is included below by distribution channel. Globe Life markets supplemental health insurance products through a number of distribution channels. The following table is an analysis of our health premium by distribution channel for each of the last three years. Health Insurance Premium by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% ofTotal","","Amount","","% ofTotal","","Amount","","% ofTotal"],["United American","$","481,614","","","40","","","$","452,980","","","40","","","$","416,582","","","39"],["Family Heritage","343,839","","","29","","","317,021","","","28","","","294,182","","","27"],["Liberty National","187,327","","","16","","","188,835","","","16","","","189,578","","","18"],["American Income","114,950","","","9","","","105,734","","","9","","","99,447","","","9"],["Direct to Consumer","73,946","","","6","","","76,527","","","7","","","77,557","","","7"],["Total","$","1,201,676","","","100","","","$","1,141,097","","","100","","","$","1,077,346","","","100"]] [[/GREPCENT_TABLE]] Of total health premium of $1.2 billion, premium from limited-benefit plans comprise $639 million, or 53% of the total, for 2021 compared with $588 million in the prior year. Premium from Medicare Supplement products comprises the remaining 47% or $563 million for 2021 compared with $553 million in 2020. Annualized health premium in force was $1.29 billion at December 31, 2021, an increase of 8% over the prior year balance of $1.19 billion. 30 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Presented below is a table of health net sales by distribution channel for the last three years. Health Insurance Net Sales by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% ofTotal","","Amount","","% ofTotal","","Amount","","% ofTotal"],["United American","$","63,551","","","35","","","$","61,690","","","35","","","$","79,218","","","41"],["Family Heritage","72,600","","","39","","","70,665","","","40","","","65,626","","","34"],["Liberty National","26,512","","","14","","","22,905","","","13","","","24,504","","","13"],["American Income","18,230","","","10","","","18,817","","","10","","","18,059","","","10"],["Direct to Consumer","3,465","","","2","","","3,594","","","2","","","3,827","","","2"],["Total","$","184,358","","","100","","","$","177,671","","","100","","","$","191,234","","","100"]] [[/GREPCENT_TABLE]] Of total net sales of $184 million, sales of limited-benefit plans comprise $118 million, or 64% of the total, for 2021 compared with $113 million in 2020. Medicare Supplement sales make up the remaining 36%, or $66 million for 2021 compared with $65 million in 2020. The following table discloses first-year collected health premium by distribution channel.  Health Insurance First-Year Collected Premium by Distribution Channel (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% ofTotal","","Amount","","% ofTotal","","Amount","","% ofTotal"],["United American","$","60,386","","","37","","","$","79,628","","","45","","","$","72,021","","","44"],["Family Heritage","57,427","","","36","","","54,242","","","31","","","50,204","","","31"],["Liberty National","20,348","","","13","","","20,169","","","11","","","19,698","","","12"],["American Income","18,939","","","12","","","18,536","","","11","","","17,142","","","11"],["Direct to Consumer","3,253","","","2","","","3,051","","","2","","","3,749","","","2"],["Total","$","160,353","","","100","","","$","175,626","","","100","","","$","162,814","","","100"]] [[/GREPCENT_TABLE]] First-year collected premium related to limited-benefit plans comprise $99 million, or 62% of total first-year collected premium for 2021 compared with $93 million in 2020. First-year collected premium from Medicare Supplement policies make up the remaining 38%, or $61 million for 2021 compared with $83 million in 2020. A discussion of health operations by distribution channel follows. The United American Independent Agency consists of non-exclusive independent agencies who may also sell for other companies. The United American Independent Agency was Globe Life's largest health agency in terms of health premium income. This division is also Globe Life's largest producer of Medicare Supplement insurance, responsible for 82% of the Company's Medicare Supplement premium and 95% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 4% to $460 million in 2021 over the prior period net sales of $443 million. Medicare Supplement net sales increased 2% to $63 million in 2021 from the prior year. The Medicare Supplement market is highly competitive and thus sales will fluctuate over the years. Underwriting margin as a percent of premium was flat at 15% for 2021 compared with 2020. 31 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis As discussed in Note 1—Significant Accounting Policies, the Company acquired Beazley Benefits, now rebranded as Globe Life Benefits, on August 1, 2021. Globe Life Benefits enhances the Company's presence in the worksite market by offering group supplemental health insurance solutions to employer groups through brokers. While the acquisition had an immaterial impact on year-to-date results, we are optimistic about Globe Life Benefits' ability to contribute additional health premium and profits in the future. Operating results for Globe Life Benefits are included as part of United American Division results. The Family Heritage Division primarily markets limited-benefit supplemental health insurance in non-urban areas. Most of its policies include a cash-back feature, such as a return of premium, where any excess of premiums over claims paid is returned to the policyholder at the end of a specified period stated within the insurance policy. Underwriting margin as a percent of premium was 27%, up from 26% for the year ended December 31, 2020. The increase was primarily attributable to favorable claims experience. The division experienced a 3% increase in net health sales in 2021 as compared with the 2020, primarily due to an increase in agent productivity and training. The division will continue to launch incentive programs to help drive an increase in productivity and the number of producing agents. Below is the average producing agent count at the end of the indicated periods for the Family Heritage Division. While the agency has seen a decrease in agent count as compared with 2020, we anticipate that as COVID-19 and the job market stabilize, agent recruitment opportunities should increase. [[GREPCENT_TABLE]] [["","2021","","2020","","2019","","2021 Change","","%","","2020 Change","","%"],["Average producing agents","1,213","","","1,325","","","1,112","","","(112)","","","(8)","","","213","","","19"]] [[/GREPCENT_TABLE]] The Liberty National Division represented 16% of all Globe Life health premium income at $187 million in 2021. Liberty National markets limited-benefit supplemental health products consisting primarily of critical illness insurance. Much of Liberty National’s health business is generated through worksite marketing targeting small businesses of 10 to 100 employees. In 2021, health premium income declined 1%. Liberty National's first-year collected premium increased 1% to $20.3 million in 2021 compared with $20.2 million in 2020. Health net sales for 2021 increased by $4 million or 16% from 2020. We anticipate an increase in net health sales going forward at this division as the Company becomes more able to interact face-to-face with customers. Other distribution. While some of the Company's other distribution channels market health products, selling life insurance is the main emphasis. On a combined basis, they accounted for 15% of health premium in 2021 and 16% in 2020. The American Income Life Division primarily markets accident plans. The Direct to Consumer Division markets primarily Medicare Supplements to employer or union-sponsored groups, adding $3 million of Medicare Supplement net sales in 2021 and $4 million in 2020.  ANNUITIES Our fixed annuity balances at the end of 2021 and 2020 were $1.03 billion and $1.06 billion, respectively. Underwriting margin was $8.7 million for 2021 and $9.0 million for 2020. We do not currently market stand-alone fixed or deferred annuity products, favoring instead protection-oriented life and supplemental health insurance products. Therefore, we do not expect that annuities will be a significant portion of our business or marketing strategy going forward. 32 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis INVESTMENTS We manage our capital resources including investments, debt, and cash flow through the investment segment. Excess investment income represents the profit margin attributable to investment operations and is the measure that we use to evaluate the performance of the investment segment as described in Note 14—Business Segments. It is defined as net investment income less both the required interest on net insurance policy liabilities and the interest cost associated with capital funding or “financing costs.” Management also views excess investment income per diluted common share as an important and useful measure to evaluate the performance of the investment segment. It is defined as excess investment income divided by the total diluted weighted average shares outstanding, representing the contribution by the investment segment to the consolidated earnings per share of the Company. Since implementing our share repurchase program in 1986, we have used $8.7 billion of excess cash flow at the Parent Company to repurchase Globe Life Inc. common shares after determining that the repurchases provided a greater risk adjusted after-tax return than other investment alternatives. If we had not used this excess cash to repurchase shares, but had instead invested it in interest-bearing assets, we would have earned more investment income and had more shares outstanding. As excess investment income per diluted common share incorporates all capital resources, we view excess investment income per diluted common share as a useful measure to evaluate the investment segment. Excess Investment Income. The following table summarizes Globe Life's investment income, excess investment income, and excess investment income per diluted common share. Analysis of Excess Investment Income (Dollar amounts in thousands except per share data) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["Net investment income","$","952,447","","","$","927,062","","","$","910,459"],["Interest on net insurance policy liabilities:"],["Required interest on reserves","(877,822)","","","(833,000)","","","(796,979)"],["Required interest on deferred acquisition costs","247,389","","","237,066","","","228,431"],["Net required interest","(630,433)","","","(595,934)","","","(568,548)"],["Financing costs","(83,486)","","","(86,704)","","","(84,306)"],["Excess investment income","$","238,528","","","$","244,424","","","$","257,605"],["Excess investment income per diluted common share","$","2.31","","","$","2.28","","","$","2.31"],["Mean invested assets (at amortized cost)","$","18,939,317","","","$","17,987,502","","","$","17,026,058"],["Average net insurance policy liabilities(1)","10,954,500","","","10,460,539","","","10,068,120"],["Average debt and preferred securities (at amortized cost)","2,053,935","","","1,859,298","","","1,650,081"]] [[/GREPCENT_TABLE]] (1)Net of deferred acquisition costs, excluding the associated unrealized gains and losses thereon. Excess investment income declined $6 million or 2% during 2021. Excess investment income per diluted common share increased 1% during 2021. Excess investment income per diluted common share generally increases at a faster pace than excess investment income because the number of diluted shares outstanding generally decreases from year to year as a result of our share repurchase program. 