Primerica Reports Fourth Quarter 2018 Results, 2019 Share Repurchase Authorization and Increase in Stockholder Dividend

Business Wire, February 07, 2019

Life insurance licensed representatives increase 4% to 130,736

Term Life net premiums grow 11%

Investment and Savings Products sales increase 8%

Net earnings per diluted share (EPS) of $1.99; return on stockholders’ equity (ROE) of 23.8%

Adjusted operating EPS of $2.01; adjusted net operating income return on adjusted stockholders’ equity (ROAE) of 24.0%

Board of Directors approves share repurchase program totaling $275 million; $225 million in repurchases expected in 2019

Board of Directors approves 36% increase in dividends to $0.34 per share, payable March 15, 2019

Primerica, Inc. (NYSE: PRI) today announced financial results for the fourth quarter and year ended December 31, 2018. Total revenues during the quarter of $487.3 million increased 10% compared to the same quarter in 2017. Net income during the quarter was $86.5 million, or $1.99 per diluted share, compared with net income of $168.4 million, or $3.72 per diluted share, during the fourth quarter of 2017. The fourth quarter of 2017 included a tax benefit of $95.5 million, or $2.11 per diluted share, to recognize the transition effect of the Tax Cuts and Jobs Act of 2017 (Tax Reform). ROE for the fourth quarter of 2018 was 23.8%.

Adjusted operating revenues were $488.7 million, increasing 11% compared to the fourth quarter of 2017. Adjusted net operating income was $87.6 million and adjusted operating EPS was $2.01, increasing $15.4 million, or $0.41 per diluted share, respectively, year-over-year largely driven by a lower corporate tax rate in 2018. During the fourth quarter of 2018, the full-year tax expense related to the Global Intangible Low-Taxed Income (GILTI) component of Tax Reform was reduced from approximately $4 million to $0.7 million based on regulations released by the Department of Treasury in November 2018. This adjustment resulted in a benefit of $0.07 per diluted share. ROAE for the fourth quarter of 2018 was 24.0%.

Results for both the quarter and the full year reflect solid Term Life and Investment and Savings Products (ISP) performance. Comparing the year ended December 31, 2018 to the prior year, net premiums increased 13%, average ISP client asset values increased 9% and ISP sales increased 14%. Financial results also reflect the benefit of a lower corporate tax rate due to Tax Reform. During 2018, the Company repurchased $210 million of common stock and paid quarterly dividends totaling $44 million because of strong cash flows generated by the business.

Additional 2018 production results include:

“In 2018, we delivered double-digit revenue growth and maintained our commitment to capital deployment,” said Glenn Williams, Chief Executive Officer. “Our sales force remains focused on our mission to help middle-income families achieve financial security. To support this effort, we continue to improve our products and technology to enhance the client experience and expand distribution capabilities for our representatives. We enter 2019 with a renewed level of energy and anticipation for success during a year that includes our biennial convention.”

 

Fourth Quarter Distribution & Segment Results

Distribution Results

 

 

 

 
Q4 2018

 

 

 
Q4 2017

 

 

%
Change

Life Licensed Sales Force (1)

130,658

126,121

4

%

Recruits

61,990

64,401

(4

)%

New Life-Licensed Representatives

11,052

11,902

(7

)%

Life Insurance Policies Issued

72,122

80,068

(10

)%

Life Productivity (2)

0.18

0.21

*

ISP Product Sales ($ billions)

$

1.74

$

1.60

8

%

Average Client Asset Values ($ billions)

$

61.01

$

59.91

2

%

 

(1)

End of period

(2)

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

*

Not calculated

 

 

Segment Results

 

 

 

 
Q4 2018

 

 

 
Q4 2017

 

 

%
Change

Adjusted Operating Revenues: (1)

Term Life Insurance

$

291,941

$

263,031

11

%

Investment and Savings Products

164,924

148,509

11

%

Corporate and Other Distributed Products

31,831

30,323

(4

)%

Total adjusted operating revenues (1)

$

488,696

$

441,863

11

%

 

Adjusted Operating Income (loss) before income taxes:(1)

Term Life Insurance

$

72,117

$

68,237

6

%

Investment and Savings Products

45,647

46,982

(3

)%

Corporate and Other Distributed Products

(8,471)

(8,209)

3

%

Total adjusted operating income before income taxes (1)

$

$109,293

$

$107,010

2

%

 

 

(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

At year-end, there were 130,736 licensed life insurance representatives, which reflected an increase of 4% compared to December 31, 2017. During the fourth quarter of 2018, both recruits and new life licenses were down slightly year-over-year, reflecting normal fluctuations in momentum.

