Primerica Reports Third Quarter 2020 Results

Rhea-AI Summary

Primerica, Inc. (NYSE: PRI) reported strong financial results for Q3 2020, with total revenues of $568.5 million, up 9% year-over-year. Net income rose 17% to $112.1 million, and earnings per diluted share increased 23% to $2.81. The company's return on equity (ROE) improved to 26.7% from 24.1%. Term life insurance policy sales surged 36% year-over-year, reflecting growing demand for protection products amid the pandemic. Despite pressures on investment products, the firm saw an 8% rise in average client asset values. Additionally, Primerica repurchased $41.5 million of common stock during the quarter.

Positive

• Total revenues increased by 9% to $568.5 million.
• Net income rose by 17% to $112.1 million.
• Earnings per diluted share increased by 23% to $2.81.
• Term life insurance policy sales surged by 36% year-over-year.
• Average client asset values increased 8% to $71.51 billion.
• Robust recruiting led to 101,861 new recruits, a 41% increase.

Negative

• Investment and Savings Products sales decreased by 1% year-over-year.
• Sales-based revenues declined by 5%.

DULUTH, Ga.--(BUSINESS WIRE)--Primerica, Inc. (NYSE: PRI) today announced financial results for the quarter ended September 30, 2020. Total revenues of $568.5 million increased 9% compared to the third quarter of 2019. Net income of $112.1 million increased 17%, while earnings per diluted share of $2.81 increased 23% compared to the same quarter last year. ROE increased to 26.7% during the quarter from 24.1% during the third quarter of 2019.

Compared to the third quarter of 2019, adjusted operating revenues of $566.7 million increased 9%, adjusted operating net income of $110.7 million increased 16% and diluted adjusted operating earnings per share of $2.78 increased 23%. ROAE increased to 28.0% during the quarter from 24.9% during the third quarter of 2019.

Third quarter results were positively impacted by strong demand for protection products, which has been on the rise since the onset of the COVID-19 pandemic. Record term life policy sales and persistency more than offset elevated claims experience during the quarter. Investment and Savings Products (ISP) sales remained under pressure, but market appreciation and lower levels of redemptions during the period drove an 8% increase in average client asset values year-over-year. The Company continued to invest in opportunities that will support and accelerate growth, including digital technologies and the recently launched mortgage distribution program. During the quarter, the Company repurchased $41.5 million of common stock for a year-to-date total of $218.1 million.

“Primerica continues to meet the strong demand for all of our financial solutions that has been aided by consumer sentiment during the COVID-19 pandemic. Protecting their families and pursuing our business opportunity have been a top priority for middle-income families, followed closely by investing for the future,” said Glenn Williams, Chief Executive Officer. “The adaptability of our sales force and the flexibility of our business model have positioned us to meet the ongoing needs of our clients.”

Third Quarter Distribution & Segment Results

Distribution Results
		Q3 2020				Q3 2019				% Change
Life-Licensed Sales Force (1)			136,306				130,871				4	%
Recruits			101,861				72,345				41	%
New Life-Licensed Representatives			13,138				12,682				4	%
Life Insurance Policies Issued			100,199				73,434				36	%
Life Productivity (2)			0.25				0.19			*
ISP Product Sales ($ billions)		$	1.84			$	1.86				(1	)%
Average Client Asset Values ($ billions)		$	71.51			$	66.00				8	%

__________________________
(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 2020				Q3 2019				% Change
		($ in thousands)
Adjusted Operating Revenues:
Term Life Insurance		$	357,799			$	314,527				14	%
Investment and Savings Products			176,337				173,153				2	%
Corporate and Other Distributed Products (1)			32,518				32,154				1	%
Total adjusted operating revenues (1)		$	566,654			$	519,834				9	%
Adjusted Operating Income (Loss) before income taxes:
Term Life Insurance		$	105,315			$	83,761				26	%
Investment and Savings Products			51,372				48,794				5	%
Corporate and Other Distributed Products (1)			(12,011	)			(8,235	)			46	%
Total adjusted operating income before income taxes (1)		$	144,676			$	124,320				16	%

__________________________
(1)	See the Non-GAAP Financial Measures section and the Adjusted Operating Results reconciliation tables at the end of this release for additional information.

