Globe Life Inc

NYSE:GL

Earnings Call Transcript 2020-Q3

[Operator]

Good day and welcome to the Globe Life Inc’s Third Quarter 2020 Earnings Release Conference Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Mike Majors, Executive Vice President, Administration and Investor Relations. Please go ahead, sir.

[Mike Majors]

Thank you. Good morning, everyone. Joining the call today are Gary Coleman and Larry Hutchison, our Co-Chief Executive Officers; Frank Svoboda, our Chief Financial Officer; and Brian Mitchell, our General Counsel.

Some of our comments or answers to your questions may contain forward-looking statements that are provided for general guidance purposes only. Accordingly, please refer to the third quarter earnings release we issued yesterday along with our 2019 10-K and any subsequent Forms 10-Q on file with the SEC.

Some of our comments may also contain non-GAAP measures. Please see our earnings release and Web site for discussion of these terms and reconciliations to GAAP measures.

I'll now turn the call over to Gary Coleman.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Thank you, Mike. Good morning everyone. First, I will point out that the company continues to effectively conduct business in our operations are running smooth.

In the third quarter net income was $189 million or $1.76 per share compared to $202 million or $1.82 per share a year ago. Net operating income for the quarter was $188 million or $1.75 per share a per share increase of 1% from a year ago.

On a GAAP reported basis return on equity was 9.4% and book value per share was $77.60, excluding unrealized gains [Technical Difficulty] return on equity was 13.6% and book value per share grew 10%, $52.39.

In our life insurance operations, premium revenue increased 7% to, $674 million while life underwriting margin was $171 million down 6% a year ago. With respect to premium revenue, we've been pleased to see persistency and premium collections improved since the onset of the crisis. However, the decline in margin is due primarily to approximately $18 million of incurred claims related to COVID-19. For the year, we expect life premium revenue to grow approximately 6%, while life underwriting margin is expected to decline 2% to 3% primarily due to the impact of COVID-19 claims. At the midpoint of our guidance, we anticipate approximately $56 million in COVID-19 claims for the full year.

In health insurance premium revenue grew 7% to $288 million and health underwriting margin was up 20% to $73 million. The increase in underwriting margin primarily due to lower acquisition costs. For the year, we expect operating revenues to grow approximately 6% and help underwriting margin to grow 11% to 12%.

Administrative expenses were $63 million for the quarter up 4% from a year ago. As a percentage of premium administrative expenses were 6.6% compared to 6.7% a year ago. For the full year, we expect administrative business to grow around 5%.

I'll now turn the call over to Larry for his comments on the third quarter marketing operations.

[Larry Hutchison, Co-Chairman and Chief Executive Officer]

Thank you, Gary.

We are pleased with the third quarter sales direct to consumer sales grew across all channels and the agencies have adapted to virtual sales appointments and recruiting, they are thriving in this environment. Additionally, agent licensing centers have opened and were conducting some in person sales in certain situations.

I will now discuss current trends at each distribution channel. At American income life premiums were up 9% to $319 million. Our life underwriting margin was flat at $100 million. Net life sales were $68 million up 14%. The increase in net life sales is primarily due to increased agent count.

The average producing agent count for the third quarter was 9,288 up 23% from the year ago quarter and up 11% from the second quarter. The producing agent count at the end of the third quarter was 9,583. We continue to see a significant pool of candidates, in part due to current unemployment levels.

At Liberty National, life premiums were up 3% to $74 million, our underwriting margin was down 21% to $15 million. The lower underwriting margin is primarily due to higher claims related to COVID-19.

Net life sales increased 2% to $14 million. Our net health sales were $6 million down 2% from the year ago quarter. The average producing agent count for the third quarter was 2,551 up 6% from the year ago quarter and up 7% from the second quarter. The producing agent count of Liberty National entered of the quarter at 2,574.

We have seen continued adoption of virtual recruiting and selling practices also the relaxation of certain local restrictions has allowed agents to be able to return to some in person presentations in addition to virtual methods. This environment has also provided abundant recruiting opportunities supporting continued agent growth for the future.

At Family Heritage health premiums increased 8% to $80 million and health underwriting margin increased 19% to $22 million. The increase in underwriting margin is primarily due to a decrease in claims related to COVID-19. Net health sales were up 11% to $19 million. The increase in net sales is primarily due to increased agent count.