Term Life Insurance

Revenues of $291.9 million during the fourth quarter increased 11% compared to the same quarter in 2017 and were driven by continued growth in net premiums. Persistency and benefits and claims levels were generally in line with the prior year’s fourth quarter, while insurance expenses increased $7.5 million. Approximately half of this increase was due to a premium and retaliatory tax benefit recorded in the fourth quarter of 2017 when Primerica Life Insurance Company changed its state of domicile. The remainder is attributable to supporting the growth of the business.

Term Life productivity for the quarter was 0.18 policies per life insurance licensed representative per month and remained within the historical range, although lower than recent levels. As a result, Term Life insurance policies issued declined 10% year-over-year.

Investment and Savings Products

Revenues of $164.9 million increased $16.4 million, or 11%, compared to the fourth quarter of 2017. Approximately $6 million of this amount reflects revisions to record-keeping platform contracts, which also resulted in a similar increase in operating expenses. The increase in sales-based revenues and expenses was higher than the related increase in revenue-generating product sales driven by continued strength in variable annuities and index annuities. The increase in asset-based revenues and expenses was due to continued growth in average client asset values, most notably in our managed accounts. During the quarter, average client asset values were $61.0 billion, increasing 2% compared to the prior year, and net client flows were $360 million. Canadian segregated fund DAC amortization increased $2.6 million year-over-year as markets were under pressure during the fourth quarter of 2018 in contrast to more favorable market conditions during the fourth quarter of 2017.

Corporate and Other Distributed Products

Adjusted operating revenues were $31.8 million and adjusted operating losses before income taxes were $8.5 million. Net investment income increased 5%, reflecting a larger invested asset portfolio partly offset by lower portfolio yields. Compared to the same quarter last year, expenses increased due to higher employee-related costs and other corporate growth initiatives.

Taxes

In the fourth quarter of 2018, the effective income tax rate was 19.8% During the fourth quarter, the full year tax expense related to the GILTI component of Tax Reform was reduced from $4 million to $0.7 million based on regulations released by the Department of Treasury in November. The full year 2019 operating effective income tax rate is expected to be relatively consistent with 2018 at approximately 23%.

Capital

Primerica has a strong balance sheet and continues to be well-capitalized to meet future needs. Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be approximately 440% as of December 31, 2018.

Primerica’s strong capital generation enabled the Company’s Board of Directors to authorize the repurchase of up to $275 million of its common stock through June 30, 2020 (including $65 million that remained under the previous share repurchase program as of December 31, 2018) and approve a 36% increase in stockholder dividends to $0.34 per share payable on March 15, 2019 to stockholders of record as of February 20, 2019. The Company expects to repurchase $225 million of its common stock during 2019.

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, adjusted net 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 coinsurance transactions) 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, adjusted net operating income, and diluted adjusted operating earnings per share exclude the impact of realized investment gains (losses) and fair value mark-to-market (MTM) investment adjustments , 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 2017, we excluded from adjusted net operating income and diluted adjusted operating earnings per share the one-time transition impact of provisional amounts recognized from Tax Reform to present meaningful and useful period-over-period comparisons that could be distorted by the historically infrequent tax law change. In 2018, we excluded from adjusted net operating income and diluted adjusted operating earnings per share the one-time transition impact of adjustments made to finalize the provisional amounts recognized from Tax Reform. 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 Company’s results as reported under GAAP. Reconciliations of GAAP to non-GAAP financial measures are attached to this release.

 

 

(1)

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

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.

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 Friday, February 8, 2019 at 10:00 am EST, to discuss fourth 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, 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, 2018. 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

 

 

 

 
December 31, 2018

 

 

 
December 31, 2017

 

 

Assets

Investments:

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

$

2,069,635

$

1,927,842

Fixed-maturity security held-to-maturity,
atamortized cost

970,390

737,150

Short-term investments available-for-sale,
at fair value

8,171

-

Equity securities available-for-sale, at fair value

-

41,107

Equity securities, at fair value

37,679

-

Trading securities, at fair value

13,610

6,228

Policy loans

31,501

32,816

Total investments

3,130,986

2,745,143

Cash and cash equivalents

262,138

279,962

Accrued investment income

17,057

16,665

Reinsurance recoverables

4,141,569

4,205,173

Deferred policy acquisition costs, net

2,133,920

1,951,892

Agent balances, due premiums and other
receivables

265,258

229,522

Intangible assets, net

48,111

51,513

Income taxes

59,336

48,614

Other assets

341,172

359,347

Separate account assets

2,195,501

2,572,872

Total assets

$

12,595,048

$

12,460,703

 