33 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Net investment income increased at a compound annual growth rate of 3% over the 3 years ending 2021 while mean invested assets increased at a compound rate of 5% during the same period. The tax equivalent effective annual yield rate earned on the fixed maturity portfolio was 5.21% in 2021. Growth in net investment income has been negatively impacted in recent years by the low interest rate environment during which time we have invested new money at yields lower than our average portfolio yield. In addition, we have reinvested the proceeds from bonds that matured, were called, or were otherwise disposed of at yield rates less than the yield earned on these disposed bonds. We currently expect that the average annual turnover rate of fixed maturity assets will be less than 2% over the next five years and will not have a material negative impact on net investment income. In addition to fixed maturities, the Company has also invested in limited partnerships with debt like characteristics that diversify risk and enhance risk-adjusted, capital-adjusted returns on the portfolio. The earned yield on the investment funds for the year ended December 31, 2021 was 5.24%. See additional information in Note 4—Investments. The following chart presents the growth in net investment income and the growth in mean invested assets. [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["Growth in net investment income","2.7","%","","1.8","%","","3.2","%"],["Growth in mean invested assets (at amortized cost)","5.3","%","","5.6","%","","4.8","%"]] [[/GREPCENT_TABLE]] Should the current low interest rate environment continue, the growth of the Company's net investment income will be negatively impacted primarily due to the investment of new money and proceeds from dispositions at rates less than the average portfolio yield rate. While net investment income would grow, it would continue to grow at rates less than the growth in mean invested assets. Should interest rates, especially long-term rates, rise, Globe Life's net investment income would benefit due to higher interest rates on new investments. While such a rise in interest rates could adversely affect the fair value of the fixed maturities portfolio, we could withstand an increase in interest rates of approximately 140 to 145 basis points before the net unrealized gains on our fixed maturity portfolio as of December 31, 2021 would be eliminated. Should interest rates increase further, we would not be concerned with potential interest rate driven unrealized losses in our fixed maturity portfolio because we do not intend to sell nor is it likely that management will be required to sell the fixed maturities prior to their anticipated recovery. Required interest on net insurance policy liabilities reduces net investment income, as it is the amount of net investment income considered by management necessary to “fund” required interest on net insurance policy liabilities, which is the net of the benefit reserve liability and the deferred acquisition cost asset. As such, it is removed from the investment segment and applied to the insurance segments to offset the effect of the required interest from the insurance segments. As discussed in Note 14—Business Segments, management regards this as a more meaningful analysis of the investment and insurance segments. Required interest is based on the actuarial interest assumptions used in discounting the benefit reserve liability and the amortization of deferred acquisition costs for our insurance policies in force. The great majority of our life and health insurance policies are fixed interest rate protection policies, not investment products, and are accounted for under current GAAP accounting guidance for long-duration insurance products which mandate that interest rate assumptions for a particular block of business be “locked in” for the life of that block of business. Each calendar year, we set the discount rate to be used to calculate the benefit reserve liability and the amortization of the deferred acquisition cost asset for all insurance policies issued that year. That rate is based on the new money yields that we expect to earn on cash flow received in the future from policies of that issue year and cannot be changed. The discount rate used for policies issued in the current year has no impact on the in force policies issued in prior years as the rates of all prior issue years are also locked in. As such, the overall discount rate for the entire in force block of 5.8% is a weighted average of the discount rates being used from all issue years. Changes in the overall weighted-average discount rate over time are caused by changes in the mix of the reserves and the deferred acquisition cost asset by issue year on the entire block of in force business. Business issued in the current year has very little impact on the overall weighted-average discount rate due to the size of our in force business. Since actuarial discount rates are locked in for life on essentially all of our business, benefit reserves and deferred acquisition costs are not affected by interest rate fluctuations unless a loss recognition event occurs. Due to the 34 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis strength of our underwriting margins, we do not expect an extended low interest rate environment will cause a loss recognition event. Information about interest on net policy liabilities is shown in the following table. Required Interest on Net Insurance Policy Liabilities (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","RequiredInterest","","Average NetInsurancePolicy Liabilities","","AverageDiscountRate"],["2021"],["Life and Health","$","583,996","","","$","9,912,914","","","5.9","%"],["Annuity","46,437","","","1,041,586","","","4.5"],["Total","$","630,433","","","$","10,954,500","","","5.8"],["Increase in 2021","5.8","%","","4.7","%"],["2020"],["Life and Health","$","548,066","","","$","9,391,680","","","5.8","%"],["Annuity","47,868","","","1,068,859","","","4.5"],["Total","$","595,934","","","$","10,460,539","","","5.7"],["Increase in 2020","4.8","%","","3.9","%"],["2019"],["Life and Health","$","518,623","","","$","8,947,308","","","5.8","%"],["Annuity","49,925","","","1,120,812","","","4.5"],["Total","$","568,548","","","$","10,068,120","","","5.6"],["Increase in 2019","3.9","%","","3.3","%"]] [[/GREPCENT_TABLE]] 35 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Financing costs for the investment segment consist primarily of interest on our various debt instruments. The table below presents the components of financing costs and reconciles interest expense per the Consolidated Statements of Operations. Analysis of Financing Costs (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["Interest on funded debt","$","78,183","","","$","73,157","","","$","69,844"],["Interest on term loan","\u2014","","","4,193","","","3,262"],["Interest on short-term debt","5,270","","","9,302","","","11,165"],["Other","33","","","52","","","35"],["Financing costs","$","83,486","","","$","86,704","","","$","84,306"]] [[/GREPCENT_TABLE]] In 2021, financing costs decreased 4% compared with prior year primarily due to rates on the short-term debt. The interest on funded debt was higher than the prior year as a result of the 2.15% Senior Note issued in August 2020. More information on our debt transactions are disclosed in the Financial Condition section of this report and in Note 11—Debt. Realized Gains and Losses. Our life and health insurance companies collect premium income from policyholders for the eventual payment of policyholder benefits, sometimes paid many years or even decades in the future. Since benefits are expected to be paid in future periods, premium receipts in excess of current expenses are invested to provide for these obligations. For this reason, we hold a significant investment portfolio as a part of our core insurance operations. This portfolio consists primarily of high-quality fixed maturities containing an adequate yield to provide for the cost of carrying these long-term insurance product obligations. As a result, fixed maturities are generally held for long periods to support the liabilities. Expected yields on these investments are taken into account when setting insurance premium rates and product profitability expectations. Despite our intent to hold fixed maturity investments for a long period of time, investments are occasionally sold, exchanged, called, or experience a credit loss event, resulting in a realized gain or loss. These sales are often in response to deterioration in credit quality of the issuer in effort to maximize risk-adjusted, capital-adjusted returns. We do not engage in trading investments for profit. Therefore, gains or losses, which occur in protecting the portfolio or its yield or which result from events that are beyond our control, are only secondary to our core insurance operations of providing insurance coverage to policyholders. In a bond exchange offer, bondholders may consent to exchange their existing bonds for another class of debt securities. The Company also has investments in certain limited partnerships, held under the fair value option, with fair value changes recognized in Realized gains (losses) in the Consolidated Statements of Operations. Realized gains and losses can be significant in relation to the earnings from core insurance operations, and as a result, can have a material positive or negative impact on net income. The significant fluctuations caused by gains and losses can cause period-to-period trends of net income that are not indicative of historical core operating results or predictive of the future trends of core operations. Accordingly, they have no bearing on core insurance operations or segment results as we view operations. For these reasons, and in line with industry practice, we remove the effects of realized gains and losses when evaluating overall insurance operating results. 