FBL Financial (FFG) 8 May 202020 Q1 Earnings call transcript

Good morning, and welcome to the FBL Financial Group First Quarter 2020 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to Kathleen Stange. Please go ahead.

Thank you, and welcome to FBL Financial Group's First Quarter 2020 Earnings Conference Call. are Financial Chief Officer. call Don Officer; today's Chief Seibel, on Dan Executive Pitcher, and Presenting Charlie Officer; Also questions and Sales Chief Companies; and are and Agency Kelli Chief present available Mead, Eddy, Operating to Services; and Distribution. Officer, Vice President, Koster, Vice Dan answer Ron your Happel, Marketing Investment President, Life

Act. risks Certain results today may the those to qualify uncertainties harbor safe the established cause statements actual contain believes by to detailed expressed implied. These based with to involve reports the made from are FBL FBL's Securities Private which These be are uncertainties that could reasonable. or Reform on differ materially Litigation for assumptions, and SEC and forward-looking from statements statements risks in filed and liability, intended

However, given can correct. this disclaims the any prove statements will to be date. FBL assumptions after to update forward-looking be obligation no assurance that

Today's shortly include website, are supplement, Where which Comments on comments a and measures. be on financial be during both financial GAAP call prepared FBL's quarter our of fblfinancial.com. release first audio found to call. certain replay our may our being and reconciled is this website. transcript earnings on non-GAAP items of these applicable, found may after the call the website An simulcast in

Dan to With that, it is call to Pitcher. Dan? CEO, turn now over my pleasure the

of us are everyone of difficult situation during welcome services. current Thanks, I well much COVID-XX difficult with you and to you the Kathleen, workers today. been on for The that and call. everyone has pandemic. the time frontline for families more pleased essential hope on unprecedented this are and your I'm

to prouder had first impacted you our briefly what of impact our with the crisis. this for of been share but business organization. and first had month discuss on COVID-XX my results the comments my are envisioned then this constituents. first to I've team, wasn't by finally leadership quarter never CEO, thoughts has changes people summarize Our I'll everyone our This as and I and

Services; conference earnings has changes last my Vice Chief executive Officer, was Koster These several Agency named our we Seiboldt Dan Sales as previous operations and individuals proven named Jay leaders are and Operating was sales, our Vice management have Companies; in Marketing President, role Ron call, Property and and extensive Mead had assumed X President, within organization have and Casualty our Distribution. Since to team. experience marketing. all

We, company dedication Group, around Chief our Financial the Investment retire Officer, this call Charlie this everyone he of plans will wish with be last past well Charlie's to him year. later this served companies midyear and has therefore, XXXX. for with for Charlie FBL great his when On wisdom years at expect and departs Happel, XX thank behalf us. I earnings

replacement. for We currently Charlie's conducting are search a

Nick Gerhart, and also community Nick, Officer, companies you, leave for companies years your your our plans X coming Chief Thank for to and our the Administrative past to weeks. in in state. contributions leadership our for the

earnings. to now Turning

share per Group will quarter these FBL negatively $X.XX loss results discuss were more share. $X.XX per income a financial Results of For by the Financial in performance-related adjusted and net first of XXXX, Don COVID-XX. market operating detail. to reported of impacted

premiums the collected From collected, we years period same increased decreased fixed annuity few year. last where time, the of annuity a total sales, universal declined. annuity insurance last growing term and sales. life At life perspective, premiums trend the XX% collected to specifically rate experienced sales continues compared have X%, premiums same the life while This

in continued rate this We environment. appropriate continue to we as interest maintain discipline determine financial rates our low crediting

impact. its Next, pandemic and the

in executive work group, management so Farm became team formed team, work-from-home employees, the work employees, with members. As the deliver a our impressed to an that interruption incident client management client first-class of matter on environment of business from communications to allowed count to advisers recommend develops was developments, members provide group. with in we Services. I of pandemic members. has with our to our our and Bureau all we am plans client agents, continuity a business with and agents, days. solutions apparent, This To out monitors for severity identifies This This issues, carried mostly members. advisers continue our supporting and the conjunction of health our safety and activated the transition Financial minimal service acting transition and us

and their more contracts coverage of is delayed business now ever. to medical important the In for styles of has face-to-face than short insurance clients, work e-mails life to the some their secure on clients. continue insurance new they phone rely necessary with clients interact been impediments to are They and Annuity and which agents conferencing. completing potential Our tests. to issuance life video meeting, and term, tools to to place adapting work In calls, due

that Our agents ability and of temporarily licenses. advisers the also slowed management governmental to has required closure been issued offices to wealth due new onboard