The average producing agent count for the third quarter was 1,371 up 21% from the year ago quarter, and up 10% from the second quarter. The producing agent count at the end of the quarter was 1,469. We are pleased with the results from family heritage as its agent continues to successfully adapt to this environment.

Our direct to consumer division at Globe Life, life premiums were up 8% to $228 million, while life underwriting margin declined 17% to $34 million. Frank will further discuss the third quarter decline and underwriting margin in his comments.

Net life sales were $44 million up 50% from the year ago quarter. As we said on the last call times of crisis highlight the need for basic life insurance protection. And this is proven true with a pandemic. Application activity and sales were up across all direct external channels.

At United American General Agency health premiums increased 11% to $114 million, while health underwriting margin increased 27% to $18 million. The increase in underwriting margin is primarily due to lower acquisition costs. Net health sales were $13 million down 19% compared to the year ago quarter. It is always difficult to predict sales in this highly competitive marketplace. Group Medicare sales are even more volatile and are generally heavily weighted towards the end of the year.

Although it is still difficult to predict sales activity in this uncertain environment, I'll now provide projections based on knowledge of our business and current trends.

We expect the producing agent count for each agency at the end of 2020 to be in the following ranges. American income 9,100 to 9,400, Liberty National 2,700 to 2,900, Family Heritage 1,330 to 1,530.

Net life sales are expected to be as follows; American income for the full year 2020 an increase of 3% to an increase of 7%. For the full year 2021 an increase of 4%. to an increase of 12%. Liberty National for the full year 2020. a decrease of 2% to an increase of 2%. For the full year 2021 an increase of 3% to an increase of 9%.

Direct to consumer for the full year 2020 an increase of 32% to an increase of 36%. For the full year 2021 a decrease of 6% to an increase of 10%.

Net health sales are expected to be as follows; Liberty National for the full year 2020, a decrease of 2% to an increase of 2%. For the full year 2021, an increase of 3% to an increase of 9% and the heritage for the full year 2020 an increase of 3% to an increase of 9%. For the full year 2021 an increase of 2% to an increase of 10%. United American Individual Medicare supplement for the full year 2020 a decrease of 25% to flat for the full year 2021 a decrease of 1% to an increase of 7%.

I will now turn the call back to Gary.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Thanks, Larry.

Excess investment income which we define as net investment income less required interest on net policy liabilities and debt was $59 million an 8% decrease over the year ago quarter. On a per share basis reflecting the impact of our share repurchase program excess investment income declined 5%. For the full year, we expect excess investment income in dollars to be down about 5% and down about 1% on a per share basis.

Next to our investment yield, in the third quarter, we invested $343 million in investment grade fixed maturities primarily in the municipal, industrial and financial sectors. We invested at an average yield of 3.34% an average rating of A+ at an average life of 29 years. For the entire portfolio, the third quarter yield was 5.31% down 16 basis points from the yield in the third quarter of 2019.

As of September 30, the portfolio yield was approximately 5.32%. Invested assets were $18.2 billion, including $16.9 billion of fixed maturities at amortized cost. For the fixed maturities 16 billion are investment grade with an average rating of A- and below investment grade bonds are $840 million compared to $772 million at June 30. Percentage below investment grade bonds to fixed maturities is 5.0% compared to 4.6% at June 30. Excluding net unrealized gains and the fixed maturity portfolio below investment grade bonds as a percentage of equity is 15%.

Overall, the total portfolio is right at BBB plus, compared to A- a year ago. We had net unrealized gains from the fixed maturity portfolio of about $3.4 billion. Bonds rated BBB or 55% of fixed maturity portfolio same at the end of 2019. While this ratio is in line with the overall bond market, it is high relative to our peers. However, we have little or no exposure to higher risk assets as derivatives, equities, residential mortgages, CLOs and other asset backed securities. We believe that the BBB securities we acquire provide the best risk adjusted capital adjusted returns due in large part to our ability to hold securities to maturity, regardless of fluctuations in interest rates or equity markets.

Because we invest long, key criteria and using our investment process is that an issuer must have the ability to survive multiple cycles. This is particularly true in the energy sector. Our energy portfolio is well diversified across sub sectors and issuers. It is heavily weighted to issuers that are less vulnerable due to depressed commodity prices.

