Business Segments

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Business Segments

Note 9—Business Segments

Globe Life is organized into four segments: life insurance, supplemental health insurance, annuities, and investments. In addition, other expenses not included in these segments are reported in "Corporate & Other."

Globe Life's reportable insurance segments are based on the insurance product lines it markets and administers: life insurance, supplemental health insurance, and annuities. These major product lines are set out as reportable segments because of the common characteristics of products within these categories, comparability of margins, and the similarity in regulatory environment and management techniques. There is also an investment segment which manages the investment portfolio, debt, and cash flow for the insurance segments and the corporate function. The Company's chief operating decision makers evaluate the overall performance of the operations of the Company in accordance with these segments.

Life insurance products marketed by Globe Life include traditional whole life and term life insurance. Health insurance products are generally guaranteed-renewable and include Medicare Supplement, critical illness, accident, and limited-benefit supplemental hospital and surgical coverage. Annuities include fixed-benefit contracts.

Globe Life markets its insurance products through a number of distribution channels, each of which sells the products of one or more of Globe Life's insurance segments. Our distribution channels consist of the following exclusive agencies: American Income Life Division (American Income), Liberty National Division (Liberty National) and Family Heritage Division (Family Heritage); an independent agency, United American Division (United American); and our Direct to Consumer Division (Direct to Consumer). The tables below present segment premium revenue by each of Globe Life's distribution channels.

Premium Income by Distribution Channel

	Three Months Ended June 30, 2020
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	308,675	46	$	25,554	9	$	—	—	$	334,229	35
Direct to Consumer	235,201		35	19,060		7	—		—	254,261		27
Liberty National	73,326		11	47,391		17	—		—	120,717		13
United American	2,481		—	112,885		40	3		100	115,369		12
Family Heritage	1,042		—	77,987		27	—		—	79,029		8
Other	50,097		8	—		—	—		—	50,097		5
	$	670,822	100	$	282,877	100	$	3	100	$	953,702	100

	Three Months Ended June 30, 2019
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	288,334	46	$	24,450	9	$	—	—	$	312,784	35
Direct to Consumer	217,278		35	19,249		7	—		—	236,527		26
Liberty National	71,478		11	47,292		18	—		—	118,770		13
United American	2,647		—	102,254		38	1		100	104,902		12
Family Heritage	927		—	73,037		28	—		—	73,964		8
Other	50,537		8	—		—	—		—	50,537		6
	$	631,201	100	$	266,282	100	$	1	100	$	897,484	100

Premium Income by Distribution Channel

	Six Months Ended June 30, 2020
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	611,527	46	$	51,281	9	$	—	—	$	662,808	35
Direct to Consumer	455,244		35	38,856		7	—		—	494,100		26
Liberty National	146,194		11	95,031		17	—		—	241,225		13
United American	4,971		—	222,944		40	3		100	227,918		12
Family Heritage	2,063		—	154,970		27	—		—	157,033		9
Other	100,453		8	—		—	—		—	100,453		5
	$	1,320,452	100	$	563,082	100	$	3	100	$	1,883,537	100

	Six Months Ended June 30, 2019
	Life			Health			Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	570,101	45	$	48,549	9	$	—	—	$	618,650	35
Direct to Consumer	434,837		35	39,509		7	—		—	474,346		26
Liberty National	142,195		11	95,448		18	—		—	237,643		13
United American	5,398		1	205,159		39	1		100	210,558		12
Family Heritage	1,858		—	144,301		27	—		—	146,159		8
Other	101,101		8	—		—	—		—	101,101		6
	$	1,255,490	100	$	532,966	100	$	1	100	$	1,788,457	100

Due to the nature of the life insurance industry, Globe Life has no individual or group that would be considered a major customer. Substantially all of Globe Life's business is conducted in the United States.

The measure of profitability established by the chief operating decision makers for the insurance segments is underwriting margin before other income and administrative expenses, in accordance with the manner the segments are managed. It essentially represents gross profit margin on insurance products before insurance administrative expenses and consists primarily of premium less net policy benefits, acquisition expenses, and commissions. Required interest on net policy liabilities (benefit reserves less deferred acquisition costs) is reflected as a component of the Investment segment (rather than as a component of underwriting margin in the insurance and annuity segments) in order to match this cost with the investment income earned on the assets supporting the net policy liabilities.