XX, management XX advisers. X,XXX Bureau As we farm had of wealth March XXXX, exclusive and agents

for covered. the Over needs to are we The need insurance to our a COVID-XX life expect grows apparent. in This insurance term, as see to long client more result of opportunity devastated an and an engage life the ensure the us impact for members our provides fully protected in increase application ever of communities. their

towns areas. midwest and is less often have in been densely shelter-at-home which in rural impacted in populated company we Our operates a and operate west, But as social by the base and in and customer orders. territories distancing predominantly that our organization the areas small

have we as virus geographic many not as of the other result, territories. had a cases As

life insurance are XXth total sales rake virus. X Kansas, and XXth states the top for they of cases Our and Iowa for and

go the York, hard-hit hearts and out of New Our Jersey to areas. other New people

totaled In has claim, expect we a be X X expect additional had virus, that related $XX,XXX to a due policy. March, minimal. significant $XXX,XXX. COVID-XX-related I for life While pandemic-related mortality had mortality impact amount we And date, been which have to of claims event certainly we claims to was We the more to term expect to this face COVID-XX, the do us. April, claims, but experience in not

have reinsurance place individual in also coverage We by life.

Our fulfill current in futures. and has range varied from coverage $X life million, per allows is million $XXX,XXX historically limit retention livelihoods same truly $X protecting the providing time the of us at to and our purpose to

confident time challenging Bureau its are our we futures position. high-quality, that meeting advisers to strong Life the as financial position the this diversified Farm committed strength. client difficult and and will members. investment strong Today, livelihoods entered We Company has of is XX-year successfully markets FBL needs given capital chartered I'm rough financial a Insurance ever these navigate portfolio our and from of agents in and employees, history. protecting of waters and our

cover Don? Now Seibel, financial I'll turn results. CFO, to the to our Don call over

of on held This investments the quarter I welcome at by were Financial reported everyone XXXX per $XX.X share call. our results and $X.XX a COVID-XX of to Dan. $X.XX value derivatives. net primarily related quarter first per net on end to were also discuss loss want million. This the capital was to Thanks, financial and performance below first the includes fair results pandemic. investment the losses liquidity. due the in the financial impacted negatively realized of for our I'll and equity net of change securities market a for our in share. portfolio, quarter, loss FBL from expectations

mortgage a bond for In addition, and These guidance new maturity loans. for instruments. allowance increased million. an $XXX,XXX $XX.X energy created commercial a accounting allowances we securities, certain by were credit includes well losses with This a as under for credit retail estimating fixed losses as million associated for allowances $XX.X allowance financial the REIT

is been under considered new, guidance. accounting have would the guidance bonds impaired the accounting the previous While

from Excluding these income our operating drivers There items, why X quarter per earnings for the expectations. was are key adjusted $X.XX share. differed

acquisition costs approximately & First, we higher segment per the to on $X.XX share. Other markets the due impact separate of This performance. amortization had totaled negative Corporate impact account equity in of

performance. to $X.XX impact index share. impact we benefits, living This reserves with due approximately totaled increased guaranteed Second, also unfavorable per associated of the annuity market withdrawal

Third, these a to and equity earnings per items, $X.XX in quarter. better-than-expected lower-than-expected operating $X.XX prepayment with share. the during offset impact coupled totaled mortality quarter. approximately decrease by for items income, resulted experience fee This were share partially per the These

Next, impact of of segment. the rate actions XXXX Due our compares Annuity to to $X.X market by due business market XXXX to This unfavorable million results quarter the interest performance. the quarter. reserve be we first to decrease market annuity quarter to first market unfavorable I'll segment for Reserves a of impact pressure, with reflect the first in Results discuss continued of results guaranteed first in low associated of for benefits quarter performance. the rates. $XXX,XXX crediting our favorable increased XXXX several of took this due performance. by in the pressured withdrawal in the living

As on X a individual first increased result, quarter. spreads basis points point-in-time during annuities our the

segment Insurance results steadily the benefits. of to life yield shift lower due portfolio for business Spreads our on reflect the to lower quarter of trend book growing in insurance. business the to the of impact XXXX UL debt index for Life low down our a and a first amortization rates and of business, impact market mix continued universal interest

other profitability the life index of comes to traditional business cost in items insurance than have universal insurance quarter. universal structured Other several and current life lower were results charges. Corporate more segment impacted & spread is a product Our our of from the as by

market increased increased stated, the This the negative equity impact amortization first of due performance of by $X.X First, costs acquisition experienced in the million. the as to quarter. segment amortization previously deferred

quarterly lower and Second, experienced face primarily fluctuation This normal lower this variable block in of business. a fewer closed amount is universal business. in this due small relatively insurance segment life mortality our block average claims debt in to results benefits

after-tax in the investment. also an continue share loss includes XXXX. per invest developing related this to This throughout totaling to management level of million wealth We expected in $X.XX management investment continue to net or segment This our business. is wealth business $X.X

investment FBL's I'll Next, portfolio. discuss

the investments $XX of balance As line on included related FBL $X of the had of parties of and billion plus indebtedness XX, million investments sheet. alternative March total in securities

