Market Overview

Primerica Reports Third Quarter 2018 Results

Share:

5% increase in life insurance licensed representatives to 130,658

13% growth in Term Life net premiums

23% increase in Investment and Savings Products (ISP) sales

33% growth in net earnings per diluted share (EPS) to $1.94 and
32% growth in adjusted operating EPS to $1.93

23.9% net income return on stockholders' equity (ROE) and 23.7%
adjusted net operating income return on adjusted stockholders' equity
(ROAE)

Declared dividend of $0.25 per share, payable on
December 14, 2018

Primerica, Inc. (NYSE:PRI) today announced financial results for the
quarter ended September 30, 2018. In the third quarter, total revenues
increased 13% to $484.8 million and adjusted operating revenues grew 14%
to $485.2 million. Income before income taxes increased 11% and adjusted
operating income before income taxes increased 12% over the prior year
period. Net income grew 28% to $85.1 million and adjusted net operating
income grew 27% to $84.5 million compared with the third quarter of
2017, both of which reflect 2018 benefits from the Tax Cuts and Jobs Act
of 2017 (Tax Reform).

Glenn Williams, Chief Executive Officer, said, "The power of our
franchise was evident in the third quarter with top-line growth in each
of our businesses. The tremendous sales growth achieved in our
Investment and Savings Products segment was a highlight of the quarter.
The performance of our two complementary businesses combined with
capital deployment and the benefit of Tax Reform delivered a 33%
increase in EPS year-over-year and 23.9% ROE in the third quarter. We
remain focused on executing initiatives to drive growth in order to
deliver long-term value to our clients, representatives and
stockholders."

During the third quarter, Term Life performance reflected a 13% increase
in net premiums year-over-year, favorable claims versus historical
experience, stable persistency and a modest decline in issued policies.
Strong ISP performance was driven by 23% growth in total product sales
and a 10% increase in average client asset values year-over-year.
Insurance and other operating expenses of $96.6 million were lower than
our expectations due to the timing of business initiatives.

Earnings growth, which benefited from Tax Reform, combined with ongoing
share repurchases drove EPS to $1.94, up 33%, and adjusted operating EPS
to $1.93, up 32% compared to the third quarter a year ago. ROE and ROAE
expanded to 23.9% and 23.7%, respectively, in the third quarter versus
20.9% and 21.7%, respectively, in the prior year period.

 

Third Quarter Distribution & Segment Results

 
Distribution Results
      Q3 2018     Q3 2017    

%
Change

    Q2 2018    

%
Change

Life Licensed Sales Force (1) 130,658 124,436 5 % 130,156 *
Recruits 76,146 90,210 (16 )% 76,520 *
New Life-Licensed Representatives 11,715 12,783 (8 )% 13,544 (14 )%
Life Insurance Policies Issued 74,892 78,056 (4 )% 83,754 (11 )%
Life Productivity (2) 0.19 0.21 * 0.22 *
ISP Product Sales ($ billions) $ 1.76 $ 1.43 23 % $ 1.76 *
Average Client Asset Values ($ billions) $ 63.36 $ 57.66 10 % $ 61.30 3 %
 

(1) End of period

(2) Life productivity equals policies issued divided by the average
number of life insurance licensed representatives per month

* Not calculated or less than 1%

 
Segment Results
      Q3 2018     Q3 2017    

%
Change

    Q2 2018    

%
Change

($ in thousands)
Adjusted Operating Revenues: (1)
Term Life Insurance $ 287,972 $ 256,240 12 % $ 272,978 5 %
Investment and Savings Products 165,269 140,058 18 % 162,841 1 %
Corporate and Other Distributed Products   31,963     30,980   3 %   31,058   3 %
Total adjusted operating revenues (1) $ 485,204   $ 427,278   14 % $ 466,877   4 %
 
Adjusted Operating Income (loss) before

income taxes:(1)

Term Life Insurance $ 74,337 $ 66,543 12 % $ 75,828 (2 )%
Investment and Savings Products 45,052 39,050 15 % 43,227 4 %
Corporate and Other Distributed Products   (7,531 )   (5,415 ) 39 %   (6,228 ) 21 %

Total adjusted operating income before income taxes (1)

$ 111,858   $ 100,178   12 % $ 112,827   (1 )%
 

(1) See the Non-GAAP Financial Measures section and the segment
Operating Results Reconciliations at the end of this release for
additional information.

