GLOBE LIFE INC. (GL) FY 2022 MD&A

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 2020, 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

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Long-Duration Targeted Improvements. As discussed in further detail within 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 Company has selected the modified retrospective transition method upon adoption as of the transition date (the “Transition Date”) of January 1, 2021. 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 lower middle to middle-income market. In addition, it will not impact our statutory earnings, statutory capital, nor our capital management philosophies.

The adoption will, however, modify the timing of when profits emerge on our insurance policies and result in the restatement of 2021 and 2022 key figures in the 2023 consolidated financial statements. We are anticipating GAAP net income and net operating income to increase significantly under the new standard primarily due to a reduction in deferred acquisition cost (DAC) amortization in the near to intermediate term. Additionally, future policy benefits on our life insurance business for 2021 and 2022, as restated to reflect the new standard, will be adjusted to reflect updated assumptions used to determine the reserves as well as the treatment of adverse claims experience incurred in 2021 and 2022, which gets spread out over future periods from transition, including those relating to COVID-19. This will result in slightly higher future policy benefits, as a percentage of premium, in future years than what would have been expected under existing guidance. Finally, we expect some modest decreases to future policy benefits, as a percentage of premium, in our health business on some of our limited benefit plans under the new standard.

With respect to future policy benefits, we anticipate an increase of between $9.5 billion and $11.0 billion on the Transition Date, which will be reflected in other comprehensive income. This change reflects an unrealized interest rate loss at transition and is a result of several primary factors:

a.Life insurance future policy benefit cash flows tend to be long as death benefits, which are greater than premium amounts, are typically paid to beneficiaries many years after a policy is issued. This results in a generally longer overall liability duration than the overall asset duration.

b.The new methodology requires the use of current discount rates (upper-medium grade) rather than locked-in discount rates, which are determined when a policy is issued. Current discount rates are generally lower than the locked-in discount rates used to determine net income. The required current discount rate is inconsistent with historical practices, the current asset portfolio and current investment strategy.

c.The methodology requires the net premium ratio2 used to determine future policy benefits be based on locked-in rates rather than permitting the redetermination of the net premium ratio using current discount rates. This restricts the level of gross premiums allowed in the calculation, as well as the level of gross premiums available to offset the impact of current discount rates to the extent these rates are realized in future years. Because of this requirement, the change in future policy benefits results in a measure of unrealized gain (loss) due to differences in discount rates only.

For Globe Life, discount rates lower than the locked-in discount rate under LDTI have the effect of increasing the level of reserves carried due to the use of net premiums in the calculation as compared to current GAAP, which in the loss recognition test, uses the total gross premium. Once implemented, future policy benefits will be sensitive to changes in current discount rates for the reasons stated above. To demonstrate this sensitivity to discount rates, to the extent current discount rates were consistent with rates as of December 31, 2022, we estimate future policy benefits as of the Transition Date would have only increased between $1.5 billion and $2.3 billion.

With respect to shareholders’ equity, as of the end of 2020, reported shareholders’ equity on the Consolidated Balance Sheets was $8.8 billion. We anticipate a decrease in the range of $7.5 billion to $8.5 billion, net of tax, as a result of the requirement to use current discount rates to remeasure the future policy benefits and record the offset through accumulated other comprehensive income (AOCI) at adoption.

If we hold all else equal as of the Transition Date but use current discount rates as of December 31, 2022, the after-tax decrease in AOCI due solely to the increase in future policy benefits would have been in the range of $1.2 billion

2 The net premium ratio is the ratio between the present value of benefits and the present value of gross premium.

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to $1.8 billion. AOCI would also be impacted by fluctuations in the valuation of the fixed maturity bond portfolio in this situation.

Another item impacting shareholders’ equity relates to increases in the liability for future policy benefits on smaller, older blocks of business with a minimum floor or net premium ratios capped at 100%. For blocks of business that require increases in future policy benefits to minimum levels, or a net premium ratio capped at 100% on the Transition Date, any difference between the future policy benefits calculated using the discount rate immediately before the Transition Date, and the existing carrying value as of the Transition Date is recorded as an adjustment (decrease) to opening retained earnings. At the Transition Date, we expect an immaterial decrease to opening retained earnings related to these items.

