Globe Life Inc

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 4/5

Globe Life Inc. is a diversified insurance holding company, primarily focusing on providing life and supplemental health insurance products across the United States, with a growing presence in direct-to-consumer and agency-based channels.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Explanation

Globe Life Inc. (GL) is a company primarily operating in the insurance industry, providing a variety of insurance products, including life and supplemental health insurance. It is organized into several segments which represent their distribution methods. These segments include American Income Life (AIL), Liberty National Division (Liberty National), Family Heritage Division (Family Heritage), and Direct-to-Consumer (DTC).

  • American Income Life (AIL): This division focuses on serving labor union groups, offering supplemental health and life insurance products. It utilizes a captive distribution model, relying on agents who primarily sell Globe Life’s products.
  • Liberty National Division (Liberty National): This division similarly uses a captive distribution model but it focuses on serving middle-income families via insurance agents. Their products are supplemental health and life insurance policies.
  • Family Heritage Division (Family Heritage): This segment also relies on a captive agent distribution model, but concentrates on offering supplemental insurance to middle-income households via worksite enrollments.
  • Direct-to-Consumer (DTC): The DTC channel is the sole non-captive distribution channel, selling Globe Life insurance via mail and digital marketing programs directly to consumers.

Each segment operates with specific target markets and distribution strategies, impacting its profitability and risk profile.

The insurance industry is undergoing a significant shift due to technology, changing consumer preferences, and increasing competition. Some notable trends include:

  • Increased digitalization: Customers increasingly prefer online channels for research, purchase, and claims processing, causing insurers to enhance their digital presence and capabilities.
  • Personalized products: Customers seek insurance products that are tailored to their specific needs and budget. Insurers are thus investing in data analytics and predictive modeling to create more personalized policies.
  • Focus on supplemental insurance: With the rising cost of healthcare, consumers are turning to supplemental insurance policies (accident, critical illness, and cancer insurance), leading to increased demand.
  • Rise of InsurTech: Tech companies entering the insurance sector have put pressure on traditional insurance companies to improve efficiency, reduce costs, and offer more flexibility.

Competitive Landscape

The insurance market, especially for life and health insurance, is highly competitive. Companies compete on price, product features, brand strength, and the quality of their distribution network. Some of Globe Life’s main competitors include Aflac, Lincoln Financial, and various other large and smaller insurance companies, as well as those specializing in the individual lines, for example, Unum (disability).

While Globe Life has a strong presence in its niches, they are not immune to the highly competitive landscape.

What Makes Globe Life Different?

Globe Life has carved out a unique position in the insurance industry through its focus on a diverse set of niches, its distribution strategies, and its focus on offering insurance products to underserved markets. Their captive agents model and direct sales to consumers help control costs while maintaining a good market presence. Their use of data analysis is also a key differentiator that helps them offer tailored insurance products.

Most importantly, their focus on life and supplemental health insurance, through various distribution methods, is what makes Globe Life different.

Financials Analysis

  • Revenue Distribution: Life insurance premiums are the majority of the company’s revenue; the company also collects a good deal of supplemental health and annuity premium.

Life insurance, both premium and underwritings make up 70-80% of the company revenue.

  • Margins: Globe Life’s margins are highly variable because of fluctuations of policy liabilities. The most important metric for them is the Insurance Underwriting Margin. For the nine months ended September 30, 2023, this was 10% across all segments. The net income margin for the same period was 11%.
  • Growth: For the nine months ended September 30, 2024, Globe Life saw total premiums rise 5% YoY. Net Investment Income also rose to 18% YoY. However, operating income increased 1% YoY.
  • Profitability: Globe life has an ROE of 22.4% for the nine months ended Sept 30, 2024. This is a sign of a highly profitable and well run company.

Globe Life has been a consistently growing and profitable company over the past several years, even with increased competition in the insurance industry and a changing economic environment. This is shown through their ROE and strong profit margins.

Moat Analysis

  • Intangible Assets: Globe Life possesses some intangible assets, including brand recognition in its target markets. American Income Life and Liberty National are recognizable brands in the space for labor unions and middle-income families.
  • Customer Switching Costs: Switching costs are relatively high for a company in this sector, meaning that customers are likely to renew their policies. However, these are mostly related to the convenience of having everything with a single provider, and can be easily replaced with competitive offerings.
  • Network Effects: While some of Globe Life’s businesses may benefit from regional networks of sales agents and local communities, a true network effect that makes the company’s product exponentially better with each customer is weak to non-existent.
  • Cost Advantages: While cost advantages are not apparent in the long run, some of their niche-focused divisions have the ability to achieve operational efficiencies.

Overall, based on these factors, Globe Life’s moat receives a rating of 2/5. While they have some competitive advantages, these are not incredibly durable.

Moat Risks

  • Increased competition: New entrants from InsurTech companies with innovative business models could disrupt Globe Life’s business and put downward pressure on prices and profits.
  • Regulatory changes: Changes in healthcare regulations and insurance laws could create significant challenges for the company’s business. A large portion of business goes to older citizens, and any changes to Medicare could reduce the need for policies.
  • Economic downturns: An economic downturn could decrease consumer spending on discretionary items like insurance, which could in turn cause a reduction in the rate of new policies and policy renewals.
  • Negative publicity: Any negative event could significantly harm their brand, as was seen when the stock price dramatically reduced after a report by a short seller that questioned the legitimacy of some business operations (discussed below). This could drastically reduce trust in the brand, directly reducing sales.

As a financial and insurance company, the risk of poor investments cannot be ignored, and if those investments do not perform, the company could experience large losses.

Business Resilience

Despite the various challenges mentioned above, Globe Life has proven to be a resilient business because of:

  • Diverse distribution channels: Their model has a mix of captive agents and direct to consumer options, reducing the reliance on a single distribution channel.
  • Targeted demographics: Focus on underserved market segments provides a solid base of customers.
  • Strong brand recognition: The recognition of their insurance brands in target markets creates customer loyalty.

Globe life also has a very low volatility of cash flows, which could mitigate significant market downturns.

Recent Controversies

  • Short Seller Report: On April 22, 2024, short selling research firm Fuzzy Panda released a report that questioned certain elements of Globe Life’s business, particularly the sales process of their agents. It also highlighted many instances of unethical behavior from their employees and business operations. A number of people also claim that policies were fraudulently issued and the claim ratios of the company are very inaccurate. This report was said to cause the stock to drop 50%, although after some time, the stock returned to its original value.

The management said in response that the firm “takes all allegations of fraud, inappropriate business conduct and other misconduct seriously, as these actions are contrary to our core values,” and the company will take action “as appropriate”. It is too early to tell if these claims are true and will have a permanent effect on the company.

Understandability Rating

Globe Life is a somewhat complex business to understand. The different distribution channels and numerous insurance products that the company has makes understanding its business and its value drivers difficult for a non-expert investor. It has a complicated balance sheet with complex actuarial items and investment strategies. Thus, the business’s understandability will be placed at 2/5.

Balance Sheet Health

  • Adequate Capital Reserves: Although the company’s policy liabilities are substantial, the company has a reasonable amount of reserves to cover claims, which is a positive factor.
  • Manageable Debt: The company’s long-term debt is not excessively high and is comparable to other insurance firms, allowing for good financial flexibility.
  • Positive Cash Flows: Globe Life has produced large amounts of cash flow, allowing it to maintain stability even through bad economic conditions.

Overall, based on these factors, Globe Life’s balance sheet health will be rated a 4/5.