As we’ve discussed previously, approximately 57% of our portfolios was in the midstream sector at 34% is in the exploration and production sector. The remaining 9% of our holdings are in the oilfield service and the refiner sectors. We have no exposure in the drilling sector. The composition of our energy portfolio was essentially unchanged during the third quarter and the fair value increased approximately $53 million. While we have no intent to increase our holdings in this sector, we are comfortable with our current energy holdings.

Finally, lower interest rates continue to pressure investment income. At the midpoint of our guidance, we're assuming an average new money rate of around 3.4% in the fourth quarter and a weighted average of around 3.5% in 2021. That these new money rates with that annual yield on portfolio to be around 5.33% for the full year 2020 and 5.22% in 2021.

While we would like to see higher interest rates going forward, Globe Life can thrive in a lower to prolonged interest rate environment. Extended low interest rates will not impact the GAAP or statutory balance sheets under the current accounting rule since we sell non-interest sensitive protection products.

And fortunately, the impact of lower new money rates on our investment income is somewhat limited as we expect to have an average turnover of less than 2% per year in our investment portfolio over the next five years.

Now, I'll turn the call over to Frank for his comments on capital and liquidity.

[Frank Svoboda]

Thanks, Gary. First, I want to spend a few minutes discussing our share repurchase program, available liquidity and capital position. In August, the company resumed its share repurchase program. In the third quarter, we spent $118 million to buy 1.4 million Globe Life shares at an average price of $81.79. That's for the full year through the end of the third quarter, we have spent $257 million of parent company cash to acquire more than 3 million shares at an average price of $83.74.

The parent end of the third quarter with liquid assets of approximately $435 million. This amount is higher than normal, due to share repurchases through September of $257 million being less than the $360 million of excess cash flow available to the parent through September and a $300 million net increase in our borrowed funds since December 31.

In addition to these liquid assets, the parent company will still generate additional excess cash flow during the remainder of 2020. The parent company's excess cash flow as we define it results primarily from the dividends received by the parent from its subsidiaries less the interest paid on debt and the dividends paid to Globe Life shareholders. Keeping our common dividend rate at its current level for the remainder of this year, we anticipate the parent company's excess cash flow for the fourth quarter to be approximate $20 million. Thus, including the $435 million of liquid assets available at the end of the third quarter, we expect the parent company to have around $455 million available for the remainder of the year.

As I'll discuss in more detail in just a few moments, we believe the $455 million in liquid assets is more than necessary to support the targeted capital levels within our insurance operations and maintain the share repurchase program.

As previously noted, during the quarter, the company issued a 10-year $400 million senior note with a yield of 2.17%. The proceeds of this long-term debt offering along with other cash at the holding company were used during the quarter to reduce our short-term indebtedness by over $550 million and to more normal levels.

In addition, we successfully negotiated a new $750 million credit facility with our banks that last through August of 2023.

Now regarding liquidity and capital levels at our insurance subsidiaries. As we continue to navigate this current environment, we are keenly focused on liquidity and capital with our insurance operations. With respect to liquidity, our insurance company operating cash flows continue to be very strong. In general, while we do expect higher COVID-related life claim payments over the course of the year, these higher claims are expected to be largely offset by higher premium collections and lower health claim payments. We do not see any issues with the ability to insurance companies to fund all remaining dividends payable to the parent during the remainder of 2020.

Now with respect to capital, as previously discussed on our earlier calls, Globe Life target a consolidated company action level RBC ratio in the range of 300% to 320%. At December 31, 2019, our consolidated RBC ratio was 318% near the highest point of our range. Taking into account only the downgrades and credit losses that have occurred through the end of the third quarter, we estimate this ratio would have declined to approximately 310%.

At an RBC ratio of 310%, our insurance subsidiaries have approximately $50 million of capital over the amount required at the low-end of our consolidated target of 300%. This excess capital, along with the $455 million of liquid assets we expect to be available at the parent provide over $500 million of assets available to fund future capital needs.

As we discussed on the last call, the primary drivers of additional capital needs from the parent are lower statutory income due to COVID-19 related factors, lower statutory income due to investment portfolio defaults or other credit losses and investment downgrades that increase required capital. At this time, we anticipate that our 2020 statutory income before any realized gains and losses will be approximately $20 million to $40 million lower than 2019.

To estimate the potential impact on our capital losses and downgrades within our investment portfolio, we have modeled several scenarios that take into account consensus views on the economic impact of the recession, the strength and timing of the eventual recovery and a bottoms up application of such views on the particular holdings in our investment portfolio.

