Primerica, Inc. announced today financial results for the quarter ended September 30, 2013. Total revenues were $319.5 million in the third quarter of 2013 and net income was $43.2 million, or $0.78 per diluted share.
In the third quarter of 2013 operating revenues increased by 8% to $319.9 million compared with $295.2 million in the third quarter of 2012. Results were driven by strong Investment and Savings Products performance and growth in Term Life net premium offset by a lower invested asset base from share repurchases over the last 12 months. Net operating income per diluted share increased 9% year-over-year to $0.78 for the quarter ended September 30, 2013 and returns were strong with net income return on stockholders' equity of 14.8% (15.8% on a net operating income and adjusted stockholders' equity (ROAE) basis). Net operating income was $43.5 million in the third quarter of 2013 compared with $45.1 million in the year ago period as a result of higher operating expenses, including legal fees and expenses, and lower net investment income from a smaller invested asset base following capital deployment and certain prior year period specific income sources.
Rick Williams, Chairman of the Board and Co-Chief Executive Officer, said, Our solid, recurring income base coupled with strong Investment and Savings Product performance and share repurchases drove ROAE to 15.8% and net operating earnings per diluted share to increase by 9% in the third quarter. As we look to enhance shareholder value in the future, our unique distribution model and large underserved target market provides the opportunity for organic sales growth while our strong financial position allows for continued capital deployment.
John Addison, Chairman of Primerica Distribution and Co-Chief Executive Officer, said, We experienced growth in our life licensed sales force driven by 12% growth in new life licenses and an 8% increase in the recruiting of new representatives, year-over-year. Strength in our Investment and Savings Products business continued with a 14% increase in both sales and ending client asset values in the third quarter. Our goal is to build on this momentum by focusing on initiatives to grow our distribution capabilities and generate long-term growth.
- The size of our life-licensed sales force grew to 94,529 at September 30, 2013 from 91,506 at September 30, 2012 and 92,227 at June 30, 2013. In the third quarter, recruiting of new representatives increased 8% to 51,523 compared with the year ago period and was 2% higher than the second quarter of 2013. New life insurance licenses were 9,630 in the third quarter up 9% from the previous quarter and 12% from the prior year period. The percentage of license non-renewals and terminations in relation to the size of the sales force declined on both a prior year period and prior quarter basis.
- Term life insurance policies issued in the third quarter increased 1% compared with the prior year quarter and declined 6% from the second quarter of 2013. Productivity in the third quarter of .19X policies per life licensed representative per month remained consistent with historical ranges and declined from .21X in the historically higher second quarter of 2013. The average term premium per issued policy increased 4% compared with the third quarter of 2012.
- Year-over-year Investment and Savings Products sales grew 14% to $1.25 billion compared with third quarter of 2012, primarily reflecting strong retail mutual funds and variable annuity sales. Sequentially, ISP sales declined 5% compared with the IRA season in the second quarter of 2013. Client asset values increased 14% to $42.18 billion at September 30, 2013 relative to a year ago and were up 5% from the end of the second quarter, primarily reflecting market performance.
Primerica operates in two primary business segments: Term Life Insurance and Investment and Savings Products, and has a third segment, Corporate and Other Distributed Products. Results for the segments are shown below.
|Q3 2013||Q3 2012 (2)||% Change||Q3 2013||Q3 2012 (2)||% Change|
|Revenues:||($ in thousands)||($ in thousands)|
|Term Life Insurance||$||177,811||$||163,028||9%||$||177,811||$||163,028||9%|
|Investment and Savings Products||114,723||101,163||13%||114,723||101,163||13%|
|Corporate and Other Distributed Products||26,923||34,897||-23%||27,330||31,025||-12%|
|Income (loss) before income taxes:|
|Term Life Insurance||$||50,136||$||47,593||5%||$||50,136||$||47,593||5%|
|Investment and Savings Products||31,498||31,608||*||31,498||31,608||*|
|Corporate and Other Distributed Products||(15,080)||(8,645)||74%||(14,673)||(9,413)||56%|
|Total income before income taxes||$||66,554||$||70,556||-6%||$||66,961||$||69,788||-4%|
(1) See the Non-GAAP Financial Measures section and the segment Operating Results Reconciliations at the end of this release for additional information.
|(2) In the second quarter of 2013, Primerica began classifying the deposit asset underlying the 10% reinsurance agreement with Citigroup, Inc. (Citigroup), as well as its related mark-to-market adjustments, within the Corporate and Other Distributed Products segment instead of within the Term Life Insurance segment. As such, results for Q3 2012 include the reclassification of Net Investment Income from the Term Life Insurance Segment to the Corporate and Other Distributed Products Segment of $983. The change does not impact our consolidated financial statements.|
|* Less than 1%|
Term Life Insurance. In the third quarter of 2013, Term Life operating revenues increased 9% to $177.8 million and operating income before income taxes increased 5% to $50.1 million compared with the same period a year ago. Revenue growth was driven by an 11% increase in net premiums over the prior year period. Allocated net investment income remained flat year-over-year. The amount of net investment income allocated grew with required assets, but was offset by certain prior year period-specific items including the recovery of interest on previously defaulted bonds and an unusually high volume of called securities.