As noted above, we expect GAAP net income and net operating income to increase under the new standard due to a significant decrease in the annual amortization of DAC in the near and intermediate term. This is a result of changes to the calculation of amortization rate, including use of only deferred costs through the valuation date. For business with deferrals of renewal commissions, as is the case with our captive agency channels, the expected amortization rate as a percentage of premium will no longer be level, but will increase over the period of time during which commissions are deferred. The decrease in amortization in the near term will primarily impact our life insurance line of business. In total, we expect the increase in net income in 2023, largely due to the decrease in amortization, to fall within a range of $105 million and $115 million, net of tax.

Regarding our measure of excess investment income, we expect a significant decrease in the figure as a result of the updated standard. This is driven by the removal of interest in the computation of DAC. Although non-GAAP measures, the review of underwriting margin and excess investment income will remain an important part of the Company’s measurement of performance.

Inflation Reduction Act. The Inflation Reduction Act (the Act) was enacted on August 16, 2022, and included a new corporate alternative minimum tax (CAMT). The Act and CAMT go into effect for tax years beginning after 2022. The Company is in the process of evaluating the impact the Act will have, if any, on the financial statements.

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GLOBE LIFE INC.

Management's Discussion & Analysis

Current Highlights, comparing year-to-date 2022 with 2021.

•Net income as a return on equity (ROE) for the year ended December 31, 2022 was 12.3% and net operating income as an ROE, excluding net unrealized gains or losses on the fixed maturity portfolio(1) was 13.4%.

•Total premium increased 5% over the prior year. Life premium increased 4% for the period from $2.9 billion in 2021 to $3.0 billion in 2022. Life underwriting margin increased 23% from $624 million in 2021 to $769 million in 2022.

•Net investment income increased 4% over the same period in the prior year.

•Total net sales increased 2% over the same period in the prior year from $706 million in 2021 to $722 million in 2022.

•Book value per share declined 42% below the same period in the prior year from $85.97 to $49.65. Book value per share, excluding net unrealized gains or losses on the fixed maturity portfolio(1), increased 9% over the prior year from $58.50 in 2021 to $64.01 in 2022.

•The Company incurred $49 million of COVID-19 net life claims (net of reserves released upon death) for the year ended December 31, 2022 compared with $140 million during the same period last year.

•For the year ended December 31, 2022, the Company repurchased 3.3 million shares of Globe Life Inc. common stock at a total cost of $335 million for an average share price of $100.90.

The following graphs represent net income and net operating income for the three years ended December 31, 2022.

(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 or losses 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 or losses, 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 or losses on fixed maturities, net of tax is $(1.4) billion and $2.8 billion for the year ended December 31, 2022 and 2021, respectively.

Book value per share, excluding net unrealized gains or losses 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 or losses, 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 or losses on fixed maturities is $(14.36) and $27.47 for the year ended December 31, 2022 and 2021, respectively.

Refer to Analysis of Profitability by Segment for non-GAAP reconciliation to GAAP.

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GLOBE LIFE INC.

Management's Discussion & Analysis

Summary of Operations. Net income declined 1% to $740 million in 2022, compared with $745 million in 2021. This decrease was primarily related to an increase in realized losses on the fixed maturity portfolio offset by lower COVID-19 life claims. On a diluted per common share basis, net income per common share for 2022 increased from $7.22 to $7.47. Included in net income were after-tax realized losses of $60 million in 2022, compared with realized after-tax gains of $47 million for 2021. Realized gains and losses are presented more fully under the caption Realized Gains and Losses in this report.

Net operating income from operations increased 14% to $806 million in 2022, compared with $707 million in 2021. On a diluted per common share basis, net operating income per common share increased from $6.86 to $8.15, a 19% increase. 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. Net income was also impacted by certain significant and unusual non-operating items in 2021 and 2022. 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.

The Company continues to see positive signs in its core operations, including strong sales, favorable persistency, and a strong ROE, excluding net unrealized gains or losses on the fixed maturity portfolio.

COVID-19. For the year ended December 31, 2022, the Company incurred $49 million of COVID-19 net life claims, compared to $140 million in 2021. Per the Centers for Disease Control and Prevention (CDC), there were approximately 243 thousand U.S. COVID-19 deaths in 2022, down from approximately 460 thousand in 2021. The Company’s level of COVID-19 net life claims, on average for the year, was approximately $2 million per 10,000 U.S. deaths, a decrease from $3 million per 10,000 U.S. deaths in 2021.