We have also analyzed transition and default rates as published by Moody's and evaluated the impact to our RBC ratios should we experience the same transition and default rates as we've experienced in 2001 and 2002, as well as from 2008 to 2010.

Taking into account these various models, we now estimate our RBC ratios would be reduced from year end 2019 levels in the range of 30 to 55 points, requiring an additional 75 million to $200 million of capital to maintain a 300% RBC ratio. It should be noted that not all of this additional capital will be required by the end of 2020 as a portion of these defaults and downgrades are expected to occur after the end of this year. Even if all this capital was needed currently, the amount needed is well below the amount of liquidity available at the parent company.

Our base case assumes $60 million in total after tax credit losses, plus approximately 2.1 billion of downgrades to our fixed maturity portfolio. Through the third quarter, we have experienced approximately $40 million in losses for statutory reporting purposes and $960 million of downgrades mostly from category NAIC-1 to NAIC-2. It is important to note the Globe Life statutory reserves are not negatively impacted by the low interest rates or the equity markets given our basic fixed protection products. Given the strong underwriting margin in our products, our statutory reserves are more than adequate under all cash flow testing scenarios.

At this time, I'd like to provide a few comments relating to the impact of COVID-19 on our third quarter results. As noted by Larry, life and underwriting margins declined at both our Direct to Consumer and Liberty National distributions during the quarter. These declines are primarily due to higher COVID-19 policy obligations. During the quarter, we estimate that Direct to Consumer incurred an additional $10 million related to COVID claims and the Liberty National incurred an additional $4 million.

Absent these additional losses, Direct to Consumers underwriting margin would have been 19.5% or premium for the quarter and would have grown by approximately 8%. In the Liberty National distribution, absent the estimated policy obligations due to COVID, their underwriting margin would have been 25% of premium for the quarter and flat versus the year ago quarter.

In total for our life operations, we estimate that our total incurred losses from COVID deaths were approximately $18 million in the third quarter and $40 million year-to-date. Absent these additional losses, our total life underwriting margin would have been approximately 28% of premium and up 4% over the year ago quarter.

Finally, with respect to our earnings guidance for 2020 and 2021. We are projecting net operating income per share will be in the range of $6.84 to $7 for the year ending December 31, 2020. The $6.92 midpoint is consistent with prior quarters guidance. As I'll discuss in a moment, we do expect higher life policy obligations in 2020 than previously anticipated due to higher projected COVID-related deaths in the U.S. However, at the midpoint of our guidance, we expect the higher life claims to be offset by higher premiums, lower expenses, and higher share repurchases than previously anticipated.

On our last call, we indicated the midpoint of our guidance assumed approximately $45 million of claims related to COVID-19 on an assumption of around 225,000 deaths. We continue to estimate that we will incur COVID-related life claims of approximately $2 million for every 10,000 U.S. deaths. However, at the midpoint of our guidance, we now estimate approximately $56 million of COVID life claims for the full year 2020, reflecting an expectation of approximately 280,000 COVID related deaths in the United States higher than previously anticipated.

With respect to our health claims, we estimate our supplemental health benefits for all of 2020 will be approximately $7 million lower than what we expected at the beginning of the year due to COVID, similar to our estimate on the last call. Taking into account the higher COVID life obligations, we expect the life underwriting margin for 2020 as a percentage of premium to be approximately 25.6% at our midpoint. Absent the higher COVID related policy obligations, the life underwriting margin percentage would be similar to the percentage for the full year 2019. The health underwriting margin as a percentage of premium for the full year 2020 should increase to approximately 23.8%.

For 2021, we are projecting net operating income per share will be in the range of $7.30 to $7.80. The $7.55 midpoint is a 9% increase from the 2020 midpoint. We are anticipating COVID-related life claims in 2021 of approximately $32 million at the midpoint of our guidance with no significant benefit expected from lower health claims. Obviously, the amount of COVID-related claims in 2021 will depend on many factors, including the development of effective therapies and vaccines. The larger the normal range for our guidance reflects this additional uncertainty.

Those are my comments. I will now turn the call back to Larry.

[Larry Hutchison, Co-Chairman and Chief Executive Officer]

Thank you, Frank. Those are our comments. We will now open the call up for questions.

