Moody’s Affirms Primerica’s Ratings Upon Announced Acquisition of e-TeleQuote; Outlook Stable
Moody’s Investors Service – April 20, 2021
(New York) – Moody’s Investors Service (“Moody’s”) has affirmed the Baa1 senior debt rating of Primerica, Inc. and the A1 insurance financial strength (IFS) rating of its primary life insurance operating subsidiary, Primerica Life Insurance Company (PLIC). The affirmation follows the announcement of a transaction by which Primerica will acquire the operating subsidiaries of Etelequote Limited (e-TeleQuote), a fast growing broker focused on selling health products to seniors, especially Medicare Advantage. The outlook on the ratings is stable.
RATINGS RATIONALE
On April 19, 2021, Primerica announced its intention to acquire e-TeleQuote, with an 80% stake purchased upfront and the remaining to be acquired over a period of up to four years. Primerica will fund the transaction with $370 million in cash, a $125 million draw on its revolving facility, and a $15 million seller’s note. Primerica has suspended stock buybacks through the end of the year, and we do not expect the transaction to cause a reduction in PLIC’s capitalization level. The transaction is expected to close on July 1, subject to regulatory and other customary closing conditions.
Primerica’s ratings are based on the company’s strong financial profile, including conservative asset quality, sound risk adjusted capital under stress scenarios, and substantial free cash flow generated by unregulated entities that provide the company with solid cash flow coverage of its interest expense. Primerica also benefits from consistent profitability, driven in part by its ample technology and operating scale, and uncomplicated asset liability management, given its predictable and non-interest sensitive liability cash flows.
These strengths are offset by a relatively weak business profile for its rating level. To maintain new business revenues, Primerica’s large distribution system is dependent on significant and constant agent recruiting, which may be constrained in economic downturns. In addition, PLIC relies on a narrowly focused product portfolio of term life business that had produced sizeable regulatory “XXX” reserves, which are supported by third-party financing arrangements.
The acquisition of e-TeleQuote will bring execution risk and temporarily elevated leverage but should be another source of cash flows for Primerica and should create recruitment and referral opportunities for its sales force.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The following factors could lead to an upgrade of Primerica’s ratings:
1) financial and total leverage of less than 15%;
2) increased market share, without increasing the risk profile of the liabilities; and
3) increased diversification beyond term life and third-party mutual fund and annuity distribution.
Conversely, the following factors could lead to a downgrade of Primerica’s ratings:
1) adjusted financial leverage of greater than 25%;
2) earnings coverage below 6 times;
3) cash flow coverage less than 4 times;
4) NAIC RBC ratio (company action level) below 350%; or 5) return on capital of less than 5%.
RATING ACTIONS
The following ratings were affirmed:
Primerica, Inc. — senior unsecured debt at Baa1;
Primerica Life Insurance Company — insurance financial strength at A1.
The rating outlook on all entities is stable.
The principal methodology used in these ratings was Life Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187348 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Primerica is headquartered in Duluth, Georgia. As of December 31, 2020, Primerica reported total assets of $14.9 billion and total shareholders’ equity of $1.8 billion.
REGULATORY DISCLOSURES
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider’s credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
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