Primerica Reports Q2 2015 – Revenues Up 6% To $350.3 Million

 

Primerica, Inc. (NYSE: PRI) recently announced today financial results for the quarter ended June 30, 2015. Total revenues were $350.9 million in the second quarter of 2015 and net income was $49.2 million, or $0.94 per diluted share.

In the second quarter operating revenues increased by 6% to $350.3 million compared with $330.3 million in the prior year period. Strong operating results were driven by growth in the Term Life segment including 14% growth in life insurance policies issued and a 10% increase in net premiums. The Investment and Savings Products segment continued to perform well with a 9% increase in product sales and 7% growth in average client asset values year-over-year.

Operating results reflect higher than historically incurred claims in the current quarter whereas incurred claims were lower than historical levels in the prior year period. Net investment income continues to be modestly impacted by lower yields on invested assets and ongoing capital deployment. The comparison of year-over-year results was also negatively impacted by the declining Canadian dollar value which reduced operating revenues by approximately $7.5 million and net operating income by approximately $1.5 million.

While net operating income of $48.8 million was consistent with the prior year period, net operating income per diluted share increased 7% to $0.93 reflecting ongoing return of capital to stockholders through share repurchases. ROAE expanded to 17.0% on an operating basis versus 16.3% in the second quarter of 2014.

Glenn Williams, Chief Executive Officer said, “Solid core performance across business segments combined with active capital deployment drove growth in operating EPS and ROAE versus the second quarter a year ago. Our ongoing efforts to drive organic growth resulted in a 5% increase in the size of our life insurance licensed sales force reflecting 15% growth in new representatives obtaining a life insurance license year-over-year. In the second quarter, Term Life issued polices increased 14% and Investment and Savings Products continued to experience record setting sales, up 9% compared with the year ago period. The excitement generated by the incentives, technology and product enhancements launched at our July convention should continue to generate growth in the second half of 2015.”

Distribution Results

• Primerica’s biennial convention at the Georgia Dome in July was attended by approximately 40,000 people from the United States, Canada and Puerto Rico. Sales representatives attended workshops, exhibits and general sessions where they received training and learned about product enhancements and technology initiatives in order to drive growth in the second half of 2015 and beyond.

• The size of our life-licensed sales force increased 5% to 101,008 at June 30, 2015 compared with 96,596 at June 30, 2014, and increased 3% from 98,145 at March 31, 2015. In the second quarter, recruiting of new representatives increased 20% versus the year ago quarter, reflecting continued positive momentum in the business as well as extensive competitions to receive recognition in the Georgia Dome at the convention. Recruiting growth in recent periods led to 15% growth in new life licensed representatives compared with the prior year period. On a sequential quarter basis, new life insurance licenses increased 39% compared with the seasonally lower first quarter and recruiting of new representatives increased 13%.
• In the second quarter, term life insurance policies issued grew 14% to 68,097 compared with the second quarter of 2014. Productivity in the quarter of 0.23 policies per life licensed representative per month was higher than 0.21 in the prior year quarter and above the range of historical productivity. Productivity was driven by building on the momentum generated in the first quarter and complemented by the recognition programs and technology enhancements leading up to our convention. On a sequential quarter basis, term life insurance policies issued increased 22% compared with the first quarter of 2015, reflecting typical seasonality as well as growth in productivity and the size of the life insurance licensed sales force in the second quarter.
• Investment and Savings Products sales in the second quarter of $1.57 billion, up 9% compared with the second quarter a year ago, marked the highest ISP sales quarter in the company’s history. These results primarily reflect strong sales of retail mutual funds, variable annuities and Canadian segregated funds. On a sequential quarter basis, total ISP sales increased 3% versus the strong sales in the first quarter of 2015. Client asset values increased 3% to $49.37 billion at June 30, 2015 relative to a year ago and were consistent with the end of the first quarter.

