Primerica Reports First Quarter 2017 Results

BusinessWire, May 09, 2017


9% increase in life insurance licensed representatives to 117,907

6% growth in life insurance policies issued

15% increase in Investment and Savings Products (ISP) sales

21% growth in net earnings per diluted share (EPS) and 19% growth in adjusted operating EPS to $1.11

Primerica, Inc. (NYSE: PRI) today announced financial results for the quarter ended March 31, 2017. In the first quarter, total revenues increased 12% and adjusted operating revenues increased 11% to $405.2 million and $405.0 million, respectively. Net income grew 15% to $52.1 million and adjusted net operating income grew 14% to $52.0 million compared with the first quarter of 2016.

Glenn Williams, Chief Executive Officer, said, “We achieved a 21% increase in EPS and a 130 basis points increase in return on equity (ROE) compared to the first quarter a year ago reflecting solid earnings and ongoing share repurchases. Strong organic growth continued with our life insurance licensed sales force reaching almost 118,000 representatives and a 6% year-over-year growth in life insurance policies issued. In addition, our Investment and Savings Products sales grew 15% year-over-year to a record $1.6 billion in first quarter 2017. We are optimistic about the future and our ability to drive growth and deliver long-term value for all of our stakeholders.”

First quarter results reflect a 13% increase in Term Life net premiums. Continued organic growth was partially offset by weaker persistency and claims experience during the quarter. Strong ISP performance was driven by 15% growth in both sales and average client asset values year-over-year. Insurance and other operating expenses, which are typically highest in the first quarter due to annual employee equity award grants, increased year-over-year from growth in the size of the business, annual employee merit increases and continued development of technology platforms. During the quarter, earnings growth and continued share repurchases drove EPS and adjusted operating EPS both to $1.11, increasing 21% and 19%, respectively, compared to the first quarter a year ago. ROE expanded to 16.9% and adjusted operating ROAE expanded to 17.5% in the first quarter versus 15.6% and 16.3%, respectively, in the prior year period.

First Quarter Distribution & Segment Results

 

Distribution Results

   

Q1 2017

   

Q1 2016

   

% Change

   

Q4 2016

   

% Change

Life Licensed Sales Force (1)

117,907

108,220

9

%

116,827

1

%

Recruits

70,983

63,427

12

%

60,326

18

%

New Life-Licensed Representatives

10,903

9,666

13

%

11,148

(2

)%

Life Insurance Policies Issued

70,642

66,376

6

%

79,110

(11

)%

Life Productivity (2)

0.20

0.21

*

0.23

*

ISP Product Sales ($ billions)

$

1.59

$

1.38

15

%

$

1.41

13

%

Average Client Asset Values ($ billions)

$

53.82

$

46.65

15

%

$

51.45

5

%

 

(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

   

Q1 2017

   

Q1 2016

 

% Change

   

Q4 2016

   

% Change

($ in thousands)

Adjusted Operating Revenues: (1)

Term Life Insurance

$

234,051

$

206,095

14

%

$

227,128

3

%

Investment and Savings Products

140,407

124,918

12

%

137,016

2

%

Corporate and Other Distributed Products

 

30,572

 

32,370

(6

)%

 

28,255

8

%

Total adjusted operating revenues (1)

$

405,030

$

363,383

11

%

$

392,399

3

%

 

Adjusted Operating Income (Loss) before

income taxes:(1)

Term Life Insurance

$

49,022

$

46,078

6

%

$

51,127

(4

)%

Investment and Savings Products

37,119

31,691

17

%

40,840

(9

)%

Corporate and Other Distributed Products

 

(11,433

)

 

(6,774

)

69

%

 

(6,368

)

80

%

Total adjusted operating income before income taxes (1)

$

74,708

$

70,995

5

%

$

85,599

(13

)%

 

(1)

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

 

Life Insurance Licensed Sales Force. Strong recruiting and licensing trends in recent quarters resulted in 9% year-over-year growth in the life insurance licensed sales force to 117,907 representatives at the end of the first quarter. Recruiting of new representatives increased 12% and new life insurance licenses were 13% higher than the prior year period. On a sequential quarter basis, recruiting increased 18% from the typically slower holiday season and new life insurance licenses declined 2% as a result of typically lower recruiting levels in the fourth quarter.

Term Life Insurance. In the first quarter of 2017, Term Life insurance policies issued increased 6% year-over-year reflecting the larger life insurance licensed sales force and productivity of 0.20 policies per life insurance licensed representative per month. While still in the historical range, productivity was moderately lower than recent quarters due to seasonality in the first quarter following the slower holiday season. Term Life revenues increased 14% to $234.1 million compared with the year ago period, driven by a 13% increase in net premiums from higher levels of issued policies in recent years and the growth of in-force business not subject to IPO-related coinsurance agreements. Income before income taxes increased 6% to $49.0 million year-over-year. Deferred acquisition costs amortization was higher than expected in the first quarter with $2.5 million related to weaker persistency and approximately $1.5 million attributable to certain policies held by clients in Louisiana that we restricted from lapsing in 2016 at the state insurance department’s request due to severe flooding last year. Many of these policies ultimately lapsed in the first quarter once the restriction was removed. Benefits and claims were about $3 million higher than expected during the quarter reflecting a frequency of claims above historical trends, partially offset by lower reserve increases from weaker persistency experience. Insurance expenses increased $4.7 million year-over-year primarily due to growth-related costs, annual employee merit increases and technology spending. Additional costs to enhance our sales force’s mobile technology capabilities were largely offset by growth in other net revenues.