36 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis The following table summarizes our tax-effected realized gains (losses) by component for each of the three years ended December 31, 2021. Analysis of Realized Gains (Losses), Net of Tax (Dollar amounts in thousands, except for per share data) [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2019"],["","Amount","","PerShare","","Amount","","Per Share","","Amount","","Per Share"],["Fixed maturities:"],["Sales","$","(8,100)","","","$","(0.08)","","","$","(28,844)","","","$","(0.27)","","","$","(1,933)","","","$","(0.02)"],["Other(1)","35,684","","","0.34","","","11,712","","","0.11","","","17,223","","","0.16"],["Provision for credit losses","2,337","","","0.02","","","(2,643)","","","(0.03)","","","\u2014","","","\u2014"],["Fair value option\u2014change in fair value","18,105","","","0.18","","","826","","","0.01","","","992","","","0.01"],["Other investments","6,194","","","0.06","","","17,034","","","0.16","","","9","","","\u2014"],["Realized investment gains (losses)","54,220","","","0.52","","","(1,915)","","","(0.02)","","","16,291","","","0.15"],["Loss on redemption of debt","(7,358)","","","(0.07)","","","(501)","","","\u2014","","","\u2014","","","\u2014"],["Total realized gains (losses)","$","46,862","","","$","0.45","","","$","(2,416)","","","$","(0.02)","","","$","16,291","","","$","0.15"]] [[/GREPCENT_TABLE]] (1)During the three years ended December 31, 2021, 2020, and 2019, the Company recorded $109.2 million, $219.8 million and $243.2 million of exchanges of fixed maturity securities (noncash transactions) that resulted in $19.9 million, $6.2 million, and $16.2 million, respectively in realized gains (losses), net of tax. Investment Acquisitions. Globe Life's investment policy calls for investing primarily in investment grade fixed maturities that meet our quality and yield objectives. We generally invest in securities with longer maturities because they more closely match the long-term nature of our policy liabilities. We believe this strategy is appropriate since our expected future cash flows are generally stable and predictable and the likelihood that we will need to sell invested assets to raise cash is low. During calendar years 2019 through 2021, Globe Life invested predominately in fixed maturity securities, primarily in corporate and municipal bonds with longer-term maturities. The following table summarizes selected information for fixed maturity investments. The effective annual yield shown is based on the acquisition price and call features, if any, of the securities. For non-callable bonds, the yield is calculated to maturity date. For callable bonds acquired at a premium, the yield is calculated to the earliest known call date and call price after acquisition ("first call date"). For all other callable bonds, the yield is calculated to maturity date. Fixed Maturity Acquisitions Selected Information (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020","","2019"],["Cost of acquisitions(1):"],["Investment-grade corporate securities","$","566,400","","","$","686,844","","","$","922,927"],["Investment-grade municipal securities","434,482","","","543,088","","","627,967"],["Other investment-grade securities","10,465","","","34,171","","","10,483"],["Total fixed maturity acquisitions","$","1,011,347","","","$","1,264,103","","","$","1,561,377"],["Effective annual yield (one year compounded)(2)","3.39","%","","3.73","%","","4.47","%"],["Average life (in years to next call)","21.7","","","15.8","","","18.7"],["Average life (in years to maturity)","31.7","","","26.3","","","29.4"],["Average rating","A+","","A","","A"]] [[/GREPCENT_TABLE]] (1)Fixed maturity acquisitions included unsettled trades of $7 million in 2021, $2 million in 2020 and $8 million in 2019. (2)Tax-equivalent basis, where the yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities. 37 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis For investments in callable bonds, the actual life of the investment will depend on whether the issuer calls the investment prior to the maturity date. Given our investments in callable bonds, the actual average life of our investments cannot be known at the time of the investment. Absent sales and "make-whole calls," however, the average life will not be less than the average life to next call and will not exceed the average life to maturity. Data for both of these average life measures is provided in the above chart. During 2020 and 2021, acquisitions consisted of securities spanning a diversified range of issuers, industry sectors, and geographical regions. All of the acquired securities were investment grade. In addition to the fixed maturity acquisitions, Globe Life invested $258 million in other long-term investments in 2021 and $266 million in 2020. These investments include primarily investment funds. See Note—4 for further discussion. New cash flow available for investment has been primarily provided through our insurance operations, cash received on existing investments, and proceeds from dispositions. While dispositions increase funds available for investment, as noted earlier in this discussion, they can also have a negative impact on investment income if the proceeds from the dispositions are reinvested at lower yields than the bonds that were disposed. Dispositions were $428 million in 2021 and $469 million in 2020. Since fixed maturities represent such a significant portion of our investment portfolio, the remainder of the discussion of portfolio composition will focus on fixed maturities. See a breakdown of the Company's other investments in Other Investment Information within Note 4—Investments. Selected information concerning the fixed maturity portfolio is as follows: Fixed Maturity Portfolio Selected Information [[GREPCENT_TABLE]] [["","At December 31,"],["","2021","","2020"],["Average annual effective yield(1)","5.17%","","5.28%"],["Average life, in years, to:"],["Next call(2)","15.7","","16.2"],["Maturity(2)","19.0","","19.0"],["Effective duration to:"],["Next call(2,3)","10.6","","11.0"],["Maturity(2,3)","12.2","","12.3"]] [[/GREPCENT_TABLE]] (1)Tax-equivalent basis. The yield on tax-exempt securities is adjusted to produce a yield equivalent to the pretax yield on taxable securities. (2)Globe Life calculates the average life and duration of the fixed maturity portfolio two ways: (a) based on the next call date which is the next call date for callable bonds and the maturity date for noncallable bonds, and (b) based on the maturity date of all bonds, whether callable or not. (3)Effective duration is a measure of the price sensitivity of a fixed-income security to a particular change in interest rates. 38 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Credit Risk Sensitivity. The following tables summarize certain information about the major corporate sectors and security types held in our fixed maturity portfolio at December 31, 2021 and 2020. Fixed Maturities by Sector December 31, 2021 (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","Below Investment Grade","","Total Fixed Maturities","","% of Total Fixed Maturities"],["","Amortized Cost, net","Gross Unrealized Gains","Gross Unrealized Losses","Fair Value","","Amortized Cost, net","Gross Unrealized Gains","Gross Unrealized Losses","Fair Value","","At Amortized Cost, net","At Fair Value"],["Corporates:"],["Financial"],["Insurance - life, health, P&C","$","57,470","","$","3,825","","$","(4,807)","","$","56,488","","","$","2,345,116","","$","513,844","","$","(5,553)","","$","2,853,407","","","13","","13"],["Banks","26,980","","614","","\u2014","","27,594","","","983,317","","207,466","","(1,635)","","1,189,148","","","6","","6"],["Other financial","97,800","","547","","(1,103)","","97,244","","","1,240,340","","186,431","","(2,161)","","1,424,610","","","7","","7"],["Total financial","182,250","","4,986","","(5,910)","","181,326","","","4,568,773","","907,741","","(9,349)","","5,467,165","","","26","","26"],["Utilities"],["Electric","36,284","","3,888","","\u2014","","40,172","","","1,388,094","","382,892","","(395)","","1,770,591","","","8","","8"],["Gas and water","\u2014","","\u2014","","\u2014","","\u2014","","","543,297","","107,227","","(617)","","649,907","","","3","","3"],["Total utilities","36,284","","3,888","","\u2014","","40,172","","","1,931,391","","490,119","","(1,012)","","2,420,498","","","11","","11"],["Industrial - Energy"],["Pipelines","85,222","","11,051","","(1,445)","","94,828","","","918,746","","203,324","","(1,445)","","1,120,625","","","5","","5"],["Exploration and production","33,316","","4,890","","\u2014","","38,206","","","530,336","","105,604","","(238)","","635,702","","","3","","3"],["Oil field services","\u2014","","\u2014","","\u2014","","\u2014","","","49,778","","13,653","","\u2014","","63,431","","","\u2014","","\u2014"],["Refinery","\u2014","","\u2014","","\u2014","","\u2014","","","89,032","","24,199","","\u2014","","113,231","","","1","","1"],["Total energy","118,538","","15,941","","(1,445)","","133,034","","","1,587,892","","346,780","","(1,683)","","1,932,989","","","9","","9"],["Industrial - Basic materials"],["Chemicals","\u2014","","\u2014","","\u2014","","\u2014","","","673,699","","145,114","","(50)","","818,763","","","4","","4"],["Metals and mining","\u2014","","\u2014","","\u2014","","\u2014","","","405,915","","118,115","","\u2014","","524,030","","","2","","3"],["Forestry products and paper","\u2014","","\u2014","","\u2014","","\u2014","","","65,608","","15,946","","\u2014","","81,554","","","\u2014","","\u2014"],["Total