[Operator]

Thank you. [Operator Instructions] And our first question comes from Andrew Kligerman. Please go ahead, sir.

[Andrew Kligerman, Credit Suisse]

I wanted to start with a question on your sales outlook. I’m just kind of looking at the [Technical Difficulty] expectations, 4% to 12% growth in sales in the and American income, Liberty National [Technical Difficulty] after a year where you're up roughly 35%. So, I mean, maybe a little more color on why ‘21 should actually be quite strong based on these guided numbers you've given, you said there is a gap [Technical Difficulty]?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

First of all, I apologize your audio wasn't the clearest. I will try and answer the question. I think you asked why are we predicting maybe sales aren't quite as strong in ‘21 as to ’20, I think that’s the answer to your question.

[Andrew Kligerman, Credit Suisse]

More around the lines of just know that they're very strong in ‘21, in my view both in the agencies and direct to consumer, and what are the qualities that are enabling that it looks like recruiting a very strong that probably closing well, and you talked a little on the call about virtual and how they got it. So I just wanted a little more clarity on that.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Thank you. Your question as you followed up and I think it was, why were the sales be so strong at ‘21. Direct to Consumer, first, Direct to Consumer, I think it's not likely we're going to have the 50% rate expansion in the third quarter going forward. However, we do expect this level of increased sales at least in the remainder of 2020 and likely the first quarter of 2021 that's really based on the increased demand we're seeing for basic life insurance protection. The last three quarters of 2021, I think sales growth even more challenging given the large sales increases in 2020.

In respect to the three agencies, again, we see that the demand for both Life and Health Insurance is very strong and we think as we have the pandemic continue through 2021, whether its midyear or through the full year, it’s likely to have a positive impact on sales. I think the uncertainly with the agency is that emphasis in sales and recruiting can be a challenge during the pandemic, if the restrictions come back in place. However, we can offset some of those challenges to our use of virtual recruiting and sales.

[Andrew Kligerman, Credit Suisse]

Okay. In terms of adverse selection in this environment, you saw a pick up in -- pressure on the underwriting margin, naturally from COVID-19, and both direct to consumer, maybe American income. But could you talk a little bit about the business you wrote, say, from April or March to present, what you've done from the vantage point of putting controls in place to prevent adverse selection of those claims that you mentioned. I think you said that 10 million of COVID in Direct to Consumer, 4 million in claims for Liberty. In the portion of those claims might have come from, business written from April on that.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

I will answer the first part of your question, which is the underwriting process, I'll have Frank address the second part of the question, which is the actual experience. For the time being, we started in really March, we've eliminated the maximum face amounts were issued for older ages. We stop issuing additional coverage to existing policyholders of older ages, they also temporarily stopped issuing policy applicants with certain health conditions. At the same time our underwriting and other departments who have studied the business on a weekly basis. What we haven't seen is any shift that business either by geography, the demographics, provide -- once a demographics, age groups. So we think it's consistent in terms of product mix. We don't think there's adverse selection that's occurring. And those are additional steps we've taken and we take additional steps if we saw some development. Frank, do you want to answer the rest of this question?

[Frank Svoboda]

Yes. I’ll probably add one thing, we've actually seen an increase in the amount of applications with respect to the juvenile block that we have in older ages. And as we know, the most susceptible to claims for COVID are at the older ages. And in fact, about 85% of our claims are actually in ages 60 and above. And when we look at our enforce as a whole, we only have about 4% of our enforce is over age 70. And around 12% is age 60 or above and when we right now, as we look at the claims that we've incurred, about 98% of those have been issued before 2019. And with respect to policies issued since March 1, we have paid eight claims through October 17, totaling about $42,000. So we have not seen, any kind of significant claims on any policy that we've been writing really since the first of the year.

I will say that the distribution of claims is really pretty well throughout our entire blocks. And probably about two-thirds, roughly two-thirds of our claims are coming from policies that were issued in 2010, or earlier. And so they've really -- a lot of them are obviously in our older policies -- older…

[Operator]

Thank you. Our next question comes from Jimmy Bhullar. Please go ahead.