Life Insurance Licensed Sales Force. New recruits declined
16% from the third quarter a year ago, which benefitted from
approximately 17,000 recruits in hurricane-affected areas whose
Independent Business Application (IBA) fees were waived. New life
insurance licenses were down 8% year-over-year, while the size of the
life insurance licensed sales force increased 5% to 130,658
representatives in the period.

Term Life Insurance. Term Life continued to achieve strong
financial results with revenues increasing to $288.0 million driven by a
13% increase in net premiums compared with the third quarter a year ago.
Income before income taxes in the segment increased 12% to $74.3 million
year-over-year. Term Life productivity of 0.19 policies per life
insurance licensed representative per month was within the historical
range, although lower than the elevated levels experienced in the past
few years. As a result, Term Life insurance policies issued declined 4%
year-over-year. Term Life estimated annualized issued premiums continue
to grow year-over-year with policy additions and other increases. Normal
claims volatility positively impacted benefits and claims by
approximately $2 million in the third quarter of 2018, which was similar
to the favorable impact experienced in the prior year period.
Persistency was generally consistent with the year ago quarter while
non-deferred insurance commissions increased, largely due to revisions
in the sales force equity program that changed the timing of expense
recognition but not the economics of the program. Insurance expenses
increased $3.7 million from the prior year period to support business
growth and initiatives.

Investment and Savings Products. Strong Investment and
Savings Products segment performance in the third quarter of 2018 was
driven by sales momentum and client asset growth. Total ISP sales grew
23% versus the year ago period. Variable annuity sales increased 63%
from the third quarter of 2017 reflecting recent product enhancements by
our product partners which offer more attractive benefits to clients.
The continued success of the Lifetime Investment Platform resulted in a
year-over-year growth in both managed accounts sales and average client
assets of 52% and 42%, respectively. Positive market conditions
propelled growth in both ISP sales and average client assets.

During the third quarter, sales-based revenues increased 20% in line
with the growth in ISP sales. Asset-based revenues grew 11% reflecting a
10% increase in overall average client asset values to $63.4 billion and
positive net flows of $264 million for the period. Account-based
revenues increased $6.5 million and account-based operating expenses
increased $5.7 million year-over-year as a result of the revised ISP
record-keeping platform contracts. Total ISP revenues increased 18% to
$165.3 million and income before income taxes grew 15% to $45.1 million
compared with the year ago period.

Corporate and Other Distributed Products (C&O).
C&O adjusted operating revenues were $32.0 million and adjusted
operating losses before income taxes were $7.5 million in the third
quarter of 2018. Net investment income was positively impacted by a
larger invested asset portfolio than in the prior year period, partially
offset by lower portfolio yield. Net unrealized losses on our invested
asset portfolio were $5.7 million at quarter-end versus $1.9 million of
net unrealized gains at June 30, 2018, reflecting the impact of higher
interest rates on prices of fixed income securities. Other operating
expenses reflect higher employee-related costs as well as spending to
support business initiatives.

Taxes

In the third quarter of 2018, the effective income tax rate was 23.6%
and the operating effective income tax rate was 24.5%. The rates differ
due to an adjustment made during the quarter of $1.0 million related to
the transition impact of Tax Reform that has been excluded from the
operating effective income tax rate. The full year 2018 operating
effective income tax rate is expected to be 23.6%.

Capital

Primerica is on track to complete its share buyback plan for 2018.
Repurchases were $33.5 million or approximately 300,000 shares of
Primerica's common stock outstanding in the third quarter of 2018 for a
total of $167.3 million or about 1.7 million shares through September
30, 2018. Primerica's Board of Directors has approved payment of a
quarterly dividend of $0.25 per share that will be payable on December
14, 2018 to stockholders of record as of November 20, 2018.

Primerica Life Insurance Company's statutory risk-based capital (RBC)
was estimated to be approximately 450% as of September 30, 2018.