basic materials","\u2014","","\u2014","","\u2014","","\u2014","","","1,145,222","","279,175","","(50)","","1,424,347","","","6","","7"],["Industrial - Consumer, non-cyclical","84,106","","13,059","","(2,697)","","94,468","","","2,256,802","","475,012","","(3,397)","","2,728,417","","","13","","13"],["Other industrials","25,565","","3,182","","\u2014","","28,747","","","1,254,243","","286,889","","(589)","","1,540,543","","","7","","7"],["Industrial - Transportation","25,555","","5,588","","\u2014","","31,143","","","559,399","","135,581","","(38)","","694,942","","","3","","3"],["Other corporate sectors","179,323","","21,807","","(3,429)","","197,701","","","1,663,793","","277,807","","(9,288)","","1,932,312","","","9","","9"],["Total corporates","651,621","","68,451","","(13,481)","","706,591","","","14,967,515","","3,199,104","","(25,406)","","18,141,213","","","84","","85"],["Other fixed maturities:"],["Government (U.S., municipal, and foreign)","\u2014","","\u2014","","\u2014","","\u2014","","","2,695,796","","304,537","","(8,203)","","2,992,130","","","15","","14"],["Collateralized debt obligations","36,468","","27,037","","\u2014","","63,505","","","36,468","","27,037","","\u2014","","63,505","","","\u2014","","\u2014"],["Other asset-backed securities","13,457","","\u2014","","(414)","","13,043","","","104,905","","3,701","","(430)","","108,176","","","1","","1"],["Mortgage-backed securities(1)","\u2014","","\u2014","","\u2014","","\u2014","","","238","","25","","\u2014","","263","","","\u2014","","\u2014"],["Total fixed maturities","$","701,546","","$","95,488","","$","(13,895)","","$","783,139","","","$","17,804,922","","$","3,534,404","","$","(34,039)","","$","21,305,287","","","100","","100"]] [[/GREPCENT_TABLE]] (1)Includes Government National Mortgage Association (GNMA). 39 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Fixed Maturities by Sector December 31, 2020 (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","Below Investment Grade","","Total Fixed Maturities","","% of Total Fixed Maturities"],["","Amortized Cost","Gross Unrealized Gains","Gross Unrealized Losses","Fair Value","","Amortized Cost","Gross Unrealized Gains","Gross Unrealized Losses","Fair Value","","At Amortized Cost, net","At Fair Value"],["Corporates:"],["Financial"],["Insurance - life, health, P&C","$","57,658","","$","3,894","","$","(10,788)","","$","50,764","","","$","2,275,843","","$","563,349","","$","(14,769)","","$","2,824,423","","","13","","13"],["Banks","27,014","","15","","(456)","","26,573","","","993,946","","259,489","","(1,050)","","1,252,385","","","6","","6"],["Other financial","114,919","","271","","(8,245)","","106,945","","","1,134,414","","193,975","","(8,402)","","1,319,987","","","7","","6"],["Total financial","199,591","","4,180","","(19,489)","","184,282","","","4,404,203","","1,016,813","","(24,221)","","5,396,795","","","26","","25"],["Utilities"],["Electric","50,663","","6,289","","\u2014","","56,952","","","1,438,796","","476,744","","(108)","","1,915,432","","","9","","9"],["Gas and water","\u2014","","\u2014","","\u2014","","\u2014","","","536,664","","131,851","","\u2014","","668,515","","","3","","3"],["Total utilities","50,663","","6,289","","\u2014","","56,952","","","1,975,460","","608,595","","(108)","","2,583,947","","","12","","12"],["Industrial - Energy"],["Pipelines","85,327","","1,624","","(2,309)","","84,642","","","923,756","","187,851","","(2,423)","","1,109,184","","","5","","5"],["Exploration and production","104,719","","5,980","","(678)","","110,021","","","555,796","","121,940","","(678)","","677,058","","","3","","3"],["Oil field services","\u2014","","\u2014","","\u2014","","\u2014","","","49,799","","13,613","","\u2014","","63,412","","","\u2014","","\u2014"],["Refinery","\u2014","","\u2014","","\u2014","","\u2014","","","89,371","","22,793","","\u2014","","112,164","","","1","","1"],["Driller","1,902","","\u2014","","18","","1,920","","","1,902","","\u2014","","18","","1,920","","","\u2014","","\u2014"],["Total energy","191,948","","7,604","","(2,969)","","196,583","","","1,620,624","","346,197","","(3,083)","","1,963,738","","","9","","9"],["Industrial - Basic materials"],["Chemicals","\u2014","","\u2014","","\u2014","","\u2014","","","642,258","","152,016","","\u2014","","794,274","","","4","","4"],["Metals and mining","\u2014","","\u2014","","\u2014","","\u2014","","","406,564","","144,110","","\u2014","","550,674","","","2","","3"],["Forestry products and paper","\u2014","","\u2014","","\u2014","","\u2014","","","88,804","","21,588","","\u2014","","110,392","","","1","","1"],["Total basic materials","\u2014","","\u2014","","\u2014","","\u2014","","","1,137,626","","317,714","","\u2014","","1,455,340","","","7","","8"],["Industrial - Consumer, non-cyclical","96,265","","8,680","","(1,903)","","103,042","","","2,233,324","","576,007","","(2,070)","","2,807,261","","","13","","13"],["Other industrials","25,661","","3,925","","\u2014","","29,586","","","1,260,646","","328,986","","(6)","","1,589,626","","","7","","7"],["Industrial - Transportation","25,777","","4,315","","\u2014","","30,092","","","566,935","","175,405","","\u2014","","742,340","","","3","","3"],["Other corporate sectors","179,878","","17,459","","(3,595)","","193,742","","","1,489,113","","329,254","","(4,142)","","1,814,225","","","9","","9"],["Total corporates","769,783","","52,452","","(27,956)","","794,279","","","14,687,931","","3,698,971","","(33,630)","","18,353,272","","","86","","86"],["Other fixed maturities:"],["Government (U.S., municipal, and foreign)","\u2014","","\u2014","","\u2014","","\u2014","","","2,313,855","","341,176","","(1,256)","","2,653,775","","","13","","13"],["Collateralized debt obligations","57,007","","23,460","","(8,869)","","71,598","","","57,007","","23,460","","(8,869)","","71,598","","","\u2014","","\u2014"],["Other asset-backed securities","13,949","","\u2014","","(2,727)","","11,222","","","134,616","","3,591","","(3,778)","","134,429","","","1","","1"],["Mortgage-backed securities(1)","\u2014","","\u2014","","\u2014","","\u2014","","","390","","45","","\u2014","","435","","","\u2014","","\u2014"],["Total fixed maturities","$","840,739","","$","75,912","","$","(39,552)","","$","877,099","","","$","17,193,799","","$","4,067,243","","$","(47,533)","","$","21,213,509","","","100","","100"]] [[/GREPCENT_TABLE]] (1)Includes GNMAs. 40 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Corporate securities, which consist of bonds and redeemable preferred stocks, were the largest component of the December 31, 2021 fixed maturity portfolio, representing 84% of amortized cost, net and 85% of fair value. The remainder of the portfolio is invested primarily in securities issued by the U.S. government and U.S. municipalities. The Company holds insignificant amounts in foreign government bonds, collateralized debt obligations, asset-backed securities, and mortgage-backed securities. Corporate securities are diversified over a variety of industry sectors and issuers. At December 31, 2021, the total fixed maturity portfolio consisted of 843 issuers. Fixed maturities had a fair value of $21.3 billion at December 31, 2021, compared with $21.2 billion at December 31, 2020. The net unrealized gain position in the fixed-maturity portfolio decreased from $4.0 billion at December 31, 2020 to $3.5 billion at December 31, 2021 due to an increase in market rates during the period. For more information about our fixed maturity portfolio by component at December 31, 2021 and December 31, 2020, including a discussion of allowance for credit losses, an analysis of unrealized investment losses and a schedule of maturities, see Note 4—Investments. An analysis of the fixed maturity portfolio by a composite quality rating at December 31, 2021 and December 31, 2020, is shown in the following tables. The composite rating for each security, other than private-placement securities managed by third parties, is the average of the security’s ratings as assigned by Moody’s Investor Service, Standard & Poor’s, Fitch Ratings, and Dominion Bond Rating Service, LTD. The ratings assigned by these four nationally recognized statistical rating organizations are evenly weighted when calculating the average. The composite quality rating is created utilizing a methodology developed by Globe Life using ratings from the various rating agencies noted above. The composite quality rating is not a Standard & Poor's credit rating. Standard & Poor's does not sponsor, endorse or promote the composite quality rating and shall not be liable for any use of the composite quality rating. Included in the following chart are private placement fixed maturity holdings of $538 million at amortized cost, net of allowance for credit losses ($577 million at fair value) for which the ratings were assigned by the third-party managers. Fixed Maturities by Rating At December 31, 2021 (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","Amortized Cost, net","","% of Total","","Fair Value","","% of Total","","Average Composite Quality Rating on Amortized Cost, net"],["Investment grade:"],["AAA","$","761,526","","","4","","","$","867,728","","","4"],["AA","2,215,179","","","13","","","2,412,947","","","11"],["A","4,487,607","","","25","","","5,584,588","","","26"],["BBB+","3,779,051","","","21","","","4,616,977","","","22"],["BBB","4,289,044","","","24","","","5,174,667","","","24"],["BBB-","1,570,969","","","9","","","1,865,241","","","9"],["Total investment grade","17,103,376","","","96","","","20,522,148","","","96","","","A-"],["Below investment grade:"],["BB","537,064","","","3","","","583,608","","","3"],["B","128,402","","","1","","","136,026","","","1"],["Below B","36,080","","","\u2014","","","63,505","","","\u2014"],["Total below investment grade","701,546","","","4","","","783,139","","","4","","","BB-"],["","$","17,804,922","","","100","","","$","21,305,287","","","100"],["Weighted average composite quality rating","A-"]] [[/GREPCENT_TABLE]] 41 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Fixed Maturities by Rating At December 31, 2020 (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","AmortizedCost","","% of Total","","FairValue","","% of Total","","Average Composite Quality Rating on Amortized Cost"],["Investment