[Jimmy Bhullar, JPMorgan]

First, I had a question on your expense ratios in both the life and health businesses. They were lower than in the past and I wanted to get an idea on whether it's persistency or something else that's driving that and what your outlook is, for expense ratios in the next few quarters.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Jimmy the primary reason for the reduced expenses is due to the increased persistency. That's certainly true in the life side. On the health side, it's true, but on the UIGA, we also have implemented a rate increase this year, which also helps drive the expense for premium down. I think for the year, on the life side, we are looking at the amortization, being just slightly lower than what we had last year and it'll be more pronounced on the health side, where we'll be more to 18% of premium versus 19% of premium in terms of amortization last year.

[Jimmy Bhullar, JPMorgan]

And then on persistency, there were concerns earlier this year, that with the weaker economy, you might see a little bit of a drop off. And reality, it's actually gotten slightly better. What's your view on the sort of the reason for that and are you still concerned about the drop off in persistency, if the economy gets weaker entering this year or next year?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Well, I think that possibility that if the economy worsens that we still see that, but we haven't seen it yet. We've actually seen it and we've talked about an improvement persistency. And we think that's due in large part though. While we're also seeing higher sales, people recognize in this pandemic and need for life insurance that's why more borrowing and then people that have asked before are making sure that they keep the policy in force. But we've seen improvement in our premium collections. We've seen a reduction in delay for premiums, so it's been positive before, we expect it to continue into next year, because we think pandemic [indiscernible] people saw.

[Jimmy Bhullar, JPMorgan]

Okay. And then just lastly on, how are you thinking in terms of taking advantage of the lower stock price and potentially front ending some of the buybacks versus the need to sort of preserve capital, given the risk of a deterioration in credit?

[Frank Svoboda]

Yes, Jimmy. I would say for the remainder of this year, we're comfortable and being able to utilize all of our excess cash flows for these buybacks the remainder of the year, which would kind of really point to somewhere in that $120 million to $125 million, to get us up to 380 for the year. And that would again, be a price where may we have for excess cash flows. We'll take a look to see as we get close to the end of the year, what happens with the stock price? What happens with the economy, how comfortable we feel with our investment portfolio? We'll consider that, if we accelerate some from 2021, perhaps, but right now, I would say that we’d anticipate just really continuing on to utilize our excess cash flows through the remainder of the year.

[Operator]

Thank you. And our next question comes from John Barnidge. Please go ahead.

[John Barnidge, Piper Sandler]

How many deaths does the 32 million in life claims assume in 2020 guidance, as I imagine, there's probably an assumption for improved therapeutics embedded in that?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Yes. We were using kind of that same rule of thumb for that 2 million, for about every 10,000 U.S. deaths. So that kind of have a range, we're kind of estimating 100 to 220,000 deaths, and kind of at that midpoint around 160. So that 32 would kind of relate to around 160,000 deaths in the year. And really, what that kind of supposes is that, we continue to have that the average daily deaths continue to decline and that trend continues over time, just but it does continue on into the second and even into the third quarter of the year.

[John Barnidge, Piper Sandler]

Okay. And then, my follow up. curious why there's no assumed health benefit in 2021 since there's an assumed COVID life impact, I asked it because I can see how there could be a secular decline in Medicare supplemental claims utilization given general concern over infectious disease that wasn't present in the U.S. previously.

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Yes. I think from what we see at this point in time is that we really don't -- we anticipate the utilization especially around the non-med sup claims getting -- really back to normal. We are not seeing expecting any kind of a catch up, if you will for missed procedures. But I think without the substandard closures of clinics and such that we would anticipate just kind of really getting back to more normal levels of both med sub type claims and appointments as well as traditional medical services.

[Operator]

Thank you. Our next question comes from Erik Bass. Please go ahead.

[Erik Bass, Autonomous Research]

Maybe just to follow up on John's question on the health business, what are you assuming for an underwriting margin in 2021? And you had mentioned some lower acquisition costs? So is that something that you would expect to continue into next year?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Yes. Are you talking about just -- on the med sub business, or the health business as a whole?

[Erik Bass, Autonomous Research]

The health business as a whole, just kind of what level of underwriting margin you're assuming percentage wise?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Yes, assuming, that should be relatively close, and kind of in the same range in that 23% to 24% range for all of 2021.

[Erik Bass, Autonomous Research]

Okay, thank you. And then apologies, if I missed a bit, did you give the outlook for premiums that you're assuming for both life and health in terms of the year-over-year growth in your ‘21 guidance?

[Larry Hutchison, Co-Chairman and Chief Executive Officer]

Yes. We're looking at the midpoint of the guidance, we're looking at about a 6% increase in life premiums and a little over 7% increase in health premiums.