Total incurred claims were in-line with our historical experience and benefits and claims grew in-line with net premiums. Growth in DAC amortization was lower than net premium growth reflecting general improvement in policy persistency. Non-deferred commission expense continued the declining year-over-year trend consistent with changes in our incentive programs. The increase in insurances expenses largely reflects growth in premium-related expenses as well as an annual employee benefits accrual true-up in 2012 that was not necessary this year.
Sequentially, operating income before income taxes declined 3% reflecting lower persistency than the seasonally favorable second quarter and higher incurred claims partially offset by continued growth in net premiums compared with the second quarter of 2013.
Investment and Savings Products. In the third quarter, operating revenues increased 13% to $114.7 million and operating income before income taxes remained consistent compared with the third quarter of 2012. Results in the quarter reflect strong sales and higher average client asset values, offset by higher expenses including $2.1 million of legal fees and expenses associated with a series of arbitration hearings and court cases in Florida which impacted net operating earnings per diluted share by $0.02. In addition, Canadian segregated fund redemptions and market performance were in line with DAC amortization assumptions in the third quarter whereas the prior year period benefited from lower amortization expense.
Sequentially, operating income before income taxes increased 15% compared with the second quarter of 2013 primarily reflecting higher average client asset values, lower legal fees and expenses and lower Canadian segregated fund DAC amortization in the third quarter primarily due to negative market-related amortization adjustments in the second quarter.
Corporate and Other Distributed Products. Operating revenues of $27.3 million were 12% lower and operating losses before income taxes grew by $5.3 million compared with the third quarter of 2012. During the quarter, allocated net investment income declined primarily due to lower invested assets following capital deployment, growth in Term Life required assets and certain prior year period-specific net investment income items as described in Term Life above. In our New York subsidiary, benefits and claims increased as a result of increases in policy reserves for certain non-term life insurance products. Insurance expenses at our New York subsidiary decreased largely due to the release of certain state assessment accruals within our non-term life insurance business.
Our effective income tax rate for the third quarter of 2013 was 35.1% compared with 35.4% in the prior year period and 35.5% in the second quarter of 2013.
Capital and Liquidity
As of September 30, 2013, our investments and cash totaled $1.91 billion compared with $1.88 billion as of June 30, 2013. Our invested asset portfolio had a net unrealized gain of $112.9 million (net of unrealized losses of $14.0 million) at September 30, 2013, consistent with June 30, 2013.
Primerica Life Insurance Company's statutory risk-based capital (RBC) ratio was estimated to be in excess of 480% as of September 30, 2013, well positioned to support existing operations and fund future growth. Our debt-to-capital ratio was 23.9% September 30, 2013.
Non-GAAP Financial Measures
We report financial results in accordance with U.S. generally accepted accounting principles (GAAP). We also present operating revenues, operating income before income taxes, net operating income and adjusted stockholders' equity. Operating revenues, operating income before income taxes and net operating income exclude the impact of realized investment gains and losses for all periods presented. Operating income before income taxes and net operating income exclude the expense associated with our IPO-related equity awards for all periods presented. Adjusted stockholders' equity excludes the impact of net unrealized gains and losses on invested assets for all periods presented. 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 our financial 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 our core ongoing business. These measures have limitations, and investors should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. Reconciliations of non-GAAP to GAAP financial measures are attached to this release.
Earnings Webcast Information
Primerica will hold a webcast Thursday, November 7, 2013 at 10:00 am ET, 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.
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; our or our sales representatives' violation of or non-compliance with laws and regulations; incorrect assumptions used to price our insurance policies; the failure of our investment products to remain competitive with other investment options; 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; inadequate or unaffordable reinsurance or the failure of our reinsurers to perform their obligations; heightened standards of conduct or more stringent licensing requirements for our sales representatives; the inability of our subsidiaries to pay dividends or make distributions; the loss of key personnel; and general changes in economic and financial conditions, including the effects of credit deterioration and interest rate fluctuations on our invested asset portfolio. 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 distributor of financial products to middle income households in North America. Primerica representatives educate their Main Street 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. In addition, Primerica provides an entrepreneurial full or part-time business opportunity for individuals seeking to earn income by distributing the company's financial products. We insured more than 4 million lives and have over 2 million client investment accounts at December 31, 2012. 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.