grade:"],["AAA","$","713,053","","","4","","","$","848,621","","","4"],["AA","1,657,270","","","10","","","1,873,323","","","9"],["A","4,566,999","","","26","","","5,969,677","","","28"],["BBB+","3,634,583","","","21","","","4,612,898","","","22"],["BBB","4,137,099","","","24","","","5,088,114","","","24"],["BBB-","1,644,056","","","10","","","1,943,777","","","9"],["Total investment grade","16,353,060","","","95","","","20,336,410","","","96","","","A-"],["Below investment grade:"],["BB","686,184","","","4","","","692,609","","","3"],["B","115,646","","","1","","","122,104","","","1"],["Below B","38,909","","","\u2014","","","62,386","","","\u2014"],["Total below investment grade","840,739","","","5","","","877,099","","","4","","","BB-"],["","$","17,193,799","","","100","","","$","21,213,509","","","100"],["Weighted average composite quality rating","A-"]] [[/GREPCENT_TABLE]] The overall quality rating of the portfolio is A-, the same as year-end 2020. Fixed maturities rated BBB are 54% of the total portfolio at December 31, 2021 compared with 55% at year-end 2020. While this ratio is high relative to our peers, we have limited exposure to higher-risk assets such as derivatives, equities, and asset-backed securities. Additionally, the Company does not participate in securities lending and has no off-balance sheet investments as of December 31, 2021. Of our fixed maturity purchases, BBB securities generally provide the Company with the best risk-adjusted, capital-adjusted returns largely due to our ability to hold securities to maturity regardless of fluctuations in interest rates or equity markets. An analysis of changes in our portfolio of below-investment grade fixed maturities at amortized cost, net of allowance for credit losses is as follows: Below-Investment Grade Fixed Maturities (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","2021","","2020"],["Balance at beginning of period","$","840,739","","","$","674,155"],["Downgrades by rating agencies","\u2014","","","230,334"],["Upgrades by rating agencies","(67,078)","","","(14,618)"],["Dispositions","(78,712)","","","(49,037)"],["Provision for credit losses","2,959","","","(3,346)"],["Amortization and other","3,638","","","3,251"],["Balance at end of period","$","701,546","","","$","840,739"]] [[/GREPCENT_TABLE]] Our investment policy calls for investing primarily in fixed maturities that are investment grade and meet our quality and yield objectives. Thus, any increases in below-investment grade issues are typically a result of ratings downgrades of existing holdings. Below-investment grade bonds at amortized cost, net of allowance for credit 42 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis losses, were 12% of our shareholders’ equity, excluding the effect of unrealized gains and losses on fixed maturities as of December 31, 2021. Globe Life invests long term and as such, one of our key criterion in our investment process is to select issuers that have the ability to weather multiple financial cycles. Market Risk Sensitivity. Globe Life's investment securities are exposed to interest rate risk, meaning the effect of changes in financial market interest rates on the current fair value of the Company’s investment portfolio. Since 94% of the carrying value of our investments is attributable to fixed maturity investments and these investments are predominately fixed-rate investments, the portfolio is highly subject to market risk. Declines in market interest rates generally result in the fair value of the investment portfolio rising, and increases in interest rates cause the fair value to decline. Under normal market conditions, we are not concerned about unrealized losses that are interest rate driven since we would not expect to realize them. Globe Life does not intend to sell the securities prior to maturity and, likely, will not be required to sell the securities prior to recovery of amortized cost. The long-term nature of our insurance policy liabilities and strong operating cash-flow substantially mitigate any future need to liquidate portions of the portfolio. The increase or decrease in the fair value of insurance liabilities and debt due to increases or decreases in market interest rates largely offsets the impact of rates on the investment portfolio. However, as is permitted by GAAP, these liabilities are not recorded at fair value. The following table illustrates the interest rate risk sensitivity of our fixed maturity portfolio at December 31, 2021 and 2020. This table measures the effect of a parallel shift in interest rates (as represented by the U.S. Treasury curve) on the fair value of the fixed maturity portfolio. The data measures the change in fair value arising from an immediate and sustained change in interest rates in increments of 100 basis points. Market Value of Fixed Maturity Portfolio (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","","At December 31,"],["Change in Interest Rates(1)","","2021","","2020"],["(200)","","$","26,939,000","","","$","26,976,000"],["(100)","","23,916,000","","","23,874,000"],["0","","21,305,000","","","21,214,000"],["100","","19,045,000","","","18,926,000"],["200","","17,082,000","","","16,953,000"]] [[/GREPCENT_TABLE]] (1) In basis points. 43 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis OPERATING EXPENSES Operating expenses are included in the "Corporate and Other" segment and are classified into two categories: insurance administrative expenses and expenses of the Parent Company. Insurance administrative expenses generally include expenses incurred after a policy has been issued. As these expenses relate to premium for a given period, management measures the expenses as a percentage of premium income. The Company also views stock-based compensation expense as a Parent Company expense. Expenses associated with the issuance of our insurance policies are reflected as acquisition expenses and included in the determination of underwriting margin. The following table is an analysis of operating expenses for the three years ended December 31, 2021. Operating Expenses Selected Information (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["","Amount","","% of Premium","","Amount","","% of Premium","","Amount","","% of Premium"],["Insurance administrative expenses:"],["Salaries","$","115,852","","","2.8","","","$","105,935","","","2.8","","","$","102,862","","","2.8"],["Other employee costs","41,841","","","1.0","","","39,885","","","1.0","","","34,947","","","1.0"],["Information technology costs","47,923","","","1.2","","","45,742","","","1.2","","","42,927","","","1.2"],["Legal costs","15,494","","","0.4","","","11,256","","","0.3","","","10,286","","","0.3"],["Other administrative costs","50,521","","","1.2","","","48,129","","","1.3","","","49,299","","","1.4"],["Total insurance administrative expenses","271,631","","","6.6","","","250,947","","","6.6","","","240,321","","","6.7"],["Parent company expense","9,553","","","","","9,891","","","","","10,260"],["Stock compensation expense","30,272","","","","","35,892","","","","","44,843"],["Administrative settlements","\u2014","","","","","\u2014","","","","","400"],["Legal proceedings","8,139","","","","","3,275","","","","","8,358"],["Non-operating expenses","2,434","","","","","1,033","","","","","643"],["Total operating expenses, per Consolidated Statements of Operations","$","322,029","","","","","$","301,038","","","","","$","304,825"],["","2021","","2020","","2019"],["","Amount","","%","","Amount","","%","","Amount","","%"],["Total insurance administrative expenses increase (decrease) over prior year","$","20,684","","","8.2","","","$","10,626","","","4.4","","","$","16,380","","","7.3"],["Total operating expenses increase (decrease) over prior year","20,991","","","7.0","","","(3,787)","","","(1.2)","","","25,240","","","9.0"]] [[/GREPCENT_TABLE]] Total operating expenses increased 7% over the prior year period primarily due to an 8% increase in insurance administrative expenses. Insurance administrative expenses increased primarily due to higher employee-related expenses, including pension costs and information technology salaries. Pension expense increased due to the lower discount rate used to determine net periodic benefit costs in 2021 as compared to 2020. The decrease in stock-based compensation expense was primarily due to fewer performance based equity awards in 2021 as compared to the same period in 2020. Insurance administrative expenses as a percent of premium were in line with 2020. 44 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis SHARE REPURCHASES Globe Life has an ongoing share repurchase program that began in 1986, and is reviewed with the Board of Directors by management quarterly and annually reaffirmed by the Board of Directors. With no specified authorization amount, we determine the amount of repurchases based on the amount of the excess cash flow at the Parent Company, general market conditions, and other alternative uses. The majority of these purchases are made from excess cash flow. Excess cash flow at the Parent Company is primarily comprised of dividends received from the insurance subsidiaries less interest expense paid on its debt, dividends paid to Parent Company shareholders, and other limited operating activities. Additionally, when stock options are exercised, proceeds from these exercises and the resulting tax benefit are used to repurchase additional shares on the open market to minimize dilution as a result of the option exercises. On August 4, 2021, the Board of Directors reauthorized the Parent Company’s share repurchase program in amounts and with timing that management, in consultation with the Board, determines to be in the best interest of the Company and its shareholders. The following table summarizes share purchase activity for each of the last three years. Analysis of Share Purchases (Amounts in thousands) [[GREPCENT_TABLE]] [["","2021","","2020","","2019"],["Purchases with:","Shares","","Amount","","Shares","","Amount","","Shares","","Amount"],["Share repurchase program","4,784","","","$","455,030","","","4,459","","","$","380,112","","","3,932","","","$","350,080"],["Option proceeds","858","","","86,405","","","676","","","63,754","","","1,209","","","109,489"],["Total","5,642","","","$","541,435","","","5,135","","","$","443,866","","","5,141","","","$","459,569"]] [[/GREPCENT_TABLE]] Throughout the remainder of this discussion, share purchases refer only to those made from excess cash flow at the Parent Company. FINANCIAL CONDITION Liquidity. Liquidity provides Globe Life with the ability to meet on demand the cash commitments