Non-GAAP Financial Measures

We report financial results in accordance with U.S. generally accepted
accounting principles (GAAP). We also present adjusted direct premiums,
other ceded premiums, adjusted operating revenues, adjusted operating
income before income taxes, net adjusted operating income, adjusted
stockholders' equity and diluted adjusted operating earnings per share.
Adjusted direct premiums and other ceded premiums are net of amounts
ceded under coinsurance transactions that were executed concurrent with
our initial public offering (IPO) for all periods presented. We exclude
amounts ceded under the IPO coinsurance transactions in measuring
adjusted direct premiums and other ceded premiums to present meaningful
comparisons of the actual premiums economically maintained by the
Company. Amounts ceded under the IPO coinsurance transactions will
continue to decline over time as policies terminate within this block of
business. Adjusted operating revenues, adjusted operating income before
income taxes, net adjusted operating income, and diluted adjusted
operating earnings per share exclude the impact of realized investment
gains (losses)1 and fair value mark-to-market (MTM)
investment adjustments2, including other-than-temporary
impairments (OTTI), for all periods presented. We exclude realized
investment gains (losses) and MTM investment adjustments in measuring
these non-GAAP financial measures to eliminate period-over-period
fluctuations that may obscure comparisons of operating results due to
items such as the timing of recognizing gains (losses) and market
pricing variations prior to an invested asset's maturity or sale that
are not directly associated with the Company's insurance operations. In
2018, we excluded from net adjusted operating income and
diluted adjusted operating earnings per share the one-time transition
impact of changes to provisional amounts recognized from Tax Reform in
order to present meaningful and useful period-over-period comparisons
that are not distorted by the historic tax law change. Adjusted
stockholders' equity excludes the impact of net unrealized investment
gains (losses) recorded in accumulated other comprehensive income (loss)
for all periods presented. We exclude unrealized investment gains
(losses) in measuring adjusted stockholders' equity as unrealized gains
(losses) from the Company's available-for-sale securities are largely
caused by market movements in interest rates and credit spreads that do
not necessarily correlate with the cash flows we will ultimately realize
when an available-for-sale security matures or is sold.

The definitions of these non-GAAP financial measures may differ from the
definitions of similar measures used by other companies. Management uses
these non-GAAP financial measures in making financial, operating and
planning decisions and in evaluating the Company's performance.
Furthermore, management believes that these non-GAAP financial measures
may provide users with additional meaningful comparisons between current
results and results of prior periods as they are expected to be
reflective of the core ongoing business. These measures have
limitations, and investors should not consider them in isolation or as a
substitute for analysis of the results as reported under GAAP.
Reconciliations of GAAP to non-GAAP financial measures are attached to
this release.

____________________

1 Beginning in the first quarter of 2018, MTM adjustments on
investments held in equity securities are recognized in total revenues
measured in accordance with GAAP as realized investment gains (losses)
due to the adoption of Accounting Standards Update No. 2016-01.
Accordingly, we excluded the impact of MTM adjustments on investments
held in equity securities from adjusted operating revenues and other
non-GAAP financial measures.

2 Beginning in the first quarter of 2018, the MTM adjustment
on a deposit asset held in support of a 10% coinsurance agreement (the
10% deposit asset MTM) recognized under the deposit method of accounting
for GAAP has been excluded from adjusted operating revenues and other
non-GAAP financial measures. Prior year non-GAAP financial results have
not been recast as the 10% deposit asset MTM in the prior year was not
material.

Earnings Webcast Information

Primerica will hold a webcast Wednesday, November 7, 2018 at 10:00 am
EDT, to discuss third quarter results. This release and a detailed
financial supplement will be posted on Primerica's website. Investors
are encouraged to review these materials. To access the webcast go to http://investors.primerica.com
at least 15 minutes prior to the event to register, download and install
any necessary software.

A replay of the call will be available for approximately 30 days on
Primerica's website, http://investors.primerica.com.