Our by maturity class. fixed our total. high billion, securities is fixed $X.X issue, industry investment are individual with of portfolio diversified investment-grade is and asset well accounting of bonds the investments, X.X% majority below maturity only The quality for of and

income action have current the with we years, uncomfortable our market. reward because average upgraded portfolio the we across quality. X We past we situation income with fixed quality Consequently, above-industry the the of fixed risk portfolio. Over felt the entered took

other yield We structured in have risk government-backed duration securities including the NAIC curve, and sectors. credit short the and an generally of end at taken high-quality X on rated

a few classes questions. review more have had asset I'll where investors

carrying has total portfolio $XXX million, is of which CLO value of investments. a Our X.X%

being XXX% backed with comfortable We of syndicated Xs. these fixed NAIC the CLOs with are quality and rate are as by and loans. market securities floating They holdings broadly consist high both middle

$XXX mortgage ratio purchases was been Our that AA. end, principal totaled XX, average FBL's loan-to-value majority AAA the recent X.X%. The At rated and weighted loan commercial million X.X% of service our XXXX. coverage only. March average debt mortgage at loans have the ratio was interest or XX.X%, quarter are amortized portfolio was

Additionally, we industry. the CM-X XX% portfolio a for compared high-quality carrying with a rating have to XX%

history rates. extremely long a commercial past All due. none have with loans We currently mortgage delinquency are low performing of

loan and related Our industrial. office, and of They type, properties. property is the by mix commercial -- and portfolio size mortgage a is loan by loan are retail diversified collateralized location

in not store-anchored energy million a drop shopping a book. of XX% rated $XXX sector, is our oil on exposure properties drug investments of have a driving any or value the is retail of loans of of have hotel have energy first and we XX% is on quarter, portfolio our investment properties. energy any large significant in unrealized is crude the the Our do losses the midstream FBL's in primarily $XXX portfolio centers. portion mall energy carrying continue Despite price We focused in grade. nor which million. to grocery our

book market However, at of quarter XX%. end, to our an average at positions price underlying are midstream energy

and markets, in financial first capitalized quarter, on in high-yield we the to credit in opportunity bonds. dislocation the the invest the private Given

to on investment backing new relatively the for The A-rated first also long-term yield of our acquire bonds. X.XX% quarter tax-adjusted We inexpensive, XXXX. able were corporate long business acquisitions was

our share. and indicated regular annual dividend in Next, capital these are special yesterday's closing limited per in I'll gives announced quarterly Class increase of dividend price, quarterly capital that, yield to rate also the of committed a returned in repurchases. we the shareholders. dividend X.X%. dividend, regular February, $XX On first stock March. we an an special capital per in In $X.XX returning $X.XX share on to comment the million with top Even We dividend A to paid levels. quarter we of shareholders times, common this us stock Based on challenging to our

Bureau level a XXXX, dividends to our year-end XXX%. At and of This holding paid March Life XX, due Farm shareholders. company capital subsidiary, is expected action the to estimated company the ratio had risk-based Life Farm was from the to from dividend paid an XXXX decrease to fund Bureau

Even with Life excess XXX% significant approximately at as shareholder have Bureau had dividends, to XXXX. RBC million these excess continues Farm XX, capital March base, Using capital. $XXX FPL a of

we estimate at $XX that we million the Additionally, at level. capital end holding excess have company of quarter

position being by generated financing operations liquidity strong activities. cash remains with Our and

be U.S. or equivalents could agency short-term converted $XXX million at $XX In million carrying addition, included at readily and of cash government government investments, value and portfolio our value. million of near investment securities carrying cash quarter backed and end, in that $XX cash to of U.S.

us and perform strong tests ORSA annual for part many stress We liquidity These be capital as positions of scenarios. report. to a prepared our allow

We scenarios, a those have that a reflect scenarios. and combined increased variety and economic pandemic various including defaults of disruption,

Our adequate and liquidity have situations. modeling we in capital stress indicates

conclude, I current times. the expect earnings challenging To continue to prepared cause rate low environment for to near-term in interest these headwinds market well are pressure. we economic

strength financial and We the long term. have to the our maintain over these to withstand pressures strength

over questions operator and have. it I call up will turn any the to you now the open may

Instructions]. [Operator

comes with So our from first question Backer Marla Sidoti.

you until potential we customers at much with during of -- hearing scripted can remarks you pretty insurance you demand right. any the did are your moment? say But the the new of you light the there all in Is hear await environment, is from hope current about of life holding what products. increased do the kind new you economies? that Or expect are me reopening everything agents? I for hearing pattern customers a In

This is Dan.

very a our they had adjust But a We're comments, nice So used done have to as our I relationship-oriented virtual had mentioned historically. agents process a they in sales to more than job. company.