Going forward, we anticipate approximately $45 million in impact from excess life claims in 2023 from both COVID-19 and related non-COVID-19 causes at the mid-point of our guidance. We define excess life claims as the additional claims that arose over what would have been expected based on pre-COVID experience. The projected life claims are dependent on many 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.

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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)

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 increased $145 million compared with the prior year, primarily due to lower life claims related to COVID-19 and growth in premiums. The health segment contributed to growth in income in both years, contributing $16 million of additional underwriting margin in 2022 and $32 million in 2021, a result of sustained premium growth.

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GLOBE LIFE INC.

Management's Discussion & Analysis

In 2022, the largest contributor of total underwriting margin was the life insurance segment and the primary distribution channel was the 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, 2022.

Total premium income rose 5% for the year ended December 31, 2022 to $4.3 billion. Total net sales increased 2% to $722 million, when compared with 2021. Total first-year collected premium (defined in the following section) was $577 million for 2022, compared with $583 million for 2021.

Life insurance premium income increased 4% to $3.0 billion over the prior-year total of $2.9 billion. Life net sales rose 2% to $531 million for the year ended 2022. First-year collected life premium declined 3% to $410 million. Life underwriting margins, as a percent of premium, increased to 25% in 2022 from 22%. Underwriting margin increased to $769 million in 2022, 23% over the same period in 2021, largely a result of a significant decline in COVID-19 net life claims and an increase in premium growth.

Health insurance premium income increased 6% to $1.3 billion over the prior-year total of $1.2 billion. Health net sales rose 4% to $191 million for the year ended 2022. First-year collected health premium rose 5% to $168 million. Health underwriting margins, as a percent of premium, were 25% in 2022 and 2021. Health underwriting margin increased to $321 million for the year ended 2022, 5% over the same period in 2021.

Excess investment income, the measure of profitability of our investment segment, declined slightly during 2022 to $238.1 million from $238.5 million in the same period in 2021. Excess investment income per common share, reflecting the impact of our share repurchase program, increased 4% to $2.41 from $2.31 when compared with the same period in 2021.

Insurance administrative expenses increased 10% in 2022 when compared with the prior-year period. These expenses were 7.0% as a percent of premium during 2022 compared with 6.6% a year earlier.

For the year ended December 31, 2022, the Company repurchased 3.3 million Globe Life Inc. shares at a total cost of $335 million for an average share price of $100.90.

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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.

•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.

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GLOBE LIFE INC.

Management's Discussion & Analysis

LIFE INSURANCE

Life insurance is the Company's predominant segment. During 2022, life premium represented 70% of total premium and life underwriting margin represented 70% of the total underwriting margin. 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)

The higher life insurance underwriting margins, as well as the higher underwriting margins as a percentage of premium, for the year ended December 31, 2022 are primarily a result of growth in premiums along with a decrease in net policy obligations. Net policy obligations amounted to 42% of premiums for the year ended December 31, 2022, compared to 46% in the year-ago period, due to approximately $49 million in COVID-19 net life claims incurred during the year as compared to $140 million in 2021.

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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)

Annualized life premium in force was $3.1 billion at December 31, 2022, an increase of 4% over $2.9 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)

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)

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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 50% of the Company's 2022 total life premium. Net sales increased 9% to $317 million in 2022 over the 2021 total of $291 million. The increase in life net sales is due to increased productivity plus an improvement in issue rates as some challenges in underwriting, such as staffing and speed to obtain medical records and other information resolved, during the year. The underwriting margin, as a percent of premium, was 33% for the year ended December 31, 2022, up from 30% in the prior year.

This division incurred $16 million in COVID-19 net life claims, representing approximately 1% of premium, for the year ended December 31, 2022, compared with $36 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. Despite the division's ability to recruit both virtually and in-person, retention challenges still exist. Sales growth in this division, as well as within our other exclusive agencies, is generally dependent on growth in the size of the agency force.

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 launching 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 course of the pandemic, the agents have shifted to primarily a virtual experience with the customers and have generated a vast majority of 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 faster than direct mail response as customer demand increased marketing activity to internet and mobile technology. The proportion of sales from the internet and inbound phone calls had been steadily increasing prior to COVID-19, but accelerated after the start of the pandemic. 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 is also 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 in comparison to the general adult population. Also, future offerings to juvenile policyholders and their parents are sources of low acquisition-cost life insurance sales in the future.