Forward-Looking Statements

Except for historical information contained in this press release, the
statements in this release are forward-looking and made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements contain known and unknown risks and
uncertainties that may cause our actual results in future periods to
differ materially from anticipated or projected results. Those risks and
uncertainties include, among others, our failure to continue to attract
and license new recruits, retain sales representatives or license or
maintain the licensing of our sales representatives; changes to the
independent contractor status of our sales representatives; our or our
sales representatives' violation of or non-compliance with laws and
regulations or the failure to protect the confidentiality of client
information; differences between our actual experience and our
expectations regarding mortality, persistency, expenses and interests
rates as reflected in the pricing for our insurance policies; the
occurrence of a catastrophic event that causes a large number of
premature deaths of our insureds; changes in federal and state
legislation, including other legislation or regulation that affects our
insurance and investment product businesses, such as the DOL's rule
defining who is a "fiduciary" of a qualified retirement plan as a result
of giving investment advice; our failure to meet RBC standards or other
minimum capital and surplus requirements; a downgrade or potential
downgrade in our insurance subsidiaries' financial strength ratings or
our senior debt ratings; the effects of credit deterioration and
interest rate fluctuations on our invested asset portfolio; incorrectly
valuing our investments; inadequate or unaffordable reinsurance or the
failure of our reinsurers to perform their obligations; the failure of,
or legal challenges to, the support tools we provide to our sales force;
heightened standards of conduct or more stringent licensing requirements
for our sales representatives; inadequate policies and procedures
regarding suitability review of client transactions; the failure of our
investment products to remain competitive with other investment options
or the change to investment and savings products offered by key
providers in a way that is not beneficial to our business; fluctuations
in the performance of client assets under management; the inability of
our subsidiaries to pay dividends or make distributions; our inability
to generate and maintain a sufficient amount of working capital; our
non-compliance with the covenants of our senior unsecured debt; legal
and regulatory investigations and actions concerning us or our sales
representatives; the loss of key personnel; the failure of our
information technology systems, breach of our information security or
failure of our business continuity plan; and fluctuations in Canadian
currency exchange rates . These and other risks and uncertainties
affecting us are more fully described in our filings with the Securities
and Exchange Commission, which are available in the "Investor Relations"
section of our website at http://investors.primerica.com.
Primerica assumes no duty to update its forward-looking statements as of
any future date.

About Primerica, Inc.

Primerica, Inc., headquartered in Duluth, GA, provides financial
services to middle income households in North America. Primerica
representatives educate their clients about how to better prepare for a
more secure financial future by assessing their needs and providing
appropriate solutions through term life insurance, which the Company
underwrites, and mutual funds, annuities and other financial products,
which are distributed primarily on behalf of third parties. Primerica
insured approximately 5 million lives and have over 2 million client
investment accounts at December 31, 2017. Primerica stock is included in
the S&P MidCap 400 and the Russell 2000 stock indices and is traded on
The New York Stock Exchange under the symbol "PRI".

 
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 
      (Unaudited)    
September 30, 2018 December 31, 2017
(In thousands)
Assets
Investments:
Fixed-maturity securities available-for-sale, at fair value $ 2,010,900 $ 1,927,842
Fixed-maturity security-held-to-maturity, at amortized cost 891,860 737,150
Equity securities available-for-sale, at fair value - 41,107
Equity securities, at fair value 39,317 -
Trading securities, at fair value 15,955 6,228
Policy loans   30,902     32,816
Total investments 2,988,934 2,745,143
Cash and cash equivalents 225,378 279,962
Accrued investment income 18,202 16,665
Reinsurance recoverables 4,196,021 4,205,173
Deferred policy acquisition costs, net 2,107,814 1,951,892
Agent balances, due premiums and other receivables 295,885 229,522
Intangible assets, net 48,961 51,513
Income taxes 53,440 48,614
Other assets 352,897 359,347
Separate account assets   2,419,997     2,572,872
Total assets $ 12,707,529   $ 12,460,703
 
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits $ 6,132,750 $ 5,954,524
Unearned premiums 439 486
Policy claims and other benefits payable 287,640 307,401
Other policyholders' funds 394,046 377,998
Notes payable 373,567 373,288
Surplus note 891,139 736,381
Income taxes 182,240 177,468
Other liabilities 511,623 451,398
Payable under securities lending 70,632 89,786
Separate account liabilities   2,419,997     2,572,872
Total liabilities   11,264,073     11,041,602
 
Stockholders' equity:
Common stock 430 443
Paid-in capital - -
Retained earnings 1,452,841 1,375,090

Accumulated other comprehensive income (loss), net of income tax

  (9,815 )   43,568
Total stockholders' equity   1,443,456     1,419,101
Total liabilities and stockholders' equity $ 12,707,529   $ 12,460,703
 
 
PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
 
      Three months ended September 30,
2018     2017
(In thousands, except per-share amounts)
Revenues:
Direct premiums $ 670,222 $ 646,079
Ceded premiums   (391,175 )   (397,641 )
Net premiums 279,047 248,438
Commissions and fees 170,879 144,627
Net investment income 20,622 19,922
Realized investment gains (losses), including OTTI (126 ) 22
Other, net   14,359     14,291  
Total revenues   484,781     427,300  
 