The measure of profitability for the Investment segment is excess investment income, representing the income earned on the investment portfolio in excess of net policy requirements and financing costs associated with Globe Life's debt. Other than the above-mentioned interest allocations and an intersegment commission, there are no other intersegment revenues or expenses. Expenses directly attributable to corporate operations are included in the “Corporate & Other” category. Stock-based compensation expense is considered a corporate expense by Globe Life management and is included in this category. All other unallocated revenues and expenses on a pretax basis, including insurance administrative expense, are also included in the “Corporate & Other” segment category.

Globe Life holds a sizable investment portfolio to support its insurance liabilities, the yield from which is used to offset policy benefit, acquisition, administrative and tax expenses. This yield or investment income is taken into account when establishing premium rates and profitability expectations of its insurance products. From time to time, investments are sold or called, or experience a credit loss event, each of which are reflected by the Company as

realized gains (losses). These gains or losses generally occur as a result of disposition due to issuer calls, compliance with Company investment policies, or other reasons often beyond management’s control. Unlike investment income, realized gains and losses are incidental to insurance operations, and only overall yields are considered when setting premium rates or insurance product profitability expectations. While these gains and losses are not relevant to segment profitability or core operating results, they can have a material positive or negative result on net income. For these reasons, management removes realized investment gains and losses when it views its segment operations.

Management removes items that are related to prior periods when evaluating the operating results of current periods. Management also removes non-operating items unrelated to its core insurance activities when evaluating those results. Therefore, these items are excluded in its presentation of segment results, because accounting guidance requires that operating segment results be presented as management views its business. With the exception of the administrative settlements noted in the paragraphs above, all of these items are included in “Other operating expense” in the Condensed Consolidated Statements of Operations for the appropriate year. See additional detail below in the tables.

The following tables set forth a reconciliation of Globe Life's revenues and operations by segment to its major income statement line items. See Note—1 Significant Accounting Policies for additional information concerning reconciling items of segment profits to pretax income.

	Three Months Ended June 30, 2020
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments		Consolidated
Revenue:
Premium	$	670,822	$	282,877	$	3	$	—	$	—	$	—	$	953,702
Net investment income	—		—		—		231,568		—		—		231,568
Other income	—		—		—		—		404		—		404
Total revenue	670,822		282,877		3		231,568		404		—		1,185,674
Expenses:
Policy benefits	459,845		183,496		7,475		—		—		—		650,816
Required interest on reserves	(173,208)		(22,851)		(10,332)		206,391		—		—		—
Required interest on DAC	52,107		6,582		84		(58,773)		—		—		—
Amortization of acquisition costs	117,802		27,854		504		—		—		—		146,160
Commissions, premium taxes, and non-deferred acquisition costs	52,577		23,556		7		—		—		—		76,140
Insurance administrative expense(1)	—		—		—		—		61,566				61,566
Parent expense	—		—		—		—		2,516		—		2,516
Stock-based compensation expense	—		—		—		—		8,632		—		8,632
Interest expense	—		—		—		22,813		—		—		22,813
Total expenses	509,123		218,637		(2,262)		170,431		72,714		—		968,643
Subtotal	161,699		64,240		2,265		61,137		(72,310)		—		217,031
Non-operating items	—		—		—		—		—				—
Measure of segment profitability (pretax)	$	161,699	$	64,240	$	2,265	$	61,137	$	(72,310)	$	—	217,031
Realized gain (loss)—investments													(4,790)
Income before income taxes per Condensed Consolidated Statements of Operations													$	212,241

(1)Administrative expense is not allocated to insurance segments.

	Three Months Ended June 30, 2019
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments			Consolidated
Revenue:
Premium	$	631,201	$	266,282	$	1	$	—	$	—	$	—		$	897,484
Net investment income	—		—		—		227,425		—		—			227,425
Other income	—		—		—		—		398		—			398
Total revenue	631,201		266,282		1		227,425		398		—			1,125,307
Expenses:
Policy benefits	410,961		170,511		7,890		—		—		—			589,362
Required interest on reserves	(165,513)		(21,680)		(10,888)		198,081		—		—			—
Required interest on DAC	50,298		6,341		127		(56,766)		—		—			—
Amortization of acquisition costs	110,319		27,343		503		—		—		—			138,165
Commissions, premium taxes, and non-deferred acquisition costs	50,086		23,608		4		—		—		—			73,698
Insurance administrative expense(1)	—		—		—		—		59,416		5,500		(2)	64,916
Parent expense	—		—		—		—		2,872		—			2,872
Stock-based compensation expense	—		—		—		—		11,256		—			11,256
Interest expense	—		—		—		21,432		—		—			21,432
Total expenses	456,151		206,123		(2,364)		162,747		73,544		5,500			901,701
Subtotal	175,050		60,159		2,365		64,678		(73,146)		(5,500)			223,606
Non-operating items	—		—		—		—		—		5,500		(2)	5,500
Measure of segment profitability (pretax)	$	175,050	$	60,159	$	2,365	$	64,678	$	(73,146)	$	—		229,106
Realized gain (loss)—investments														5,154
Legal proceedings														(5,500)
Income before income taxes per Condensed Consolidated Statements of Operations														$	228,760

