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Q & A Highlights

Q: With buybacks being higher this quarter at $100 million, do you expect to continue this trend given the current macro environment? A: Paul McDonough, CFO: We are inclined to continue leaning into buybacks. Our share buyback levels have been elevated, and with $250 million of cash at the holding company against a minimum of $150 million, we have the capacity to maintain these levels.

Q: Can you explain the impact of GAAP accounting on Medicare Advantage fee revenue and how it differs from cash flow? A: Paul McDonough, CFO: Under ASC 606, we estimate lifetime revenue and expenses for each policy. We apply constraints on newer carriers due to limited data, which affected fee income despite increased policy sales. As we gain more experience, we expect these constraints to relax, potentially reversing some adverse impacts in future periods.

Q: Regarding the fee income commentary, when might we see a reversal of the impacts? A: Paul McDonough, CFO: It's hard to say, but we could see some reversal within 2025. Our guidance remains unchanged, and while fee income might be slightly lower than in 2024, it is a small component of overall earnings.

Q: Can you discuss the opportunities with the Optimize Clear product launch? A: Gary Bhojwani, CEO: We are bullish on Optimize Clear, which consolidates services for worksite customers and introduces new Medicare advice services. Early reactions are positive, and we expect demand to grow.

Q: What are your expectations for direct-to-consumer life sales and ad spend for the rest of the year? A: Gary Bhojwani, CEO: We expect a bounce back in ad spend and sales, though traditional media's impact is uncertain due to shifts towards streaming. We've increased our focus on social media channels, which now account for 36% of sales.

Q: How are you viewing consumer agent recruiting and retention trends? A: Gary Bhojwani, CEO: We remain optimistic about agent recruiting and retention. Historically, higher unemployment boosts recruiting, but even without that, our model resonates with potential agents, supporting growth in agent counts and productivity.

Q: How might a recession impact your target market's appetite for insurance products? A: Gary Bhojwani, CEO: While a recession could impact demand, factors like aging demographics and rising medical costs support continued interest in our products. We expect to weather economic downturns better than other sectors.

Q: With potential margin issues in Medicare Advantage, do you expect a shift towards Medicare Supplement? A: Gary Bhojwani, CEO: There may be some shift, but we don't expect a material impact. We are well-positioned to sell both Medicare Advantage and Supplement products, and any shift is seen as left pocket-right pocket for us.

Q: Can you elaborate on the geographic expansion in the worksite division? A: Gary Bhojwani, CEO: We've seen substantial growth from geographic expansion and expect it to continue. We are disciplined in exploring new opportunities and expect current trends to persist.

Q: How are you planning to achieve the 50 basis points ROE improvement in 2025? A: Paul McDonough, CFO: Multiple factors contribute to ROE improvement, including business growth, expense management, higher interest rates, and capital management. We expect these factors to drive continued ROE improvement over the next few years.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.