required to support our business operations and meet our financial obligations. Our liquidity is primarily derived from multiple sources: positive cash flow from operations, a portfolio of marketable securities, a revolving credit facility, commercial paper and Federal Home Loan Bank (FHLB). Insurance Subsidiary Liquidity. The operations of our insurance subsidiaries have historically generated substantial cash inflows in excess of immediate cash needs. Cash inflows for the insurance subsidiaries primarily include premium and investment income. In addition to investment income, maturities and scheduled repayments in the investment portfolio are cash inflows. Cash outflows from operations include policy benefit payments, commissions, administrative expenses, and taxes. A portion of the excess cash inflows in the current year will provide for the payment of future policy benefits and are invested primarily in long-term fixed maturities as they better match the long-term nature of these obligations. Excess cash available from the insurance subsidiaries’ operations is generally distributed as a dividend to the Parent Company, subject to regulatory restrictions. The dividends are generally paid in amounts equal to the subsidiaries’ prior year statutory net income excluding realized capital gains. While the leading source of the excess cash is investment income, a significant portion of the excess cash also comes from underwriting income due to our high underwriting margins and effective expense control. While the insurance subsidiaries routinely generate more operating cash inflows than cash outflows annually, the companies also have the entire available-for-sale fixed maturity investment portfolio available to create additional cash flows if required. During the year, four of our insurance subsidiaries became members of the FHLB of Dallas. FHLB membership provides the insurance subsidiaries with access to various low cost collateralized borrowings and funding agreements. While not a primary source of liquidity, the FHLB could provide the insurance subsidiaries with an additional source of liquidity, if needed. Refer to Note 11—Debt for further details. 45 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Parent Company Liquidity. An important source of Parent Company liquidity is the dividends from its insurance subsidiaries. These dividends are received throughout the year and are used by the Parent Company to pay dividends on common and preferred stock, interest and principal repayment requirements on Parent Company debt, and operating expenses of the Parent Company. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","(Amounts in Thousands)"],["","Projected 2022","","2021","","2020","","2019"],["Liquidity Sources:"],["Dividends from Subsidiaries","$","400,000","","","$","478,535","","","$","485,871","","","$","479,988"],["Excess Cash Flows","285,000","","","370,120","","","387,606","","","374,232"]] [[/GREPCENT_TABLE]] For more information on the restrictions on the payment of dividends by subsidiaries, see the Restrictions section of Note 12—Shareholders' Equity. Although these restrictions exist, dividend availability from subsidiaries historically has been more than sufficient for the cash flow needs of the Parent Company. Additional sources of liquidity for the Parent Company are cash, intercompany receivables, intercompany borrowings, public debt markets, term loans, and a revolving credit facility. At December 31, 2021, the Parent Company had access to $119 million of invested cash, net intercompany receivables and other liquid assets. The credit facility is discussed below. Short-Term Borrowings. An additional source of Parent Company liquidity is a revolving credit facility with a group of lenders which allows unsecured borrowings and stand-by letters of credit up to $750 million, which could be extended up to $1 billion. While Globe Life can request the extension, it is not guaranteed. Up to $250 million in letters of credit can be issued against the facility. The facility is further designated as a back-up line of credit for a commercial paper program under which commercial paper may be issued at any time, with total commercial paper outstanding not to exceed the facility maximum less any letters of credit issued. As of December 31, 2021, we had available $295 million of additional borrowing capacity under this facility, compared with $360 million a year earlier. Interest charged on the commercial paper program resembles variable rate debt due to its short term nature. Globe Life has consistently been able to issue commercial paper as needed during the three years ended December 31, 2021. As discussed in Note 11—Debt, on September 30, 2021, Globe Life amended the credit agreement dated August 24, 2020. The five-year credit agreement will now mature on September 30, 2026. As of December 31, 2021, the Parent Company was in full compliance with all covenants related to the aforementioned debt. As a part of the credit facility, Globe Life has stand-by letters of credits. These letters are issued among our subsidiaries, one of which is an offshore captive reinsurer, and have no impact on company obligations as a whole. Any future regulatory changes that restrict the use of off-shore captive reinsurers might require Globe Life to obtain third-party financing, which could cause an insignificant increase in financing costs. On October 26, 2021, the letters of credit were amended to reduce the amount outstanding from $135 million as of December 31, 2020 to $125 million at December 31, 2021. The Parent Company expects to have readily available funds for 2022 and the foreseeable future to conduct its operations and to maintain target capital ratios in the insurance subsidiaries through internally generated cash flow and the credit facility. In the unlikely event that more liquidity is needed, the Company could generate additional funds through multiple sources including, but not limited to, the issuance of debt, an additional short-term credit facility, and intercompany borrowing. Refer to Note 6—Commitments and Contingencies and the discussion surrounding the Company's obligations over the next five years. As noted above, the Parent Company had access to $119 million of liquid assets available as of December 31, 2021. This liquidity is available to the Company in the event additional funds are needed to support the targeted capital levels within our insurance subsidiaries due to adverse impacts of COVID-19. Consolidated Liquidity. Consolidated net cash inflows provided from continuing operations were $1.44 billion in 2021, compared with $1.48 billion in 2020. In addition to cash inflows from operations, our companies received proceeds from maturities, calls, and repayments of fixed maturities in the amount of $311 million in 2021, compared 46 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis with $416 million in 2020. As noted under the caption Credit Facility in Note 11, the Parent Company has in place a revolving credit facility. The insurance companies have no additional outstanding credit facilities. Cash and short-term investments were $161 million at the end of 2021 compared with $203 million at the end of 2020. In addition to these liquid assets, the entire $21.3 billion (fair value at December 31, 2021) portfolio of fixed income securities is available for sale in the event of an unexpected need. Approximately 97% of our fixed income securities are publicly traded, freely tradable under SEC Rule 144, or qualified for resale under SEC Rule 144A. We generally expect to hold fixed income securities to maturity, and even though these securities are classified as available for sale, we have the ability and intent to hold any securities until recovery or maturity. Our strong cash flows from operations, ongoing investment maturities, and credit line availability make any need to sell securities for liquidity highly unlikely. Capital Resources. The Parent Company's capital structure consists of short-term debt (the commercial paper facility and current maturities of long-term debt), long-term debt, and shareholders’ equity. Debt: The carrying value of the long-term debt was $1.5 billion at December 31, 2021, which decreased from $1.7 billion a year earlier. A complete analysis and description of long-term debt issues outstanding is presented in Note 11—Debt. Subsidiary Capital: The National Association of Insurance Commissioners (NAIC) has established a risk-based factor approach for determining threshold risk-based capital levels for all insurance companies. This approach was designed to assist the regulatory bodies in identifying companies that may require regulatory attention. A Risk-Based Capital (RBC) ratio is typically determined by dividing adjusted total statutory capital by the amount of risk-based capital determined using the NAIC’s factors. If a company’s RBC ratio approaches two times the RBC amount, the company must file a plan with the NAIC for improving their capital levels (this level is commonly referred to as “Company Action Level” RBC). Companies typically hold a multiple of the Company Action Level RBC depending on their particular business needs and risk profile. Our goal is to maintain statutory capital within our insurance subsidiaries at levels necessary to support our current ratings. For 2021, Globe Life has targeted a consolidated Company Action Level RBC ratio of 300% to 320%. The Company concludes that this capital level is more than adequate and sufficient to support its current ratings, given the nature of its business and its risk profile. As of December 31, 2021, our consolidated Company Action Level RBC ratio was 315% compared with 309% in prior year. In August 2021, the NAIC fully adopted new and expanded C-1 investment factors. The adoption of these factors resulted in higher amounts of required capital related to our investment portfolio. In addition to the expanded C-1 factors, additional capital was needed by the end of the year to support higher sales levels, growth of our in-force business, higher COVID-19 net life claims, and the acquisition of Beazley Benefits. The Parent Company is committed to maintaining the targeted consolidated RBC ratio at its insurance subsidiaries and has sufficient liquidity available to provide additional capital if necessary. Shareholder's Equity: As noted under the caption Analysis of Share Purchases within this report, we