(1)Administrative expense is not allocated to insurance segments.

(2)Legal proceedings.

	Six Months Ended June 30, 2020
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments			Consolidated
Revenue:
Premium	$	1,320,452	$	563,082	$	3	$	—	$	—	$	—		$	1,883,537
Net investment income	—		—		—		460,559		—		—			460,559
Other income	—		—		—		—		729		—			729
Total revenue	1,320,452		563,082		3		460,559		729		—			2,344,825
Expenses:
Policy benefits	881,515		362,207		15,063		—		—		—			1,258,785
Required interest on reserves	(344,413)		(45,361)		(20,788)		410,562		—		—			—
Required interest on DAC	104,225		13,101		172		(117,498)		—		—			—
Amortization of acquisition costs	232,110		56,879		1,008		—		—		—			289,997
Commissions, premium taxes, and non-deferred acquisition costs	106,513		48,551		13		—		—		—			155,077
Insurance administrative expense(1)	—		—		—		—		125,186		3,275		(2)	128,461
Parent expense	—		—		—		—		4,847		—			4,847
Stock-based compensation expense	—		—		—		—		17,988		—			17,988
Interest expense	—		—		—		43,621		—		—			43,621
Total expenses	979,950		435,377		(4,532)		336,685		148,021		3,275			1,898,776
Subtotal	340,502		127,705		4,535		123,874		(147,292)		(3,275)			446,049
Non-operating items	—		—		—		—		—		3,275		(2)	3,275
Measure of segment profitability (pretax)	$	340,502	$	127,705	$	4,535	$	123,874	$	(147,292)	$	—		449,324
Realized gain (loss)—investments														(30,887)
Legal proceedings														(3,275)
Income before income taxes per Condensed Consolidated Statements of Operations														$	415,162

(1)Administrative expense is not allocated to insurance segments.

(2)Legal proceedings.

	Six Months Ended June 30, 2019
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments			Consolidated
Revenue:
Premium	$	1,255,490	$	532,966	$	1	$	—	$	—	$	—		$	1,788,457
Net investment income	—		—		—		454,098		—		—			454,098
Other income	—		—		—		—		639		—			639
Total revenue	1,255,490		532,966		1		454,098		639		—			2,243,194
Expenses:
Policy benefits	820,653		340,528		15,938		—		—		—			1,177,119
Required interest on reserves	(329,175)		(43,176)		(22,008)		394,359		—		—			—
Required interest on DAC	100,322		12,624		258		(113,204)		—		—			—
Amortization of acquisition costs	218,609		54,357		1,021		—		—		—			273,987
Commissions, premium taxes, and non-deferred acquisition costs	100,192		46,960		11		—		—		—			147,163
Insurance administrative expense(1)	—		—		—		—		118,607		5,900		(2,3)	124,507
Parent expense	—		—		—		—		5,515		—			5,515
Stock-based compensation expense	—		—		—		—		21,815		—			21,815
Interest expense	—		—		—		42,710		—		—			42,710
Total expenses	910,601		411,293		(4,780)		323,865		145,937		5,900			1,792,816
Subtotal	344,889		121,673		4,781		130,233		(145,298)		(5,900)			450,378
Non-operating items	—		—		—		—		—		5,900		(2,3)	5,900
Measure of segment profitability (pretax)	$	344,889	$	121,673	$	4,781	$	130,233	$	(145,298)	$	—		456,278
Realized gain (loss)—investments														6,483
Administrative settlements														(400)
Legal proceedings														(5,500)
Income before income taxes per Condensed Consolidated Statements of Operations														$	456,861

(1)Administrative expense is not allocated to insurance segments.

(2)In 2019, the Company recorded $400 thousand in administrative settlements related to state regulatory examinations.

(3)Legal proceedings.