We are selling every business day.

challenges down or shape primarily many available -- a agents selling virtual in shut any doing or like we processes So businesses, increased that sales selling And expect, pandemic But hard because we pinpoint will this the it to workforce our via created. and of with not are of has the just do to in lot will tools are pandemic working every day. now. changed be we remotely difficult drive measure e-mail or most life future have that we form. the and We way, that

the on wealth of about ended management I with Are moving now wealth what for right in business some in you more was this very that And in the and Okay. side? there see You, the press investment release, you advisers rethinking some depending few new with think, say How do forward, initiative. what happens economy? the management a quarter did the near-term your upon XXXX? investments

don't limited mean, very advisers obviously, think recruit to mentioned, their members. volatility client Don. equity the This I markets interviewing licensing But in Yes. our it Dan. also, rethinking. management wealth start ability as we're became the maybe turn made as servicing I'll they and to difficult. and over current is busy was It I

I on so don't talk until the to you management to know the our restrictions goes other before -- some back part And but it. onboarding to normal. have to we've continued advisers, investment we'll lifted continued of any are wealth Don, -- process wait these have of question if comments after investment

balance I comments, share. to the continue And said of investment, Well, make the expect in we an in respect the per was advisers, costs. to because with business impact it the $X.XX just scale my and quarter, more to as the we And bringing on generate start-up it's to cost the to of wealth the revenue need offset in of management the year.

that No, Right. makes sense.

our at to that you say So the the under terms advisers that might is would seeing management the too some retention early? early be Or Can point? had with it's get that this arms wealth of it thought at transfer too in your assets over? of and management around firms you

to it's really early say is statistically type activity. information have valid on Don. pretty that this I of Yes, would

we We the down closely, very, rates but are will retention be. far know it aren't what just monitoring very to enough road

question from Smith. Philo next with The comes Inglis Jamie

have me fare forward? about of you we if of in tell if extended get bit I'm your how who wondering what management recruiting of about more slowdown agents, thoughts little you're could of I a you economy agents, I'm didn't will an traditional -- more thinking are going the wealth and are sort the not folks

being we that about significant restrictions we context mean Yes, in I unemployment, these Obviously, this and Dan. both don't think this spike slowdown cut in lifted, the If the of is can ways. unemployment, what crisis. low unemployment improve as of component we know was but can in our that that low challenged recruiting is as situation, it does be very permitted when this which entered

expect lift the potentially some So that. can we in see overall see slowdown. I we And that economy balance out challenges from might any would would

Okay.

little how with you How you bit for system it the current, but work could hurdle policies? might to say your elaborate that And operating new old more about but, we does there? get about back in testing current on or a I shouldn't system? -- the So comment medical respect

you to take like that? Kelli, would

you, Dan. Thank Sure.

this is on amount currently it do out testing and age go under not Insurance. requirement reasons, examiners, time, testing, do and the varying So that point the an now. At for and medical right in Life different

the in doctor are underwriters information the records. from looking lieu So at of

information. And paramedical collect be We're states able also and will up, and to open start So go we're in to do those continuing to available examiners our that. out that as with touch facilities.

Okay.

wait it's is, out. see and might as work simple guess I it So how

Okay.

Instructions]. [Operator

comes Our Capital Wells Feldman from with Louis next Management. question

granted applications of situation, all it the for stuck to do recruit make extent it I Would that you moving life for the have mean but online? get Dan, at easier you your part looked agents the online current the to streamlining generate at what way? have look you you examination of just move side, some process to continue to given further online? operations and to that on at wondering, medical application

you. Yes. This is Dan. Thank

Just requirements maybe are as being a too, the in your that up and statement. certain small of medical to on held applications Kelli noted, face medical clarify, age amount percentage would -- that discussion require. to that That's due the potentially

-- to you online and digital an to continued agent an time, in member and or be mean use any relationship they had agent but the facing that's our across working being through point still this or the across and their e-mail did has being capture of in information at company, desk virtually And haven't know kitchen moving solution. discussion table. we've between successful able historically So that to between we client before they company. electronic a the as app they're and I

long how as So information impact today don't about barring primary may this we being that of be. some the We're have a looking not pandemic option.

question-and-answer time, back [Operator for further are to any like Stange concludes would Instructions]. remarks. the At this conference I questions. closing session. to Kathleen over our there turn no This

everyone who Thanks, Please have us if questions. joined any free a you to on call good us you day. Thank to and the have a give call today. feel follow-up

today's for presentation. for today. the Thank concludes This attending conference you

You may now disconnect.