DTC net sales decreased 15% to $126 million for the year ended December 31, 2022 compared with $149 million in the prior year. After experiencing higher than normal life net sales in the prior year, sales in the current year are returning to pre-pandemic levels. The decline is also due in part to the impact of recent record inflation on the cost of our direct mailings and on our customers, who generally have less discretionary income to purchase and retain life insurance. DTC incurred $24 million of COVID-19 net life claims, representing approximately 2% of premium, in 2022 compared with $69 million in 2021. DTC’s underwriting margin, as a percent of premium, was 12% for the year

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GLOBE LIFE INC.

Management's Discussion & Analysis

ended December 31, 2022 and 7% for the same period in 2021, reflecting the lessening impact of COVID-19 on the division's underwriting results.

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 are expected to help continue this growth. The underwriting margin as a percent of premium was 22%, up from 17% for the year ended 2021. The increase is primarily attributable to lower net policy obligations in relation to premium during the year compared with the same period a year ago. This division incurred $7 million of COVID-19 net life claims, representing approximately 2% of premium, for the year ended December 31, 2022 compared with $28 million in 2021. Net sales increased 10% in 2022 over 2021.

Below is the average producing agent count at the end of the period for Liberty National Division.

The Liberty National Division average producing agent count was up slightly compared with the prior year. 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 marketing opportunities. Systems that have been put in place, including the addition of a CRM platform and enhanced analytical capabilities, have also helped the agents develop additional marketing opportunities as well as improve the productivity of agents selling in the individual life market. As the division continues to gain momentum in its sales and recruiting initiatives and advances its technology and CRM platform, the agency anticipates an increase in recruiting of new agents and an increase in the average producing agent count.

The Other Agencies distribution channels primarily include non-exclusive independent agencies selling predominantly life insurance. The Other Agencies contributed $210 million of life premium income, or 7% of Globe Life's total in 2022, 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 30% of our total premium in 2022, while the health underwriting margin accounted for 29% of total underwriting margin. Health underwriting margin increased 5% to $321 million primarily due to higher premium growth. 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.

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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)

Health premium increased 6% from $1.20 billion in 2021 to $1.28 billion in 2022. Health underwriting margin increased 5% from $304 million in 2021 to $321 million in 2022 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)

Of total health premium of $1.3 billion, premium from limited-benefit plans comprise $701 million, or 55% of the total, for 2022 compared with $639 million in the prior year. Premium from Medicare Supplement products comprises the remaining 45% or $578 million for 2022 compared with $563 million in 2021.

Annualized health premium in force was $1.33 billion at December 31, 2022, an increase of 3% over the prior year balance of $1.29 billion.

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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)

Of total net sales of $191 million, sales of limited-benefit plans comprise $137 million, or 71% of the total, for 2022 compared with $118 million in 2021. Medicare Supplement sales make up the remaining 29%, or $54 million for 2022 compared with $66 million in 2021.

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)

First-year collected premium related to limited-benefit plans comprise $108 million, or 64% of total first-year collected premium for 2022 compared with $99 million in 2021. First-year collected premium from Medicare Supplement policies make up the remaining 36%, or $60 million for 2022 compared with $61 million in 2021.

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 83% of the Company's Medicare Supplement premium and 93% of Medicare Supplement net sales. Medicare Supplement premium in this agency rose 5% to $482 million in 2022 over the prior period premium of $460 million. Medicare Supplement net sales declined 19% to $51 million in 2022 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 2022 compared with 2021.

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GLOBE LIFE INC.

Management's Discussion & Analysis

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 in 2022 was 27%, the same as in 2021.

The division experienced a 14% increase in health net sales in 2022 as compared with the 2021, primarily due to an increase in recruiting, agent productivity and training. The division will continue to implement 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 was relatively flat in agent count as compared with 2021, we anticipate that as COVID-19 and the job market stabilize, agent recruitment opportunities will continue to trend upward.

The Liberty National Division represented 14% of all Globe Life health premium income at $186 million in 2022. 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. In 2022, health premium income declined 1%. Liberty National's first-year collected premium increased 10% to $22 million in 2022 compared with $20 million in 2021. Health net sales for 2022 increased by $2 million or 9% from 2021. We anticipate an increase in health net 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 2022 and 15% in 2021. 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 $4 million of Medicare Supplement net sales in 2022 and $3 million in 2021.

ANNUITIES

Our fixed annuity balances at the end of 2022 and 2021 were $953.3 million and $1.0 billion, respectively. Underwriting margin was $8.2 million for 2022 and $8.7 million for 2021.

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.