Investment and Savings Products. In the first quarter, ISP revenues increased 12% to $140.4 million and income before income taxes grew 17% to $37.1 million compared with the year ago period. Product sales grew 15% year-over-year with U.S. retail mutual fund sales increasing 25% and variable annuity sales declining 5% consistent with recent industry trends. Sales-based revenue growth lagged revenue-generating sales growth due to the mix of product sales during the quarter. Net flows were positive $320 million and client asset values increased 14% to $54.9 billion at the end of the first quarter. Account-based revenue grew 17% year-over-year largely related to a change made in the account-based fee structure in the fourth quarter of 2016 as well as a higher number of accounts than the prior year period. ISP expenses increased approximately $2.5 million from the year ago period largely due to costs related to growth in the business, the launch of the Primerica Advisors Lifetime Investment Platform and technology enhancements.

Corporate and Other Distributed Products (C&O). C&O adjusted operating revenues were $30.6 million and adjusted operating losses before income taxes were $11.4 million in the first quarter of 2017. Net investment income was negatively impacted by lower portfolio yield than in the prior year period, offset by a larger invested asset portfolio. The impact on net investment income from the mark-to-market on the deposit asset backing an IPO-related reinsurance agreement was negligible in the first quarter of 2017; however, the prior year period included an approximate $1 million positive mark-to-market adjustment. Net unrealized gains increased to $73.0 million at quarter-end from $65.8 million at December 31, 2016.

Taxes

The effective income tax rate for the first quarter of 2017 was 30.4%, down from 35.7% in the prior year period, primarily reflecting excess tax benefits of $3.3 million from the adoption of Accounting Standards Update 2016-09, which requires the excess tax benefit or expense for the difference between the stock price of equity awards at the time of grant and vesting to be recorded in the income statement rather than directly to equity in the balance sheet. Also impacting the tax rate was the recognition of approximately $0.7 million of certain tax benefits for which the statute of limitations expired during the first quarter.

Capital

Primerica repurchased $29.8 million or 382,657 shares of its common stock in the first quarter of 2017. Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be approximately 440% as of March 31, 2017.

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 and losses, including other-than-temporary impairments (OTTI), for all periods presented. We exclude realized investment gains and losses in measuring adjusted operating revenues to eliminate period-over-period fluctuations that may obscure comparisons of operating results due to items such as the timing of recognizing gains and losses and other factors prior to an invested asset's maturity that are not directly associated with the Company's insurance operations. Adjusted stockholders' equity excludes the impact of net unrealized investment gains and losses recorded in other comprehensive income (loss) for all periods presented. We exclude unrealized investment gains and losses in measuring adjusted stockholders' equity as unrealized gains and losses from the Company's invested assets 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 invested asset 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 financial 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.

Earnings Webcast Information

Primerica will hold a webcast Wednesday, May 10, 2017 at 10:00 am EDT, to discuss first 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, is a leading distributor of financial products to middle income households in North America. Primerica representatives educate their Main Street 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 we underwrite, and mutual funds, annuities and other financial products, which we distribute primarily on behalf of third parties. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company’s financial products. We insured approximately 5 million lives and have over 2 million client investment accounts at December 31, 2016. 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)

       

March 31, 2017

December 31, 2016

(In thousands)

Assets

Investments:

Fixed-maturity securities available-for-sale, at fair value

$

1,832,228

$

1,792,438

Fixed-maturity securities-held-to-maturity, at amortized cost

535,160

503,230

Equity securities available-for-sale, at fair value

46,437

44,894

Trading securities, at fair value

12,737

7,383

Policy loans

 

32,969

 

30,916

Total investments

2,459,531

2,378,861

Cash and cash equivalents

185,762

211,976

Accrued investment income

17,654

16,520

Due from reinsurers

4,219,547

4,193,562

Deferred policy acquisition costs, net

1,767,681

1,713,065

Agent balances, due premiums and other receivables

215,567

210,448

Intangible assets, net

54,065

54,915

Income taxes

37,731

37,369

Other assets

356,139

334,274

Separate account assets

 

2,356,320

 

2,287,953

Total assets

$

11,669,997

$

11,438,943

 

Liabilities and Stockholders' Equity

Liabilities:

Future policy benefits

$

5,736,313

$

5,673,890

Unearned premiums

511

527

Policy claims and other benefits payable

268,397

268,136

Other policyholders' funds

373,733

363,038

Notes payable

373,011

372,919

Surplus note

534,435

502,491

Income taxes

237,719

225,006

Other liabilities

449,734

449,963

Payable under securities lending

93,326

73,646

Separate account liabilities

 

2,356,320

 

2,287,953

Total liabilities

10,423,499

10,217,569

 

Stockholders' equity:

Common stock

455

457

Paid-in capital

28,606

52,468

Retained earnings

1,182,039

1,138,851

Accumulated other comprehensive income, net of income tax

 

35,398

 

29,598

Total stockholders' equity

 

1,246,498

 

1,221,374

Total liabilities and stockholders' equity

$

11,669,997

$

11,438,943

 
 

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(Unaudited)

       

Three months ended March 31,

2017

2016

(In thousands, except per-share amounts)

Revenues:

Direct premiums

$

627,698

$

597,130

Ceded premiums

 

(399,769

)

 

(395,333

)

Net premiums

227,929

201,797

Commissions and fees

144,268

128,821

Net investment income

19,894

21,238

Realized investment gains (losses), including OTTI

134

(783

)

Other, net

 

12,939

   

11,527

 

Total revenues

 

405,164

   

362,600

 
 

Benefits and expenses:

Benefits and claims

102,385

90,977

Amortization of deferred policy acquisition costs

51,850

43,129

Sales commissions

73,704

66,643

Insurance expenses

37,621

33,130

Insurance commissions

4,899

4,147

Interest expense

7,127

7,173

Other operating expenses

 

52,736

   

47,189

 

Total benefits and expenses

 

330,322

   

292,388

 

Income before income taxes

74,842

70,212

Income taxes

 

22,772

   

25,036

 

Net income

$

52,070

 

$

45,176

 
 

Earnings per share:

Basic earnings per share

$

1.12

 

$

0.92

 

Diluted earnings per share

$

1.11

 

$

0.92

 
 

Shares used in computing earnings per share:

Basic

 

46,301

   

48,550

 

Diluted

 

46,374

   

48,574

 
 
 

PRIMERICA, INC. AND SUBSIDIARIES

Consolidated Adjusted Operating Results Reconciliation

(Unaudited – in thousands, except per share amounts)

             

Three months ended March 31,

2017

2016

% Change

Total revenues

$

405,164

$

362,600

12

%

Less: Realized investment gains (losses), including OTTI

 

134

   

(783

)

Adjusted operating revenues

$

405,030

 

$

363,383

 

11

%

 

Income before income taxes

$

74,842

$

70,212

7

%

Less: Realized investment gains (losses), including OTTI

 

134

   

(783

)

Adjusted operating income before income taxes

$

74,708

 

$

70,995

 

5

%

 

Net income

$

52,070

$

45,176

15

%

Less: Realized investment gains (losses), including OTTI

134

(783

)

Less: Tax impact of reconciling items

 

(41

)

 

279

 

Net adjusted operating income

$

51,977

 

$

45,680

 

14

%

 

Diluted earnings per share (1)

$

1.11

$

0.92

21

%

Less: Net after-tax impact of operating adjustments

 

0.00

   

(0.01

)

Diluted adjusted operating earnings per share (1)

$

1.11

 

$

0.93

 

19

%

 

(1)

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

 
 

TERM LIFE INSURANCE SEGMENT

Adjusted Premiums Reconciliation

(Unaudited – in thousands)

           

Three months ended March 31,

2017

2016

Direct premiums

$

620,379

$

589,244

Less: Premiums ceded to IPO coinsurers

 

312,982

   

321,494

 

Adjusted direct premiums

$

307,397

 

$

267,750

 
 

Ceded premiums

$

(398,077

)

$

(393,270

)

Less: Premiums ceded to IPO coinsurers

 

(312,982

)

 

(321,494

)

Other ceded premiums

$

(85,095

)

$

(71,776

)

 

Net premiums

$

222,302

 

$

195,974

 
 
 

CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT

Adjusted Operating Results Reconciliation

(Unaudited – in thousands)

       

Three months ended March 31,

2017

2016

Total revenues

$

30,706

$

31,586

Less: Realized investment gains (losses), including OTTI

 

134

   

(783

)

Adjusted operating revenues

$

30,572

 

$

32,369

 
 

Loss before income taxes

$

(11,299

)

$

(7,557

)

Less: Realized investment gains (losses), including OTTI

 

134

   

(783

)

Adjusted operating loss before income taxes

$

(11,433

)

$

(6,774

)

 
 

PRIMERICA, INC. AND SUBSIDIARIES

Adjusted Stockholders' Equity Reconciliation

(Unaudited – in thousands)

       

March 31, 2017

December 31, 2016

Stockholders' equity

$

1,246,498

$

1,221,374

Less: Unrealized net investment gains recorded

in stockholders' equity, net of income tax

 

47,479

 

42,791

Adjusted stockholders' equity

$

1,199,019

$

1,178,583