Life Insurance Licensed Sales Force

Recruiting activity remained robust throughout the quarter, even as the business application fee discount ended on July 31. The Company saw favorable year-over-year comparisons in each of July through September, resulting in a total of 101,861 new recruits during the third quarter. The licensing process continues to be challenged due to various issues, including social distancing restrictions and processing backlogs; nonetheless, a total of 13,138 individuals received a new life license during the third quarter of 2020.

As of September 30, 2020, the Company had 136,306 independent life-licensed representatives, including 5,200 licenses that were issued on a temporary basis due to COVID-19. We expect approximately 40% of the COVID-19 temporarily licensed representatives to take the steps necessary to obtain a permanent license. The number of independent life-licensed representatives also includes 4,500 licenses where the state has extended the renewal date, 40% of which we estimate will ultimately be renewed.

Term Life Insurance

During the third quarter, the Company issued 100,199 new life insurance policies, a 36% increase year-over-year. Greater demand for protection products, along with a smooth transition to remote sales at the onset of COVID-19, led productivity during the quarter to 0.25 policies per life insurance licensed representative per month, well above our historical range of 0.18 to 0.22.

Revenues of $357.8 million increased 14% compared to the third quarter of 2019 and pre-tax income of $105.3 million increased 26% year-over-year. Continued strength in sales volume, along with a notable increase in persistency across all policy durations, led to a 14% increase in adjusted direct premiums. Strong policy persistency positively impacted DAC amortization by $22 million year-over-year and was partially offset by $8 million higher benefit reserve increases. Benefits and claims also included approximately $9 million of unfavorable claims experience during the third quarter of 2020, $8 million of which the Company estimates is related to COVID-19 deaths.

Investment and Savings Products

Total product sales during the quarter were $1.8 billion, or 1% lower than the third quarter of 2019 as investors began to see signs of market stabilization and resumed investing to meet long-term goals. Net client inflows were robust at $508 million during the quarter, a 173% increase year-over-year, driven by a 20% decline in gross redemptions. Average client asset values were $71.5 billion, increasing 8% year-over-year.

Revenues of $176.3 million during the quarter increased 2% compared to the same quarter in 2019 and pre-tax income of $51.4 million increased 5%. Sales-based revenues declined 5%, in line with revenue-generating product sales, as growth in sales of retail mutual funds were offset by continued weakness in annuity product sales. Asset-based revenues increased 7%, in line with the increase in average client asset values year-over-year. Sales and asset-based commission expenses generally moved in correlation with the associated revenues.

Net Investment Income and Invested Asset Portfolio

Consolidated net investment income of $23.0 million for the quarter was largely unchanged versus the prior year period as the $2.3 million impact of lower rates was offset by $1.7 million higher income due to the growth in the size of the invested asset portfolio. The invested asset portfolio ended the quarter with an unrealized gain of $135 million, up from $120 million as of June 30, 2020, and with an average credit rating of A.

Taxes

The third quarter effective income tax rate was 23.5% versus 23.1% in the prior year period.

Capital

During the third quarter, the Company repurchased 340,154 shares of common stock for $41.5 million, bringing the total through September 30 to $218.1 million. The Board of Directors has approved a dividend of $0.40 per share, payable on December 14, 2020, to stockholders of record on November 20, 2020.

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 about 425% and holding company liquidity was $251.1 million as of September 30, 2020.

Non-GAAP Financial Measures

In addition to reporting financial results in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company presents certain non-GAAP financial measures. Specifically, the Company presents 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 (the “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 credit impairments, for all periods presented. We exclude realized investment gains (losses), including credit impairments, 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. 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.

Our 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.

Earnings Webcast Information

Primerica will hold a webcast on Thursday, November 5, 2020 at 10:00 am EST, to discuss the quarter’s results. 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. This release and a detailed financial supplement will be posted on Primerica’s website.