Benefits and expenses:
Benefits and claims 118,787 105,864
Amortization of deferred policy acquisition costs 59,534 53,384
Sales commissions 84,588 72,022
Insurance expenses 41,925 37,637
Insurance commissions 6,584 5,593
Interest expense 7,216 7,073
Other operating expenses   54,712     45,527  
Total benefits and expenses   373,346     327,100  
Income before income taxes 111,435 100,200
Income taxes   26,296     33,565  
Net income $ 85,139   $ 66,635  
 
Earnings per share:
Basic earnings per share $ 1.95   $ 1.46  
Diluted earnings per share $ 1.94   $ 1.46  
 

Weighted-average shares used in computing earnings per share:

 

Basic   43,452     45,318  
Diluted   43,589     45,408  
 
 
PRIMERICA, INC. AND SUBSIDIARIES
Consolidated Adjusted Operating Results Reconciliation
(Unaudited – in thousands, except per share amounts)
 
      Three months ended September 30,    
2018     2017 % Change
Total revenues $ 484,781 $ 427,300 13 %
Less: Realized investment gains (losses), including OTTI (126 ) 22

Less: 10% deposit asset MTM included in net investment income
(NII) (2)

  (297 )   -  
Adjusted operating revenues $ 485,204   $ 427,278   14 %
 
Income before income taxes $ 111,435 $ 100,200 11 %
Less: Realized investment gains (losses), including OTTI (126 ) 22
Less: 10% deposit asset MTM included in NII (2)   (297 )   -  
Adjusted operating income before income taxes $ 111,858   $ 100,178   12 %
 
Net income $ 85,139 $ 66,635 28 %
Less: Realized investment gains (losses), including OTTI (126 ) 22
Less: 10% deposit asset MTM included in NII (2) (297 ) -
Less: Tax impact of preceding items 104 (8 )
Less: Transition impact of tax reform   969     -  
Net adjusted operating income $ 84,489   $ 66,621   27 %
 
Diluted earnings per share (1) $ 1.94 $ 1.46 33 %
Less: Net after-tax impact of operating adjustments   0.01     -  
Diluted adjusted operating earnings per share (1) $ 1.93   $ 1.46   32 %
 

(1) Percentage change in earnings per share is calculated prior to
rounding per share amounts.

(2) The 10% deposit asset MTM during the three months ended September
30, 2017 was not material, therefore, non-GAAP financial measures for
2017 have not been recast for this adjustment.

 
TERM LIFE INSURANCE SEGMENT
Adjusted Premiums Reconciliation
(Unaudited – in thousands)
 
      Three months ended September 30,
2018     2017
Direct premiums $ 663,183 $ 638,830
Less: Premiums ceded to IPO coinsurers   284,742     304,580  
Adjusted direct premiums $ 378,441   $ 334,250  
 
Ceded premiums $ (389,332 ) $ (395,772 )
Less: Premiums ceded to IPO coinsurers   (284,742 )   (304,580 )
Other ceded premiums $ (104,590 ) $ (91,192 )
 
Net premiums $ 273,851   $ 243,058  
 
 
CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT
Adjusted Operating Results Reconciliation
(Unaudited – in thousands)
 
      Three months ended September 30,
2018     2017
Total revenues $ 31,540 $ 31,002
Less: Realized investment gains (losses), including OTTI (126 ) 22
Less: 10% deposit asset MTM included in NII   (297 )   -  
Adjusted operating revenues $ 31,963   $ 30,980  
 
Loss before income taxes $ (7,954 ) $ (5,393 )
Less: Realized investment gains (losses), including OTTI (126 ) 22
Less: 10% deposit asset MTM included in NII   (297 )   -  
Adjusted operating loss before income taxes $ (7,531 ) $ (5,415 )
 
 
PRIMERICA, INC. AND SUBSIDIARIES
Adjusted Stockholders' Equity Reconciliation
(Unaudited – in thousands)
 
      September 30, 2018     December 31, 2017
Stockholders' equity $ 1,443,456 $ 1,419,101

Less: Unrealized net investment gains (losses) recorded in
stockholders' equity, net of income tax

  (4,515 )   39,573
Adjusted stockholders' equity $ 1,447,971   $ 1,379,528

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