[Erik Bass, Autonomous Research]

Thank you. And then, if I can just squeeze in one more just on recruiting. I know, historically, you've talked about seeing sort of a stair step pattern when you kind of bring in a lot of new agents and then kind of the agent count tends to flatten out a little bit. Is that what you would expect going into ‘21 at this point? Or how should we think about that?

[Larry Hutchison, Co-Chairman and Chief Executive Officer]

And expect to be a stair step process, I think we will have an increased agent count. While higher [indiscernible] recruiting. We've also had a real addition in middle income -- middle management, American income is growing 22% year-to-date. And middle managers are really responsible for much of the recruiting that takes place. So the 24% increase in middle management, I think we'll see strong recruiting into 2021. Also, virtual recruiting has allowed us to reach a greater number of possible recruits. Finally, in 2018 and 2019, American income added approximately 15 new agency owners, these additional options have contributed to the increase in agents. So while it's typically to be a stair step process, I think we'll still have increases in 2021.

[Operator]

Thank you. And our next question comes from Ryan Krueger. Please go ahead, sir.

[Ryan Krueger, Keefe, Bruyette & Woods Inc.]

For 2021, could you provide your margin outlook for the -- in percentage terms for the life insurance business? And then if you have it, what it would be if you excluded your assumption for COVID claims next year?

[Frank Svoboda]

Yes, Ryan. For the for the total life margin, we expect it to be around 26% and it will be around 27%, 27.1% is what we'd anticipate without the COVID benefits in there.

[Ryan Krueger, Keefe, Bruyette & Woods Inc.]

Got it. In the midpoint of your EPS guidance of 755 that includes the 32 million of COVID claims. So it would be kind of almost at $0.25 higher if you did not project those COVID claims?

[Frank Svoboda]

That is correct. The midpoint includes the 32 million.

[Ryan Krueger, Keefe, Bruyette & Woods Inc.]

Thanks. And then just one last one, I think you provided the yield assumption, but what are your expectations for excess investment income growth in dollars for 2021?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

At the midpoint of our guidance for ’21, we're expecting excess investment income to be flat. We will have improvement in investment income. That's going to be offset by the additional interest on the policy liabilities. So virtually, from a dollar standpoint, it'll be flat from a per share standpoint, it'll be up somewhere around 3% or 4%.

[Operator]

Thank you. Our next question comes from Tom Gallagher. Please go ahead.

[Tom Gallagher, Evercore ISI]

Just a follow up on health persistency, the favorable persistency in the lower deck amortization this quarter, are you assuming that benefit will fully continue into 2021? Or should we assume some fade of that benefit?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Well, I think we assume it's going to be through 2021. But over time, we'll probably see revert back more to normal trend. And that's been taken into consideration in [indiscernible].

[Tom Gallagher, Evercore ISI]

Got you. And any particular views as to what's driving that improved persistency? Is it awareness over need for health insurance or any views as to what's been driving that improve consistency?

[Gary Coleman, Co-Chairman and Chief Executive Officer]

Yes. I think you hit on it, I think it's similar to what we're saying on the life insurance side as well as the need for the insurance.

[Tom Gallagher, Evercore ISI]

Got it. And then, just a question on the new FASB LDTI accounting changes, any sense for when you would expect to disclose expected impacts? And any if you're able to provide any kind of broader ranges on GAAP earnings or book value that you would expect to be impacted from it?

[Frank Svoboda]

Yes. I would guess that, we've looked at either toward the end of 2021, or, as we get about this time next year that I would hope that we would start to be able to get some -- maybe some preliminary indications of it. Obviously, we're still working through putting the systems in place and getting our estimates and looking at the impacts of what the new accounting guidance would ultimately be. With COVID, some of the activities that we have been done in that area gets put to the side a little bit, so it's not progressing maybe as quickly as might have been otherwise but the FASB did extend that out a year. But I would say, again, whether it be towards the end of next year or at the beginning of 2022, we should be able to get some guidance on that.

[Operator]

Thank you. [Operator Instructions] And it appears that we have no additional questions at this time.

[Mike Majors]

Okay. Thank you for joining us this morning. Those were our comments and we'll talk to you again next quarter.

[Operator]

And this concludes today's call. Thank you all for your participation. You may now disconnect.