Primerica Reports Third Quarter 2018 Results

BusinessWire, November 6, 2018

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%, resp

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

%

 

 

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

)%

 

Life Insurance Licensed Sales ForceNew 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

654705