Liabilities and Stockholders’ Equity

Liabilities:

Future policy benefits

$

6,168,157

$

5,954,524

Unearned and advance premiums

15,587

15,423

Policy claims and other benefits payable

313,862

307,401

Other policyholders’ funds

370,644

363,061

Notes payable

373,661

373,288

Surplus note

969,685

736,381

Income taxes

187,104

177,468

Other liabilities

486,772

451,398

Payable under securities lending

52,562

89,786

Separate account liabilities

2,195,501

2,572,872

Total liabilities

11,133,535

11,041,602

 

Stockholders’ equity:

Common stock

427

443

Paid-in capital

-

-

Retained earnings

1,489,520

1,375,090

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

(28,434)

43,568

Total stockholders’ equity

1,461,513

1,419,101

Total liabilities and stockholders’ equity

$

12,595,048

$

12,460,703

 

 

 

 

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

 

 

Three months ended December 31,

 

 

 

 
December 31, 2018

 

 

 
December 31, 2017

 

 

 

 

(In thousands, except per-share amounts)

Revenues:

Direct premiums

$

673,605

$

650,906

Ceded premiums

(392,290)

(397,318)

Net premiums

281,315

253,588

Commissions and fees

171,961

154,105

Net investment income

21,760

19,459

Realized investment gains (losses), including OTTI

(1,651)

1,079

Other, net

13,940

14,711

Total revenues

487,325

442,942

 

Benefits and expenses:

Benefits and claims

116,837

108,259

Amortization of deferred policy acquisition costs

66,184

56,304

Sales commissions

85,323

76,823

Insurance expenses

41,671

35,103

Insurance commissions

5,612

5,459

Interest expense

7,192

7,144

Other operating expenses

56,584

45,761

Total benefits and expenses

379,403

334,853

Income before income taxes

107,922

108,089

Income taxes

21,381

(60,354)

Net income

$

86,541

$

168,443

 

Earnings per share:

Basic earnings per share

$

1.99

$

3.73

Diluted earnings per share

$

1.99

$

3.72

 

Shares used in computing earnings per share:

Basic

43,180

44,809

Diluted

43,985

44,917

 

 

 

 

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

 

 

Three months ended December 31,

 

 

 

 
December 31, 2018

 

 

 
December 31, 2017

 

 

 

 

(In thousands, except per-share amounts)

Revenues:

Direct premiums

$

2,667,104

$

2,562,109

Ceded premiums

(1,581,164)

(1,600,771)

Net premiums

1,085,940

961,338

Commissions and fees

677,607

591,317

Net investment income

81,430

79,017

Realized investment gains (losses), including OTTI

(2,121)

1,339

Other, net

56,987

56,091

Total revenues

1,899,843

1,689,102

 

Benefits and expenses:

Benefits and claims

457,583

416,019

Amortization of deferred policy acquisition costs

239,730

209,399

Sales commissions

335,384

297,988

Insurance expenses

168,156

147,280

Insurance commissions

24,490

21,108

Interest expense

28,809

28,488

Other operating expenses

229,607

189,300

Total benefits and expenses

1,483,759

1,309,582

Income before income taxes

416,084

379,520

Income taxes

91,990

29,265

Net income

$

324,094

$

350,255

 

Earnings per share:

Basic earnings per share

$

7.35

$

7.63

Diluted earnings per share

$

7.33

$

7.61

 

Shares used in computing earnings per share:

Basic

43,854

45,598

Diluted

43,985

45,689

 

 

 

 

PRIMERICA, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income (Unaudited)

 

 

Three months ended December 31,

 

 

 

 
2018

 

 

 
2017

 

 

%
Change

 

 

 

 

(In thousands, except per-share amounts)

Total Revenues

$

487,325

$

442,942

10%

Less: Realized investment gains (losses),
including OTTI

(1,651)

1,079

Less: 10% deposit asset MTM included in net
investment income (NII)(1)

280

-

Commissions and fees

488,696

$

441,863

11%

 

Income before income taxes

$

107,922

$

108,089

*

Less: Realized investment gains (losses),
including OTTI

$

(1,651)

$

1,079

Less: 10% deposit asset MTM included in NII

280

-

Adjusted operating income before
income taxes

109,293

107,010

2%

 

Net income

$

86,541

$

168,443

(49%)

Less: Realized investment gains (losses),
including OTTI

(1,651)

1,079

Sales commissions

280

-

Insurance expenses

272

(350)

Insurance commissions

-

95,457

Adjusted net operating income

$

87,640

$

72,257

21%

 

Diluted earnings per share(2)

$

1.99

$

3.72

(47%)

Less: Net after-tax impact of operating
adjustments

(0.02)

2.12

Diluted adjusted operating earnings
per share

2.01

1.60

26%

 

 

(1)

The 10% deposit asset MTM during the year ended December 31, 2017 was not material, therefore,
non-GAAP financial measures for 2017 have not been recast for this adjustment.