Term Life Insurance. In the second quarter of 2015, Term Life operating revenues increased 9% to $201.4 million. The growth was driven by a 10% increase in net premiums compared with the second quarter of 2014. Additionally, allocated net investment income increased 8% with growth from the level of assets required by the segment partially offset by lower yield on invested assets. Term Life operating income before income taxes increased 4% to $57.3 million versus the prior year period and reflected higher benefits and claims, which outpaced growth in net premiums. Incurred claims for the current quarter were approximately $1 million above historical levels compared to prior year claims that were approximately $2 million below historical levels. DAC amortization grew in line with net premiums, as persistency was consistent with the prior year period. Insurance expenses increased 5% year-over-year largely due to growth in the business and the run-off of Citi expense allowances.

On a sequential quarter basis, operating income before income taxes increased 20% reflecting seasonally higher persistency in the second quarter and elevated expenses in the first quarter related to the accelerated retirement vesting of equity awards. These were partially offset by higher incurred claims in the second quarter. The higher seasonal persistency resulted in lower DAC amortization partially offset by higher reserve increases versus the prior quarter.

Investment and Savings Products. In the second quarter, ISP operating revenues increased 5% to $135.1 million and operating income before income taxes increased 5% to $37.7 million compared with the year ago period. Results reflect a 7% increase in revenue generating product sales and 7% growth in average client asset values. Account-based revenue increased 10% year-over-year reflecting the addition of a mutual fund provider on our record keeping platform. Weaker Canadian segregated fund market performance led to a slight acceleration of DAC amortization in the second quarter, whereas DAC amortization in the prior year period was positively impacted by strong market performance.

Sequentially, operating income before income taxes increased 8% compared with the first quarter due to growth in product sales and client asset values. Strong Canadian market performance in the first quarter led to lower DAC amortization in that period. Other operating expenses were lower in the second quarter primarily due to higher expenses related to the accelerated retirement vesting of equity awards in the first quarter of 2015.

Corporate and Other Distributed Products. Operating revenues were $13.8 million, and operating losses before income taxes grew by $2.6 million to $18.8 million compared with the second quarter of 2014. Net investment income allocated to this segment continues to decline as Term Life required assets grow, excess capital is deployed and the yield on invested assets remains depressed. Also impacting the year–over-year decrease in investment income was a lower return on the deposit asset backing a reinsurance agreement as interest rates increased during the quarter. Insurance and other operating expenses were modestly lower in the current year than in the prior year period.

Taxes

The effective income tax rate for the second quarter of 2015 was 36.0%, which was higher than both the prior year period and the first quarter of 2015 rates of 34.9% and 35.0%, respectively. The higher effective tax rate in the second quarter was driven by an increase in the estimated portion of current earnings generated by the Canadian subsidiaries that may be repatriated to the U.S. in conjunction with our existing plan to deploy capital. These earnings are subject to a higher U.S. corporate tax rate. Going forward, we estimate that the impact of a higher portion of future Canadian earnings being subject to U.S. corporate taxes will increase our effective tax rate by approximately 40 basis points from where it would have been otherwise.

Capital and Liquidity

In conjunction with the acceleration of share repurchases announced on June 4, 2015, between April 1, 2015 and August 5, 2015 we repurchased $100.3 million, or 2.2 million shares, of Primerica common stock for a total of $139.0 million, or 2.9 million shares, repurchased year-to-date through August 5.

Primerica Life Insurance Company’s statutory risk-based capital (RBC) ratio was estimated to be in excess of 430% as of June 30, 2015, well positioned to support existing operations and fund future growth. The estimated RBC ratio increased due to a higher level of reserves financed through an existing redundant reserve financing transaction. Our debt-to-capital ratio was 23.8% June 30, 2015.

As of June 30, 2015, our investments and cash totaled $1.97 billion, excluding the held-to-maturity asset held as part of a redundant reserve financing transaction. Our invested asset portfolio had a net unrealized gain of $73.0 million (net of unrealized losses of $22.4 million) at June 30, 2015, down from $103.0 million at March 31, 2015 due to a sharp increase in interest rates during the quarter.