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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 $9.0 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)

(1)Includes $71 thousand of required interest on Federal Home Loan Bank (FHLB) funding agreements in 2022.

(2)Net of deferred acquisition costs, excluding the associated unrealized gains and losses thereon.

Excess investment income declined slightly in 2022 when compared with 2021. Excess investment income per diluted common share increased 4% during 2022 when compared with 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.

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GLOBE LIFE INC.

Management's Discussion & Analysis

Net investment income increased at a compound annual growth rate of 3% over the 3 years ending 2022 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 5.16% in 2022. Generally, investment income grows at a slower rate than the assets when the yield on new investments is lower than the yield on dispositions or the average portfolio yield. It also increases at a faster rate than the assets when new investment yields exceed the yield on dispositions or the average portfolio yield. 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, 2022 was 5.65%. See additional information in Note 4—Investments. The following chart presents the growth in net investment income and the growth in mean invested assets.

Globe Life's net investment income benefits from higher interest rates on new investments. While increasing interest rates have resulted in a net unrealized loss on the fixed maturities portfolio as of December 31, 2022, we are not concerned because we do not generally intend to sell, nor is it likely that we 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 little impact on the overall weighted-average discount rate due to the size of our in force business. In 2023, new guidance will become effective that will significantly impact the accounting for our long duration contracts including the determination of required interest. Please see Note 1—Significant Accounting Policies for additional information.

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 strength and consistency of our underwriting margins, we do not expect an extended low interest rate environment will cause a loss recognition event.

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Information about interest on net policy liabilities is shown in the following table.

Required Interest on Net Insurance Policy Liabilities

(Dollar amounts in thousands)

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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)

In 2022, financing costs increased 8% compared with prior year primarily due to rates on the short-term debt. In addition, interest on funded debt was higher in 2022 than the prior year as a result of the 4.80% Senior Notes issued in May 2022, prior the repayment of the 3.80% Senior Notes on September 15, 2022. More information on our debt transactions is 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. Gains or losses 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.

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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, 2022.

Analysis of Realized Gains (Losses), Net of Tax

(Dollar amounts in thousands, except for per share data)

(1)During the three years ended December 31, 2022, 2021, and 2020, the Company recorded $147.6 million, $109.2 million, and $219.8 million of exchanges of fixed maturity securities (noncash transactions) that resulted in $1.5 million, $19.9 million, and $6.2 million, respectively, in realized gains (losses), net of tax.

(2)Other realized gains (losses) are primarily a result of changes in the fair value of exchange traded funds.

As investment yields increased in 2022, the Company disposed of certain fixed maturity investments to improve the risk-adjusted, capital-adjusted returns on the portfolio. While we realized losses, we were able to enhance the yield, credit quality and diversification of the portfolio.

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.

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

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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)

(1)Fixed maturity acquisitions included unsettled trades of $0 in 2022, $7 million in 2021 and $2 million in 2020.

(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.

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 2021 and 2022, 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 $290 million in other long-term investments in 2022 and $258 million in 2021. These investments include primarily investment funds. See Note—4 Investments 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 $852 million in 2022 and $428 million in 2021.

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.

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Selected information concerning the fixed maturity portfolio is as follows:

Fixed Maturity Portfolio Selected Information

(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.

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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, 2022 and 2021.

Fixed Maturities by Sector

December 31, 2022

(Dollar amounts in thousands)

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Fixed Maturities by Sector

December 31, 2021

(Dollar amounts in thousands)

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Corporate securities, which consist of bonds and redeemable preferred stocks, were the largest component of the December 31, 2022 fixed maturity portfolio, representing 82% of amortized cost, net and 83% 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, 2022, the total fixed maturity portfolio consisted of 979 issuers.

Fixed maturities had a fair value of $16.5 billion at December 31, 2022, compared with $21.3 billion at December 31, 2021. The net unrealized gain (loss) position in the fixed-maturity portfolio decreased from a $3.5 billion gain position at December 31, 2021 to a loss position of $1.8 billion at December 31, 2022 due to an increase in market rates during the period.

For more information about our fixed maturity portfolio by component at December 31, 2022 and December 31, 2021, 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, 2022 and December 31, 2021, 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 $466 million at amortized cost, net of allowance for credit losses ($425 million at fair value) for which the ratings were assigned by the third-party managers.