(2)

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

*

Less than 1%

 

PRIMERICA, INC. AND SUBSIDIARIES

Consolidated Adjusted Operating Results Reconciliation

 

 

Three months ended December 31,

 

 

 

 
2018

 

 

 
2017

 

 

%
Change

 

 

 

 

(In thousands, except per-share amounts)

Total Revenues

$

1,899,843

$

1,689,102

12%

Less: Realized investment gains (losses),
including OTTI

(2,121)

1,339

Less: 10% deposit asset MTM included in net
investment income (NII)(1)

(1,680)

-

Adjusted operating revenues

$1,903,644

$

$1,687,763

13%

 

Income before income taxes

$

416,084

$

379,520

10%

Less: Realized investment gains (losses),
including OTTI

(2,121)

1,339

Less: 10% deposit asset MTM included in NII(1)

(1,680)

-

Adjusted operating income before
income taxes

$

419,885

$

378,181

11%

 

Net income

$

324,094

$

350,255

(7%)

Less: Realized investment gains (losses),
including OTTI

(2,121)

1,339

Less: 10% deposit asset MTM included in NII(1)

(1,680)

-

Less: Tax impact of preceding items

827

(434)

Less: Transition impact of tax reform

2,737

95,457

Adjusted net operating income

$

324,331

$

253,893

28%

 

Diluted earnings per share(2)

$

7.33

$

7.61

(4%)

Less: Net after-tax impact of operating
adjustments

0.00

2.09

Diluted adjusted operating earnings
per share

27.33

5.52

33%

 

 

(1)

The 10% deposit asset MTM during the year ended December 31, 2017 was not material, therefore,
non-GAAP financial measures for 2017 have not been recast for this adjustment.

(2)

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

 

TERM LIFE INSURANCE SEGMENT

Adjusted Premiums Reconciliation

 

 

Three months ended December 31,

 

 

 

 
2018

 

 

 
2017

 

 

 

 

(Unaudited – in thousands)

Direct premiums

$

2,667,104

$

2,562,109

Less: Premiums ceded to IPO coinsurers

(1,581,164)

(1,600,771)

Adjusted direct premiums

1,085,940

961,338

 

Ceded premiums

81,430

79,017

Less: Premiums ceded to IPO coinsurers

(2,121)

1,339

Other ceded premiums

56,987

56,091

Net premiums

1,899,843

1,689,102

 

 

CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT

Adjusted Operating Results Reconciliation

 

 

Three months ended December 31,

 

 

 

 
2018

 

 

 
2017

 

 

 

 

(Unaudited – in thousands)

Total revenues

$

2,667,104

$

2,562,109

Less: Realized investment gains (losses), including OTTI

(1,581,164)

(1,600,771)

Less: 10% deposit asset MTM included in NII(1)

1,085,940

961,338

Adjusted operating revenues

1,085,940

961,338

 

Loss before income taxes

81,430

79,017

Less: Realized investment gains (losses), including OTTI

(2,121)

1,339

Less: 10% deposit asset MTM included in NII(1)

56,987

56,091

Adjusted operating loss before income taxes

1,899,843

1,689,102

 

 

(1)

The 10% deposit asset MTM during the year ended December 31, 2017 was not material, therefore,
non-GAAP financial measures for 2017 have not been recast for this adjustment.

 

 

 

PRIMERICA, INC. AND SUBSIDIARIES

Adjusted Stockholders’ Equity Reconciliation

 

 

 

 
December 31, 2018

 

 

 
December 31, 2017

 

 

 

 

(Unaudited – in thousands)

Stockholders’ equity

$

2,667,104

$

2,562,109

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

(1,581,164)

(1,600,771)

Adjusted stockholders’ equity

1,085,940

961,338

 

 

 

CONTACTS

Investor Contact:
Nicole Russell
470-564-6663
Email: investorrelations@primerica.com

Media Contact:
Keith Hancock
470-564-6328
Email: Keith.Hancock@Primerica.com

 

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