have an ongoing share repurchase program. Globe Life has continually increased the quarterly dividend on its common shares over the past three years. [[GREPCENT_TABLE]] [["","Year Ended December 31,"],["","Projected 2022","","2021","","2020","","2019"],["Quarterly dividend by annual year","$","0.2075","","","$","0.1975","","","$","0.1875","","","$","0.1725"]] [[/GREPCENT_TABLE]] Shareholders’ equity was $8.6 billion at December 31, 2021, compared with $8.8 billion at December 31, 2020, a decrease of $128 million or 1%. Since December 31, 2020, shareholders’ equity was reduced by $409 million due to after-tax unrealized losses in the fixed-maturity portfolio as interest rates increased over the period offset by $745 million of net income during this period. In addition, shareholders' equity was reduced by $455 million in share 47 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis purchases under the repurchase program and an additional $86 million in share purchases to offset the dilution from stock option exercises. We plan to use excess cash available at the Parent Company as efficiently as possible in the future. Possible uses of excess cash flow include, but are not limited to, share repurchases, acquisitions, increases in shareholder dividends, investment in securities, or repayment of short-term debt. We will determine the best use of excess cash after ensuring that targeted capital levels are maintained in our insurance subsidiaries. If market conditions are favorable, we currently expect that share repurchases will continue to be a primary use of those funds. As discussed in Note 1—Significant Accounting Policies, the Company will adopt ASU 2018-12, Financial Services–Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (LDTI), effective on January 1, 2023. The accounting adoption will have no economic impact on the cash flows of our business nor influence our business model of providing basic protection oriented products to the underserved and low to middle-income market. In addition, the adoption will not impact our capital management philosophies. It will, however, modify the timing of when profits emerge on our insurance policies. We are anticipating GAAP net income and net operating income to increase under the new standard primarily due to the significant reduction in DAC amortization in the near or intermediate term. With respect to equity, we anticipate a significant decrease as a result of the requirement to use current discount rates to remeasure the policy liabilities and record the offset through AOCI at adoption. Since current rates (upper-medium grade) are lower than the locked-in rates assumed in valuing our policy liabilities, we will have unrealized interest rate loss recognized through AOCI. We maintain a significant available-for-sale fixed maturity portfolio to support our insurance policy liabilities. Current accounting guidance requires that we revalue our portfolio to fair market value at the end of each accounting period. The period-to-period changes in fair value, net of their associated impact on deferred acquisition costs and income tax, are reflected directly in shareholders’ equity. Changes in the fair value of the portfolio can result from changes in market rates. While a majority of invested assets are revalued, accounting rules do not permit interest-bearing insurance policy liabilities to be valued at fair value in a consistent manner as that of assets, with changes in value applied directly to shareholders’ equity. Due to the size of our policy liabilities in relation to our shareholders’ equity, an inconsistency exists in measurement, which may have a material impact on the reported value of shareholders’ equity. Fluctuations in interest rates cause undue volatility in the period-to-period presentation of our shareholders’ equity, capital structure, and financial ratios. Due to the long-term nature of our fixed maturities and liabilities and the strong cash flows consistently generated by our insurance subsidiaries, we have the intent and ability to hold our securities to maturity. As such, we do not expect to incur losses due to fluctuations in market value of fixed maturities caused by market rate changes and temporarily illiquid markets. Accordingly, our management, credit rating agencies, lenders, many industry analysts, and certain other financial statement users prefer to remove the effect of this accounting rule when analyzing our balance sheet, capital structure, and financial ratios. 48 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis The following table presents selected data related to our capital resources. Additionally, the table presents the effect of this accounting guidance on relevant line items, so that investors and other financial statement users may determine its impact on Globe Life's capital structure. Excluding the effect of unrealized gains and losses on the fixed maturity portfolio from shareholders' equity is considered non-GAAP. Below we include the reconciliation to GAAP. Selected Financial Data (Dollar amounts in thousands, except per share data) [[GREPCENT_TABLE]] [["","At"],["","December 31, 2021","","December 31, 2020","","December 31, 2019"],["","GAAP","","Effect ofAccountingRuleRequiringRevaluation(1)","","GAAP","","Effect ofAccountingRuleRequiringRevaluation(1)","","GAAP","","Effect ofAccountingRuleRequiringRevaluation(1)"],["Fixed maturities","$","21,305,287","","","$","3,500,365","","","$","21,213,509","","","$","4,019,710","","","$","18,907,147","","","$","2,491,371"],["Deferred acquisition costs(2)","4,914,728","","","(4,327)","","","4,595,444","","","(5,955)","","","4,341,941","","","(7,488)"],["Total assets","29,768,048","","","3,496,038","","","29,046,731","","","4,013,755","","","25,977,460","","","2,483,883"],["Short-term debt","479,644","","","\u2014","","","254,918","","","\u2014","","","298,738","","","\u2014"],["Long-term debt","1,546,494","","","\u2014","","","1,667,886","","","\u2014","","","1,348,988","","","\u2014"],["Shareholders' equity","8,642,806","","","2,761,870","","","8,771,092","","","3,170,866","","","7,294,307","","","1,962,268"],["Book value per diluted share","85.97","","","27.47","","","83.19","","","30.07","","","66.02","","","17.76"],["Debt to capitalization(3)","19.0","%","","(6.6)","%","","18.0","%","","(7.6)","%","","18.4","%","","(5.2)","%"],["Diluted shares outstanding","100,535","","","","","105,429","","","","","110,494"],["Actual shares outstanding","99,567","","","","","103,797","","","","","107,720"]] [[/GREPCENT_TABLE]] (1)Amount added to (deducted from) comprehensive income to produce the stated GAAP item, per accounting rule ASC 320-10-35-1. (2)Includes the value of business acquired (VOBA). (3)Globe Life's debt covenants require that the effect of this accounting rule be removed to determine this ratio. This ratio is computed by dividing total debt by the sum of total debt and shareholders’ equity. Financial Strength Ratings. The financial strength of our major insurance subsidiaries is rated by Standard & Poor’s and A. M. Best. The following table presents these ratings for our five largest insurance subsidiaries at December 31, 2021. [[GREPCENT_TABLE]] [["","Standard & Poor\u2019s","","A.M. Best"],["Liberty National Life Insurance Company","AA-","","A"],["Globe Life And Accident Insurance Company","AA-","","A"],["United American Insurance Company","AA-","","A"],["American Income Life Insurance Company","AA-","","A"],["Family Heritage Life Insurance Company of America","NR","","A"]] [[/GREPCENT_TABLE]] A.M. Best states that it assigns an A (Excellent) rating to insurance companies that have, in its opinion, an excellent ability to meet their ongoing insurance obligations. The AA financial strength rating category is assigned by Standard & Poor’s Corporation (S&P) to those insurers which have very strong capacity to meet its financial commitments which differs from the highest-rated insurers only to a small degree. An insurer rated A has strong capacity to meet its financial commitments but it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than insurers in higher-rated categories. The plus sign (+) or minus sign (-) shows the relative standing within the major rating category. 49 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis OTHER ITEMS Litigation. For more information concerning litigation, please refer to Note 6—Commitments and Contingencies. CRITICAL ACCOUNTING POLICIES Application of Critical Accounting Estimates. The preparation of financial statements in conformity with GAAP requires the application of accounting policies that often involve a significant degree of judgment. Management reviews these key estimates and assumptions used in the preparation of financial statements on a timely basis. If management determines that modifications are necessary due to current facts and circumstances, the Company’s results of operations and financial position as reported in the consolidated financial statements could possibly change significantly. The following accounting policies are deemed critical to the preparation of the financial statements and include accounting estimates that management believes are most subjective or have complex judgments. Future Policy Benefits. Due to the long-term nature of insurance contracts, our insurance companies are liable for policy benefit payments that will be made in the future. The liability for future policy benefits is determined by standard actuarial procedures common to the life insurance industry. The accounting policies for determining this liability are disclosed in Note 1—Significant Accounting Policies. Approximately 90% of our liabilities for future policy benefits at December 31, 2021 were traditional insurance liabilities where the liability is determined as the present value of future benefits less the present value of the portion of the gross premium required to pay for such benefits. The assumptions used in estimating the future benefits for this portion of business are set at the time of contract issue. These assumptions are “locked in” and are not revised for the lifetime of the contracts, except where there is a premium deficiency, as defined in Note 1—Significant Accounting Policies under the caption Future Policy Benefits. Otherwise, variability in the accrual of policy reserve liabilities after policy issuance is caused only by variability of the inventory of in force policies. The remaining portion of