Business Segments

3 Months Ended

Mar. 31, 2020

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 March 31, 2020
	Life					Health				Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	302,852	47	$	25,727	9	$	—	—	$	328,579	35
Direct to Consumer	220,043		34	19,796		7	—		—	239,839		26
Liberty National	72,868		11	47,640		17	—		—	120,508		13
United American	2,490		—	110,059		39	—		—	112,549		12
Family Heritage	1,021		—	76,983		28	—		—	78,004		8
Other	50,356		8	—		—	—		—	50,356		6
	$	649,630	100	$	280,205	100	$	—	—	$	929,835	100


	Three Months Ended March 31, 2019
	Life					Health				Annuity			Total
Distribution Channel	Amount		% of Total	Amount		% of Total	Amount		% of Total	Amount		% of Total
American Income	$	281,767	45	$	24,099	9	$	—	—	$	305,866	34
Direct to Consumer	217,559		35	20,260		8	—		—	237,819		27
Liberty National	70,717		11	48,156		18	—		—	118,873		13
United American	2,751		1	102,905		38	—		—	105,656		12
Family Heritage	931		—	71,264		27	—		—	72,195		8
Other	50,564		8	—		—	—		—	50,564		6
	$	624,289	100	$	266,684	100	$	—	—	$	890,973	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 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 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 March 31, 2020
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments			Consolidated
Revenue:
Premium	$	649,630	$	280,205	$	—	$	—	$	—	$	—		$	929,835
Net investment income	—		—		—		228,991		—		—			228,991
Other income	—		—		—		—		325		—			325
Total revenue	649,630		280,205		—		228,991		325		—			1,159,151
Expenses:
Policy benefits	421,670		178,711		7,588		—		—		—			607,969
Required interest on reserves	(171,205)		(22,510)		(10,456)		204,171		—		—			—
Required interest on DAC	52,118		6,519		88		(58,725)		—		—			—
Amortization of acquisition costs	114,308		29,025		504		—		—		—			143,837
Commissions, premium taxes, and non-deferred acquisition costs	53,936		24,995		6		—		—		—			78,937
Insurance administrative expense⁽¹⁾	—		—		—		—		63,620		3,275		(2)	66,895
Parent expense	—		—		—		—		2,331		—			2,331
Stock-based compensation expense	—		—		—		—		9,356		—			9,356
Interest expense	—		—		—		20,808		—		—			20,808
Total expenses	470,827		216,740		(2,270)		166,254		75,307		3,275			930,133
Subtotal	178,803		63,465		2,270		62,737		(74,982)		(3,275)			229,018
Non-operating items	—		—		—		—		—		3,275		(2)	3,275
Measure of segment profitability (pretax)	$	178,803	$	63,465	$	2,270	$	62,737	$	(74,982)	$	—		232,293

Realized gain (loss)—investments																(26,097)


Legal proceedings																(3,275)

Income before income taxes per Condensed Consolidated Statements of Operations																$	202,921

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

(2)Legal proceedings—See Note 5 for further discussion.


	Three Months Ended March 31, 2019
	Life		Health		Annuity		Investment		Corporate & Other		Adjustments			Consolidated
Revenue:
Premium	$	624,289	$	266,684	$	—	$	—	$	—	$	—		$	890,973
Net investment income	—		—		—		226,673		—		—			226,673
Other income	—		—		—		—		241		—			241
Total revenue	624,289		266,684		—		226,673		241		—			1,117,887
Expenses:
Policy benefits	409,692		170,017		8,048		—		—		—			587,757
Required interest on reserves	(163,662)		(21,496)		(11,120)		196,278		—		—			—
Required interest on DAC	50,024		6,283		131		(56,438)		—		—			—
Amortization of acquisition costs	108,290		27,014		518		—		—		—			135,822
Commissions, premium taxes, and non-deferred acquisition costs	50,106		23,352		7		—		—		—			73,465
Insurance administrative expense⁽¹⁾	—		—		—		—		59,191		400		(2)	59,591
Parent expense	—		—		—		—		2,643		—			2,643
Stock-based compensation expense	—		—		—		—		10,559		—			10,559
Interest expense	—		—		—		21,278		—		—			21,278
Total expenses	454,450		205,170		(2,416)		161,118		72,393		400			891,115
Subtotal	169,839		61,514		2,416		65,555		(72,152)		(400)			226,772
Non-operating items	—		—		—		—		—		400		(2)	400
Measure of segment profitability (pretax)	$	169,839	$	61,514	$	2,416	$	65,555	$	(72,152)	$	—		227,172

Realized gain (loss)—investments																1,329

Administrative settlements																(400)

Income before income taxes per Condensed Consolidated Statements of Operations																$	228,101

(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.