Fixed Maturities by Rating

At December 31, 2022

(Dollar amounts in thousands)

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Fixed Maturities by Rating

At December 31, 2021

(Dollar amounts in thousands)

The overall quality rating of the portfolio is A-, the same as year-end 2021. Fixed maturities rated BBB are 51% of the total portfolio at December 31, 2022 compared with 54% at year-end 2021, and the percentage of BBB bonds to the overall portfolio has been declining since the end of 2018. 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, 2022. 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)

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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 losses, were 9% of our shareholders’ equity, excluding the effect of unrealized gains or losses on fixed maturities as of December 31, 2022. 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 91% 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 generally 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, 2022 and 2021. 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)

(1) In basis points.

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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, 2022.

Operating Expenses Selected Information

(Dollar amounts in thousands)

Total operating expenses 2022 increased 10% over the prior year reflecting higher insurance administrative expenses. Insurance administrative expenses increased $28 million primarily due to higher information technology costs, including associated information technology salaries, higher employee costs in general, and higher administrative costs associated with the acquisition of Globe Life Benefits, which occurred in late 2021. Insurance administrative expenses as a percent of premium were 7.0%, compared to 6.6% for the same period in 2021.

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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 flows after the payment of dividends to the Parent Company shareholders, general market conditions, and other alternative uses. Excess cash flow at the Parent Company is primarily comprised of dividends received from the insurance subsidiaries less interest expense paid on its debt and other limited operating activities. The majority of our share repurchases are made from excess cash flow after the payment of shareholder dividends. 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 10, 2022, 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)

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 the Federal Home Loan Bank.

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 annually generate more operating cash inflows than cash outflows, the companies also have the entire available-for-sale fixed maturity investment portfolio available to create additional cash flows if required.

Four of our insurance subsidiaries are 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 the only 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.

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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.

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, 2022, the Parent Company had access to $91 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, 2022, we had available $340 million of additional borrowing capacity under this facility, compared with $295 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, 2022. 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, 2022, 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 to $125 million. The outstanding letters of credit remained at $125 million at December 31, 2022.

The Parent Company expects to have readily available funds for 2023 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 $91 million of liquid assets available as of December 31, 2022. This liquidity is available to the Company in the event additional funds are needed to support the targeted capital levels within our insurance subsidiaries.

Consolidated Liquidity. Consolidated net cash inflows provided from operations were $1.42 billion in 2022, compared with $1.44 billion in 2021. In addition to cash inflows from operations, our companies received proceeds

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from maturities, calls, and repayments of fixed maturities in the amount of $462 million in 2022, compared with $311 million in 2021. 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 $207 million at the end of 2022 compared with $161 million at the end of 2021. In addition to these liquid assets, the entire $16.5 billion (fair value at December 31, 2022) 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 general 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 $1.6 billion at December 31, 2022, an increase from $1.5 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 its 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 2022, 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, 2022, our consolidated Company Action Level RBC ratio was 321%, compared to 315% in the prior year. 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.

In August 2022, the NAIC fully adopted new and expanded C-2 life insurance mortality risk factors. The adoption of these factors resulted in higher amounts of required capital related to our life insurance liabilities. 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.

Shareholders’ equity was $4.9 billion at December 31, 2022, compared with $8.6 billion at December 31, 2021, a decrease of $3.7 billion or 43%. Since December 31, 2021, shareholders’ equity was reduced by $4.2 billion due to after-tax unrealized losses in the fixed-maturity portfolio as interest rates increased over the period offset by $740 million of net income during this period. In addition, shareholders' equity was reduced by $335 million in share

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purchases under the repurchase program and an additional $119 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. Excess cash flow, as we define it, results primarily from the dividends received by the Parent Company from its subsidiaries less the interest paid on debt. The cash received by the Parent Company from our insurance subsidiaries is after they have made substantial investments during the year to grow the business. 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 general 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.

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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 or 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)

(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, 2022.

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.

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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, 2022 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, 2022 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, 2022.

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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 general 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 Statements of Operations 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.

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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, 2022, our gross liability under these plans was $563 million, but was offset by assets of $500 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 2022 and projected benefit obligation as of December 31, 2022.

Pension Assumptions

(Dollar amounts in thousands)

(1)In basis points.

(2)The discount rate for determining the net periodic benefit cost was 3.19% for 2022. The discount rate used for determining the projected benefit obligation as of December 31, 2022 was 5.71%.

(3)The expected long-term return rate assumed was 6.98% at December 31, 2022, and 6.67% in the 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.

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