liabilities for future policy benefits pertains to business accounted for as deposit business, where the recorded liability is the fund balance attributable to the benefit of policyholders as determined by the policy contract at the consolidated financial statement date. Accordingly, there are no assumptions used to determine the future policy benefit liability for deposit business. Refer to Note 1—Significant Accounting Policies for discussion on the significant changes to future policy benefits with an effective date of January 1, 2023. Deferred Acquisition Costs. Certain costs of acquiring new business are deferred and recorded as an asset. Deferred acquisition costs consist primarily of sales commissions and other underwriting costs such as advertising related to the successful issuance of a new insurance contract as indicated in Note 1—Significant Accounting Policies under the caption Deferred Acquisition Costs in the Notes to Consolidated Financial Statements. Additionally, the cost of acquiring blocks of insurance business or insurance business through the purchase of other companies, known as the value of insurance acquired (VOBA), is included in deferred acquisition costs. Our policies for accounting for deferred acquisition costs and the associated amortization are reported under the same caption in Note 1—Significant Accounting Policies. Over 99% of our deferred acquisition costs at December 31, 2021 were related to traditional products and are being amortized over the premium-paying period in proportion to the present value of actual historic and estimated future gross premiums. The projection assumptions for this business are set at the time of contract issue. These assumptions are “locked-in” at that time and, except where there is a loss recognition issue, are not revised for the lifetime of the contracts. Absent a premium deficiency, variability in amortization after policy issuance is caused only by variability in premium volume. We have not recorded a deferred acquisition cost loss recognition event for assets related to this business for any period in the three years ended December 31, 2021. 50 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Less than 1% of deferred acquisition costs pertain to deposit business for which deferred acquisition costs are amortized over the estimated lives of the contracts. Policy Claims and Other Benefits Payable. This liability consists of known benefits currently payable and an estimate of claims that have been incurred but not yet reported to us. The estimate of unreported claims is based on prior experience and is made after careful evaluation of all information available to us. However, the factors upon which these estimates are based can be subject to change from historical patterns. Factors involved include the litigation environment, regulatory mandates, and the introduction of policy types for which claim patterns are not well established, and medical trend rates and medical cost inflation as they affect our health claims. Changes in these estimates, if any, are reflected in the earnings of the period in which the adjustment is made. The Company concludes that the estimates used to produce the liability for claims and other benefits, including the estimate of unsubmitted claims, are the most appropriate under the circumstances. However, there is no certainty that the resulting stated liability will be our ultimate obligation. At this time, we do not expect any change in this estimate to have a material impact on earnings or financial position consistent with our historical experience. There were no significant changes in the claims process in the current year. Valuation of Fixed Maturities. We hold a substantial investment in high-quality fixed maturities to provide for the funding of our future policy contractual obligations over long periods of time. While these securities are generally expected to be held to maturity, they are classified as available for sale and are sold from time to time to maximize risk-adjusted, capital-adjusted returns. We report this portfolio at fair value. Fair value is the price that we would expect to receive upon sale of the asset in an orderly transaction. The fair value of the fixed maturity portfolio is primarily affected by changes in interest rates in financial markets. Because of the size of our fixed maturity portfolio and the long average life, small changes in rates can have a significant effect on the portfolio and the reported financial position of the Company. This impact is disclosed in 100 basis point increments under the caption Market Risk Sensitivity in this report. However, as discussed under the caption Financial Condition in this report, the Company regards these unrealized fluctuations in value as having no meaningful impact on our actual financial condition and, as such, we remove them from consideration when viewing our financial position and financial ratios. At times, the values of our fixed maturities can also be affected by illiquidity in the financial markets. Illiquidity would contribute to a spread widening, and accordingly to unrealized losses, on many securities that we would expect to be fully recoverable. Even though our fixed maturity portfolio is available for sale, we have the ability and intent to hold the securities until maturity as a result of our strong and stable cash flows generated from our insurance products. Considerable information concerning the policies, procedures, classification levels, and other relevant data concerning the valuation of our fixed maturity investments is presented in Note 1—Significant Accounting Policies and in Note 4—Investments under the captions Fair Value Measurements in both notes. There were no significant changes in the valuation process in the current year. Investments: Allowance for Credit Losses. We continually monitor our investment portfolio for investments where fair value has declined below carrying value to determine if a credit loss event has occurred. When a credit event does occur, an allowance for credit loss is recorded and the corresponding provision is recognized in the Consolidated Income Statement in Realized Gains or Losses. Non-credit related fluctuations in the fair value are recorded in Other Comprehensive Income. The policies and procedures that we use to evaluate and account for allowance for credit losses are disclosed in Note 1—Significant Accounting Policies and the discussions under the captions Investments and Realized Gains and Losses in this report. While every effort is made to make the best estimate of status and value with the information available regarding an allowance for credit loss, it is difficult to predict the future prospects of a distressed or impaired security. 51 GL 2021 FORM 10-K Table of Contents GLOBE LIFE INC. Management's Discussion & Analysis Defined benefit pension plans. We maintain funded defined benefit plans covering most full-time employees. We also have an unfunded nonqualified defined benefit plan covering a limited number of officers. Our obligations under these plans are determined actuarially based on specified actuarial assumptions. In accordance with GAAP, an expense is recorded each year as these pension obligations grow due to the increase in the service period of employees and the interest cost associated with the passage of time. These obligations are offset, at least in part, by the growth in value of the assets in the funded plans. At December 31, 2021, our gross liability under these plans was $779 million, but was offset by assets of $598 million. The actuarial assumptions used in determining our obligations/expenses for pensions include: employee mortality and turnover, retirement age, the expected return on plan assets, projected salary increases, and the discount rate at which future obligations could be settled. Additionally, a corridor approach is used to amortize any unrecognized gains or losses outside the corridor (the standard 10% of the greater of plan PBO and fair value assets) and have an amortization service period of approximately nine years. These assumptions have an important effect on the pension obligation. A decrease in the discount rate will cause an increase in the pension obligation. A decrease in projected salary increases will cause a decrease in this obligation. Small changes in assumptions may cause significant differences in reported results for these plans. For example, a sensitivity analysis is presented below for the impact of change in the discount rate and the long-term rate of return on assets assumed on our defined benefit pension plans expense for the year 2021 and projected benefit obligation as of December 31, 2021. Pension Assumptions (Dollar amounts in thousands) [[GREPCENT_TABLE]] [["Assumption","","Change(1)","","Impact on Expense","","Impact on Projected Benefit Obligation"],["Discount Rate(2):"],["Increase","","25","","","$","(4,187)","","","$","(30,692)"],["Decrease","","(25)","","","4,442","","","32,660"],["Expected Return(3):"],["Increase","","25","","","(1,333)","","","\u2014"],["Decrease","","(25)","","","1,333","","","\u2014"]] [[/GREPCENT_TABLE]] (1)In basis points. (2)The discount rate for determining the net periodic benefit cost was 2.92% for 2021. The discount rate used for determining the projected benefit obligation as of December 31, 2021 was 3.19%. (3)The expected long-term return rate assumed was 6.67%, consistent with prior year. Management considers both historical and future yields to determine the expected return. The Company determines mortality assumptions through the use of published mortality tables that reflect broad-based studies of mortality and published longevity improvement scales. The criteria used to determine the primary assumptions are discussed in Note 9—Postretirement Benefits. While we have used our best efforts to determine the most reliable assumptions, given the information available from Company experience, economic data, independent consultants and other sources, we cannot be certain that actual results will be the same as expected. The assumptions are reviewed annually and revised, if necessary, based on more current information available to us. Note 9—Postretirement Benefits also contains information about pension plan assets, investment policies, and other related data. There were no significant changes in the assumptions in the current year. 52 GL 2021 FORM 10-K Table of Contents