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, major public health pandemics, epidemics or outbreaks, specifically the novel COVID-19 pandemic; our failure to continue to attract and license new recruits, retain sales representatives or license or maintain the licensing of sales representatives; new laws or regulations that could apply to our distribution model, which could require us to modify our distribution structure; changes to the independent contractor status of sales representatives; our or sales representatives’ violation of or non-compliance with laws and regulations; any failure to protect the confidentiality of client information; differences between our actual experience and our expectations regarding mortality or persistency as reflected in the pricing for our insurance policies; the occurrence of a catastrophic event; changes in federal, state and provincial legislation or regulation that affects our insurance, investment product, and mortgage businesses; our failure to meet regulatory capital ratios or other minimum capital and surplus requirements; a downgrade or potential downgrade in our insurance subsidiaries’ financial strength ratings or our senior debt ratings; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; 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 or a significant change in the competitive environment in which we operate; fluctuations in the performance of client assets under management; litigation and regulatory investigations and actions concerning us or sales representatives; heightened standards of conduct or more stringent licensing requirements for sales representatives; inadequate policies and procedures regarding suitability review of client transactions; the failure of, or legal challenges to, the support tools we provide to the sales force; the failure of our information technology systems, breach of our information security, failure of our business continuity plan or the loss of the Internet; the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio; incorrectly valuing our investments; changes in accounting standards may impact how we record and report our financial condition and results of operations; economic down cycles that impact our business, financial condition and results of operations; 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; the loss of key personnel or sales force leaders; and fluctuations in the market price of our common stock or 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 provider of financial services to middle-income households in North America. Independent licensed representatives educate Primerica 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. We insured over 5 million lives and had approximately 2.5 million client investment accounts at December 31, 2019. Primerica, through its insurance company subsidiaries, was the #2 issuer of Term Life insurance coverage in North America in 2019. Primerica stock is included in the S&P MidCap 400 and the Russell 1000 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, 2020				December 31, 2019
		(In thousands)
Assets
Investments:
Fixed-maturity securities available-for-sale, at fair value		$	2,453,076			$	2,356,996
Fixed-maturity security held-to-maturity, at amortized cost			1,323,740				1,184,370
Equity securities, at fair value			33,856				40,684
Trading securities, at fair value			13,470				43,233
Policy loans			30,605				32,927
Total investments			3,854,747				3,658,210
Cash and cash equivalents			330,877				256,876
Accrued investment income			18,448				17,361
Reinsurance recoverables			4,229,088				4,169,823
Deferred policy acquisition costs, net			2,532,409				2,325,750
Agent balances, due premiums and other receivables			280,915				227,100
Intangible assets, net			45,275				45,275
Income taxes			72,707				70,492
Operating lease right-of-use assets			47,685				47,265
Other assets			420,051				384,634
Separate account assets			2,468,328				2,485,745
Total assets		$	14,300,530			$	13,688,531
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefits		$	6,664,061			$	6,446,569
Unearned and advance premiums			18,308				15,470
Policy claims and other benefits payable			467,609				339,954
Other policyholders' funds			425,537				388,663
Notes payable			374,320				374,037
Surplus note			1,323,146				1,183,728
Income taxes			216,640				209,221
Operating lease liabilities			53,889				53,487
Other liabilities			519,363				510,443
Payable under securities lending			48,883				28,723
Separate account liabilities			2,468,328				2,485,745
Total liabilities			12,580,084				12,036,040
Stockholders' equity:
Common stock			394				412
Paid-in capital			-				-
Retained earnings			1,629,114				1,593,281
Accumulated other comprehensive income (loss), net of income tax			90,938				58,798
Total stockholders' equity			1,720,446				1,652,491
Total liabilities and stockholders' equity		$	14,300,530			$	13,688,531

PRIMERICA, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
		Three months ended September 30,
		2020				2019
		(In thousands, except per-share amounts)
Revenues:
Direct premiums		$	736,606			$	692,258
Ceded premiums			(393,716	)			(388,982	)
Net premiums			342,890				303,276
Commissions and fees			185,302				179,719
Net investment income			22,953				22,675
Realized investment gains (losses)			642				285
Other, net			16,674				14,698
Total revenues			568,461				520,653
Benefits and expenses:
Benefits and claims			160,166				128,684
Amortization of deferred policy acquisition costs			47,491				63,883
Sales commissions			91,950				89,061
Insurance expenses			46,109				44,854
Insurance commissions			9,694				6,980
Interest expense			7,221				7,209
Other operating expenses			59,347				54,843
Total benefits and expenses			421,978				395,514
Income before income taxes			146,483				125,139
Income taxes			34,382				28,916
Net income		$	112,101			$	96,223
Earnings per share:
Basic earnings per share		$	2.82			$	2.28
Diluted earnings per share		$	2.81			$	2.28
Weighted-average shares used in computing earnings per share:
Basic			39,588				41,964
Diluted			39,710				42,100

PRIMERICA, INC. AND SUBSIDIARIES
Consolidated Adjusted Operating Results Reconciliation
(Unaudited – in thousands, except per share amounts)
		Three months ended September 30,
		2020				2019				% Change
Total revenues		$	568,461			$	520,653				9	%
Less: Realized investment gains (losses)			642				285
Less: 10% deposit asset MTM included in NII			1,165				534
Adjusted operating revenues		$	566,654			$	519,834				9	%
Income before income taxes		$	146,483			$	125,139				17	%
Less: Realized investment gains (losses)			642				285
Less: 10% deposit asset MTM included in NII			1,165				534
Adjusted operating income before income taxes		$	144,676			$	124,320				16	%
Net income		$	112,101			$	96,223				17	%
Less: Realized investment gains (losses)			642				285
Less: 10% deposit asset MTM included in NII			1,165				534
Less: Tax impact of preceding items			(424	)			(189	)
Adjusted net operating income		$	110,718			$	95,593				16	%
Diluted earnings per share (1)		$	2.81			$	2.28				23	%
Less: Net after-tax impact of operating adjustments			0.03				0.02
Diluted adjusted operating earnings per share (1)		$	2.78			$	2.26				23	%

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(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 September 30,
		2020				2019				% Change
Direct premiums		$	730,273			$	685,539				7	%
Less: Premiums ceded to IPO coinsurers			254,938				267,856
Adjusted direct premiums		$	475,335			$	417,683				14	%
Ceded premiums		$	(392,004	)		$	(387,120	)
Less: Premiums ceded to IPO coinsurers			(254,938	)			(267,856	)
Other ceded premiums		$	(137,066	)		$	(119,264	)
Net premiums		$	338,269			$	298,419				13	%

CORPORATE AND OTHER DISTRIBUTED PRODUCTS SEGMENT
Adjusted Operating Results Reconciliation
(Unaudited – in thousands)
		Three months ended September 30,
		2020				2019				% Change
Total revenues		$	34,325			$	32,973				4	%
Less: Realized investment gains (losses)			642				285
Less: 10% deposit asset MTM included in NII			1,165				534
Adjusted operating revenues		$	32,518			$	32,154				1	%
Loss before income taxes		$	(10,204	)		$	(7,416	)			38	%
Less: Realized investment gains (losses)			642				285
Less: 10% deposit asset MTM included in NII			1,165				534
Adjusted operating loss before income taxes		$	(12,011	)		$	(8,235	)			46	%
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PRIMERICA, INC. AND SUBSIDIARIES
Adjusted Stockholders' Equity Reconciliation
(Unaudited – in thousands)
		September 30, 2020				December 31, 2019				% Change
Stockholders' equity		$	1,720,446			$	1,652,491				4	%
Less: Unrealized net investment gains (losses) recorded in stockholders' equity, net of income tax			105,758				64,563
Adjusted stockholders' equity		$	1,614,688			$	1,587,928				2	%